Greenspan Says Oil Price Starting to Pinch

Alan Greenspan is the ex-Chairman of the Federal Reserve. He used to be the American central banker. He formerly held great power. Now, he is just another old guy with an opinion. That opinion, however, carries great weight, and when he told Senators on Wednesday that oil prices were starting to affect the US economy, some tore themselves away from the non-issue of gay marriage long enough to notice.

Now that he is a private citizen, he can speak more directly than when he was Fed chairman (Greenspan-speak was a language all to itself). He told the Senate Foreign Relations Committee, “Recent data indicate we may finally be experiencing some impact” on the economy from high oil prices. He also warned that a sudden price spike brought on by some future attack on a major oil facility could cause “a significant contraction in the economy.”

Mr. Greenspan’s three-hour testimony wasn’t all doom and gloom, though. Taking a page out of Econ 101, he observed, “current oil prices over time should lower to some extent our worrisome dependence on petroleum.” In other words, Americans will use less of something if it costs more. And American business “to date has largely succeeded in finding productivity improvements that have contained energy costs, ” despite the fact that consumers “are struggling with rising gasoline prices.”

Because he spoke to the Foreign Relations Committee (perhaps composed of the best senators on both sides of the aisle), he put a foreign policy spin on his remarks. Thanks to nationalizations in the 1970s and since, about 75% of the world’s oil reserves are state-owned. The increase in prices has put loads of cash into the pockets of “countries that are not friends of ours.” For the benefit of the media, he added this “is a very serious issue.'”

His advice was simple. “I'd move as quickly as I could to find out whether cellulosic [ethanol made from stuff other than corn] is a practical alternative.” He also suggested that liquefied natural gas was important – “This could be another source of replacement for petroleum.” For the 19 years he was a member of the Fed, one didn’t know he could speak so plainly. One hopes the Senators were listening.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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