Gas is cheap these days and getting cheaper. Part of this year’s holiday cheer is that Americans can fill up their cars, trucks, and SUVs again without chocking their wallet as gas prices have fallen and continue to fall.
In 13 states you can now find gas for under $2 a gallon, and two weeks ago there was only one. That’s the rate at which gas prices are falling. According to online price tracker three states — Oklahoma, Louisiana and Ohio — have at least one station each selling regular gas for less than $1.90 a gallon. Alabama, Arizona, Colorado, Indiana, Mississippi, Missouri, Nebraska, New Mexico, Texas and Virginia all have gas for less than $2. The nationwide average is now $2.55 a gallon, the lowest it has been since October 2009.
That’s great news for shoppers who have more discretionary spending for Christmas presents or to pay down debt, or eat out for dinner. It also means, drivers of SUVs can pull their gas-guzzling vehicles out of their garage again and hit the road.
The reason for falling prices is all about supply and demand. Falling demand is driven by economic slowdown in Europe and Asia as well as more fuel efficient vehicles. At the same time, U.S. oil production has spiked. We are now #1 for crude production surpassing Saudi Arabia. Meanwhile OPEC oil producers refuse to cut production. All of that spells lower gas prices and more holiday cheer.
Beyond the holiday season, economists view the falling gas prices as a mini-tax cut for middle class families saving the average household as much as $750 annually.
The Wall Street Journal reports:
Falling gas prices will free up billions of dollars for consumers to spend next year—and the middle class will see most of the benefit.
Lower prices at the pump, down about 60 cents a gallon from a year ago, will have the equivalent effect of cutting taxes in the U.S. by between $100 billion and $125 billion, Goldman Sachs economists said Wednesday. Americans spent $370 billion on gasoline last year.
“As a share of total household spending, middle-income households spend the most on gasoline,” Goldman analysts wrote in a note to clients. “In other words, the drop in gasoline prices can be considered a middle class tax cut.”
The big question in the back of our minds is whether this downward spiral is a good thing for our economy?
Some economists are concerned about more troublesome forces at play such as sluggishness of the global economy. A weak global economy could hurt our economy by reducing exports, employment and spending. And lower prices aren’t good for suppliers including oil companies, oil-producing states, and oil-exporting countries.
We’ll have to wait out this new slide in gas prices with glee as we fill up our tanks.
One factor that is absent here is government. Government can’t manipulate prices by artificially holding them down or raising them and that’s a good thing. The market acts efficiently and will eventually correct itself, government need not intervene.