Greenspan Says High Energy Costs Are Beginning To Stunt Economic Growth
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WASHINGTON – The former chairman of the Federal Reserve, Alan Greenspan, said yesterday that while the country has been able to absorb sharp increases in oil prices, high energy costs are beginning to stunt economic growth.
But he also said sharply higher oil prices have not produced any “serious erosion” of world economic activity.
“The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far,” because the nation has become “far more flexible” over the past three decades because of globalization and less regulation, Mr. Greenspan told a Senate hearing. It was his first appearance before Congress since leaving the Federal Reserve in January.
However, he added, “Recent data indicate we may finally be experiencing some impact.”
Mr. Greenspan said high oil prices, exceeding $70 a barrel and pushing gasoline costs beyond $3 a gallon in many areas, are due to a sharp decline in spare global oil production capacity, refinery shortages and, to some extent, market speculation.
But he said market speculators also have been able “to hasten the adjustment” to higher prices and eased the shock to the economy.
He warned against import or price restrictions or other interference in the market, saying, “Growing protectionism would undermine that flexibility and make our nation increasingly vulnerable to the vagaries of the oil market.”
“We’re out of the market essentially as a very critical player with respect to price,” Mr. Greenspan told the Senate Foreign Relations Committee.
But he said “current oil prices over time should lower to some extent our worrisome dependence on petroleum,” with the development of alternative fuels and broader use of electric-hybrid cars. This “would help to wean us of our petroleum dependence,” Mr. Greenspan said.
“We are gradually … weaning ourselves off petroleum. It is slow and in many ways like watching grass grow,” Mr. Greenspan said, adding that if the shift “happens smoothly, that is the best of all contingencies. … But what happens if it doesn’t go smoothly.”
