Yes. That's the astonishing conclusion of a paper presented at the Brookings Institution that I'm still having trouble wrapping my mind around. The author, economist James Hamilton, can hardly believe the conclusions of his economic model, himself (I've got company), but the findings are remarkable, nonetheless.
Hamilton went back to 2003, when crude oil was around $30 a gallon and
forecast what an oil shock like the one we experienced in 2007-08 (when
oil peaked around $140) would do to GDP. He graphed the result through
the end of 2008 and, lo and behold, it was damn close to actual GDP. As
though there were no such thing as a collaterized debt obgligation in
the first place! Here's the graph (the orange dotted line is Hamilton's
projection given oil prices; the black line is actual GDP):
Perhaps you'll join me in thinking: Huh? Are we really to believe that this whole thing was caused by oil shocks? I mean, it certainly makes you appreciate the mess Detroit is in, but really. How anti-climactic. It makes this crisis seem so ... 1970s.
What about real estate, subprime mortgages and defaults? Hamilton says the housing industry had been tightening up long before the recession -- "subtracting 0.94% from the average annual GDP growth rate over 2006:Q4-2007:Q3." And housing is factored into Hamilton's analysis. It was just one of a handful of multipliers that always turn down during oil shocks.
The Real Time Economics Blog at WSJ moves the theory forward with a pretty interesting bit of revisionist history. The grand retelling goes something like this. Cheap gasoline from the 1990s into this decade encouraged families to set up their homes farther from the cities where they worked. But as the price of gas began to increase, it put a big strain of these families' commutes. With gas rising from $2 to $4, the price of these long drives doubled, straining those families' most expensive payments, namely: mortgages. When families realized they could not afford their exurban commutes, they sold their homes for a big loss. Voila: Their mortgage crisis became a bank crisis and the rest is our living history.
Eventually, the declines in income and house prices set mortgage delinquency rates beyond a threshold at which the overall solvency of the financial system itself came to be questioned, and the modest recession of 2007:Q4-2008:Q3 turned into a ferocious downturn in 2008:Q4.
My head's still spinning a bit, but it's interesting to think about the
political consequences of a report like this being mainstreamed. If the
idea somehow stuck
that an oil shock was responsible for the financial crisis, it could be
a significant catalyzer for the push toward energy reform. Today we're
seeing a great national movement to change Wall Street because the
general consensus is that Wall Street caused this crisis. Whether
Hamilton's theory is wacko or brilliant, just imagine what a national
movement to revolutionize America's energy consumption would look like.
What if we had oil parties instead of tea parties, demanding more
government investment in alternative fuels and subsidies for green
technologies. That would really be something.