Here I re-tread a well-trodden path, but with recent events in the oil market I thought a brief recap might be timely.
I begin with a photographic illustration of a typical US demand response to the tripling of oil prices that occurred during the first “oil shock” in 1974:
Demand response after a tripling of oil price, USA, 1974
Those long lines of gas-guzzlers were indeed a demand response, but not to the oil price increase. They were a reaction to the nationwide shortage of gasoline caused by the oil embargo that accompanied it. Americans, like George Patton’s tanks during the Normandy breakout, just gotta have gas. And still do.
Fluctuations in oil price, particularly “oil shocks” are nevertheless believed to have had a major impact not only on the US economy but on the global economy as a whole since 1974, and here we will revisit some basic macroeconomic data to see how well this contention holds up.