Do lower oil prices mean an improving economy?

"Let's hang up, it's too expensive." This was once a common line in daily conversation, but nowadays it is hardly said. Long-distance phone calls were still expensive until the early 21st century. Likewise, computers used to be expensive. In the 1990s, a regular desktop computer cost thousands of dollars, and even accessories like a mouse had to be purchased separately. Internet access was even more of a luxury for most people at that time. Perhaps you remember that Internet cafes even offered laptop rentals with Internet connections. In addition, not long ago, 4K flat-screen TVs cost as much as $25,000 and were considered a luxury item exclusively for the super-rich.

However, times have changed, and today the prices of long-distance calls, computers, and televisions have all fallen significantly. Is this a sign of economic downturn? Obviously not. This price decline is actually an important sign of economic progress. Contrary to the view of economists who believe that economic growth requires central bank regulation, falling prices are often the most intuitive and reliable indicator of economic growth.

First, how does higher productivity change the structure of the economy? As productivity increases, people's income can be exchanged for more goods and services. Such changes are not so-called "deflation", just as rising prices are not completely equivalent to "inflation". When the prices of some goods rise, people's budget for buying other goods will inevitably decrease; on the contrary, when some goods become cheaper, people's purchasing power will increase. This means that price reductions themselves can broaden consumers' choices.

However, some economists interpret the decline in oil prices in a completely opposite way. They often regard the decline in oil prices as a signal of economic "recession". Henry Hazlitt once pointed out that some seemingly absurd views can be widely accepted, which is quite interesting. Oil prices are one of the most important variables in economic operation, and they have a huge impact on production costs and living standards. Falling oil prices do not indicate economic slowdown, but are usually a sign of economic prosperity.

Secondly, the relationship between oil prices and economic health. Oil and its derivatives occupy a central position in the modern economy and are important resources for maintaining production and living standards. Therefore, when oil prices fall, it usually means a reduction in production costs, which is beneficial to the overall economy. If the “economy” is viewed as a whole made up of countless individuals, then the decline in the cost of resource acquisition for these individuals should be seen as a positive sign rather than a sign of recession.

In fact, there are already examples of the positive impact of falling oil prices on the economy. During the 1980s and 1990s, oil prices once fell to $7 per barrel, and in 1998, the price of oil per barrel even fell to $10. However, the US economy did not fall into trouble due to low oil prices. On the contrary, during this period, the United States attracted a lot of investment and ushered in the booming fields of science and technology and finance. It can be said that cheap oil has opened up the era of "spiritual economy" for the United States and promoted the overall prosperity of society.

Finally, the power of investment and the future outlook. Low-cost resources have created miracles for the human economy. When the prices of key means of production fall, investment in manpower and innovation will increase accordingly. Although people try to define oil as a "special" energy, from an economic perspective, oil is not essentially different from other resources. It is also affected by supply and demand and is also an important factor in promoting productivity.

In short, falling oil prices are an important signal of economic improvement. It symbolizes the reduction of resource costs and the improvement of production efficiency, thus promoting overall economic development. Price reduction does not mean depression, but rather a sign of economic progress. Perhaps we need to re-examine the traditional understanding of economics and understand the core position of investment and efficiency in economic development. After all, real economic growth comes from innovation and productivity leaps, not simply consumption-driven or price increases.