Professor Mark J. Perry's Blog for Economics and Finance
Link for KC.
Based on the drop in the national average price of gas from the peak of $4.12 per gallon in July to $2.17 currently (see chart below, click to enlarge), American consumers and businesses will save $277 billion on an annual basis from lower gas prices.
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
7 Comments:
Do the falling gas prices not signal that less than great times are ahead?
I may be in the dark here, but I have heard nothing of a massive increase in gasoline supply or drastic new alternative that makes gas less valuable.
It seems what is driving gas prices down is future expectations of a recession. If that's the case then these price decreases should be far from celebrated. Someone please tell me I'm wrong.
Boo hoo.
U.S. consumers will only send $400 billion overseas every year to terrorists instead of $700 billion. Poor terrorists... they're going to suffer now. Meanwhile, the bleeding continues.
Dr. Perry is showing the real economy is what's important, including the quantity and quality of assets and goods per capita. U.S. housing and autos are substantially cheaper compared to income (I suspect other big ticket items are also cheaper), while the unemployment rate even if it rises to 8% in a year is still below the 1981-82 or 1973-74 recessions, and roughly equal to the 1990-91 recession. The fall in gasoline prices is equal to a $277 billion tax cut (other commodity prices are much lower, including food).
A year ago both monetary and fiscal policies were restrictive. The Fed Funds Rate was at 5 1/4% for too long (from June 2006 to September 2007), while the budget deficit shrunk to $162 billion in 2007 (or slightly more than 1% of GDP), although the U.S. had wars in Iraq and Afghanistan, the War on Terror, and Homeland Security. Contractionary fiscal policy preceeded recent recessions under Carter, Bush Sr, and Clinton also.
Currently, both monetary and fiscal policies are both powerfully stimulative to spur domestic and foreign output.
Moreover, I may add, it would seem to be a paradox that a recession may raise U.S. living standards at even a steeper rate.
Americans won't save anything unless they don't spend. That's the problem too much unsurvivable debt with current income levels and NO frigging savings.
Good reason to short some over indebted oil production companies. Who knows maybe they can line up at the public trough and get them a bailout.
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