The economy is affected by many factors that determine if it is strong or weak. These factors have to do with buyers consuming goods and services and at whatrate they do this. Do the goods and services that are consumed by people createdwealth, jobs and a better overall economy for a country. Throughout history someeconomies have evolved faster and stronger than others.
Policies that thegovernment places on industry, technology and the environment can all affect theprosperity of an economy. Of the factors that affect economic growth theindustry of Oil and gas is one that holds a stronghold in the world’s andAmerica’s economy today. When evaluating the economic growth factor of economyand specifically oil and gas on must consider the following questions: Whatrelationship does the factor have with the whole economy? How does thisfactor affect economic growth Is the factor a cause or effect of economicgrowth? what would the economy be like if there were significant problemswith this factor? What relation does a central bank have to this factor? Iwill answer each of these questions in respect to how economy is affected by oiland gas. The economy in the United States today is greatly affected by oil andgas. When there are large reserves and an increase of active drills in respectto oil, the economy seems to receive a boost.
This is because prices for suchthings like gas and oil fall and people are able to consume more gas at a lowerprice. There is more supply and prices fall, therefore people save money on gasand can consume other items in the economy. People working in these industrieshave more job openings and more jobs filled, therefore creating a lowerunemployment rate and a higher national per capita income. The need forsubstitutes are not there so, consumers will consume oil and gas at a growingrate. Since, people use oil and gas for so many different things like heatingthere homes, driving their cars, and a variety of other sources, the overall GNPfor the consumer will rise. Economic growth is affected through significantfluctuations in inflation of oil and gas.
If you look throughout history whenthere have been fluctuations in gas and oil prices you have vast fluctuations inthe economy of our country. The instability of this factor has cause governmentregulation to come into play in times of crisis. For example during themid-seventies we had the oil and gas shortage due to the Middle East cutting offsupply to Importers of their oil. By doing this, they caused a shortage in a lotof countries creating rising oil prices and high demand. Consumers could notrely on the oil prices to be stable, therefore they consumed less of otherproducts due to the inflation of gas prices and more of their dollar began to bespent on gas. Americans particularly started to come up with more efficientmeans of using and consuming gas over the past 25 years.
Oil and gas is aresource that can be used up if not conserved properly. That is why OPEC wasformed, as well as organizations such as NAFTA to help regulate trade of thesecommodities and bring organization to a disorganized status. In addition,governments like the United States impose taxes on gas to regulated the pricesin order to ward off against supplies of oil affecting the nations economy. Thisonly works to an extent, in the early to mid-eighties one state’s economy livedand died by the supply of oil.
That state was Texas. When Texas’s oil rigs beganto dry up, their economy went into a recession. Their reliance on the oil supplyas their main revenue producer caused a lot of people to lose their jobs anddemand and consumption for other products fell as well. This caused a spiralingeffect which caused people from all industries to lose their jobs.
Texas’seconomy suffered and so did parts of the American economy with High inflationand high debt which caused the economy to suffer. Increased regulation anddiversification of a country’s resources can stop this from being the case. Countries representing OPEC all live and die by the constant production of oil. While this factor is used to stimulate their countries economic growth, itshould be used to stimulate the building of a country’s infrastructure. Oil-richcountries should use the positive affect oil has had on their countries to buildstrong governments and consumer demand for other goods.
This powerfulinfrastructure that could be built will give the economy stability and allow fora country’s GNP to grow in a slow, steady, and positive way. The building of astrong middle-class will allow for country’s to prosper for many years to come. Instead what has happened is that economies of these countries are in a state offlux. What I mean by this is that their economies are very unpredictable andunstable and their reliance on oil has made the disparity between the rich andthe poor a gap that becomes too large to overcome. One prime example of this isBrazil, Brazil has large reserves of oil in a very large country. Brazil is adeveloping nation and is very unstable when it comes to central governments.
Inthe 70’s and 80’s Brazil made large amounts of oil from its reserves. Instead ofinvesting the money made (from exporting oil) into their countries future, theleaders of that country used the money to make themselves rich and left thecountry in political and economic disarray. The middle class of Brazil becamealmost non-existent and their seem to be but two classes in that country. Thoseclasses were the extremely rich and the extremely poor. The lack ofinfrastructure and consumer confidence in the economy due to the mishandling ofoil profits lead to many political assassinations and increased crime ratesthroughout the country.
It has taken and will continue to take Brazil years andyears to recover from these economic crisis’s , which all could have beenavoided had Brazil’s government invested in its future. It is definitely truethat an economy of a country can be vastly affected by the demand, consumption,and supply of oil. The affect that good supplies of oil has on a country’seconomy is one that can only be measured in the sense that it is inevitable thatthey will be affected. As long as we drive cars that are fueled by gas and weuse heat in the winter time, oil will always be a strong factor in determiningthe growth of a countries economy.
In the United States, we have the stronginfrastructure to adapt to problems that the instability of both the supply anddemand of oil will cause. Countries need to look within themselves for managedgrowth in order to steady their economies if oil is what sparks their economy. Astrong central bank and government will allow for funds to be invested insupporting the economy, the oil business, and consumerism. Once theinfrastructure is set the shear reliance on oil will not be a factor, becausethe country’s economy will be able to handle the affect. When the day comes thatoil wells ran dry and substitutes are needed the countries that will survivewill be the ones that have braced themselves for the effect that this will haveon their economy.
Then these countries will adapt and overcome. Oil and gasshould be used as helper of a country’s economy and not the passion by which itis run. The production of great income for a country and a higher GNP that oilproduction is something that should be able to benefit them for many years tocome. If you look at the United States as a model you will see a country thathandles oil with precision. When the oil industry is in a downturn, thegovernment can step in and regulate taxes and stimulate investment by having thecentral bank pump in funds that would not otherwise be used. When the oilindustry is doing fine, the government can sit back and reap the prosperity ofincreases in employment and a rise in demand for oil.
The prices will be lowerfor gas and oil, which means consumption will be up and the economy will be uptoo. Countries around the world can learn how to handle oil to the extent thatit creates an agenda that the benefits far outweigh the costs. We know that oiland gas affects the economy and that it easily regulated by strong centralgovernment and bank. The infrastructure must be built up to manage growth. Theleaders of the country should be committed to the development of the oilindustry. Finally the consumers should be aware of how their role in theconsumption of oil will affect the economy as a whole.
When all parties areaware and committed to the prosperity of their country and to the industry thenthe consumption, supply, demand, profits, losses, and investment towards oilwill be a mutually beneficial one for the country and it’s people.Economics
