Cheap gas is no boon, but we'll take it
Don’t know about you, but we could get used to filling up our gas tank for $23.
Did anyone believe we would see gasoline for sale around $1.60 a gallon again?
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 more than $4.
Remember the pain of high gas prices? Another Romney challenger, Newt Gingrich, pledged that if elected he’d give Americans gasoline for $2.50 a gallon. People scoffed, but it’s a funny thing: Gingrich would have made good on his pledge.
Obviously, Americans don’t have would-be 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. The other funny thing about Gingrich’s dream is how unsatisfying it turned out to be: Now that cheap gas is here, 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.
Filling up the car for $25 instead of $70, however, 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.
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 U.S. 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.
It’s smart to be less dependent on foreign oil; but even if the cheap gasoline prices do no more than cushion against the energy recession, we’ll take it.
Reprinted from the Jacksonville Daily News
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