Even if oil prices hit $500 a barrel, that price is acceptable, says Willem Buiter, a professor of European political economy at the London School of Economics and Political Science.
Buiter in a recent article cited oil experts who have long believed that oil prices will reach $200 and even up to $500 a barrel during the next three to five years.
"While your guess is as good as mine (likely better), none of these figures seem outlandish," Buiter says.
Even if the U.S. sees $500 oil, income would fall no more than 10 or 11 percent.
Consumers would find the cost "nasty," he said, but the result would not be a "disaster, if properly managed."
Even if prices decline soon, Buiter predicts that commodity prices will once again skyrocket in three to four years.
The demand from emerging markets will still be increasing and will cause prices to soar, he said.
The solution, he says, is conservation, and that goal will only be accomplished if prices stay high.
"The only way to encourage conservation is higher prices for the user, that is, prices that fully reflect the long-run social marginal cost of energy," he said.
"We are just beginning to see more realistic prices for energy, even in parts of the world where low-cost energy is seen as a social entitlement."
Europeans have lived with high oil prices for a long time because of taxes, Buiter points out.
Yet, as the world economy continues to slow, commodity prices will decline, he said.
"The resulting cyclical slowdown in emerging market growth will be bad news for economic activity in the industrial world but will put downward pressure on commodity prices," Buiter said.
"We will be unemployed but able to afford petrol."
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