Economies almost everywhere are booming, and unemployment in most Western countries is now lower than it has been for 20 years. In consequence, there is talk of a new paradigm. A new epoch has begun: Technology and other things have changed our lives and forever lowered the natural rate of unemployment.
This view is mistaken. Despite common perceptions, nothing surprising is happening in the world economy. What we have been seeing is the result of extraordinarily cheap oil - and thus extraordinarily cheap energy.
The current boom was predictable and is likely to continue for a little longer. But - just as predictably - the strong rise in oil prices during the last few months will eventually slow the world economy.
Plotting the last few decades shows that movements in the price of energy are the main trigger for later movements in unemployment and output. The price of oil - not Bill Gates' inventiveness or globalization according to free-market tenets or something else with the transient flavor of the 1990s - should therefore be the key variable in planning economic policy.
Here are the facts. In 1998, the real price of crude oil fell to its lowest level in postwar history. For a short time last year, it was actually half the real price of oil in the 1950s and one-fifth the real oil price that prevailed at the start of the 1980s. The 1998 figure followed a decline in energy prices through the decade of the 1990s.
The logic of the ensuing boom is not complicated. Everything in the world can be thought of as having been constructed from two things. One is labor. The other is energy. There are, of course, raw materials such as iron ore and intermediate inputs such as steel bars, but these in turn are obtained by using labor and energy.
Fueled by the decline in energy costs, manufacturers' total costs fell through the 1990s. Profits shot up. This was a good time, therefore, to hire workers or to be a new entrant if you were an entrepreneur.
No surprise, then - employment rose, and unemployment fell.
One reason it surprises us to hear talk of new paradigms and global transformations - whatever the latter might mean - is that we have been here before. The world has seen this oil-price mechanism at work many times.
There have been three oil shocks in the postwar period, two of which are the best remembered. These were in 1973-74 and at the end of the 1970s. Each move up in energy prices was followed by a sharp - and then sustained - rise in global unemployment.
There was a third, lesser-known oil shock, namely the doubling of oil prices around the time of Iraq's invasion of Kuwait on Aug. 2, 1990. This, too, was followed by a recession and a spike in unemployment. Some macroeconomists have described this as the 'mystery recession' of 1990-91. Yet it conforms exactly to type.
We are now at the onset of oil shock No. 4. If you haven't been watching, crude prices have more than doubled since January. Brent crude, the European price benchmark, has risen to more than $22 a barrel from $10 at the beginning of the year. It's now trading at its highest price in more than 21/2 years.
In the same period, New York-traded light has soared to about $23 from $13.
The runup in prices stems from the restoration of output discipline by OPEC members. So far, the agreement seems to be holding.
This is a large oil shock that already is showing up in corporate costs. The increase already is being passed on through the web of costs across the economy.
By next year, assuming crude output is not increased, normal mechanisms will have begun to reduce output and employment. The fourth postwar oil shock will have started to take effect. The current boom will have been capped.