Gas prices fall below $2.00 a gallon: Great news or is it? Deflation?

Posted on November 21, 2008 by Reading on Walden Bookstore

After seeing gas prices nearing the $5.00 a gallon not long ago, to watch this precipitous drop in prices to under $2.00 a gallon one might assume that is great news. But is it great news.

NEW YORK (CNNMoney.com) — It took gas prices more than three years to rise from $2 to a record high of $4.11, but just four months to plummet all the way back again - and then some.

For the first time since March 9, 2005, the average price of gasoline fell below $2 a gallon, according to a report from motorist group AAA. The nationwide average price dropped to $1.989 a gallon, down from $2.02 on Thursday. The survey bases its information on credit card swipes from up to 100,000 service stations across the nation.

Gas prices have come full circle since this summer’s gas crunch. Expensive fuel made the term “staycation” the new buzz word, as motorists opted to vacation close to home rather than make the costly trek to relatives and friends in other parts of the country.

The real enemy is “deflation.” Deflation is the persistent decrease in the general price level of goods and services. While the decrease in gas prices might seem like a benefit now, we must be on guard against this creeping “deflation.” The impact of constantly lowering prices could have a devastating impact on our economy. Reading on Walden Bookstore.

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5 Responses to “Gas prices fall below $2.00 a gallon: Great news or is it? Deflation?”

  1. Mike O, on November 21st, 2008 at 7:20 am Said:

    It won’t last, but those proposed taxes for ‘obscene oil profits’ looks like they won’t be bringing in much for the grand plans of the Democrats.

  2. Lance, on November 21st, 2008 at 8:39 am Said:

    No,

    Deflation is never an enemy (unless it happens extremely fast). However, it has to “bottom out” at some point–that will happen when the demand for money and the supply of money hit an equilibrium.

    The government always complains of deflation because it ALWAYS wants the supply of money AHEAD of the demand for money.

    It’s very difficult to achieve an economic problem with deflation–only the big wigs who have something to lose from not having the new inflated money first will be the ones complaining.

    I might write more on this later.

  3. Benjamin Rush, on November 21st, 2008 at 5:14 pm Said:

    I don’t think so!! Falling prices are not necessarily deflation.
    Just as inflation is not necessarily inflation.
    If inflation is bad, as most citizens agree. Then deflation must be good.
    Read Mises!

  4. netlosh, on November 29th, 2008 at 2:02 pm Said:

    The bad thing about deflation is not the drop in prices itself, but the resistance of society to drastic drops in wages (though we certainly don’t mind the drops in prices). When stuff use to be as cheap as it was in the 50s, the average salary was a lot less than they are now. With specific note to the soaring unemployment rates as prices crashed (i.e. the prices deflated first then came the soaring unemployment)…

  5. netlosh, on November 29th, 2008 at 2:06 pm Said:

    Sorry I didn’t finish my thought before I’d moved on. I was was taking specific note of the dynamic between the drop in prices, the resistance to salary cuts, and the soaring unemployment as the thirties depression played out…

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