A good example is the recent surge in oil prices. Unlike in the 1970s and 1980s when price spikes had led to recessions, almost every country worldwide experienced an increase in GDP and mild inflation in 2004-5.
Becker says that businesses have learnt from the past and are better at making adjustments against shock rises. Alternative sources of energy will also become increasingly competitive, nuclear in particular. "You cannot conceive of a good policy in this area without recognising that technology will revolutionise our future capacity to use nuclear power safely," he said.
Circumstances will also change our perception of what is acceptable and what is not. For instance, deposits once seen as too onerous to reach could become profitable as oil prices rise. Reduced dependency on the Middle East could in turn provide better political stability. And consumers faced with systematically high energy prices might opt for cleaner, energy efficient alternatives (like a hybrid car rather than a SUV).
"We won't see in my lifetime a real price of oil anywhere near $200 per barrel," Becker concluded. But energy prices might keep on rising past our current record, and similarly, businesses will keep on innovating and finding ways to navigate round high energy prices.
Source: Can we survive the rise in energy prices?
Review by Emilie Filou