Bob Gariano : Check recent history to keep economic turmoil in perspective
[Bob Gariano is President of RGA, an executive search firm in Lake Forest that recruits senior executives and board members for public and private companies. Bob can be reached at rgariano@robertgariano.com]
There seems to be a constant flow of bad economic news these days.
In an environment of recession and commercial uncertainty, it is easy to predict dramatic and unprecedented catastrophes on the horizon. Certainly, this is a time for deliberate action and considered leadership; however, the direst forecasts for our economy are probably overstated. In this time of challenging economic problems, we might be wise to reflect on some other bruising economic events in our nation's recent history. It helps to keep things in perspective.
The Arab oil embargo
In 1973 the Organization of Arab Petroleum Exporting States declared that their member states would no longer ship oil to the United States and certain other countries if "these countries continued to support Israel in its conflict with Syria, Egypt, and Iraq." It came as no surprise that this oil embargo placed an enormous and artificial burden on western economies. In 2007 dollar terms, oil jumped from less than $20 per barrel in 1971 to over $60 per barrel in 1973. The second oil shock in 1976 drove inflation adjusted prices for crude oil to over $100 per barrel.
The effect of this political action precipitated stomach churning events in every modern economy. Dependence on foreign oil was and still is a deeply embedded addiction for most contemporary economies. One immediate effect of the 1973 embargo was that the US stock market crashed in 1974 and lost more of its equity value in six weeks than at any time since the great depression. The embargo's effect on consumers was also dramatic. Long gas lines formed at service stations as well meaning US government price controls and gasoline rationing proved to be counter productive.
Positive effects
Nevertheless, some positive actions came out of the crisis. In 1975, Congress enacted regulations for passenger car fuel efficiency that came to be known as Corporate Average Fuel Economy standards. To our north, Canada found exploration of Alberta's oil sands to be economical and started a commercially attractive extraction program still running today.
At the same time, as a net oil exporter, the Soviet Union, whose economy had stagnated to the point of collapse, found renewed vigor. Some historians suggested that the country was on the verge of revolution and anarchy in 1970. The USSR not only survived for another decade, they became a significant customer for American grain and some other consumer products, all purchased with their new oil wealth.
Elsewhere, at the same time, ingenious work was started to get the oil monkey off the backs of some developing economies. In one of the most successful, Brazil implemented a national crude oil replacement project called Proalcool. This program developed the technology and infrastructure to produce ethanol from sugar cane for use in vehicles. Today, Brazil's almost complete independence from imported oil is based on an ethanol vehicle fuel infrastructure....
Read entire article at http://www.pioneerlocal.com/lakeforest
There seems to be a constant flow of bad economic news these days.
In an environment of recession and commercial uncertainty, it is easy to predict dramatic and unprecedented catastrophes on the horizon. Certainly, this is a time for deliberate action and considered leadership; however, the direst forecasts for our economy are probably overstated. In this time of challenging economic problems, we might be wise to reflect on some other bruising economic events in our nation's recent history. It helps to keep things in perspective.
The Arab oil embargo
In 1973 the Organization of Arab Petroleum Exporting States declared that their member states would no longer ship oil to the United States and certain other countries if "these countries continued to support Israel in its conflict with Syria, Egypt, and Iraq." It came as no surprise that this oil embargo placed an enormous and artificial burden on western economies. In 2007 dollar terms, oil jumped from less than $20 per barrel in 1971 to over $60 per barrel in 1973. The second oil shock in 1976 drove inflation adjusted prices for crude oil to over $100 per barrel.
The effect of this political action precipitated stomach churning events in every modern economy. Dependence on foreign oil was and still is a deeply embedded addiction for most contemporary economies. One immediate effect of the 1973 embargo was that the US stock market crashed in 1974 and lost more of its equity value in six weeks than at any time since the great depression. The embargo's effect on consumers was also dramatic. Long gas lines formed at service stations as well meaning US government price controls and gasoline rationing proved to be counter productive.
Positive effects
Nevertheless, some positive actions came out of the crisis. In 1975, Congress enacted regulations for passenger car fuel efficiency that came to be known as Corporate Average Fuel Economy standards. To our north, Canada found exploration of Alberta's oil sands to be economical and started a commercially attractive extraction program still running today.
At the same time, as a net oil exporter, the Soviet Union, whose economy had stagnated to the point of collapse, found renewed vigor. Some historians suggested that the country was on the verge of revolution and anarchy in 1970. The USSR not only survived for another decade, they became a significant customer for American grain and some other consumer products, all purchased with their new oil wealth.
Elsewhere, at the same time, ingenious work was started to get the oil monkey off the backs of some developing economies. In one of the most successful, Brazil implemented a national crude oil replacement project called Proalcool. This program developed the technology and infrastructure to produce ethanol from sugar cane for use in vehicles. Today, Brazil's almost complete independence from imported oil is based on an ethanol vehicle fuel infrastructure....