Why cheap gas can’t save the economy

Gas prices below $2 are a relief to many consumers. But there are too many other problems in the economy for it to have a major positive impact.

NEW YORK (CNNMoney.com) — The stock market stinks like a moldy piece of Limburger cheese. Unemployment is on the rise. Home prices continue to fall. There are fears that one or more of Detroit’s Big Three could go bankrupt.

There is, however, one bit of good economic news: The average price of gasoline is now less than $2 a gallon for the first time since March 2005, down 52% from the peak of $4.11 in July.


That – in theory – means more money for people to spend and get the economy going. Mark Zandi, chief economist for Moody’s Economy.com, says that if gas prices stay around $2 a gallon throughout 2009, that would save consumers about $100 billion compared to this year.

But don’t get too excited: There may be less pain at the pump – but there’s pain just about everywhere else.

“Every penny helps and the savings are significant,” said Zandi. “But the negatives so far outweigh the positives that the economy will have a tough time in 2009,” Zandi said.

CNNMoney.com