During the original oil shock, consumption dropped by as much as half. Was there a corresponding drop in quality of life? I would say no. There is massive shado

During the original oil shock, consumption dropped by as much as half. Was there a corresponding drop in quality of life? I would say no. There is massive shadow-marginal inefficiency in transport, and the signals are always masked for political reasons. It is much more likely that the Scott Sumner hypothesis - the oil bump in '08 caused a "false" signal of inflation that the Fed misread as real inflation, and subsequently tightened the money supply - is true. He will go so far to say that this may have caused the meltdown itself. I am a big James Hamilton fan, and I think I see where he's going with this ( we need to expand the money supply ) but this particular correlation is at best a strawman. It is interesting, but it's pretty clear to me that demand-destruction for oil is its own good. It always comes back to Hayek - the knowledge problem will be with us always - but Hayek didn't have much to say about deflation.