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While learning their lessons, though, the industrial nations suffered great economic hardship. The price increase virtually sucked money out of the countries as fast as they could print it, which slowed growth and aggravated inflation and unemployment. Many Western countries finally began to break free of that pattern this year, thanks to falling interest rates and the decline in oil prices. Conservation measures now enable the industrial economies to grow without increasing energy use at the same rate. Between 1973 and 1985, the U.S. economy expanded by almost one-third while energy consumption fell slightly. Says Rimmer de Vries, chief international economist for Morgan Guaranty Trust: "We used to be hooked on oil. But now the tight relationship between oil and growth has been considerably loosened."
Falling oil prices have greatly eased the problem of global inflation. Economists expect U.S. consumer prices to rise about 1.7% in 1986, the least since 1965 and about half the level forecast at the beginning of the year. Defused inflation has in turn enabled central bankers around the world, including the U.S. Federal Reserve Board, to stimulate their economies with fairly easy credit. When the leaders of the seven major industrial countries meet for an economic summit next month in Tokyo, they may push even harder for growth by agreeing to lower interest rates or cut taxes. Walter Heller, who was chief economic adviser to President Kennedy, believes that the U.S. economy will start growing at a healthy 4% to 5% rate by the end of the year.
A much lower oil bill will help the U.S. make progress against its two most stubborn economic problems. Boosted by cheap fuel, a robust economy could reduce federal budget deficits by a total of more than $100 billion during the next three years, according to one estimate. Less costly oil imports should cut the U.S. trade deficit, which hit $148.5 billion in 1985, by some $30 billion a year.
Wall Street has become so enthralled by cheap oil that the slight rise in crude prices at the end of last week helped trigger a spasm of disappointment in the stock market. Fearing that petroleum has already fallen as far as it can go, investors sent the Dow Jones industrial average plummeting a record 82.50 during the week, to close at 1739.22. Earlier the Dow had ended the first quarter up 17.6% since the beginning of the year.
The anticipated U.S. growth spurt may be delayed for several months while / the economy absorbs the oil-patch troubles. The beleaguered economies of Texas, Louisiana and Oklahoma, which account for 10% of total U.S. goods and services, are large enough to create a drag on the rest of the country. Major American oil companies have made billions of dollars in budget cutbacks, and that will at least temporarily offset the increased spending by other firms preparing for the good times ahead.