Thursday, March 3, 2011

High Oil Prices Could Harm the Economy

The turmoil going on in the Middle East right now has caused oil and gasoline prices to increase. However, Federal Reserve Chairman Ben Bernanke said he and a majority of his Fed colleagues believe the situation won't lead to out-of-control inflation. He believes that workers don’t have much power because the job market is still weak. So they cannot demand big pay increases. Many factories and other companies are operating well below capacity because demand is low. Bernanke said that those forces will prevent inflation from taking off.

Bernanke said the increases so far "while a problem for many people, don't pose a significant risk to the recovery or to overall inflation." I think that this is assuming though that this is a temporary rise in oil prices. I am sure he believes that a prolonged rise in oil prices would be a threat to our economy.

Right now I think oil tankers believe that it's probably not a good idea to go into port in Libya. It is risky because if things don’t improve all exports could be shut off. The process of shipping could become very difficult. All this would increase the price of oil even more.


  1. “He believes that workers don’t have much power because the job market is still weak. So they cannot demand big pay increases.”
    However, how are companies supposed to combat these rising oil prices? As an employee it becomes much more expensive just to get to and from work, trust me I know. How do you keep your employees happy and producing at maximum efficiency?

  2. I personally found this interesting because I put gas in my car this morning for $3.20 a gallon, and that was the cheaper price at the intersection. I agree that the high prices are a temporary situation, but in the meantime the high prices affect everyone and it is neccesary to find other means of supplying oil to the country in order to lower prices sooner rather than later.

  3. I agree that high oil prices will be a threat to our economy. Unemployment rates have been very high and people are hoping to save money any way they can. Even now we have already seen price increases at the pumps and they are significant enough to get peoples attention. One observation i have noticed is that gas prices always go up in times of tragedy but they never seem to go down when times are more stedy.

  4. I think that the high gas prices might go on longer than we think. Gas prices will keep going up for as long as the civil war and Libya goes on, which could be for a very long time. However, I think that even though people cannot afford gas they have no other choice but to buy gas, so like Haley said I think it is neccesary for use to find other means of supplying oil.

  5. I feel as if the actual, legitimite economic risk of the rising gas prices is actually fairly minimal. We have dealt with high gas prices before, and the average gas price in America is significantly less than many countries in Europe, and the majority of Canada.

    As to the idea that this could be a prolonged price increase; so what? The whole point of capitalism is to wax and wane with the prices of goods. If gas goes up, groceries go down because of the money spent to get to the grocery store. Things work in harmony, and if the gas prices rise, other things will go down naturally, to compensate.

    Basically, I don't think much of anything could harm our economy, let alone gas prices during a crises in the Middle East.

  6. Z-man,
    I disagree with you that when gas goes up, other costs go down. Groceries, for example, become more expensive. This is because when gas prices go up it costs more to deliver the food to the grocery stores. So they charge the grocery store more, and the grocery store charges the consumer more. I can't think of other things that go down in price when gas prices go up. So z-man, can you give specifics on that?

  7. I agree with analisa that we need to find other means of supplying oil. I don't think it is good for our country to be so dependent on another country for something as important as oil. President Obama did lift the ban on drilling oil in our country, and that should help, but it is still not enough. If he would allow drilling in Alaska, it is predicted that Alaska would be the 5th or 6th largest supplier of oil. Libya is only the 13th. So can you imagine how having that oil supply would help America's economy and independence?

  8. I agree with both things that Tyler stated. As oil prices increase, we see in inflation in all other products. We really do need to find other ways to supply oil, even though we have the electric cars now that tend to cost as much as oil when all expenses are added up.

  9. Tyler,

    You are speaking in the short term. I meant long-term. You're right: there is no doubt that certain things will rise in price with the increase of gas prices. Your logic about groceries is solid. My meaning however, was that in the long run, whether due to inflation or just price drops in products, the price unbalances presented by these rising gas prices will right themselves. If grocery prices permanently increase because of these high gas prices, than inflation will bring the value of the dollar up, or new products will be made with lower production costs, and therefore a lower retail price. And if we are discussing certain groceries or products, that people buy and use on a regular basis, than the prices of those goods will have no choice but to drop. The beauty of necessities is that they have a permanent demand, and, because of that, a natural price ceiling. If, for example, you lived in a community where a great amount of people bought whole chickens on a weekly basis, no amount of rising gas prices would affect the prices of those chickens in any significant way, or for any extended period of time, because those chickens, at that specific price has become a mainstay of your community's economy.

    I apologize about the huge time gap between my comments, I did not keep track of this blog post.