WASHINGTON – Former Federal Reserve Chairman Alan Greenspan said Wednesday that while the country has been able to absorb sharp increases in oil prices, the high energy costs are beginning to stunt economic growth.
But he also said that sharply higher oil prices have not produced any "serious erosion" of world economic activity.
"The United States, especially, has been able to absorb the huge implicit tax of rising oil prices so far," Greenspan told a Senate hearing in his first appearance before Congress since leaving the Federal Reserve.
"However, he added, "recent data indicate we may finally be experiencing some impact."
Greenspan said the high oil prices, exceeding $70 a barrel resulting in gasoline costs to sore beyond $3 a gallon, are due to a sharp decline in spare global oil production capacity, refinery shortages and to some extent market speculation.
He said that American business "to date has largely succeeded in finding productivity improvements that have contained energy costs." But he said consumers "are struggling with rising gasoline prices."
Greenspan, appearing before the Senate Foreign Relations Committee, said he saw little chance that the narrow gap between global oil supply and demand will expand anytime soon.
But 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. This "would help to wean us of our petroleum dependence," Greenspan said.
He said the United States has been able to "absorb the huge impact of rising oil prices with little consequences to date because it has become far more flexible" over the past three decades because of less regulation and globalization.
But he warned against import or price restrictions or other interference in the market.
"Growing protectionism would undermine that flexibility and make our nation increasingly vulnerable to the vagaries of the oil market," he said.