油价上涨标志经济滞胀.docx

5The Rising Oil Prices: A Sign In Economic StagflationIn this century, the oil prices continue to grow. Prices have exceeded over one hundred forty dollars per barrel until August 4, 2008. As oil is one of the main resources in our daily life, its fluctuation of price can bring many extremely disadvantageous influences to the world economy. Most countries, except for a few oil exporting ones fell into trouble. At that time, every country faced different problems and pressures. For example, the world economics presented the obvious sign of stagflation. Although, every country quickly adopted different policies to change the situation of economic decline, they did not find any efficient methods. The only thing can we do is to follow the economic disciplines. The world crude oil has entered a long term of bull market since 2002. Currently, the oil price had risen 400 percent more than before in national market, and this trend did not stop. The continued rising price attacked the economy heavily, so many people tried to find out the reason of oil price growth. By researching, people got these three ideas: the U.S. dollar devaluation, that demand exceeds supply, and territorial disputes.No matter in theory or reality, the tendencies of oil price and U.S. dollar had negative correlation. It was obvious after 2001. Because the U.S. dollar devaluated these years, and the most of oil markets used the dollar quotation method. So, the oil price had to rise. There were some people who thought it was because America had been in conflict with Iran for a long period, and Iran used oil prices as armor. So, it stimulated people to purchase large quantities of oil. Therefore, the oil prices rose. Besides, many countries economies grew rapidly especially in China and India. This led to the growth of oil demand. However, some oil-producing countries and companies did not improve oil produce on time, so the petroleum fell short of demand, and the oil price rose. In the meantime, the oil-producing countries and companies got big benefits from high oil prices. In order to get more money, they decreased oil produce. So, the situation of demand exceeding supply became more serious. Overall, most economists recognized that the last idea was the main reason for rising oil prices. There are many influences of rising oil prices. The increasing prices can not only increase the prices of oil alternatives (such as coal and gas), but can also increase the price of grain. When the oil and components of chemical manure prices increased, some farmers, who had low productivity, would quit. The more the oil price increased, the more farmers quit producing grains. So, some prices of productions, which had no relationship with oil, would rise when oil price increased.The rapidly increasing oil prices had close relation with the failing economy. The first oil crisis happened in 1973 through 1974; the OPEC-Organization of Petroleum Exporting Countries decreased the oil exports. The national oil price increased form 3 dollars to 12 dollars per barrel. Meanwhile, the developed western countries economies started to deteriorate. During 1973 and 1975, the American GDP dropped 0.7 percent. The second oil crisis happened from 1979 to 1980, Iran and Iraq started a war, and the oil production increased. The oil price rose from 14 dollars to 40 dollars per barrel. This oil crisis also affected the main western industrial countries, and their economies fell. The American GPA dropped 0.23 percent. The same situation showed in the third oil crisis in 1990. We clearly received an idea of the relationship between rising oil prices and declining economies from the three crises. Rising oil prices can lead to economic slump by researching the data.However, the economic decline was an important element of stagflation. The oil crisis was economic recessions catalyst. The economics slump was a situation of high inflation, slow economic growth, and high unemployment. From the late 1960s to 1970s, some developed and capitalist countries faced these three problems at same time. This situation broke the Keynesian macroeconomic theory that unemployment and inflation cannot develop in the same direction (J. M. Keynes). People tried to find the method, which can solve economic downturn in a long time. For example, America met new economic growth after experiencing 13 years of downhill coasting. President Ford and President Carter adopted gradual recovery economic policies. There were two specific measures. On the one hand, it stimulated economic growth by cutting taxes. On another hand, it funded public serves. However, they did not work obviously until Regan entered White House in 1981. President Regan believed that the government excessive intervened economy, and limited the economic energy. So, he adopted “supply-side economics,” and controlled money supply. People called it Reaganomics. The main contents of Reagans economic policy reduced government intervention of economy, reduced government spending, reduced taxes, and controlled money supplies. Reagan carried out the biggest scope of reducing tax policies in America (1981). It was all individual income tax rates that were reduced by 30 percent in three years. This way, the economic energy was successfully released. It led both economic growth and reduced employment rates. It also helped the federal government get more tax money. For stimulating business investment, Reagan used tight money supplies to coordinate with reducing taxes. He controlled money supply as a main goal. Unfortunately, the economy fell to the bottom, even breaking the record of the Great Depression at its beginning. All through the economic crisis, he never give up the tight monetary policy. The economy miraculously grew in 1982, and the growth lasted many years. This growth became the longest economic expansion in American history. The small money supply decreased the inflation rate. In summary, an economy suffering from stagflation has a hard time recovering.There was no easy choice for decision-makers when the slump began. It must be a certain degree of unemployment combination with high inflation, or a certain degree of inflation combination with high unemployment. Both of them were not looked forward to. If the decision-makers adopted liberal economic policy to stimulate aggregate demand, the wages would decrease. The decreasing labor costs offset the increasing oil prices. If the decision-makers adopted tighter economic policies to reduce demand, then the inflation would recede while the unemployment would increase. One more method was to do nothing. Let the market automatically adjust itself. In my opinion, we should depend on the market mechanism to solve the question of economic stagflation. Because high oil prices had close relation with economic decline, the econo