Sky-high oil: in an article in our last issue, global strategist Philip Verleger predicted a coming scenario of $100 oil, 5 percent inflation, and a coming recession. Question: How disruptive would $80-$100 oil be to the U.S. and global economies? TIE asked three important experts.

• Author: Verleger, Philip
• Position: Economic effect in oil demand

The economic impact of oil at $100 a barrel would depend on the source of the price increase. If, as some experts foresee, prices rise as a result of continued buoyant growth, combined with limited oil production and refining capacity, a price increase will damp the boom but is unlikely to reverse it. A redistribution of purchasing power from consumers to producers (including governments in oil-exporting countries) will arrest the growing demand for oil and damp growth in demand for other goods and services, as gainers are likely to spend more slowly than losers retrench. Still, in a vigorous economy expected to remain so, losers may simply borrow to cover their desired expenditure, as American and British homeowners have shown a willingness and ability to do.

In contrast, if the $100 price is brought about through serious disruption in supply--through terrorist action, civil war, or natural event--and if the disruption is seen as likely to persist for some time, oil-consuming losers are more likely to contract their non-oil spending and thereby to produce an economic slump.

One characteristic of the 1970s, still a possible danger but much less likely in today's economic environment, is that actual or feared attempts by organized labor to restore their real wages will lead to a significant tightening of monetary policy to head off inflation, thereby bringing on a recession.

RICHARD N. COOPER Maurits C. Boas Professor of International Economics Harvard University

The answer depends on the source of the increase in the oil price. The implications might actually be good for the economy if it were the result of rapid economic growth in China and elsewhere in the world. But it would be bad for the economy it were the result of disruptions such as new terrorist attacks, or political instability in Nigeria or the Gulf, or aggressive moves by the heads of state of Venezuela or Russia, or military conflict with Iran or--the most disruptive nightmare of all- a genuine democratic election in Saudi Arabia. Of course a sudden shock to oil prices would be more disruptive than a gradual rise.

The more interesting question is, "What would good U.S. public policy be?" Good policy, in pursuit of the triple goals of national security, environmental quality, and economic stability, would be to increase overall U.S. energy conservation and switch the composition of energy away from fossil fuels. The slogan of decreasing dependence on imported oil is prone to...