I don’t know about the rest of you university energy economists, but life in the classroom got a little tougher for me this Spring. Last Fall energy economics was on the front pages of the nation’s newspapers every week, nearly every day. Anytime I wandered into class a minute or two early, I could strike up a casual conversation with the gathering students over “energy in the news.” It offered me a relaxed, but frequently spot-on topical approach to initiating class discussions on oil and gas markets and alternative energy. Students saw immediate, external validation of the importance of issues we were going to be discussing in class that very day. Energy was hot, hot, hot.
Not this Spring. Banking and finance and the Federal Reserve are all over the headlines, and much more modest energy news is relegated to the inside pages.
So on behalf of all teaching energy economists who found themselves in this situation, I’m offering thanks to James Hamilton of UCSD for his brave bid to get economics back into the news. Hamilton has put together an analysis pointing to 2008’s oil price shocks as a sufficient explanation for the economy’s turn to recession. If Hamilton is right, it wasn’t AIG or Lehman or the real estate bubble or any of that stuff that has been monopolizing the front pages all semester. Or, at most, those were just dominoes, while oil prices were the prime mover.
All Hamilton has done is assembled some evidence that supports this viewpoint; he warns it is suggestive, not conclusive. Still, it is an interesting hypothesis, one worth additional exploration and perhaps even worthy of a front-page story in the newspaper, or two.
And it isn’t just “interesting,” it is potentially very important. If Hamilton is right, then the policy responses coming out of Congress and the current administration may be wildly off track.
(HT to Derek Thompson at The Atlantic Business blog and Keith Johnson at WSJ’s Environmental Capital. Hamilton’s paper, Causes and Consequences of the Oil Shock of 2007-08, was recently presented at the Brookings Institution.)