Oil Prices: Hurting the Economy?

The price of oil, or more concretely, the price of the gasoline you put into your vehicle's tank has gotten tremendous attention recently. You would expect it to since it has doubled in price per gallon in the past three years. That being said, however, is this really a crisis, something that will drag our economy in significant ways, or is it merely election hype.

Knowlege @ Wharton has published an excellent article demonstrating just what economic effects we'll see or have already seen.

Here is one quote from the article that I liked and somewhat different that what you'll find on talk radio or the daily news cycle (probably because with this its harder to blame a domestic political opponent):

Souleles also notes that while today's oil and gasoline prices are high in nominal terms, they are, in real terms, close to, or even below, their 1980s peak. "A dollar isn't worth as much today as it was 20 years ago," he says. "Oil prices have not risen as much as people think in real terms. Our overall demand for oil can still rise. But the economy is more fuel-efficient than it used to be and the increased role of the service sector means we need less oil to produce each unit of GDP. My sense is we might be using half as much oil per unit of GDP now [than in the 1980s]. China and many developing countries are less fuel-efficient, so they use more oil per unit of GDP. And their demand for oil has increased."