Economists interpret cheaper oil as good for US
Economic change has been so prevalent and troublesome in the last decade that any new change makes government officials and economists wary. Thus, when the members of the Organization of Petroleum Exporting Countries failed last month to reach an agreement on price levels for crude oil, there was some anxious speculation about the harmful effect of lower prices.
So far only the Soviet Union, Egypt, and some United States oil companies have officially lowered their crude-oil prices. Analysts are still waiting to see if North Sea, African, or Persian Gulf producers drop their prices.
Economists, though, haven't waited. They have run some econometric programs through their computers and the output has been positive.
''On balance,'' says Sara Johnson, an economist with Data Resources Inc. (DRI), a Lexington, Mass., economic consulting firm, ''a decrease in oil prices has a favorable impact on the US economy.''
Her calculations show that an immediate $5-a-barrel cut in oil prices would boost real gross national product (GNP) - the output of goods and services in constant dollars - an extra 0.8 percent by the end of this year. It would also reduce the increase in the consumer price index by 1 percent.
Unemployment would drop by perhaps 500,000 people - more than the benefit from any jobs program being talked about in Washington. The average price of gasoline would fall to around $1.17 a gallon. That price even includes the April 1 federal tax increase of 5 cents a gallon.
Going further into the future, real GNP would be boosted an extra 1.2 percent by 1984, and the consumer price index would be 1.1 percent lower than otherwise. Those may seem like small amounts, but actually they are substantial. It would add almost $40 billion to GNP by 1984, or around $180 per man, woman, and child in extra goods and services.
Dr. Otto Eckstein, chairman of DRI, notes that ''Consumer confidence would be aided by the price improvement, and the operating costs of automobiles would be significantly reduced. Automobile sales and housing starts would be the major beneficiaries of the reduced inflation. . . . Business investment in plant and equipment would also be aided quite significantly.''
The reason for all this is that a $5-a-barrel reduction in world oil prices (or 15 percent) represents $25 million a day. That's a $9 billion annual saving in the nation's net oil import bill. Since domestic oil prices would also fall, energy users could save as much as $27 billion, Ms. Johnson notes.
The average household's energy bill would be cut by $85 a year in 1983 - if oil prices tumble immediately to about $28.04 a barrel.
The DRI calculations assume that oil prices would rise slightly, to $28.36 in 1984 and $30.43 in 1985. The $5-a-barrel nominal decrease in 1983 represents a $ 2.34-a-barrel drop in constant 1972 dollars. That is about one-third of the magnitude of the first OPEC oil shock in 1973-74, and one-fourth the size of the second OPEC shock at the end of the decade. In 1972 dollars, the price of foreign oil would go back to $13, its lowest since mid-1979 and nearly 40 percent below its early 1981 peak.
So far, though, the price of oil on spot markets has not dropped that far. Moreover, the US gets only 5 to 10 percent of its crude oil imports from the spot market; the bulk of it is bought under contract. Even if OPEC remains unsuccessful in propping up oil prices, it will take some time for the lower price to work its way through longer-term contracts.
Here are more lower oil price benefits:
* Lower oil prices stimulate competition between natural gas and petroleum in industrial markets, restraining prices of decontrolled gas. By 1985, when all but ''old interstate'' gas is decontrolled, the wholesale price of gas fuels would be 8.7 percent below its price otherwise, DRI figures.
* Electricity prices, because of fuel savings, would be 6.5 percent below their price otherwise by the end of this year.
* Labor productivity would rise 0.6 percent further by 1985 because of greater utilization of industrial capacity and a tendency for business to use more automation instead of manpower.
* Real disposable income - what people have left to spend after deducting taxes - would increase 0.9 percent this year and 1.2 percent in the following two years above what could already be good gains. Americans will have more to spend on cars, appliances, home furnishings, travel, and recreation. New car sales might go up an extra 300,000 units this year and 600,000 next year. There could be 18,000 extra new housing starts this year, an extra 43,000 in 1984, and 52,000 extra in 1985.
Of course, the oil producers are hit by lower prices. Mexico, notes Dr. Eckstein, would need some help in further stretching out its payments on $80 billion in debts. ''But what we lose on Mexico, we make up on Brazil,'' he added.
Oil-importing developing nations and Eastern Europe owe the US and Western Europe far more than do such oil-exporting nations as Mexico, Indonesia, Nigeria , or the Middle Eastern nations.
All in all, lower oil prices will be good for the world economy.