With gas hovering
around $2 a gallon in many parts of the country, chances are you’re smiling
every time you fill up the tank.
The oil price drop,
which is one of the biggest stories of 2014, is a twist on a familiar tale. Rising
supply (production in non-OPEC countries, like the United States, increased)
and falling demand (in Europe, Japan, and China) caused prices to move lower. In
this case, they’ve moved a lot lower. Last summer, the price of crude oil was
about $107 a barrel. Last week, it finished below $55 a barrel.
Overall, according
to the International Monetary Fund (IMF),
lower oil prices are expected to be good news for the global economy. They’re
expected to have economic benefits for countries that import a lot of oil, like
China and India. They also are a boon for U.S. consumers who have more money in
their pockets when they pay less at the pump.
However, low oil
prices aren’t good for everyone. In the United States, oil-producing states
like Texas, Louisiana, Wyoming, Oklahoma, and North Dakota may lose jobs and
tax revenues. Outside the United States, oil exporters like Russia, Iran,
Nigeria, and Venezuela are likely to suffer adverse consequences as a result of
falling prices, including domestic unrest, according to MarketWatch.com. The International
Energy Agency (IEA) said,
“…For producer
countries, lower prices are a negative: the more dependent on oil revenues
they are and the lower their financial reserves, the more adverse the impact on
the economy and domestic demand. Russia, along with other oil-dependent but
cash-constrained economies, will not only produce less but is likely to consume
less next year.”
The supply and demand
equation isn’t likely to change soon. The IEA
forecasts global demand growth will be relatively weak during 2015. Meanwhile,
the Organization of the Petroleum Exporting Countries (OPEC) has done nothing
to reduce supply, largely because of Saudi Arabia which is the second largest oil
producer in the world. Saudi has reserves that make it better able to absorb
the oil price shock than other oil exporters. It also has political motivations
to keep oil prices low. These include punishing Iran and Russia for supporting
Bashar Assad in the Syrian Civil War, according to the International Business Times.
If you want to know
where oil prices may go, keep an eye on Saudi Arabia.
It’s not the 1 percent, it’s the 0.1
percent. They say history repeats itself. That seems to jibe with
the findings of a brand new paper by Emmanuel Saez of the University of
California, Berkeley, and Gabriel Zucman of the London School of Economics.
“Wealth concentration has followed a U-shaped
evolution over the last 100 years: It was high in the beginning of the
twentieth century, fell from 1929 to 1978, and has continuously increased since
then. The rise of wealth inequality is almost entirely due to the rise of the
top 0.1% wealth share, from 7% in 1979 to 22% in 2012—a level almost as high as
in 1929… The increase in wealth concentration is due to the surge of top
incomes combined with an increase in saving rate inequality.”
The pair found that the average real growth
rate of wealth for the 160,000 families that comprise the top 0.1 percent was
1.9 percent from 1986 to 2012. As it turns out, income inequality has a
snowballing effect on wealth distribution. The wealthiest people earn top
incomes and save at high rates, which helps concentrate greater wealth in the
hands of a few. It’s interesting to note that top wealth-holders are younger
today than they were in the 1960s.
In contrast, the riches of the bottom 90
percent did not grow at all from 1986 to 2012. Historically, the share of
wealth divvied up among this group grew from 20 percent in the 1920s to 35
percent in the 1980s. However, by 2012, it had fallen to 23 percent. Pension
wealth grew during the period, but not enough to offset the rapid growth of
mortgage, consumer credit, and student loan debt.
Weekly Focus – Think About It
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