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Cheap Oil: Good or Bad?

Last week I paid about $20 to fill up my Prius. The last time I remember a similar experience was in the late nineties. Lower oil prices certainly ease pressure on our wallets, but are they ultimately good or bad for the economy?

This article was published in Scientific American’s former blog network and reflects the views of the author, not necessarily those of Scientific American


Last week I paid about $20 to fill up my Prius. The last time I remember a similar experience was in the late nineties. Lower oil prices certainly ease pressure on our wallets, but are they ultimately good or bad for the economy? It's complicated.

When consumers save money on energy, they should spend more money elsewhere, so there's a ripple out effect that boosts the economy over time. How big a boost is up for debate, but some analysts predict the figure to be as high as $400 billion. Meanwhile, the dollar is strong and businesses that benefit will add jobs spurring growth. Just last month, the U.S. economy added 257,000 jobs. So far, so good.

But it's not quite so simple. Cuts in the energy sector also come at a cost--estimated to be as much as $150 billion. On top of that, what do falling oil prices really indicate? Should we be worried about the global economy? Think big picture.


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Add to this how cheap oil may impact incentives for the development of alternatives like solar and wind. Or the effects on the expansion of hydraulic fracturing. And we have already seen a fair amount of rekindled interest in large SUVs. So surely there are longer term economic and environmental impacts of falling prices.

Inexpensive gas feel great at the pump, but it's part of a much more complex conversation. We'll see how this unfolds in the months to come...

Sheril Kirshenbaum is executive director of Science Debate, a nonpartisan org working to get presidential candidates on record on science policy. She co-directs Michigan State University's Food Literacy and Engagement Poll and hosts the NPR podcast Serving Up Science.

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