Tuesday, August 5, 2008

Beware of oil price decreases?

An article on CNNMoney.com warns of the downside of falling oil prices.
Oil prices are falling sharply, and that's good news. But not nearly as good as you might think.
The headline and opening paragraph suggest the falling energy prices may cause additional problems. A careful read of the article, however, reveals that a weakening economy and weakening demand are contributing to the price fall. In this sense, prices are an indicator of economic conditions but are not necessarily the cause of those conditions.

Moderating energy prices in and of themselves are unambiguously good for jobs, output, and household finances. The economy faces myriad other challenges and does not need the additional disruption of rising fuel prices.

The main "downsides" of falling prices have more to do with the environment, conservation, and the feasibility of alternatives. The high prices for oil, while painful to the pocketbook, have begun to prompt important and beneficial changes in behavior. Hopefully, we can lock in those gains with modestly lower prices.