Economic history · Nothing Left to Hold It
Eight steps, about twelve minutes, a question at each. You need no economics and no preparation, only a willingness to guess before you are told.
This part takes as read that eleven countries met the same dollar price for oil in 1974 and their inflations came out more than three times apart, and that pay, the currencies and money growth have already been tested.
This is part eight of twelve. The eleven are the United States, Japan, West Germany, the United Kingdom, France, Italy, the Netherlands, Sweden, Switzerland, Canada and Australia.
Iran had a revolution, its crude output fell every year from 1978 to 1981, and the price climbed to a new level over more than a year. Germany's council of economic advisers reported that the industrial countries went after the quantity of oil they imported rather than its price. One of those countries changed what it did to the price of its own crude.
Peaks are then compared over two windows, 1972 to 1977 and 1978 to 1983. Japan's peak fell the most of the eleven across those two windows, and the United States is one of those whose peak did not fall. The last two steps take those two countries, and neither is explained; the question of why the eleven differed goes to all of them at once in part nine.
What this module covers
Written for every level. Tap any underlined word for what it means, and open the boxes below for the economics behind each decision. If you already know the theory, skip both and the history reads straight through.
Step 1 of 8
At the end of the 1970s the crude oil price rose again. The governments and official advisers writing about it in 1979 and 1980 set it against the rise of 1973 and 1974.
Germany's council of economic advisers delivered its annual assessment in November 1979, and the federal government laid it before the Bundestag. The 1979 assessment has a section headed adapting to expensive oil, whose first sentence says the energy problem requires economic policy to reduce the economy's dependence on oil.
Japan's Economic Planning Agency, a government office reporting on its own economy, reported on 15 August 1980 and set the two episodes side by side. One of its headings names the difference between the previous movement in Japanese prices and the present one.
The Federal Reserve has since published a history of the period, written by one author at its Atlanta bank. It records the second shock as associated with events in the Middle East, like its 1973 to 1974 predecessor, and adds that strong world demand for oil drove it as well.
Take a guess. You are not expected to know the answers, and being wrong is what makes a number stick.
Measured on one monthly price series, the first oil price step arrived in three separate increases. How did the rise of 1979 and 1980 arrive?
For scale. Germany's council of advisers was writing in November 1979, five months before the price settled at its new level.
Iran produced 5.24 million barrels of crude oil a day in 1978, on the Energy Information Administration's annual series. That was the year its revolution began.
The revolution began in early 1978 and ended a year later with the collapse of the Shah's reign. Iranian fell in 1978 and again in 1979.
It fell again in each of the next two years. By 1982 it was back up to 2.21 million barrels a day.
The history the Federal Reserve published says the disruption may not have been the most important thing pushing prices up. It says the disruption may instead have prompted a fear of further disruptions and widespread speculative hoarding.
The same history reports one estimate that a surge in demand was responsible for much of the rise in the cost of oil during the crisis. On that estimate the surge came from a booming world economy and a sharp rise in buying for safety.
Iran produced 5.24 million barrels of crude a day in 1978. How much a day was it producing in 1981?
For scale. Iran had produced 6.02 million barrels a day in 1974 and 5.66 million in 1977, on the same annual series.
West Texas Intermediate, the American crude price, sat at $14.850 a barrel from August 1977 to January 1979 without moving.
That is in dollars of the day, not adjusted for inflation. The price then climbed through 1979 and settled again at one level for four months in the spring and summer of 1980.
The quoted price holds one figure at a time and moves from one to the next. Both price steps are measured the same way, from the flat level before the rise to the flat level at the top of it.
The United States controlled the price of its own crude across part of both price steps and took the controls off in phases from June 1979, which step five records. No source here establishes what that did to the quoted price.
The dollars a rise adds to a barrel and the share it lifts the price by are two different sizes. Two rises can rank one way on the first and the other way on the second.
West Texas Intermediate sat at $14.850 a barrel from August 1977 to January 1979. What did it settle at over April to July 1980?
For scale. In the first step West Texas Intermediate ran from $3.560 a barrel over December 1970 to July 1973 to $11.160 over October 1974 to January 1976. That is $7.60 more, and $11.160 is 3.13 times $3.560.
Module 8 of 12 in Nothing Left to Hold It
[1] What a barrel of West Texas crude cost, month by month: Spot Crude Oil Price: West Texas Intermediate, carried by the Federal Reserve Bank of St. Louis on FRED.
[2] How much crude oil Iran produced, year by year: United States Energy Information Administration, International Energy Statistics.
[3] Consumer price inflation in each of the eleven countries, year by year: Organisation for Economic Co-operation and Development, consumer price indices, carried by the Federal Reserve Bank of St. Louis on FRED.
[4] How fast pay in manufacturing rose in each country, year by year: Organisation for Economic Co-operation and Development, Main Economic Indicators, hourly earnings in manufacturing, carried by the Federal Reserve Bank of St. Louis on FRED.
[5] What a history published by the Federal Reserve says about the second oil shock: Federal Reserve History, “Oil Shock of 1978-79”, Laurel Graefe, Federal Reserve Bank of Atlanta.
[6] What the German government's council of economic advisers told parliament the industrial countries were trying to do about oil: Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, Jahresgutachten 1979/80, Deutscher Bundestag Drucksache 8/3420, 22 November 1979.
[7] What the President's economic advisers said in January 1980 about oil: Council of Economic Advisers, Economic Report of the President, January 1980, carried by FRASER.
[8] What the President's economic advisers said a year later about their own oil price and about the exporters': Council of Economic Advisers, Economic Report of the President, January 1981, carried by FRASER.
[9] How the Japanese government compared the second oil shock with the first: Economic Planning Agency, Japan, Annual Report on the Japanese Economy 1980, 15 August 1980.
Country data from the World Bank (CC BY 4.0) and the UNDP Human Development Report (CC BY 3.0 IGO)
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