by Liam Benfer
Gas prices all over the nation are now less than two dollars per gallon. The price decrease is a result of increased supply and a lower demand for gasoline and oil.
“There has been kind of an explosion of supply. For example, because of hydraulic fracturing, or fracking, oil companies are now able to get oil in places, at least in the United States, that previously were unreachable, so that has created an increase in supply,” said Brad Andrew, professor of economics.
The current prices seem to be yielding positive results on a domestic, economic level. “(The lowered prices are) like a tax cut for a typical family,” said Andrew. “Someone who was spending 2,500 dollars a year on gasoline in the summer of 2014, six months later, may only be paying 1500 dollars per year. So it’s like an 80 or 90 dollar a month tax cut, which is really substantial to a typical family.”
The extent at which the prices for gas and oil have dropped have been causing fear of economic recession. “On the one hand, (the low gas prices are) very good for consumers,” said Emil Nagengast, professor of politics. “On the other hand, it’s the U.S. energy sector that has been really hit. Gas prices have fallen so far that it’s hitting the stock market in a way that people didn’t expect.”
Despite the impact on the stock market, the economy may remain stable. “It’s unlikely right now (that) you’d see a recession. In fact, the drop in gas prices would tend to have a net positive effect. When I say net positive, I mean, there are some industries that are hurt,” said Andrew. “For example, energy is hurt, and people who work in energy creation, drilling for oil, they’re not needed as much and there are lay offs in that industry.”
Another possible negative of these lowered prices is a decrease in the environmental consciousness that caused the prices to decline in the first place. “For people who want to move away from a fossil fuel based economy, towards more stable sources, the lower prices are actually a problem,” said Andrew. “They encourage people to actually use fossil fuels and to not use alternative fuels.”
Energy efficiency decreased the demand for gas, and with the increased oil supply allowed for a drop in gas prices. “Now (with the lowered prices), I’m doing what we’re not supposed to be doing, throwing more carbon out there and destroying the environment and so forth. Where as if it were more expensive, I’d go back to being more energy efficient,” said Nagengast.
According to Nagengast, the political implications of these lowered prices are also a concern. For countries who are dependent on oil revenue, they have lost over half of the money they are used to working with. “Imagine the U.S. government,” said Nagengast. “If Obama, right now, had to figure out what are we going to do in the next year, and I have 70% less money to spend than I had last year, there would be a revolution in the United States.”
“What happens in time with economic hardship? I mean serious economic hardship. People start becoming radicalized,” said Nagengast. “In Russia, that’s going to mean even more extreme nationalism, pushing Russia into more of a dangerous direction. In Nigeria, it means more poverty and hardship and probably even more support for Islamic radicalism.”
Although these are possibilities, international entities are attempting to help countries at risk of economic hardship. “The IMF and the World Bank and the International financial originations are trying to step in to stabilize these countries so that they don’t fall off a cliff and then who knows what will happen in terms of extreme unrest,” said Nagengast.
On an international level, speculations can be made as to what will happen; however, domestically, the price of gas is likely to rise again. “I don’t see that persisting because when the price of something falls,” said Andrew. “It encourages people to use more of it, so when the price of gas falls it brings about a feedback-effect, which encourages the price to rise again.”
Categories: Volume 97 Issue 7 News