High oil prices are bad for the world for any number of reasons. They cause inflation, which enriches the wealthy before indirectly causing unemployment once interest rates are increased by central bankers. They directly redistribute wealth to the wealthiest, because the average oil consumer - a blend of countless Third World village women cooking on primus stoves, thousands of tycoons burning kerosene in their private jets, and the millions of the rest of us who variously heat, drive, fly or perhaps boat with fuel oil, diesel and petrol while using any number of petrochemicals - is much poorer than the dynasts, dictators, kleptocrats and oilmen who sell the stuff. For the same reason, increases in the price of oil tend to depress worldwide demand, production and employment, because the aforementioned dynasts, dictators, kleptocrats and oilmen tend to save much more of their extra revenues than the consumers from whom they are extracted, so that the effect is both inflationary in the short term and deflationary later on: a prescription for the dreaded stagflation that afflicted advanced economies during the 1970s, not coincidentally a time of multiplying oil prices.

LRB 5 October 2000 | PDF Download