Why Industry Experts Pay Attention to Oil Prices – And So Should You - The Smiling Heart

Why Industry Experts Pay Attention to Oil Prices – And So Should You

Industry experts like Jonathan Schrag understand that we need to find ways to reduce our dependence on non-renewable sources of energy.  If you need convincing, here are some of the ways that we are held hostage by the price of the premier non-renewable energy source – oil and gas.

How Oil Prices Directly Affect Us

The most obvious ways that we are held hostage by the price of oil and gas is experienced at the pump.  Whether we are filling our car, or are paying for goods that have been transported across the country, we feel the pinch of high oil prices quite directly.  There are things we can do to minimize the effect that higher prices have on our pocketbooks – we can take public transit, turn the thermostat down, buy more efficient vehicles or eat locally produced foods.  However, there comes a point at which we can’t realistically reduce our consumption of oil and gas.  Overall, we cannot escape the effect that higher gas prices have on the price of virtually everything else that we use on a daily basis.

How Oil Prices Affect Us in Other Ways

Unfortunately, increased oil and gas prices can have a negative effect on overall national economic growth.  This is because virtually every business relies to some degree on oil and gas, and when prices go up, this means the cost of production or supply goes up as well.  These increased costs eventually get passed on to the consumer in the form of higher prices.  When consumers need to pay higher prices for things, this means that they have less disposable income and less income available for savings.  People begin to spend less as a result – they don’t go on vacations, and buy smaller houses and cars – and this means that businesses begin to struggle and possibly fail.  When businesses fail, or if they have to pay higher costs themselves as a result of higher energy costs, they will start to lay off employees.  This means that even less money is circulating in the economy, leading to a downward spiral.

When businesses begin to fail, this will eventually have an impact on government resources.  First, this will translate directly into reduced tax revenue as incomes decline.  It also can result in an increased demand for increased social spending on subsidies, welfare and unemployment assistance.  However, the government’s largest sources of income – direct taxes (in the form of personal and corporate income taxes) and indirect taxes (in the form of taxes on the sale of goods and services) – is also declining at the same time.  This means that government will need to make cuts not only to social services but also to government spending in general.  This puts the jobs of government employees in jeopardy, and also reduces government spending on projects such as infrastructure which is just one of the many ways that government provides jobs.

Clearly, our dependence on oil and gas has direct implications for our pocketbooks.  Perhaps it is time to seriously invest in renewable energy sources that will not hold our economy hostage moving forward.