Environmental Engineering Reference
In-Depth Information
is good reason to believe that, this time, bet er oil ei ciency will really
pay of .
Nevertheless, it's possible to overstate the value of using less oil.
Oil shocks typically precede recessions, but at er forty years of care-
ful studies economists still can't agree on whether oil shocks actually
cause big economic downturns. (One economist I know likes to quip
that oil price spikes have preceded six of the last three recessions.)
Even studies of the biggest oil spike of them all—the result of the
1973 Arab embargo—aren't conclusive when it comes to how much of
the ensuing recession should be pinned on oil. Scholars have thrown
every model and statistical technique in the topic at the problem but
haven't yet come to dei nitive conclusions. Food prices were rising
rapidly around the same time the oil shock occurred, hurting the U.S.
economy, and it's dii cult to disentangle that from the impact oil prices
had at the same time. Moreover, the U.S. Federal Reserve hiked inter-
est rates in the face of oil- and food-driven inl ation. Many economists
contend that, rather than the price rises themselves, the interest-rate
hikes are a big part of what did the economy in.
Moreover, in the years since, the U.S. economy has become more
resilient to volatile oil prices. The Federal Reserve no longer pays
attention to swinging costs of oil when setting its interest rates;
because changes in rates can send the whole economy into reces-
sion, this removes one big source of danger. (The Fed sets inter-
est rates in part on the basis of inflation; in measuring inflation,
it now ignores changes in the price of oil.) Many also argue it has
become easier for people to move between jobs, something that
rapidly changing conditions can require, which makes the economy
more resilient (though mobility appears to have declined in recent
years). 74 Cutting U.S. oil consumption surely makes the economy
safer, but the benefits may not be as large as in the past, because the
problems it tries to solve may now be smaller in the first place.
h e best way to think about lower oil consumption in the face of
considerable uncertainty about benei ts is that it's a way of reducing
risk. Lower oil demand reduces the odds that price spikes will harm
the United States. Even the mere perception of reduced risk among
decision makers would also increase U.S. freedom to act around the
 
 
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