ECONOMIC

consumption we would not have chosen if more oil had been available ata lower price.How much these costs will amount to is exceedingly difficult to estimate.A clue to their magnitude is given by the fact that the increased cost of U.S.oil imports due to the oil price rises of October and December 1973 wouldbe less than 1 percent of the gross national product (GNP) in 1974, with avolume of imports that would have occurred at the pre-October prices. Thisis probably an outside estimate of the costs in 1974 (aside from the transitionalcosts already noted) because there would be adaptations of variouskinds. The amount is large and justifies a strenuous effort to reduce it, bygetting the foreign price down and by developing cheaper sources at home.Whether the cost will continue to rise, relative to GNP, will depend on thecosts of producing additional amounts of energy from new sources.4. Balance of payments and other international consequences. All of theother oil-importing countries of the world will suffer the effects of the cutin supplies and the increase in prices of oil. In fact, most of these countrieswill be more seriously affected than the United States, because their importsof oil are larger relative to their total supply of energy and to theirtotal GNP. The position in the Western European countries is expected tobe qualitatively similar to that in the United States. The short-run depressingeffect on their domestic demand as a result of the high importprices will be greater than the cut in their ability to produce caused by theoil shortage. For Japan the situation may be different, and the effect on herability to produce may be more severe. In any case there will be a markedslowdown, and possibly an absolute decline, in demand and output in mostof the countries of the world with which we do business, except for the oilexportingcountries.This outcome will influence the United States in a number of ways. Itshould help to retard the increases in prices of industrial raw materials, justas the worldwide boom contributed to their rise. The increase in the valueof the dollar in the last quarter of 1973 should also help to slow down therise of dollar prices of internationally traded commodities. The net effectson trade are not clear. Oil prices will be lower here than elsewhere, at leastfor a time, because of the price control on a large part of our oil supply; andthis situation will tend to stimulate exports of products with a large oil component,such as petrochemicals. On the other hand, the reduction of incomeand activity abroad and the depreciation of foreign currencies will tend tocut our exports. This factor will probably be the dominant one, althoughits net effect is likely to be small except for one reservation to be noted.At present prices of oil, the oil import bills of the industrialized countrieswill be so large that many if not all of them will have current accountdeficits—that is, their foreign expenditures for goods and services will exceedtheir foreign earnings. This will be true even after allowing for the addedpurchases that the oil-exporting countries may make from the industrializedcountries. The oil-exporting countries will have large current account sur-26