Will oil stunt recovery?


The other night I was watching Donald Trump on the Late Show with David Letterman. He was asked many questions regarding the economy and his thoughts on the recovery. As you can see in the clip above (particularly the 5 minute mark and on), Trump made an interesting comment on oil prices. He rightly said that oil prices are fixed by OPEC which is not legal by our standards and that they raise prices every time the economy does better. This is all very true. However, he suggested that economy can not possibly recover because oil prices will always drag it back down.

This is not true and in fact, this recession was not created by oil prices at all. Sure, oil prices get too high and definitely don’t help the economy when they are at ridiculous levels, but they alone can not keep the economy down. When oil prices are high, people start buying smaller cars that have smaller margins for automakers. People also travel less by car during those times. However, the overall effect on the economy is fairly minimal.

High oil prices play more on the psyche of the population because we all pay them (car owners do anyway) and we see the prices plastered on big signs every day when we leave the house. However, for the most part people will not change the way they behave or purchase because gas prices are high. The effect it can have is to make bad times worst and good times less good, but that’s pretty much it. With that said, we do need to put pressure on OPEC and keep that pressure on so that they keep prices lower for longer. We also need to desperately move away from OPEC and rely more on energy sources from within North America. This will truly solve the OPEC problem.