Soaring Oil Price Threatens U.S. Economy

In recent weeks, the price of oil has climbed above $90 per barrel. As chaos spreads through the Arab world, we could soon see much worse. With these facts in mind, it is essential that U.S. policymakers act to protect the U.S. economy from this ever-worsening trend.

The likely impact of a new oil price rise is shown in the graph below, which compares oil prices (adjusted for inflation to 2010 dollars) to the U.S. unemployment rate from 1970 to the present. It can be seen that every oil price hike for the past four decades, including those in 1973, 1979, 1991, 2001, and 2008, was followed shortly afterwards by a dramatic rise in American unemployment.

The distress to American workers caused by such events is manifest, but the economic harm goes far beyond the impact on the unemployed themselves. A sustained oil price of $90 per barrel will add $480 billion to the U.S. balance of trade deficit. Furthermore, there is a direct and well-established relationship between unemployment rates and rates of mortgage defaults.

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Pajamas Media » Soaring Oil Price Threatens U.S. Economy