Economists have debated the causal mechanism by which OPEC policies of the 1970s contributed to the decade’s rise in prices overall, but all sides have assumed that U.S. prices indices are appropriate for computing the real price of oil. This assumption is mistaken and has led economists to overestimate the benefit that the policies brought to OPEC countries and to ignore the effects that ending the Bretton Woods Agreement had on OPEC policies.

David Hammes is professor of economics at the University of Hawaii, Hilo.
Douglas Wills is associate professor of finance and economics at the Milgard School of Business, University of Washington, Tacoma.
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