Energy Cost Will Rise As Economy Recovers
In the rush to credit various players for the recent improvement in economic indicators (``Winning Streak'' editorial, Jan. 31), one important player is left out.
That player is the falling cost of energy; crude petroleum prices have reached a record low, even lower in real terms than the cost prior to the first oil crisis of 1972.
Because of the importance of oil in the economy, these falling prices have made it possible to maintain the economic stimulus of low interest rates without provoking inflation. They have also contributed significantly to a decrease in the balance of payments deficit.
Why have petroleum prices fallen so low? One key factor is the reduced growth in petroleum demand due to worldwide recession and reduced economic growth, especially in Europe and Japan.
This is paradoxical because our long-term economic well-being is dependent on economic recovery in the rest of the world, but as that recovery occurs we are likely to lose the benefits of anomalously low petroleum prices. Rather than ignore the role of energy prices in the economy, we would be wiser to take advantage of the current low prices to prepare for the inevitable time when those prices will rise. Conway Leovy, Seattle