Dollar price per barrel of West Texas Intermediate divided by the CPI.
Econbrowser: $90 a barrel: Is it time to start worrying about the oil price shock of 2007?: Oil shocks in 1973, 1979, and 1990 were each followed by a recession. But we saw the price of oil climb from $20 a barrel in 2002 to $75 a year ago, and so far it has not resulted in a significant economic downturn. What's different now, and can we count on it to continue? The question of why the economy may be less vulnerable to oil price shocks today has been examined by a number of recent academic studies. A new paper by Olivier Blanchard and Jordi Gali identified four factors as all making a contribution: (a) good luck (i.e. lack of concurrent adverse shocks), (b) smaller share of oil in production, (c) more flexible labor markets, and (d) improvements in monetary policy.
A study last year from the Congressional Budget Office emphasized a similar list of favorable developments. Jerry Taylor and Peter VanDoren review some of the other evidence, and conclude:
All the new analyses agree that the more flexible economy that we have now, allows us to cope more easily with oil price shocks.... It is time for America to get over its inordinate fear of oil shocks. Soaring prices aren't pretty, but they are scarcely the existential threat to our economy posited by many.
Munechika Katayama, a Ph.D. candidate here at the University of California, San Diego, also has an interesting new study on this question. Katayama notes that regulation of the transportation sector during the 1970s resulted in excessive monopoly power and inefficiencies in the trucking industry, and suggests that deregulation may have been another factor that has helped the economy to respond more flexibly to oil price changes.