Mr. Putin Is Wrong: $80 Oil Is a Boon to the World Economy

 

shutterstock_181590752Vladimir Putin protests that $80 barrels of oil will sink the world economy. It appears the Russian president does not understand elementary economics. Every Economics 101 textbook teaches that falling energy prices reduce the costs of output and raise employment. Did he not notice the world recessions associated with the energy crises of the 1970s and early 1980?

Of course, oil producers like Russia are not happy as their export earnings fall and their government revenues shrink, but the world economy as a whole is a major beneficiary. We do not yet know how much of the U.S recovery is due to falling oil and natural gas prices — but it certainly aids rather than encumbers economic growth. A drop in oil prices may spell trouble for Putin’s dictatorship, but that’s just one more reason for the West to rejoice.

There are 17 comments.

  1. Member

    Paul Gregory: Of course, oil producers like Russia are not happy as their export earnings fall and their government revenues shrink, but the world economy as a whole is a major beneficiary.

    Nor Canada. Extracting oil from bitumen is an expensive proposition. Northern Alberta oil needs high prices in order to break even.

    • #1
    • October 20, 2014 at 11:18 am
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  2. Inactive

    Worked in the ’80’s.

    http://www.amazon.com/Victory-Administrations-Strategy-Hastened-Collapse/dp/0871135671/ref=sr_1_2?s=books&ie=UTF8&qid=1413829371&sr=1-2&keywords=victory

    • #2
    • October 20, 2014 at 11:24 am
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  3. Inactive
    AIG

    “Mr. Putin is wrong” is kind of a foregone conclusion.

    • #3
    • October 20, 2014 at 11:28 am
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  4. Contributor
    Paul Gregory Post author

    Misthiocracy:

    Paul Gregory: Of course, oil producers like Russia are not happy as their export earnings fall and their government revenues shrink, but the world economy as a whole is a major beneficiary.

    Nor Canada. Extracting oil from bitumen is an expensive proposition. Northern Alberta oil needs high prices in order to break even.

    Mis…

    There are always winners and losers, but the world economy is the winner.

    • #4
    • October 20, 2014 at 11:36 am
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  5. Inactive

    “Vladimir Putin protests that $80 barrels of oil will sink the world economy.”

    $80.00 a barrel oil will sink Putin’s economy and have an effect on his particular world. How about $50.00 a barrel, or better $40.00 a barrel. I’d like that.

    • #5
    • October 20, 2014 at 11:54 am
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  6. Contributor
    Paul Gregory Post author

    Donald Todd:

    $80.00 a barrel oil will sink Putin’s economy and have an effect on his particular world. How about $50.00 a barrel, or better $40.00 a barrel. I’d like that.

    Donald:

    Interesting to pay attention to Saudi Arabia. Seems like it wants a low price of oil

    • #6
    • October 20, 2014 at 11:56 am
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  7. Inactive

    I think $50 to $60 per barrel is plenty for the petro-states. That would leave them with enough to function but not enough to buy weapons, wage wars, invade neighbors or gold plate Mercedes cars.

    • #7
    • October 20, 2014 at 12:42 pm
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  8. Member

    Marion Evans:I think $50 to $60 per barrel is plenty for the petro-states. That would leave them with enough to function but not enough to buy weapons, wage wars, invade neighbors or gold plate Mercedes cars.

    Sure, the middle eastern petro-states can get by at that price. Their extraction costs are low enough.

    What does that price do to North Dakota’s oil industry?

    • #8
    • October 20, 2014 at 12:50 pm
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  9. Inactive

    Misthiocracy:

    Marion Evans:I think $50 to $60 per barrel is plenty for the petro-states. That would leave them with enough to function but not enough to buy weapons, wage wars, invade neighbors or gold plate Mercedes cars.

    Sure, the middle eastern petro-states can get by at that price. Their extraction costs are low enough.

    What does that price do to North Dakota’s oil industry?

    Let them eat cake. It won’t be good. They can go back to growing wheat or whatever. Lower input costs are good for the economy even if the providers of these inputs are hurt. More here: http://www.bloomberg.com/news/2014-10-17/oil-is-cheap-but-not-so-cheap-that-americans-won-t-profit-from-it.html

    • #9
    • October 20, 2014 at 1:15 pm
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  10. Member

    Really low prices do threaten the new extraction methods. Which have a higher cost per barrel break even point than Saudi wells. We should be happy but also careful. But it was amazing because for the first time in I don’t remember how long I bought gas at under 3$ a gallon this weekend.

    • #10
    • October 20, 2014 at 2:20 pm
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  11. Contributor
    Paul Gregory Post author

    Valiuth:Really low prices do threaten the new extraction methods. Which have a higher cost per barrel break even point than Saudi wells. We should be happy but also careful. But it was amazing because for the first time in I don’t remember how long I bought gas at under 3$ a gallon this weeken

    Valiuth:

    They say that the Saudis are keeping prices low to slow down our own energy independence. This is no an act of charity by the Saudis, but they do not need the money right now like Putin.

    • #11
    • October 20, 2014 at 2:47 pm
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  12. Member

    The Saudis may figure that low oil prices hurt ISIS, too.

    • #12
    • October 20, 2014 at 4:00 pm
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  13. Inactive

    Hurts Putin’s economy maybe. Oil goes up, oil goes down. People make fortunes, People lose fortunes. The new extractive technologies won’t be lost, just go on the shelf. When oil goes back up to, and over, $100/bbl, new innovation will come along to nudge those barrels out of the ground and the cycle will repeat.

    • #13
    • October 20, 2014 at 4:02 pm
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  14. Member

    Paul Gregory:Vladimir Putin protests that $80 barrels of oil will sink the world economy. It appears the Russian president does not understand elementary economics.

    An old commie who doesn’t understand elementary economics? Will wonders never cease?

    • #14
    • October 21, 2014 at 12:00 am
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  15. Coolidge

    It’s not like 30-40 million dead under price controls is unheard of in the former Soviet Union. If it worked once, it will work again!

    Putin’s idea of making things easier for himself is to artificially set the price of oil so it’s higher than his costs. Well, V-Lad, the market says “jam it”. It’s not like there’s only one type of BBL of oil out there, there are dozens of flavors of oil, and he and no one else gets to set pricing.

    Although V-Lad does get to ride bears. So he’s got that going for him.

    putin bear

    • #15
    • October 21, 2014 at 3:56 am
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  16. Coolidge

    Putin may be getting his wish.

    http://finance.yahoo.com/news/brent-rises-increased-demand-china-120506305.html#morequotes

    • #16
    • October 21, 2014 at 6:36 am
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  17. Member

    Paul Gregory:

    They say that the Saudis are keeping prices low to slow down our own energy independence. This is no an act of charity by the Saudis, but they do not need the money right now like Putin.

    I bet they are. Frankly I don’t much care for subsidising industries, but if it came to it I would certainly consider keeping our energy producers afloat domestically if needed, for the international leverage. I doubt the Saudi’s can keep prices low for ever considering rising demand, and it is so worth it to cripple the Russian economy. I would certainly be willing to pay extra for gas to take down Putin.

    • #17
    • October 21, 2014 at 6:48 am
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