I wanted to take some time before posting my thoughts on my recent reading material, partly because there's so much to it. Once I start, I think whatever topic I begin with will crowd out all the rest. As I mentioned yesterday, breaking up the reading for this book by mixing it with Destiny Disrupted also changes the perspective a bit, and offers some interesting insights. Yet if I start discussing that, I will miss some basic points I wanted to make about this book, in and of itself.
So. Reading this book was a bit like working on a complicated 'connect the dot' pictures. I already had connected the dots for individual areas, but this book provided a much larger context and scope that helped create a more coherent picture. In some ways, that meant I was aware of how much was glossed over. It's over 700 pages of reading material already, so of course they had to gloss over some history.
What I found most interesting was the way he tied the oil industry to economic recession (and boom). I had heard the term "oil choke collar" already, and knew it embodied this notion that high oil prices choked off growth because people had to pay more for gas. What's interesting, to me at least, was that the book made it sound like this was known and widely accepted economics...yet even today news articles make it sound like this is a new and untested concept. (Or perhaps that's my take on it).
The thing of it is, I remember hearing about 'stagflation' and what it did to Jimmy Carter's presidency. And I know all about the Reagan years, and the belief in trickle down economics and that deregulation boosted the economy. Yet, if this book is to be believed, none of that mattered. Nothing Jimmy Carter did hurt the economy, nothing Reagan did really helped the economy. It was all about the oil market.
I want to emphasize this a bit more, because so much of our political debate is tied in with the belief that it DID matter. We hardly touch on the oil price at all (other than to grumble as consumers, of course.) Sure, I heard about the 'oil choke collar'. In one place. Maybe I'm just not reading enough economic news? If this was widely known and accepted, I would expect an entirely different national discourse on the state of our economy.
But perhaps that's also because of the strange history here in the States. We produce oil. Yet we consume more. So the independents of the oil industry have a larger say in what we do. Sometimes to odd affect - given how crucial oil is to national security (can't fight a war if your tanks and planes are out of gas) you would think conserving the secure supplies in our own nation would be important. Instead, for a period of time, we actually had tariffs to encourage domestic consumption. And said it was for national security reasons!!!
I also am pondering this whole concept of 'rents'. That is, the price of oil (more than any other commodity, perhaps) is so market driven that the difference between the cost of producing a gallon and the retail value of that gallon can be huge. Can, not necessarily is. I'd heard before that the oil industry has to spend a lot more to invest in developing new sources, etc. I know they waste a lot of money drilling dry holes, trying to discover oil. Plus there's the upkeep to the infrastructure, and labor costs, etc. I've heard that's part of why state-run oil industries don't stay competitive over the long run.
Yet it's a funny type of expense, because it's the kind of thing that matters in the long run. In the short run, if you don't want to spend the money on those sorts of things, the difference between the cost of producing a gallon and the cost it sells at can be pretty large. So the book focuses a lot on what happens to these 'rents'. How the oil producing countries wanted to take a larger and larger share of those rents. How tariffs and taxes in the importing countries can transfer the 'rents' to the pockets of their own governments.
The book did an excellent job of explaining how expensive it is to search for oil. The argument over who should get what (the essence of politics, according to at least one of my classes) is eerily similar to the arguments over intellectual property rights. The industries that took on the costs of finding and developing oil should get some profit off it, sure. Just as one would hope the creators and artists who make something new should benefit and get credit for it.
Yet at some point, it's reasonable to believe that they have earned 'enough'. That the risks and challenges they faced were well compensated, to the point where they are not entitled to more. (In intellectual property, there's reason to believe that too stringent a policy will destroy creativity and stifle innovation. That's why a limit is sometimes set for when those rights will expire.)
If you apply that to the concessions given oil companies, at least at the beginning, you can see why the exporting countries felt like they didn't owe the oil companies anything when they nationalized the industry. Now you're getting into the murky history of colonialism, nationalism, and whether the country where natural resources are found should benefit directly from the resources within. There are entire books on this topic, so I don't want to get sidetracked too far.
Another dot connected - I had heard Osama bin Laden was mad at Saudi Arabian leadership partly over how oil was used. I think he wanted to drive prices up? Anyways...this book connected a few dots there, as well, as it discussed the "oil weapon" and attempts by oil producing countries to use it.
So oil 'rents' seem to be a key concept here, and one well worth considering when looking at international politics. Yet there are consequences, too, to gaining too much from the rents. I recall reading about 'Dutch disease' in some of my economic classes, and though this book never mentioned it by name it did touch on it when discussing the effects of oil on national economies. (Again, this is where the United States would be an interesting comparison study, as a producer as well as consumer.)
All in all, a good book to read with plenty of food for thought. And it's only part of the story.
So. Reading this book was a bit like working on a complicated 'connect the dot' pictures. I already had connected the dots for individual areas, but this book provided a much larger context and scope that helped create a more coherent picture. In some ways, that meant I was aware of how much was glossed over. It's over 700 pages of reading material already, so of course they had to gloss over some history.
What I found most interesting was the way he tied the oil industry to economic recession (and boom). I had heard the term "oil choke collar" already, and knew it embodied this notion that high oil prices choked off growth because people had to pay more for gas. What's interesting, to me at least, was that the book made it sound like this was known and widely accepted economics...yet even today news articles make it sound like this is a new and untested concept. (Or perhaps that's my take on it).
The thing of it is, I remember hearing about 'stagflation' and what it did to Jimmy Carter's presidency. And I know all about the Reagan years, and the belief in trickle down economics and that deregulation boosted the economy. Yet, if this book is to be believed, none of that mattered. Nothing Jimmy Carter did hurt the economy, nothing Reagan did really helped the economy. It was all about the oil market.
I want to emphasize this a bit more, because so much of our political debate is tied in with the belief that it DID matter. We hardly touch on the oil price at all (other than to grumble as consumers, of course.) Sure, I heard about the 'oil choke collar'. In one place. Maybe I'm just not reading enough economic news? If this was widely known and accepted, I would expect an entirely different national discourse on the state of our economy.
But perhaps that's also because of the strange history here in the States. We produce oil. Yet we consume more. So the independents of the oil industry have a larger say in what we do. Sometimes to odd affect - given how crucial oil is to national security (can't fight a war if your tanks and planes are out of gas) you would think conserving the secure supplies in our own nation would be important. Instead, for a period of time, we actually had tariffs to encourage domestic consumption. And said it was for national security reasons!!!
I also am pondering this whole concept of 'rents'. That is, the price of oil (more than any other commodity, perhaps) is so market driven that the difference between the cost of producing a gallon and the retail value of that gallon can be huge. Can, not necessarily is. I'd heard before that the oil industry has to spend a lot more to invest in developing new sources, etc. I know they waste a lot of money drilling dry holes, trying to discover oil. Plus there's the upkeep to the infrastructure, and labor costs, etc. I've heard that's part of why state-run oil industries don't stay competitive over the long run.
Yet it's a funny type of expense, because it's the kind of thing that matters in the long run. In the short run, if you don't want to spend the money on those sorts of things, the difference between the cost of producing a gallon and the cost it sells at can be pretty large. So the book focuses a lot on what happens to these 'rents'. How the oil producing countries wanted to take a larger and larger share of those rents. How tariffs and taxes in the importing countries can transfer the 'rents' to the pockets of their own governments.
The book did an excellent job of explaining how expensive it is to search for oil. The argument over who should get what (the essence of politics, according to at least one of my classes) is eerily similar to the arguments over intellectual property rights. The industries that took on the costs of finding and developing oil should get some profit off it, sure. Just as one would hope the creators and artists who make something new should benefit and get credit for it.
Yet at some point, it's reasonable to believe that they have earned 'enough'. That the risks and challenges they faced were well compensated, to the point where they are not entitled to more. (In intellectual property, there's reason to believe that too stringent a policy will destroy creativity and stifle innovation. That's why a limit is sometimes set for when those rights will expire.)
If you apply that to the concessions given oil companies, at least at the beginning, you can see why the exporting countries felt like they didn't owe the oil companies anything when they nationalized the industry. Now you're getting into the murky history of colonialism, nationalism, and whether the country where natural resources are found should benefit directly from the resources within. There are entire books on this topic, so I don't want to get sidetracked too far.
Another dot connected - I had heard Osama bin Laden was mad at Saudi Arabian leadership partly over how oil was used. I think he wanted to drive prices up? Anyways...this book connected a few dots there, as well, as it discussed the "oil weapon" and attempts by oil producing countries to use it.
So oil 'rents' seem to be a key concept here, and one well worth considering when looking at international politics. Yet there are consequences, too, to gaining too much from the rents. I recall reading about 'Dutch disease' in some of my economic classes, and though this book never mentioned it by name it did touch on it when discussing the effects of oil on national economies. (Again, this is where the United States would be an interesting comparison study, as a producer as well as consumer.)
All in all, a good book to read with plenty of food for thought. And it's only part of the story.
