The United States is by far the world’s leading oil importer. Thus, when the price of oil goes up, our economy is severely taxed. At the beginning of 2011, many economists were talking about an emerging U.S. economic recovery. Yet by spring, as oil prices climbed above $100 per barrel, it became apparent to all who were paying attention that no escape from recession was in sight.
The economic impact of oil prices on the American economy is shown on the graph below, which compares oil prices (adjusted for inflation to 2010 dollars) to the unemployment rate from 1970 to the present. Every oil-price hike for the past four decades, including those in 1973, 1979, 1991, 2001, and 2008, was followed shortly afterwards by a sharp rise in American unemployment.
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