Our second podcast on the 1970s titled Oil Panic, Price Controls and War is now available! Here is one:
Tabarrok: …Sheikh Ahmed Yamani, in a famous statement, was the minister of oil in the Kingdom of Saudi Arabia, he is the leader of OPEC, he says on October 16, these are 10 days since the start of the war, “This is the time I have been waiting for a long time. The time has come. We are stewards of our property.” They raise the price of oil. Oil production is down about 9 percent to 10 percent. That doesn’t seem like a huge amount, but it reveals something that people weren’t prepared for, and that was the weakness of oil demand.
I would put it like this. I think this is the key idea here. Almost by accident, the exporting countries had discovered that the demand for oil was much more balanced than anyone had realized. The main lesson they learned before 1973, oil exporting countries thought that the only way to increase their income was to produce more. After 1973, they learned that the best way to increase income was to produce less.
Here’s another one:
COWEN: Since the 1980s, economists, for a number of reasons, have overlooked real shocks as a source of business cycles and recessions. You have the Keynesians who didn’t want to talk about it, then you had the Monetarists, Milton Friedman, who wanted to promote their recipe, and people just stopped talking about it. Even in 2008, obviously there was a lot to do with the big negative shock to bring the demand together, but the price of oil was very high at the time when that broke, and it was the main cause of the decline.
TABARROK: Definitely.
COWEN: No one wants to talk about that.
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