This Is Why the Oil-Price Crash Will Maul the US Economy | Wolf Street.
The plunge in the price of oil that began in July acts like a tax cut, it is said, and will boost spending by consumers and businesses, and thus goose the US economy. Among the voices propagating this view is the UBS macro strategy team. It found that each $10-per-barrel drop in the price of oil would goose US GDP by 0.1%. If the average price in 2015 stays where it is today – down nearly $50 per barrel since June – you can expect a boost to GDP of 0.5%, which would be big for the otherwise crummy US recovery.
I don’t know what these good folks have been smoking, but I want some of it too.
The idea is this: if consumers and businesses spend less on gasoline, heating oil, diesel, jet fuel, and other energy-related products, they would feel like they just got a tax cut and would spend this money thus saved on other things. And somehow this wouldincrease overall spending, and thus GDP.
Alas, the money spent on energy products is already included in GDP either under consumer spending or business spending. Any cut in prices will actually lower GDP by that amount. Now the hope is that consumers and businesses will spend all of this saved money on other things.
