The Problem with Falling Oil Prices

Falling oil prices are good for the US economy, right? I can fill up my tank for less, and the inflation rate won’t be quite so bonkers, right? James Hamilton on the dark side:

But really the key question for purposes of assessing the economic consequences of falling oil prices is, Why did oil prices fall? To the extent that it is due to the increased global oil production that we’ve been anticipating ([1], [2]), that is unambiguously good news for an oil importer like the United States. But I’m persuaded that another key cause of oil’s recent plunge has been economic weakness in Europe and Japan, which has meant both a stronger dollar and weaker global oil demand.

And weakness in global economic growth is a real threat to the U.S. economy. Exports are the one sector that seemed to keep the U.S. economy going in the second quarter. If you kick out the leg of a one-legged stool, prospects for stability are not too great.

One Comment

  1. What? You mean that an issue like this isn’t black/white, good/evil, on/off? But lower gas prices means everybody wins, just like when “we” win an Olympic medal, or a football game. Quit confusing me with this complexity thing…I want to feel good and you’re depriving me of my basic right to feel good (and have cheap gasoline).

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