University of San Diego Professor James Hamilton has a weblog you will definitely want to check out. He wrote the book -- or at least a couple of important chapters -- on the economic effects of oil prices, and that is the topic of his most recent post. He says things are different this time around:
All but one of the U.S. recessions since World War II have been preceded by a dramatic increase in crude petroleum prices. Recent turbulence in energy markets has some analysts speculating that, in the immortal words of Yogi Berra, it could be deja vu all over again. But this oil price shock differs significantly from earlier episodes, leading me to believe that the economy will be able to adapt to the new pricing environment without a major economic slowdown.
In essence, this time around it's a demand shock, not a supply shock.
By contrast [to previous episodes], global oil production has increased steadily during the current episode. The run-up has been caused this time not by a shortage of supply but rather by booming world demand (see What's up with oil prices?). The strong world economic growth that produced this demand overall must be regarded as good economic news, not bad. And although we have again seen West Texas intermediate nearly double from $28 in September 2003 to $54 today, this time the increase required a year and a half rather than just three months.
I've expressed some skepticism about how far this argument can go, but you should nonetheless run, not walk, to see what Professor Hamilton has to say.
UPDATE: My colleague Chuck Carlstrom -- a San Diego native -- reminds me that Professor Hamilton's affiliation is the University of California at San Diego, not the University of San Diego, a different place all together.