Last week the price of a barrel of oil hit $100. This raised fears of an economic slowdown akin to the one in the 1970s when oil prices quadrupled almost overnight. That shock was largely responsible for the worst decade of global economic performance since the Great Depression. Today, however, the world is a much different place. While higher prices at the pump will reduce disposable income, they are unlikely to have the same economic impact that they did 30 years ago. Here’s why.

Strong demand in China and India has the global energy system in transition. Supplies of cheap and abundant “light sweet crude” (the oil that was easy to find and easy to refine) are waning. This drives fears that we’ll suddenly “run out of oil.” But there is no reason—historical, economic, or technical—to believe our transition to alternative energy sources will be either sudden or catastrophic. Humans seem hardwired to develop new technologies that either expand resources, lead to the discovery of substitutes, or both.

Higher prices are generating investment in all sorts of alternatives, from the oil sands in Canada and Venezuela to liquid synthetic fuels and wind and solar power. If oil prices stay high enough, long enough, these sources will become mainstream. (A key environmental challenge is to develop the technologies to reduce the carbon emissions from new fossil fuel sources.)

Higher gas prices provide consumers with incentives to prioritize consumption. At some point ($4, $6, $8 a gallon?) we decide (perhaps) that fueling our SUV is too costly. Hence, we select cars that get better (likely not maximum) gas mileage, drive less, carpool more, and fish instead of water-ski. The amount of oil we demand, whether for use as gasoline, fertilizer, or in plastics, depends on price. And not every use of petroleum is equally valuable. This is the market process at work.

Last week’s $100 mark does not signal any geophysical limitation of oil. Indeed most of the world’s oil regions are relatively unexplored. For example, over the last 20 years, more than 70 percent of global oil exploration has taken place in the United States and Canada. Together, these countries hold only a small percent of the world’s proven reserves. Only 3 percent of exploration has taken place in the Middle East, a region that holds about 70 percent of proven reserves. Between 1995 and 2004, fewer than 100 new wells were drilled in the Persian Gulf. Over the same period 15,700 were drilled in the United States. And remember, 90 percent of the world’s ocean floor is unexplored. Deepwater drilling used to be impossible; now it’s just expensive. But with experience, costs decline.

OPEC countries and their national oil companies (which control nearly 80 percent of the world’s crude reserves) worry about overproduction. They remember the mid-1980s when surpluses caused the price of crude to plummet below $10 per barrel. Hence, they have little interest in developing new fields. Their incentives are to pump only those fields already in production.

Since the nationalization movement of the 1970s, western oil companies have been largely excluded from the Middle East. This has starved the region of access to advanced exploration and production technologies. In Iraq, for example, three-dimensional seismic surveys and horizontal drilling, widely employed in the rest of the world since the 1980s, have never been used.

Over the last century, we’ve been steadily de-carbonizing our economy. It takes about half as many barrels of oil to produce each $1 of economic output today as it did 30 years ago. Since our Bicentennial, the U.S. economy has grown by 126 percent, while energy use has increased by only 30 percent. These gains come from a combination of advances in technology and an evolution in our economy. We’ve moved from energy-intensive manufacturing to services and information technology.

Our gains in energy efficiency over the last 40 years are in large part due to the high oil prices of the 1970s. This forced every part of our society to be more economical in their use of fuel. This same process is at work today, helping wean us from oil. And unless the government intervenes, we’ll be evermore efficient tomorrow.