As I pulled up to the gas pump the other day, I nearly dropped my pants (which actually would have been a sad sight to behold) as I noticed gasoline prices had dropped a whole $.40 cents since my last fill-up! Wow! As I was calculating my savings using the bad but free calculator app on my iPhone, my thoughts raced.
“Lower gas prices sure help my bank account, BUT like chocolate cake; when you eat it, it tastes yummy good – but eat too much of it, and it makes you fat!”
What are the lower gasoline and oil price effects on America? And why would dramatically lower gasoline prices be bad? Well, in the pseudo science world of economics, for every action there are reactions – of various degrees. And since gasoline comes from oil, oil prices must be way down – and they are! As of this writing, prices are around $55 a barrel, compared to over $100 a barrel just last year. Quite a drop in the price of such an important commodity.
Other than effecting our pocketbooks in a good way, what other things happen as the result of lower oil prices? Looking into my plastic crystal ball, also made of petrochemical polymers, I see;
- Increasing instability in major oil-producing countries like Russia, Venezuela, Libya, Iraq and Iran.
- Lower growth in the U.S. as a whole due to less oil and gas exploration and development (see note below)
- More discretionary money for consumers to save or spend
- Price deflation or very little inflation due to lower oil prices (oil is an ingredient in many things)
- Greater volatility in stock and bond markets (oil and gas companies make up a large part of these markets)
- Much lower growth and/or recessions in U.S. states and cities that heavily rely on the oil industry.
Will lower oil prices be good or bad? Going out on a limb, or a barrel in this case, such a dramatic decrease in the price of such an important commodity is not a good thing. Nations, economies, governments, people and pets (including economists) like stability and predictability. So with such a large decrease in the price of oil over a short period – this has and will cause instability in the U.S., the world and in things as yet unknown.
NOTE: Lower growth in the U.S. as a whole due to less oil and gas exploration and development. Though not well-known or recognized, a part of the U.S. recovery since 2008 has been due to the oil and gas industry. Economists do not agree on how much the oil and gas industry affects the overall U.S. GDP. Estimates range from a small amount to a very large amount. Though economists do generally agree that the steaks at Peter Lugers steakhouse in Brooklyn are some of the best in the country.