JLF’s Roy Cordato takes on the media narrative that has emerged over the past several weeks as lower gas prices have taken hold — that lower gas prices are bad for us. Actually, no.
Gasoline and other petroleum-based fuels are an input into every production process everywhere, some more than others. For example, agriculture — from planting and harvesting to feeding and maintaining livestock to transporting agricultural products, sometimes from one part of the country to the other or around the world — is fuel intensive. The USDA describes agricultural production as “sensitive to energy costs” and notes that “higher energy-related production costs…generally lower agricultural output, raise prices of agricultural products, and reduce farm income.” Of course, this means that the opposite is also true. Lower energy costs will result in greater output, higher farm income, and lower food prices. This is welcome news in an inflationary environment where food prices have been increasing at over twice the inflation rate in general.
This relationship between lower oil prices, increased productivity and lower prices is not just true of agriculture but of industries across the economy. And it is not simply about lower gasoline and energy costs but the cost of all petroleum based products, many of which are an integral part of production activities — plastics and chemicals immediately come to mind. The lower the costs of these inputs, the lower the costs of production across the board, the greater the increase in output and job growth, and the lower the prices for consumers.
So while the argument that people are better off because lower gas prices leave them with more to spend on other things is true as far as it goes, the fact is that those other things will also likely cost less because of the supply side effects of lower oil prices generally.
But if the only analysis of cheaper oil and gasoline that a person is exposed to comes from the mainstream media, he would think that these lower gas prices are causing nothing but misery. Suddenly, a media that, over the years, has assumed the oil industry had the power to raise prices at will and was earning exorbitant profits (which has never been true) suddenly seems to believe that as goes big oil, so goes America. CNN.com has this story titled “Cheap Oil is Killing My Job” about job loss in the industry. Included in the article is this plea to readers: “Are you worried about losing your job because of the oil meltdown? Share your story with CNNMoney!” And back in November, when the price of gas was just beginning its fall, The Washington Post lead with the headline “Why $3.00 a gallon gas is a bad sign for the global economy.”