Jan. 29, 2007
The Sunday Jan. 28 New York Times had a very important chart which showed the relationship between oil prices and consumption patterns from 1970 to the present.p.10 I have always argued that the dramatic rise in inflation during the 1970s was due to the creation of the OPEC price cartel which raised world oil prices from under 10 dollars a barrel in current dollars in 1973 to over 40 dollars a barrel by the end of the 1970s and peaking at about 70 dollars a barrel by 1982. The chart makes this quite clear. It also shows how prices then collapsed in the period from 1982 until the year 1999 when they bottomed out at just over 10 dollars a barrel. It doesn't take much work to show that there is a strong correlation with the pushing aside of Keynesian doctrine by draconian monetarism with these changes in the price of oil.
The price changes were not the only factor to be sure but they clearly played a major role in falsely discrediting Keynesian doctrine, mostly because the neo-classical synthesis did not have a proper understanding of Keyness' theory of inflation with its emphasis upon supply bottlenecks and and cost, wage and profit push factors. If they had they would have understood the impact of the surge in oil prices and not tossed out the Keynesian baby with the oil damaged bathwater.
No comments:
Post a Comment