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Oil

Oil prices have plunged.  Somehow this is cause for concern for the leaders who guide our economy, and I cannot for the life of me fathom why.  Sure, there are regions of the United States whose economies depend a lot upon energy.  Texas and North Dakota come to mind immediately although the former has a reasonably diversified economy and the latter’s oil economy has mostly created jobs for temporary immigrants to the state.  There seems to be a belief that the collapse in oil prices will bring about deflation, which is dreaded by Keynsian thinkers who believe that diminishing prices of things will cause buyers to delay their purchases indefinitely – waiting for tomorrow’s likely lower prices – and thus cost the economy sales, profits, and jobs.  For non-Keynesian thinkers like me there is a belief that it is lower prices that actually inspire folks to make purchases.  And, lower prices also allow people to buy more things.


Lower oil prices will not retard economic activity.  It will stimulate it.  People commuting to work will use their newfound savings to go to the movies with their kids, buy an extra Christmas gift, go out to a restaurant.  There are approximately 1 million jobs in the U.S. oil and gas industry.  There are about 155 million others in the U.S. labor force.  Not to be insensitive to the oil workers, but lower oil prices seem, on balance, to be beneficial to the United States.

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