With record-breaking oil prices nearing $55 a barrel, just about everyone last week was worrying about them -- everyone, that is, except Fed Chairman Alan Greenspan.
Automakers complained about the impact of higher gasoline prices on sales of high-profit sport-utility vehicles, while retailers reported that the money spent at the pump was not being spent at their stores. The government reported that manufacturing output, which at times is particularly sensitive to energy prices, fell in September, while the flow from U.S. oil wells dropped to its lowest point in 50 years, reflecting disruptions from both Alaska and the hurricane-battered Gulf of Mexico. Consumer confidence continued its downward drift.
Overseas, French farmers blocked roads and fishermen blocked ports in an effort to win government compensation for rising fuel prices. The head of the European central bank, Jean-Claude Trichet, said the oil price rise was now creating uncertainty about the economic outlook.
There was also nervousness on Wall Street, where the Dow Jones industrial average ended the week below 10,000 once again and long-term interest rates dropped as investors recalibrated their expectations for economic growth. In private, policymakers began to worry about oil-induced stagflation.
But not Greenspan. In a speech to the National Italian American Foundation, the Fed chairman dismissed all the hand-wringing about permanently higher prices and constricted supply, recalling similarly dire predictions of the 1970s. Greenspan assured that new investment would soon smooth out the short-term bottlenecks at the nation's refineries, while new technology would allow oil companies to find plenty of new reserves and get more oil out of those they already have. And Greenspan expressed confidence that by the time the world really does begin to run out of oil at mid-century, the transition to the next major source of energy will have already begun, just as it did when wood gave way to coal and coal to oil.
There was little in Greenspan's speech that has not been voiced by oil industry executives, who share his confidence that prices will soon return to more normal levels. But as prices continued to rise last week there were other analysts warning that the dynamics of the world energy markets were in the process of a more fundamental shift for which history may prove a less reliable guide.