Back in the early 1970s, oil shot up in price, inflation followed and the economies on both sides of the Atlantic suffered. In 1974, UK inflation hit 16 per cent, the following year it rose to 24.2 per cent, and stayed in double figures for the following two years.

In 1981 oil hit a new all-time high: a new inflation-adjusted all-time high that is, and yet by 1982, inflation was down to 8.6 per cent.

Back then, it was argued that in the longer-term, demand for oil was not that price-inelastic, which means this. To begin with, oil went up in price, demand was barely affected and we were all a lot worse off. But then measures were taken to make cut-backs. The driving speed limit was cut in the US, for example, and so the 1980s higher oil did not matter so much.

Now forward wind the clock to today. Today the black stuff is important, but not like it used to be.

According to the Energy Information Administration, in 2006, energy took a 9 per cent bite out of GDP in the US, but in 1981, energy took up 14 per cent of GDP. And according to David Wyss, chief economist at Standard Poor’s, in 1980, the average American had to work 105 hours to pay for enough oil to travel 100 miles. By 2006, he only had to work for 52 minutes.

It was almost two years ago now, when George W talked about how the US was addicted to oil. Normally, shaking off a habit is quite painful, but this time around the cold turkey experience of shaking off the addiction to oil has been quite mild. The likes of GM and Ford have suffered, but the US consumer has bought more fuel-efficient cars, while farmers have raked in the bucks after finding corn could power cars, and they could grow fuel in the ground.

This time around, that oil is high is down to good news. It’s largely been surging demand and rapid growth of the global economy that have pushed oil up. So high oil is a price we pay for success.

So yes, it’s bad that oil is high, but it’s not that bad. If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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