Typically, an oil price decline is like a tax cut, leaving more money in consumers’ pockets to spend elsewhere. That should spur growth. But since the shale boom, the United States is not only a leading oil consumer but also a leading producer. So lower oil prices also spell smaller revenue for some of our energy companies. And our producers have particularly high costs, so further investment in them may become unprofitable if prices fall too far.
Pointer from Tyler Cowen, who offers some possible scenarios, nearly all of them pessimistic. I’ll try to be more optimistic in general, but from a PSST perspective, the oil price decline might be a small net loss for the U.S. That is, the disruption to the economies in the oil-boom states may more than offset any improvements elsewhere.
Some optimistic possibilities:
1. The geopolitical outlook may brighten. Lower oil prices constrain the influence of Venezuela, Russia, and Iran.
2. Islamic militancy might decline rapidly. Some stories suggest that the proportion of Muslims becoming turned off by the militants is rising.
3. There may be a growing realization in the United States that medical services paid for with other people’s money are prohibitively expensive. See Megan McArdle’s post-mortem on single-payer health care in Vermont.
4. As of now, I would say that virtual reality headgear is in the pre-early-adopter phase. By the end of the year, it may be in the early-adopter phase, poised for spectacular growth over the next decade.
5. The attention paid to Piketty will taper off, and we will see a better crop of nonfiction books.
6. I also predict that President Obama will recover his popularity among Democrats. They will find that, as in 2008, the prospect of Hillary Clinton will enhance the appeal of Barack Obama.