Drill, Don’t Redistribute By Kevin A. Hassett
The Bear on Aug 26 2008 at 8:24 am | Filed under: Economy, Energy Policy
Why is consumer sentiment so low? As Democrats cater to dissatisfied voters with redistributive policy proposals, there may be an alternative explanation. Director of Economic Policy Studies Kevin Hassett discusses the relationship between high gas prices and the sour sentiment among American consumers. This analysis suggests that the Presidential candidate who can wield an effective plan to subdue gas prices may the one ahead in November.
Over the past two months, consumer sentiment has settled in at the lowest level in almost thirty years. The stark drop in sentiment is at odds with many other economic data points. Economists now believe, for example, that economic growth in the second quarter was around 2 percentage points, hardly a cause for deep depression. The unemployment rate hovers around 5.5 percent, about its postwar average.
What explains the low sentiment despite the moderate economy? Democrats and Barack Obama offer a populist story: While the economy as a whole has not done that poorly during the Bush years, the little guy has fallen farther and farther behind. Mr. Obama suggests that the weak sentiment is a call for a major change in economic policy. Americans yearn, the story goes, for massive new redistributions.
The attached chart suggests a stark and simple alternative story: high gasoline prices are killing the national mood.
Read more from American Enterprise Institute
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