Why Cheap Gas Might Not Be Good For The U.S. Economy A drop in global oil prices saved U.S. drivers $100 billion last year. Good news, right? Not so, say some economists. The energy industry is now so big that cheap oil may actually hurt the economy.
NPR logo

Why Cheap Gas Might Not Be Good For The U.S. Economy

  • Download
  • <iframe src="https://www.npr.org/player/embed/464726409/464744488" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript
Why Cheap Gas Might Not Be Good For The U.S. Economy

Why Cheap Gas Might Not Be Good For The U.S. Economy

  • Download
  • <iframe src="https://www.npr.org/player/embed/464726409/464744488" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

AUDIE CORNISH, HOST:

One of those new agreements is about oil. The French company Total says it will buy crude from the National Iranian Oil Company. There's already a glut of oil on the market. Many Americans are filling their gas tanks for less than $2 a gallon these days. The government says overall, drivers saved $100 billion on gas last year. You might think that would be good for the U.S. economy. Actually, it might not be, as NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Can you fill it up with regular, please?

OK. I just pulled in to fill up my car with gas, and it's a-buck-75 a gallon, which is super awesome. Wait to minute. Or is it?

VIPIN ARORA: What I've been asking for the last couple years is, is it possible that lower oil prices could actually hurt the U.S. economy?

ARNOLD: That's Vipin Arora. He's an economist with the U.S. Energy Information Administration, and he's about to rain on our cheap gas parade. He says this is his research. It's not the government's official word on the matter. But he's finding that cheap gas might be bad for America. Now, just asking that question is...

ARORA: Completely the opposite of the way most of us have been trained to think about this and have thought about it for years. And I think the answer could be yes, that lower oil prices could actually hurt the U.S. economy.

ARNOLD: That's because drivers, of course, like cheap gas, but...

ARORA: The guy sitting on the oil rig in Texas doesn't really like cheap gas. That's really the problem. And then all the folks that are supplying them with materials and the hotels that have set up shop and the restaurants that have gone there...

ARNOLD: Arora analyzed government data, and he says what's changed is that the oil and gas industry as a share of GDP has about doubled in the past decade. And now that it's gotten so big, it's changed this basic equation about whether cheap gas overall is a good thing.

ARORA: The benefits to consumers could be around 140 billion from gasoline savings. But the losses on the other side due to lower production, less investment, less buildout of infrastructure could be around that amount. So we're kind of at a wash.

ARNOLD: This might help to explain why the economy still isn't exactly charging forward even with the stimulus of cheap energy. But Arora himself stresses that this question needs more study. The research firm Moody's Analytics says its analysis finds that cheap oil and gas are still a net positive, and plenty of experts remain in that camp. Philip Verleger is an economist and consultant who tracks energy markets.

PHILIP VERLEGER: The bottom line is the United States economy is much better off with low-price energy than it would be with high-price energy.

ARNOLD: But then why isn't the economy getting more of a boost? The government says the average household saved $700 last year on cheaper gas. But the Commerce Department also says 2015 had the weakest retail sales growth in six years. So why not more growth from that extra spending money? Philip Verleger...

VERLEGER: I think the mistake everybody makes when they say that there's been no impact from the low price of energy is to fail to sort of understand that the economy would be much worse off right now had we not had this decline in the price of oil.

ARNOLD: And then there's this question. Oil prices are down, but why?

JIM BIANCO: There's an old adage I've heard that the day that the price of oil falls, you might not like the reason.

ARNOLD: Jim Bianco is president of Bianco Research. He says a slowdown in China and elsewhere around the world is driving down the price of not just oil but other commodities, too - copper, aluminum. And some investors are worried that the global slowdown will hurt the U.S., too.

ARNOLD: The fear is it's part of a larger whole. You cannot look at it in a vacuum.

ARNOLD: But so far, there's not a lot of evidence that the U.S. is getting sucked into all that trouble abroad. Job growth in the U.S. remains pretty solid. The economic recovery here is continuing. And some analysts think we might actually see a bigger boost from cheaper energy later this year. Chris Arnold, NPR News.

Copyright © 2016 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.

NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.