The State : Economist Predicts 75-Cent Gasoline

Retail gasoline prices should drop significantly to about 75 cents a gallon within a month or two, according to a Stanford University economist, who said the change will have a direct impact on the economy. James Sweeney, vice president of the International Assn. of Energy Economists and director of Stanford’s Center for Economic Policy Research, said the recent plunge in oil prices from $29 to $13.50 a barrel will cut inflation by 2% and reduce unemployment by 1%. He said the price drop also will increase the gross national product by 3% over the next two years, reduce the federal deficit by $25 billion and cut the trade deficit by $15 billion. Sweeney cautioned that the “more rapidly oil prices go down . . . the sooner they will go up again and the higher they will rise. . . . The key element to the Saudis’ strategy (increasing and decreasing prices) is to hook us on oil and cause people to make changes which increase demand and decrease the supply of oil.”