Via Andrew Sullivan, Derek Thompson examines a new Brookings Institution report in which economist James Hamilton argues that the economic crisis was caused by the sharp rise on oil prices that occurred over the last several years:
Hamilton went back to 2003, when crude oil was around $30 a gallon and forecast what an oil shock like the one we experienced in 2007-08 (when oil peaked around $140) would do to GDP. He graphed the result through the end of 2008 and, lo and behold, it was damn close to actual GDP. [...]
What about real estate, subprime mortgages and defaults? Hamilton says the housing industry had been tightening up long before the recession — “subtracting 0.94% from the average annual GDP growth rate over 2006:Q4-2007:Q3.” And housing is factored into Hamilton’s analysis. It was just one of a handful of multipliers that always turn down during oil shocks.
When considering the impact that oil prices had on the U.S. economy, it’s also obviously worth considering what impact the Iraq war — by creating greater uncertainty and risk in the world’s leading oil producing region — had on oil prices. According to a leading oil economist, Dr. Mamdouh Salameh, the Iraq war “tripled the price of oil…costing the world a staggering $6 trillion in higher energy prices alone”:
Salameh, who advises both the World Bank and the UN Industrial Development Organization (Unido), [said] that the price of oil would now be no more than $40 a barrel, less than a third of the record $135 a barrel reached last week, if it had not been for the Iraq war.
This is part of the combined impact of the war on the U.S. economy that economist Joseph Stiglitz placed at around $3 trillion, possibly going as high as $5 trillion. Of course, these are just the economic costs — there are numerous political and security costs still to be tallied, but they all need to be kept in mind when confronted by conservatives arguing that the Iraq war was, in any sense, “worth it.”