On Monday, Rick Santorum raised the bar for high-fuel price hysteria.
“The housing bubble was caused because of a dramatic spike in energy prices that caused the housing bubble to burst,” Santorum told an audience in Colorado.
Well, fuel prices are on the rise again, and in defiance of the logic of the market, Republicans across the country want to hold President Obama and the Democrats to account. In Santorum’s scenario, Obama is risking yet another worldwide financial crisis by not drilling in ANWR or green lighting the Keystone XL oil pipeline.
Here’s what Dean Baker, who was miles ahead of most economists in giving early warnings about the housing bubble, said about Santorum’s theory.
“It doesn’t fit is the basic story. It doesn’t fit from the word go,” he told me by phone Tuesday. “[Housing] prices peaked in mid ‘06, dribbling downward, one percent a month by early ‘07 then to two percent a month by the end of ‘07.”
Energy prices, by contrast, “started climbing in late ‘07, but didn’t really go through the roof until late ‘08,” Baker said.
We put this in chart format, and it’s pretty clear that absent a time machine, the ‘08 fuel price spike couldn’t have caused the collapse of the housing bubble.
“Once you got to the peak, and things were going down rather than up, the die was cast,” Baker said. “The only question was the pace…. The prices were dependent on loans that no one would make in normal times. Once prices were going down, nobody was going to make the loans needed to support those market prices.”
Now once energy prices did start to climb, they could have quickened the pace of the housing collapse at the margin.
“Maybe [high energy prices] meant that interest rates were somewhat higher than they would have been,” Baker said. “Long term rates were still pretty low, even in ‘08. They might’ve been 10, 20 basis points lower. Would that have made a difference? Well, the higher the rate, the quicker the collapse. So I think you can trivially say that was a factor.”
That’s not a controversial view, nor is the view that a spike in oil prices can harm the economy. But did they, by taking money out of people’s hands, trigger the collapse of the housing bubble and thus lead to the financial crisis and great recession? No. On this issue, Santorum is full of - well - gas.
Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight, and the debt limit fight. He can be reached at firstname.lastname@example.org.