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Running huge budget deficits and keeping borrowing costs at record lows are only compounding current problems. These policies cannot be long-term substitutes for cheap oil because an economy can’t grow if it can no longer afford to burn the fuel on which it runs. The end of growth means governments will need to radically change how economies are managed. Fiscal and monetary policies need to be recalibrated to account for slower potential growth rates.

Energy Source

Oil provides more than a third of the energy we use on the planet every day, more than any other energy source. And you can draw a straight line between oil consumption and gross-domestic- product growth. The more oil we burn, the faster the global economy grows. On average over the last four decades, a 1 percent bump in world oil consumption has led to a 2 percent increase in global GDP. That means if GDP increased 4 percent a year — as it often did before the 2008 recession — oil consumption was increasing by 2 percent a year.

At $20 a barrel, increasing annual oil consumption by 2 percent seems reasonable enough. At $100 a barrel, it becomes easier to see how a 2 percent increase in fuel consumption is enough to make an economy collapse.

Fortunately, the reverse is also true. When our economies stop growing, less oil is needed. For example, after the big decline in 2008, global oil demand actually fell for the first time since 1983. That’s why the best cure for high oil prices is high oil prices. When prices rise to a level that causes an economic crash, lower prices inevitably follow. Over the last four decades, each time oil prices have spiked, the global economy has entered a recession.