Coyote Blog: ‘Low Oil Prices and Prosperity’

(Low oil prices = good for consumer seemed a no-brainer from the beginning of the drop, but TV news people reported "low price bad for country" with no comment or thought.)

“January 6, 2015, 10:19 am

“I continue to see reports about how bad falling oil prices are for the economy -- most recently some layoffs in the steel industry were blamed on the looming drop (or crash) in oil drilling and exploration driven by substantially lower prices.

“I find this exasperating, a classic seen-and-unseen type failure whose description goes back at least to the mid-19th century and Bastiat and essentially constituted most of Hazlitt's one lesson on economics. Yes, very visibly, relatively high-paid steel and oil workers are going to lose their jobs. They will have less money to spend. The oil industry will have less capital spending.

“But the world will pay over a trillion dollars less this year for oil than it did last year (if current prices hold). That is a huge amount of money that can be spent on or invested in something else. Instead of just getting oil with those trillion dollars, we will still have our oil and a trillion dollars left over to spend. We may never know exactly who benefits, but those benefits are definitely there, somewhere. Just because they cannot be seen or portrayed in short visual anecdotes on the network news does not mean they don't exist.

“Ugh, this is just beyond frustrating. I would have bet that at least with oil people would have understood the unseen benefit, since we get so much media reportage and general angst when gas prices go up that people would be thrilled at their going down. But I guess not.

“I explained in simple terms why the world, mathematically, HAS to be better off with lower oil prices here.”

(Here is the explanation, short form)

“Before the price drop
• Oil companies have $1 trillion extra revenue
• Other producers have no extra revenue
• Consumers have 90 million barrels a day of oil

“After the price drop
• Oil companies have no extra revenue
• Other producers have $1 trillion extra revenue
• Consumers have 90 million barrels a day of oil AND $1 trillion of extra stuff (goods, service, savings, etc)

“The world in the second case is wealthier. And this is assuming all the people involved are private parties. In fact, much of the oil revenue drop comes out of the hands of value-destroying governments so that in fact the wealth increase in the price drop scenario is actually likely even greater than in this simplistic analysis.”

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