THE LAST TIME the world suffered through Middle East-induced oil price hikes, most nations responded with the wrong policies. Instead of adjusting to the realities of higher prices following the oil shocks of 1973-74 and 1979-80, governments in industrial and developing countries attempted to shield their people from any adverse changes in their standards of living. Following the first shock, domestic oil prices and interest rates were kept artificially low in this country in an effort to limit the costs of the increases to consumers. We ended up paying for it anyway with energy shortages, those memorable gas lines and double-digit inflation. Other nations tried to avoid the added oil costs by increasing and indexing wages. Developing countries (notably, those in Latin America) hit hard by the price shocks sought to postpone their economic adjustment by borrowing heavily to finance their balance of payments deficits -- a desire commercial banks were all to eager to accommodate.

Ultimately it took a tightening of monetary policies and a global recession in the early '80s to choke off the severe inflationary pressures spawned by the shortsighted policies of the '70s. The industrial world recovered eventually; most in the Third World, however, are still staggering from the massive debt burden they shouldered.

Yet much has happened during the intervening years to suggest that the world has learned its lessons. Oil consumption and oil imports in most industrial countries are down significantly in relation to GNP -- a sharp contrast to the 1970s. Industrial countries, therefore, should be less vulnerable to this Saddam Hussein-induced oil price increase. And this time, Third World countries won't be enticed to avoid their day of reckoning by turning to the credit market, since commercial banks are no longer able to indiscriminately place huge amounts of Eurodollars at their disposal as they once did. Instead, the more competent and expert World Bank and IMF have been induced to provide the required resources and programs to assist developing countries.

And judging from the statements by major industrial country finance ministers during the recently concluded World Bank/IMF meetings, they too are intent on avoiding the mistakes of the 1970s. "Attempts to insulate domestic energy prices through subsidies or price controls or to compensate for higher oil prices by increasing nominal wages would only serve to fuel inflationary expectations," they said. And most importantly, they stressed the need for fiscal and monetary policies that will create and sustain "noninflationary growth." This is the right stance to take. Presumably it is also a view to which Secretary of Treasury Nicholas Brady subscribes, since he joined with his finance colleagues in issuing the statement. So why is the Bush administration pressuring the Federal Reserve to lower interest rates at this time?