Foisting uncertainty onto businesses, Biden risks his own reelection

Business hates uncertainty. When a business feels uncertain, that business waits to invest. Economic growth is thus retarded. A negative feedback loop unfolds. Today, business delays investment because of uncertainty about President Joe Biden’s policies on energy, the environment, and many other matters. The economy is reasonably healthy, but business investment would certainly be higher, and gasoline prices would be lower, if Biden were clear about his policies.

In 1980, former Federal Reserve Chairman Ben Bernanke wrote a seminal paper about uncertainty and business investment. Bernanke’s research demonstrated that businesses defer investment when they are uncertain about the future. Bernanke wrote that “uncertainty increases the value of waiting for new information, so, the current rate of investment is retarded.”

The economy of the United States is based on household consumption, which generates about 68% of total economic activity. Consumer confidence affects household consumption. Consumers are less confident when gasoline prices are climbing. Over the past four weeks, the average price of gasoline has increased by almost 7%. Forecasts indicate that gasoline prices will continue to rise and reach $4 a gallon by the July 4 holiday. Such a sharp increase would harm consumer confidence and could cause the current economic expansion to slow and perhaps slip into a recession. The Federal Reserve’s very restrictive monetary policy has caused interest rates on credit cards and vehicle loans to spike. Lower-income households are hurting. Much higher gasoline prices would further squeeze the consumer. 

Ironically, domestic oil producers say that oil prices are sufficiently high to justify drilling new wells in the shale oil basins of the U.S. On Wednesday, the Federal Reserve Bank of Dallas released its quarterly energy survey. Responding to the survey, shale oil drillers in the Permian Basin, the country’s most prolific oil field, said that the break-even rate for new wells was $65 a barrel. Now oil is trading at around $82 a barrel.

But new wells are not being drilled because of political and regulatory uncertainty about the Biden administration’s energy policies. As one oil executive put it to the Dallas Federal Reserve, “The decision to invest the immense amount of capital needed to provide these vital resources cannot be made if the current level of uncertainty isn’t changed.” The oil executives are concerned that, if reelected, Biden (through regulatory action) would make it uneconomical to produce oil in the U.S. There is substance to the fears. Biden has stated that he wants to eliminate the oil and gas industry.

Biden has already shocked the domestic natural gas industry by suspending new permits for liquified natural gas export terminals. That action is causing the U.S. to lose market share in the global energy market. The state of the economy and gasoline prices will matter in November. Biden knows that high gasoline prices will hurt his reelection chances. He is deterring Ukraine from attacking Russia’s oil assets.

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At the same time, however, he does nothing to reassure American oil executives that he will not strangle the domestic oil industry. Is Biden’s creeping dementia such that he does not understand that the public wants affordable gasoline prices and that, for the foreseeable future (and perhaps longer), electric vehicles are not a realistic alternative to gasoline-powered vehicles? 

In November, voters may issue a harsh verdict on that failure of understanding.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note.