We Were Wrong

A fascinating article, if economic theory fascinates you, on how the predictions of doom and gloom following oil price hikes were wrong.

An analysis by economists at the Federal Reserve Bank of Atlanta demonstrated that oil shocks had significant effects on the macroeconomy before 1985 but not after. The authors argued that the federal price control regime of the 1970s was the true cause of the recessions that decade. Economist David Walton at the Bank of England likewise argued that wage rigidities in the 1970s were the culprit responsible for that dismal decade. And economists at the Federal Reserve Bank of Cleveland offered evidence that oil price increases never have and never will cause inflation. They calculated that a doubling of oil prices would lead to a one-time increase in commodity prices of about 3-percent.

All the new analyses agree that the more flexible economy that we have now, allows us to cope more easily with oil price shocks.

Again and again — sometimes the best thing the government can do about a problem is nothing.

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