A Stick in the Stocking: Santa’s Supply Shock
It’s déjà vu all over again: another oil “supply shock.” Seems like we’ve had one every few weeks for the past few months. Santa stuck another one in the Christmas stocking, and by New Year’s Eve crude oil prices fell to Great Recession levels.
Frankly, though, an oil supply shock is hardly . . . well, hardly shocking by now! Furthermore, this is the kind of oxymoronic “shock” people enjoy, or at least most people in a growth-obsessed economy. We have a sudden increase in production and therefore drop in price, due mostly to OPEC. The drop in price sort of undermines the meaning of shock, no? Gas is below $2/gallon. “If such is a shock,” we say, “bring it on!”
Historically, though, the phrase “supply shock” would evoke deprivation, pain, and fear. In the 19thcentury the most notorious supply shock was the dramatic decrease in the availability of whale oil in the 1860s, due partly to the side-tracking of the New England whaling fleet during the Civil War. Sperm whale oil had been the predominant domestic fuel, used in household lamps as well as for heating, and adjusting to different fuels wasn’t easy.
In the 20th century, perhaps the biggest supply shock was the OPEC oil embargo of 1973. This time, there was no other significant fuel to adjust to, and the embargo resulted in a historic stock market crash. Now that’s a supply shock.
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