Oil Price Shocks and the Recession of 2011?

Ten of the last 11 recessions were preceded by oil price hikes.

Ronald Baily
Reason Magazine

Oil prices surged to near $107 per barrel yesterday and regular gasoline is going for $3.51 per gallon. Last March oil sold for around $80 per barrel and gas cost about $2.79 per gallon. The uprisings throughout the Middle East are in part responsible for the recent uptick in prices. For example, the fighting in Libya has reduced global oil production by about one million barrels per day. On the other hand, members of the Organization of Petroleum Exporting Countries (OPEC) are boosting their output by a similar amount to make up for the shortfall. Democrats in Congress are calling upon President Barack Obama to damp down prices by selling off oil from the Strategic Petroleum Reserve.

Of course, the global oil market is pricing in worries that production could be disrupted if protesters in other major OPEC producers such as Saudi Arabia, Kuwait, and Iran began to demand greater freedom. What would happen to the U.S. economy if petroleum prices continue their rapid rise? University of California, San Diego, economist James Hamilton noted in a recent study that 10 out of 11 post-World War II recessions [PDF] in the United States were preceded by a sharp increase in the price of crude petroleum. The only exception was the mild recession of 1960-61 for which there was no preceding rise in oil prices.

Hamilton has also written a fascinating short history [PDF] of U.S. and global oil price shocks. Until 1974 the United States was both the world’s biggest consumer and producer of crude oil. Although domestic oil production has recently upticked, the U.S. today produces about half the oil it did in 1971. It still is the biggest consumer…

…is this 1973 or 2003?

Read the entire article at Reason.com

Related at Power Line, Post-Mortem for “Clean Energy”

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