Excuses must be distinguished from reasons. The excuse for the oil crisis that hit the world after the Arab-Israeli War in October 1973 was political: the Arab countries were unshielding the "weapon" of oil to induce other countries to put pressure on Israel to make concessions to the Arab nations and the Palestinian refugees. The reason, I believe, was very different: to exploit the monopoly position of an oil cartel that has been developing now for some years. The excuse furnished window dressing for the naked exercise of monopoly power. It also furnished some of the cement required to hold the cartel together.
The initial success of the cartel was dramatic. The price of oil was tripled and quadrupled in brief order. This success produced widespread panic throughout the oil-consuming countries. There is a strong tendency for all of us--but particularly for politicians and journalists--to have a short time perspective and to extrapolate into the indefinite future what is happening today. That is why each crisis gets overblown, gets treated as the worst or best or greatest from time immemorial.
For an economist, it was obvious that the initial success could not last. It is a key proposition of economics that nothing can influence price except as it affects the quantity demanded or the quantity supplied. The mere pronouncement by OPEC (Organization of Petroleum Exporting Countries) of higher prices was unimportant. What was important was their decision to cut production below the level that they had earlier planned to produce. How much a given cut in production affects prices depends on what economists call the "elasticity" of demand by consumers and of supply by other producers. The cut in OPEC production must one way or another be offset either by a cut in consumption or by an in-