The 2008 Oil Shock

Several weeks ago, some fellow on the tee-vee machine said that the "proximate cause" of the recession we are currently in was last summer's run-up in oil prices. I don't remember who said it, or on which show, but the notion immediately struck me as spot-on. Of course, the host of the show didn't pause to explore that notion -- it didn't fit the prevailing narrative that the oligarchs have foisted upon us that we need to give vast sums of money to Wall Street or the world as we know it will end -- but I've been keeping an eye on the Internet to see whether or not anyone else would further unpack that notion.

Now, someone has.

UC-San Diego economist and Econbrowser blogger James Hamilton presented a paper last Thursday at the Brookings Institute in which he argued that a) the run-up in oil prices was an inevitable result of booming demand and stagnant production (i.e., peak oil); and b) had it not been for that boom in demand, the U.S. would have seen modest economic growth in 2007 and 2008, even accounting for mortgage defaults and the turmoil in the housing and financial markets.

Read the paper here (PDF).