Arnold Kling

Another Oil Crisis?

Arnold Kling, Great Questions of Economics
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Paul Krugman says that we may be headed into another energy crisis.

So I'm sorry to say that under current conditions, a third oil crisis could indeed happen. It doesn't have to happen: a diplomatic breakthrough could calm oil markets, and even if oil prices rise, the U.S. economy may be more robust than I fear. But it's easier to tell a downbeat, even scary, story than any of us would like.

Every energy crisis that Krugman cites--the 1973 oil embargo, the 1979 oil crisis, and the 2001 California energy crisis--took place in an environment of price controls. My prediction is that if we stay away from price controls, any disruption in energy markets will be short-lived and do little damage to the overall economy.

Discussion Question. Many economists would like to see a tax on gasoline or on imported oil as a way to encourage energy independence and to reduce the transfer of wealth to oil producers. Is there any way that this idea could be sold politically?

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