Oil and the Economy: The Impact of Rising Global Demand on the U.S. Recovery

On May 20th 2009, the Joint Economic Committee of the U.S. Congress held a sparsely-attended hearing on the implications of rising world oil demand for the U.S. economy. JEC chair Representative Carolyn Maloney (D) delivered an opening statement, James D Hamilton, economics professor at UCSD and founder of Econbrowser spoke, followed by Daniel Yergin, author of The Prize and Co-Founder and Chairman of Cambridge Energy Research Associates.

The initial statements weren't that interesting. Hamilton cautioned that demand could well drive up prices again, while Yergin advised that our strategic future lies with Canada's "oil sands." But they seemed to agree on a lot more than they did before the economy tanked.

During question and answers, both committee members and speakers recognized that securing our "energy independence" now involves procuring energy from a variety of sources. Yergin proposed nuclear plants to provide the heat necessary to cook the bitumen in "oil sands" into synthetic oil. No one dismissed nuclear although Hamilton at least mentioned the risks.

The discussion of "hedging" vs "speculating" near the hour mark is worth following.

Hamilton quoted himself in this guest blog for the Washington Post:

We have seen a number of episodes over the last half century in which the price of oil shot up dramatically, and each time it was followed by an economic recession. I'm persuaded that the oil price surge over 2007-08 was also an important factor that contributed to the economic recession that began in 2007:Q4.

The historical experience has been that even very large oil price increases cause relatively little immediate change in the quantity of oil consumed. The response of consumers to energy price increases over 2004-2006 was, if anything, even smaller than those historical estimates. It was not until the price rose substantially over $3 a gallon that we began to see some significant changes on the part of American consumers. Unfortunately, those changes in spending patterns can be quite disruptive for certain key economic sectors and seem to be part of the mechanism by which the earlier oil price shocks had contributed to previous economic recessions.

Despite the hearing being chaired by Representative Maloney, and in contradiction to the testimony actually given, another Joint Economic Committee website seems to be focused on Ranking Republican Representative Kevin Brady (R), who echoed the Drill, Baby Drill mantra of last year as he took a few shots at the current administration:

Instead of encouraging U.S. oil and gas production, the federal government has placed excessive limits on exploration and drilling, including effectively making off-shore drilling impossible in many areas. The Administration would further penalize oil and gas production by the imposition of a variety of new energy taxes.

The majority Joint Economic Committee website has posted a 70+ minute video of the hearing and PDFs of each speakers comments.

Hamilton has published his full testimony in text.

Update: I'll have to watch again, but I don't remember anyone using the word, conservation.