Aren't lower gas prices supposed to help the economy?
Published February 17, 2016
Editorial by Burlington Times-News, February 16, 2016.
Did anyone believe we would see gasoline for sale in Burlington for as little as $1.50 a gallon again?
We didn’t see it coming.
Yet there it is, at least one station in Burlington was selling regular unleaded for $1.50 on Monday, according to Gasbuddy.com. A handful of others were in the same price range.
Now think back to the spring of 2012: Everyone’s talking about TV’s “Mad Men,” Mitt Romney is fending off Rick Santorum in the Republican primaries and a gallon of gasoline costs — oof! — more than $4.
Remember the pain of high gas prices? How long ago it seems. Another Romney challenger, Newt Gingrich, pledged that if elected he’d give Americans $2.50-a-gallon gasoline. People scoffed, but it’s a funny thing: Gingrich would have made good on his pledge, and more. Here in Alamance County we’re actually head of the nation. The U.S. average is $1.70.
Obviously, Americans don’t have President Gingrich to thank, or President Barack Obama, either. The price of oil, the major component in gasoline, is determined by complex, global forces of supply and demand beyond the direct control of any White House occupant. But the other funny thing about Gingrich’s dream is how unsatisfying it turned out to be: Now that we have cheap gas, we should feel a lot better than we do. While every visit to the pump produces a giddy feeling of savings, those extra dollars are not jolting the economy. Growth is anemic, consumers are cautious and markets are in the tank.
Maybe you feel it yourself: how filling up the car for $25 instead of $70 represents more a breather from managing other bills than an excuse to splurge. Economists disagree on what percentage of the savings at the pump is being spent rather than saved or used to pay down bills, but no one can dispute that the big picture looks weak and unsettled. Shouldn’t all that gas money have pumped up the economy?
John Williams, president of the Federal Reserve Bank of San Francisco, said that when the U.S. imported much of its petroleum, a big drop in oil prices acted like a fat tax cut. Instead of sending money to the Middle East, cash went into the pockets of consumers who could spend it on new refrigerators or dinners out. Then the U.S. went deeper into the energy business, fracking for oil to get the U.S. closer to energy independence. About one-quarter of the petroleum consumed by the United States is imported.
Sounds great, but the 70 percent plunge in oil prices since 2014 is killing the energy sector and putting pressure on banks that lent to it. Oil and gas companies are cutting investment, laying off workers and taking a chunk of GDP growth with them. At best, cheap oil now looks to be a wash: Any boost by consumer spending is offset by the energy recession.
Oil prices have tumbled for a number of reasons, including weakening demand from China and Saudi determination to keep pumping out supply, low prices or not. The U.S. economy is being affected, in part, because it had been feasting on a jobs-producing energy production boom here that has now been tempered.
It’s smart to be less dependent on foreign oil. That was Gingrich’s dream, and that’s what happened under the Obama administration. But in a global economy, opposing forces in trade and business can balance each other in broad, unexpected ways. As Michael Levi, an energy expert at the Council on Foreign Relations, told us: “The rise in U.S. oil production didn’t eliminate the U.S. relationship with the rest of the world. It changed it.”
And that’s OK. Even if cheap gas does no more than cushion against the energy recession, consider that a positive function of the globalized economy, acting as a hedge by balancing out wins and losses.
