The Bottom Line: Thoughts From a Student Economist Oil prices drop: good or bad?

Reubin Turner
Reubin Turner
Reubin Turner

By Reubin Turner

City Editor

The recent drop in gas prices has caused quite a stir within economic circles.

While many economists are busy analyzing the impact this will have on the economy, one thing is certain —consumers are certainly happy. The extra money that consumers have been able to spend, which Federal Reserve Chairwoman Janet Yellen said resembles a tax break, have had a tremendous impact on several sectors of the economy, especially the retail industry.

What exactly caused this sharp drop in gas prices? Contrary to popular belief, it was not the president (nor is he to be blamed for high gas prices). This is simply an application of the laws of supply and demand.

For the past few years, the production of oil, especially in America, has been relatively high. We would expect this, however, considering demand has been relatively high as well. One important factor that changed, however, was an economic downturn in Europe this past year, causing a decrease in foreign demand. Because production did not slow down when foreign demand decreased, there became an abundance of the commodity,  causing prices to drop.

Although this has put money into the pockets of many consumers, it is important to be aware of the dangers of deflation. Especially deflation for a commodity that brings a lot of revenue for the state of Texas.

First, workers in the oil field can expect to see a decrease in the demand for their labor, meaning shorter hours and layoffs for some. More importantly, both Texas and my native state of Oklahoma will face budget cuts as a result of the decreased revenue from falling oil prices.

These cuts will likely be seen, unfortunately, in areas of public education. As production slows down and becomes on par with demand, prices will start to rise again, meaning higher gas prices, but more money for the state of Texas.

It seems economics proves that age-old saying that you can’t have your cake and eat it too.