The doubling of the price of crude oil in the last three years had less effect on the overall U.S. economy than comparable price shocks of the 1970's, according to a recent study by the Congressional Budget Office.
From the Summary: "Contrary to general expectations, the large and persistent rise in energy prices that has occurred over the past two and a half years has not caused substantial problems for the overall U.S. economy. Although many households have had trouble adjusting to the higher prices, the effects on the nation’s gross domestic product (GDP), employment, and inflation have thus far been moderate."
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"The nation’s experience with oil price increases in the 1970s led many people to believe that such increases would lead to sharp slowdowns in economic growth and persistently higher inflation. The absence of such severe effects in recent years has thus been surprising."
Staff from the CBO's Macroeconomic Analysis Division wrote the 36-page study with the assistance of people at UCSD and Ford Motor. The study includes useful charts and graphs comparing economic data over the last 40 years. CBO - "The Economic Effects of Recent Increases in Energy Prices" (July 2006).
The public benefits of a capitalist system are lost if the inefficient are protected and the efficient penalized. One necessary consequence of letting the system work is that some short-sighted enterprises will fail or be absorbed by the more fore-sighted. That evolutionary system has proven over generations to build a strong economy. We weaken ourselves by using public funds to protect businesses that have proven short-sighted and inefficient, without some counterbalancing public benefit.
Various interest groups may choose to exploit a generalized fear of economic or strategic harm due to high energy prices to promote favored government treatment of their client industries. Some of those have fattened themselves in times of cheap energy by selling high-margin products that fulfill individual fantasies at the expense of public safety and welfare.
This report provides data valuable to evaluate pleas from such legacy industries that want public protection from the souring of their once-profitable corporate bets on low energy costs. See, e.g. Unintended Consequences: Senator Obama on Health Care for Hybrids (June 30, 2006) and Unintended Consequences: Gas prices hammer sales of inefficient vehicles (July 4, 2006)
Thanks to beSpacific: Economic Effects of Recent Increases in Energy Prices (July 21, 2006)
Posted by dougsimpson at July 26, 2006 08:41 AM