Christopher Swann

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It’s not just the bankers’ fault

By Christopher Swann
May 27, 2009

The heads of the big investment banks make appealing targets for public opprobrium – even after they have cut their salaries to a dollar a year. It’s been much easier to put a face on this economic downturn than the slump of the 1930s.

Few would dispute that financial mischief was mostly responsible for tripping up the global economy. But the Congressional Budget Office is making the case that we should not discount the importance of a more faceless recession-generator – oil.

Our current slump adds to the tally of postwar US recessions preceded by a run up in oil. According to James Hamilton, the latest count is 10 out of 11. The CBO contends that the surging oil price has been underrated as a catalyst for America’s economic woes. Even in the absence of the financial crisis, they say, it would have been sufficient to cause a mini-recession. In the hierarchy of recession culprits, they place it above the collapse in housing construction and the negative wealth effect from falling property prices.

Since the US is itself a large oil producer, a rise in the price is a boon for some Americans. As a result the CBO focuses on petroleum imports – which climbed from 1.3 percent of GDP at the end of 2003 to 3.7 percent in the third quarter of 2008. This, they say, was equivalent to a sharp tax hike and “certainly weakened growth”.

At least our pin-striped friends in London and New York don’t have to take all of the blame.

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