A RECENT ARTICLE TITLED “SHOCK TREATMENT,” published in The Economist discusses reasons why our economy has rather easily absorbed high oil prices that in the 1970s sent the economy into recession.

Allowing that higher oil prices hurt the economy because they act like a tax increase and result in consumers having less to spend elsewhere, the article seeks to understand how consumers can adjust from a period six years ago when a barrel of crude oil cost as little as $20 to today’s prices that hover in the $90 range. Why, the article asks, has the “oil bogeyman become less scary?” The article points out that two new papers by three well-known economists come to similar conclusions: “Oil shocks do not hurt as much because oil is used less intensively than before, because the economy is more flexible, and because central banks are better at controlling inflation.”

The papers referred to in the article are: The Macroeconomic Effects of Oil Price Shocks: Why are the 2000s So Different From the 1970s, by Olivier Blanchard and Jordi Galí, Massachusetts Institute of Technology Working Paper 07-21 (August 2007) and Who's Afraid of a Big Bad Oil Shock, by William Nordhaus, Preliminary draft (September 2007) prepared for Brookings Panel on Economic Activity.

Our global economy also appears to play a role in our ability to adjust to higher oil prices. Globalization has made U.S. companies more competitive and that’s helped drive down the prices of various consumer goods. Lower prices for some commonly used consumer items may have cushioned the blow of higher energy costs.   

IF YOU’RE CONTEMPLATING A MAJOR HOME RENOVATION, you may be wondering how much of your project costs you will get back when you sell your home. To help industrious homeowners answer that question, Remodeling magazine has for two decades produced an annual “Cost vs. Value” report.

You can view the full report at www.costvsvalue.com.

Based on nearly 3,000 responses to a web-based survey conducted with Specpan and the National Association of Realtors, this year’s report found that due to the housing market slump, the percentage of construction costs recovered is down across all projects compared with last year. That said, however, remodeling is still a pretty good investment. Specifically, two-thirds of this year’s projects are projected to return between 65% and 80% at resale. That means you’ll pay just 20 cents to 35 cents on the dollar for most improvements you make to your home.

As you might expect, what you get back at sale time varies depending on your location, location, location. While the percentage of costs returned in New England and Mid-Atlantic cities has remained fairly constant year to year, in the Pacific region (California, Oregon, and Washington), remodeling costs recouped at resale are 14% higher than the national average.

Interestingly, cities in the southeast and southwest that are experiencing a building boom fall below the national average when it comes to recouping home improvement costs. This could be a function of the fact that because these areas have plenty of new homes lingering on the market and falling in price, buyers are turning their backs on even the most beautifully renovated older homes.

As the subprime crisis unfolds and continues to impact the housing market, it’s worth staying up-to-date on factors that impact your home’s value. Remember, as with investing, your decision of whether to remodel your home begins with a careful evaluation of your current circumstances and future goals.