Paul Krugman Channels Jimmy Carter, and The Club of Rome

John Tamny|Forbes

In a 1979 speech given amid skyrocketing oil prices, President Jimmy Carter noted about Americans that “too many of us now tend to worship self-indulgence and consumption.” Carter wanted Americans to consume less, to essentially practice self-denial on the way to what he thought would be lower prices across the board.

Of course Carter was merely parroting a book titled Limits to Growth produced by the Club of Rome. The book, popular in the 1970s, suggested Malthus was in fact correct, that we were running out of resources – oil specifically – and that a growing global population (the U.S. population easily consuming more than any other country) would have to learn to get by with less due to commodity supply depletion.

Not understood by either Carter or the Club of Rome was that oil and commodities weren’t rising, rather the value of the dollar was in sharp decline. Money is a veil, and the real price of oil wasn’t rising much at all.

Indeed, while the price of oil from 1975-79 increased 43 percent in dollar terms, the global story was a great deal different. Over that same time frame the price of oil in West German marks and Japanese yen rose 1% and 7% percent respectively. In Swiss francs the oil price actually fell 7%.

What economists and journalists to this day term “oil shocks” were nothing of the sort. For countries that maintained the value of their currencies, oil for them didn’t spike in the least.

OPEC of course explained the dollar-driven “oil shocks” to the U.S. political class in a communiqué sent out five weeks after President Nixon severed the dollar’s link to gold. As the letter stated:

“….Member Countries shall take necessary action and/or shall establish negotiations, individually or in groups, with the oil companies with a view to adopting ways and means to offset any adverse effects on the per barrel real income of Member Countries resulting from the international monetary developments as of 15th August 1971.”

With the dollar lacking a gold definition, it went into freefall, and oil, per OPEC’s warning, spiked. As Robert Bartley put it in his classic book, The Seven Fat Years, “There the ‘energy crisis’ was born.”

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