HAD you been told in late 2001вЂ"not long after that September's terrorist attacks, and when stockmarkets had been tumbling for 18 months or soвЂ"that the price of crude oil would more than triple within four years, you might well have predicted global economic meltdown. The price of a barrel of West Texas Intermediate has risen from $18 in November 2001 to record levels: it hit yet another new high, above $67, this week. This is similar in scale to the price jumps of 1973-74, 1978-80 and 1989-90, all of which were followed by worldwide recession and rising inflation. Today, though, global GDP growth is well above trend, while inflation remains low. Why has the world economy fared so comfortably this time?

There are several popular explanations. The simplest is that, although the latest price increase is about as big as those in previous episodes, it has been more gradual. In 1979 the price of oil doubled in six months; this time it took 18 months, giving households and firms more time to adjust and so doing less damage to their confidence and finances and hence to economic activity. This is plausible, but unlikely to be the whole story: no matter what the pace of the increase, it pains Americans to pay $3-plus for a gallon of petrol.

Another common line is that in real terms oil is not terribly expensive. True, adjusted for American consumer-price inflation, the price of a barrel of crude would have to be about $90 to beat the mark it set in 1980. But this is small comfort: thus measured, the real price is already above its peaks of 1974 and 1990, which were high enough to bring on recession.

Moreover, a calculation of real prices depends on the deflator used. Relative to American producer output prices, the appropriate measure for businesses, real oil prices are already close to their 1980 peak. For an oil-importing economy as a whole, however, the relevant deflator is arguably export prices, since the main way that dearer oil causes pain is through the terms of trade. Relative to global export prices, oil prices are at an all-time high (see chart).

A third argument used by the sanguine is that the modern economy now runs on brain power and microchips rather than on oil. Developed countries use half as much oil per real dollar of GDP as in the mid-1970s, thanks to improved energy efficiency, a switch to other sources of energy and the shift from manufacturing to services. This means that a given rise in oil prices makes a smaller dent in output. However, while rich countries have greatly reduced the oil content of their GDP, many emerging economies are still big energy guzzlers. Some Asian economies, such as India and South Korea, use more oil per dollar of GDP today than they did in the 1970s.

Furthermore, even if America consumes less oil relative to GDP than it did 30 years ago, it also produces less, so its net oil imports are roughly the same as a percentage of GDP (just under 2%). And the impact of oil prices on GDP depends on net imports not on consumption, because oil producers gain when prices rise.

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