Greenspan: Energy Costs May Stunt Economy

Former Federal Reserve Chairman Alan Greenspan said that while the country has been able to absorb sharp increases in oil prices, high energy costs are beginning to stunt economic growth. "The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far," because the nation has become "far more flexible" over the past three decades because of globalization and less regulation, Greenspan told a Senate hearing. It was his first appearance before Congress since leaving the Federal Reserve in January. However, he added, "Recent data indicate we may finally be experiencing some impact."

Greenspan said high oil prices, exceeding $70 a barrel and pushing gasoline costs beyond $3 a gallon in many areas, are due to a sharp decline in spare global oil production capacity, refinery shortages and, to some extent, market speculation.

He said "current oil prices over time should lower to some extent our worrisome dependence on petroleum," with the development of alternative fuels and broader use of electric-hybrid cars. "We are gradually ... weaning ourselves off petroleum. It is slow and in many ways like watching grass grow," Greenspan said, adding that if the shift "happens smoothly, that is the best of all contingencies. ... But what happens if it doesn't go smoothly."

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