oil shock

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pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, big-box store, BRICs, business cycle, carbon footprint, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Just-in-time delivery, market clearing, megacity, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, the market place, The Wealth of Nations by Adam Smith, trade liberalization, zero-sum game

Those questions have me flipping the channel every time I hear the pundits explaining how the world economy’s problems are about financial markets and subprime mortgages. Forget Lehman Brothers. There is something bigger going on. OIL SHOCKS HAVE ALWAYS CAUSED RECESSION Here’s a clue. Soaring oil prices caused four of the last five global recessions. The only one that wasn’t caused by oil prices, the Asian meltdown of 1998, never even washed ashore in the major oil-consuming economies of the world like the United States and Western Europe. By contrast, two of the largest recessions in the postwar period came directly after the last two OPEC oil shocks. The second OPEC shock actually reverberated into two back-to-back recessions. A decade later, another oil shock, this time caused by Iraq’s invasion of Kuwait and subsequent torching of many of its oil wells, also produced a fairly deep recession in 1991.

Just look what happened in 2008. Gasoline prices in the United States rose from around $1.80 per gallon in 2004 to over $4 per gallon in mid-2008, an increase that now dwarfs even the price hikes motorists had to contend with during the OPEC oil shocks. The run-up since 2002 is almost four times as great as the increase following the Iranian Revolution. Even in inflation-adjusted terms (or “constant dollars,” as economists call them), the price of gasoline climbed to levels greater than when cursing 1970s American motorists had to line up at gas stations due to fuel shortages. Suddenly, the OPEC oil shocks that had seemed like a worst-case scenario don’t look so bad. In fact, the process of having our world shrink promises to be much more wrenching this time around, if only because it has got so much bigger since the last energy crisis.

And what about America’s rivals in the auto sector? In Japan, where production lines are slowing and workers being sent home, sales are down 32 percent, to 35-year lows. German car sales are the worst since reunification—down 14 percent in January. Still, the US has been hit particularly hard. Sales in February fell by 41 percent compared to 2008. Oil shocks have always turned the rugged capitalists of Detroit into big-time Keynesians. Following the second OPEC oil shock, Lee Iacocca went begging to Washington to save Chrysler from bankruptcy. Then in 2008, taxpayers again heard Detroit’s all-too-familiar refrain, “Brother, can you spare a dime?” And Congress voted 370–58 to approve a $25 billion bailout package for the auto industry. Not to be outdone, the European carmakers turned right around and asked for €40 billion from the European Union to level the playing field, and manufacturers in Canada set their caps out begging for billions of their own and talked openly of moving thousands of jobs south of the border if they didn’t get what they wanted.


The Oil Kings: How the U.S., Iran, and Saudi Arabia Changed the Balance of Power in the Middle East by Andrew Scott Cooper

addicted to oil, anti-communist, Ayatollah Khomeini, banking crisis, Boycotts of Israel, energy security, falling living standards, friendly fire, full employment, interchangeable parts, Kickstarter, land reform, MITM: man-in-the-middle, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, RAND corporation, rising living standards, Robert Bork, rolodex, Ronald Reagan, strikebreaker, unbiased observer, uranium enrichment, urban planning, Yom Kippur War

Kissinger’s remarks to Bhutto suggest that he feared a repeat of the anti-Shah disturbances of 1953 and 1963, that he now accepted that high oil prices posed as much a threat to the stability of Iran as they did to, say, Italy—to oil producers as well as oil consumers—and that friendly authoritarian dictatorships as well as Western democracies were in equal peril from the ructions of the oil shock. To Bhutto, Kissinger complained that the oil shock could have been avoided had the Nixon administration accepted the Shah’s offer in 1969 to buy millions of barrels of Iranian oil at a special discount. The deal promoted by Herbert Brownell had been judged illegal under U.S. law because it violated the quota laws that applied to petroleum imports. Kissinger knew that the quotas no longer existed. “If we had made that deal we would not have trouble today,” he told Bhutto.

., 112, 130, 153, 169–70, 174, 175, 179, 180, 187, 200, 207, 255, 259, 270, 274, 307, 319, 335–36 Trujillo, Rafael, 420n Tuchman, Barbara, 11 Tudeh (Communist) Party, Iranian, 22, 49 Tunisia, 117 Turkey, 42, 47, 49, 56, 62, 130, 195, 199, 242, 243, 249, 253, 256, 281, 320 Turki al-Faisal, Prince, 1, 5 Turner, Jack, 255–56, 303, 463n Turner, Stansfield, 381 Tuwayjiri, Sheikh, 317 Twin Pillars policy, 44 Twitchell, Hamilton, 23, 27, 66 Twitchell Doctrine, 23–24, 59, 218, 235, 322 demise of, 69 U-2 spy plane, 215 Uganda, 151 unemployment, 345, 346 oil shock and, 216, 313–14, 326–27, 345, 346, 352 United Arab Emirates, 90, 129, 286, 358, 360, 382 United Features, 73 United Left, 195 United Nations, 103, 127, 207, 227, 331, 338, 344 Arab-Israeli War and, 119, 124 United Nations Children’s Fund (UNICEF), 98–99 United States, 8, 109, 162, 167, 352, 362 Greenspan Pause and, 327 inflation in, 160 India-Pakistan War and, 55–56 Iran’s relations with, see U.S.-Iran relationship 1970–72 energy crisis in, 88–92 oil dependency of, 7, 11 oil embargo and, 134–36 oil production of, 112–13 onset of oil shock in, 151–52 recessions in, 326–27 Saudi oil and, 3–7, 79–80, 169–70, 173–81 Soviet Union’s wheat-for-fuel program and, 89 unemployment in, 352 United States Information Service, 63, 219 United States Olympic Committee, 392 Universal Aero Services Co.

Petroleum industry and trade—Iran—History—20th century. 7. Petroleum industry and trade—Saudi Arabia—History—20th century. I. Title. E183.8.I55C66 2011 327.73055—dc22 011008319 ISBN 978-1-4391-5517-2 ISBN 978-1-4391-5713-8 (ebook) To My Family CONTENTS Introduction A Note on the Use of Iranian Imperial Titles PART ONE: GLADIATOR 1. A Kind of Super Man 2. Guardian of the Gulf 3. Marital Vows 4. Contingencies 5. Oil Shock 6. Cruel Summer PART TWO: SHOWDOWN 7. Screaming Eagle 8. Potomac Scheherazade 9. Henry’s Wars 10. The Spirit of ’76 11. Royal Flush 12. Oil War Epilogue: The Last Hurrah Acknowledgments Notes Bibliography Index INTRODUCTION “Why should I plant a tree whose bitter root Will only serve to nourish poisoned fruit?” —Abolqasem Ferdowsi, The Persian Book of Kings On November 25, 2006, U.S. vice president Dick Cheney flew to Riyadh for talks with King Abdullah of Saudi Arabia, the elderly autocrat whose desert kingdom is home to one fifth of the world’s proven oil reserves and is the largest producer within OPEC, the Organization of Petroleum Exporting Countries, the oil producers’ cartel.


The Power Surge: Energy, Opportunity, and the Battle for America's Future by Michael Levi

addicted to oil, American energy revolution, Berlin Wall, British Empire, business cycle, Carmen Reinhart, crony capitalism, deglobalization, energy security, Exxon Valdez, fixed income, full employment, global supply chain, hiring and firing, hydraulic fracturing, Induced demand, Intergovernmental Panel on Climate Change (IPCC), Kenneth Rogoff, manufacturing employment, oil shale / tar sands, oil shock, peak oil, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea

There THE CAR OF THE FUTURE • 131 is good reason to believe that, this time, better oil efficiency will really pay off. Nevertheless, it’s possible to overstate the value of using less oil. Oil shocks typically precede recessions, but after forty years of careful studies economists still can’t agree on whether oil shocks actually cause big economic downturns. (One economist I know likes to quip that oil price spikes have preceded six of the last three recessions.) Even studies of the biggest oil spike of them all—the result of the 1973 Arab embargo—aren’t conclusive when it comes to how much of the ensuing recession should be pinned on oil. Scholars have thrown every model and statistical technique in the book at the problem but haven’t yet come to definitive conclusions. Food prices were rising rapidly around the same time the oil shock occurred, hurting the U.S. economy, and it’s difficult to disentangle that from the impact oil prices had at the same time.

They just disagree, often vehemently, about what matters most and the best way to deliver it. These fundamentals of the fight over the future of American energy aren’t new. Many of the details are novel, but the roots of the basic conflicts stretch back to the first modern oil crisis, which rocked the world in the autumn of 1973, and its aftermath. It is no exaggeration to claim that most of the battle lines defining today’s clashes were first drawn decades ago. The oil shock that struck on October 16, 1973, came at a time of enormous change and uncertainty for the United States. The Paris Peace Accords, signed in January of that year, had begun to end the Vietnam War, but Americans remained torn by the conflict. The Watergate scandal, which would eventually end Richard Nixon’s presidency, was slowly coming to light. In 1971, the United States had abandoned the gold standard, ending the system of global controls on money and investment that had marked the decades since the end of World War II.

Two lasting changes that would help the United States over the next decade eventually emerged, though neither was without controversy.11 The first was the opening of the Trans-Alaskan Pipeline, a ten-billion-dollar, two-million-barrel-a-day behemoth running from Prudhoe Bay on the North Slope of Alaska to the Pacific port of Valdez. The pipeline had been on the table before the energy crisis but stalled in the face of hostility to its construction from environmental and Native American groups. The oil shock quickly broke down the opposition, and on November 16, 1973, Nixon signed broadly supported legislation moving the pipeline forward. By the end of the 1970s, it would allow previously landlocked oil to flow to the lower forty-eight states, reversing the earlier decline in U.S. crude production. American output bottomed out in 1976, and U.S. production would remain above its 1976 level until 1989.


The King of Oil by Daniel Ammann

accounting loophole / creative accounting, anti-communist, Ayatollah Khomeini, banking crisis, Berlin Wall, Boycotts of Israel, business intelligence, buy low sell high, energy security, family office, Johann Wolfgang von Goethe, Mikhail Gorbachev, Nelson Mandela, oil shock, peak oil, purchasing power parity, Ronald Reagan, trade liberalization, transaction costs, transfer pricing, Upton Sinclair, Yom Kippur War

THE CRUDE AWAKENING The World’s First Oil Embargo • The Seven Sisters • A Wave of Oil Nationalizations • “I Was the Right Person at the Right Time” • Pincus Green 6. ISRAEL AND THE SHAH Top-Secret Pipeline in Israel • Trading with the Shah of Persia • Crude Middleman • Yom Kippur War • The Breaking Off 7. MARC RICH + COMPANY Swiss Secrecy • Vendetta • Thanks to Iranian Oil • The Oil Shock of 1974 • Faster, Longer, More Aggressive • The Invention of the Spot Market • The Secret of Trust • “Don’t Let Them Eat Your Soul” • Pioneer of Globalization 8. TRADING WITH THE AYATOLLAH KHOMEINI Khomeini’s Return • Iran Hostage Crisis • The Second Oil Shock of 1979 • “We Had Oil Available, and Our Competitors Did Not” • Israel’s Salvation 9. THE CASE Marc Who? • “With Our Shotguns Blazing” • Rich’s Flight to Switzerland • Rudolph W. Giuliani Takes Over • Draconian Fine • Caught in the Crossfire • “The Largest Tax Evasion Indictment Ever” • The Oil Price Control • “Sham Transactions” • Prosecutors Go Nuclear • Unconditional Surrender 10.

“To make money with other people’s money, with the bank’s money,” as a former employee explained, was the company’s financial philosophy. In these commodity trades, the risk was primarily carried by the bank that had extended the line of credit. Its collateral for the credit deal was the commodity at issue, in this case oil. The Oil Shock of 1974 It was a good time for a commodities trader who wanted to go into business for himself. The world had been changed forever by the Arab oil embargo—imposed in the wake of the Yom Kippur War—and skyrocketing oil prices. These developments led to the world’s first oil shock, a shock that would have serious economic consequences the world over. The price for a gallon of gasoline rose from 38.5 in May 1973 to 55.1 in June 1974.5 It was the first time since the Second World War that the United States had seen gasoline shortages.

He then ran so afoul of the law that he landed on the FBI’s Most Wanted list. The United States government offered a high reward for his capture and chased him all over the world. Rich’s is one of the most amazing careers of the twentieth century, a career that is tightly woven with great events in world history: Fidel Castro’s revolution in 1959; the decolonization of Africa in the 1960s; the Yom Kippur War and the oil shock of 1974; the fall of the shah of Persia and the seizure of power by the Ayatollah Khomeini in Iran in 1979; apartheid South Africa in the 1980s; and the crumbling of the Soviet Union in the 1990s. Marc Rich and his business partners were on the scene when these events happened. Thanks to their know-how, their hard work, and their considerable aggression, they were able to react to these events to their benefit more than their competitors ever could.


pages: 436 words: 114,278

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally

American energy revolution, Asian financial crisis, banking crisis, barriers to entry, Bretton Woods, collective bargaining, credit crunch, energy security, energy transition, housing crisis, hydraulic fracturing, index fund, Induced demand, interchangeable parts, invisible hand, joint-stock company, market clearing, market fundamentalism, moral hazard, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, price discrimination, price stability, sovereign wealth fund, transfer pricing

“Saudi Arabia to Drill for Shale Gas This Year.” Wall Street Journal, March 18, 2013. Halloran, Richard. “Oil ‘Facts’ Don’t Quite Match the Rhetoric.” New York Times, March 18, 1979, E5. Hamilton, James. “Historical Causes of Postwar Oil Shocks and Recessions.” Energy Journal 6, no. 1 (1985): 97–116. ——. “Historical Oil Shocks.” February 1, 2011. http://econweb.ucsd.edu/~jhamilto/oil_history.pdf. ——. “Understanding Crude Oil Prices.” National Bureau of Economic Research, Working paper 14492, Cambridge, Mass., 2008. Hamilton, James D. Causes and Consequences of the Oil Shock of 2007–2008. San Diego, Calif.: UC San Diego, Department of Economics, 2009. Hammes, David, and Douglas Wills. Black Gold: The End of Bretton Woods and the Oil Price Shocks of the 1970s. Available at SSRN: http://ssrn.com/abstract=388283.

Yergin, The Prize, 27. 149. Ibid., 541. 150. DeGolyer and MacNaughton, Twentieth Century Petroleum Statistics, 108. 151. Yergin, The Prize, 543–46. 152. Reserves (Federal Trade Commission. International Petroleum Cartel, Table 1, Table 8, 5–6, 23). 153. Data for 1950 (Federal Trade Commission. International Petroleum Cartel, Table 10, 25). 154. Hamilton, “Historical Causes of Postwar Oil Shocks,” 99; Hamilton, “Historical Oil Shocks,” 9. 155. Maugeri, 2006, 48. 156. “The Commission had the companies’ demand forecasts for the next month, and they also had excellent inventory data, with a lag of only about a week or two. When stocks appeared to be accumulating, production would be cut back. If inventories appeared to be falling below the amount needed to support current production, production quotas [quotas] would be increased.

A series of sabotage attacks, strikes, and commercial disputes in Venezuela, Iraq, Nigeria, the North Sea hit the market and contributed to the rapid increase in crude prices.67 For the first time ever, in February 2008, crude prices breached $100. As the summer of 2008 approached, they were hurtling over $140.68 The crude oil price shock between the fourth quarter of 2007 and second quarter of 2008—37 percent in real terms, 41 percent nominal, for U.S. imported crude oil prices—was “by any measure … one of the biggest oil shocks on record.”69 In the United States pump prices tracked those of crude to astounding new highs. In real terms, average national pump prices for regular grade gasoline exceeded their prior high set in March 1981 ($3.80 per gallon) in April of 2008 ($3.84) and then jumped up to peak at $4.43 in June.70 In nominal terms, pump prices peaked in July 2008 at $4.06 per gallon. The shock walloped consumers.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

As cold weather arrived, truck drivers blocked highways to protest the soaring price of diesel fuel, and homeowners unplugged their Christmas lights in sympathy—or, perhaps, to avoid the opprobrium of their neighbors. Texas, a state floating on oil, gave birth to a popular bumper sticker urging, “Freeze a Yankee.” Gas lines, clogged with drivers desperate to top off nearly full tanks while the precious liquid was still available, symbolized the collapse of the American dream. The oil shock upset the equilibrium in Canada, setting off a boom in oil-rich Alberta while crippling import-dependent Quebec. The reverberations were even more disquieting in Japan. As petroleum prices rose through 1973, the Japanese did not anticipate serious trouble; their country had little engagement with the Middle East, and many Japanese companies had even complied with the Arab boycott against Israel.

On the contrary, the mood in all the high-income countries remained optimistic. After the embargo was announced, the British and French governments both predicted robust economic growth in 1974. As late as November 14, even though oil was now selling for $5.12 a barrel instead of $2.90, the Federal Reserve raised its forecast of US economic growth while lowering its forecast of unemployment.22 Only in late November, six weeks after the oil shock, did the reality sink in. In September, the Japanese economy had been so hot the government took special measures to slow it down; in November, the same officials slashed their forecast of economic growth for the coming months to zero. French economists warned that growth could plummet. At the Fed, the optimistic November 14 forecast was consigned to the dustbin. One Fed economist predicted on December 12, “Income will be destroyed, business and consumer psychology will be dampened, and the upward momentum the economy still has at this point in the cycle may well be lost.”

Governments and central bankers knew, or thought they knew, how to use “traditional methods of economic management”—raising and lowering interest rates, taxes, and government spending—to restore an economy to health. When it came to fixing declining productivity growth, however, the economists’ toolbox was embarrassingly empty. CHAPTER 6 Gold Boys Sentiment at the start of 1973 had been buoyant. A year later, as the oil shock reverberated through the world economy, the atmosphere was vastly different. Inflation continued to rise. West Germany had just banned the importation of immigrant workers, on which its industries had relied since 1955, and Austria was about to follow. As “Help Wanted” signs were taken down across Northern and Central Europe, families in Turkey, Yugoslavia, Portugal, and Greece, which together supplied Germany with workers by the millions, began to feel the pain.


pages: 484 words: 136,735

Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis by Anatole Kaletsky

"Robert Solow", bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Black Swan, bonus culture, Bretton Woods, BRICs, business cycle, buy and hold, Carmen Reinhart, cognitive dissonance, collapse of Lehman Brothers, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, currency manipulation / currency intervention, David Ricardo: comparative advantage, deglobalization, Deng Xiaoping, Edward Glaeser, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, F. W. de Klerk, failed state, Fall of the Berlin Wall, financial deregulation, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, George Akerlof, global rebalancing, Hyman Minsky, income inequality, information asymmetry, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kickstarter, laissez-faire capitalism, Long Term Capital Management, mandelbrot fractal, market design, market fundamentalism, Martin Wolf, money market fund, moral hazard, mortgage debt, Nelson Mandela, new economy, Northern Rock, offshore financial centre, oil shock, paradox of thrift, Pareto efficiency, Paul Samuelson, peak oil, pets.com, Ponzi scheme, post-industrial society, price stability, profit maximization, profit motive, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, rising living standards, Robert Shiller, Robert Shiller, Ronald Reagan, shareholder value, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, statistical model, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, too big to fail, Vilfredo Pareto, Washington Consensus, zero-sum game

Second, and more important, the market price can and should be altered if good reasons exist to do this—whether these reasons reflect political objectives, such as the desire to reduce oil revenues available to Middle Eastern terrorists, or economic ones, such as the desire to avoid another recession-inducing oil shock. Between them, these two observations point to some obvious solutions to the long-term challenges of climate change and oil depletion—taxing oil or carbon, subsidizing alternative energy, redirecting public research funding, and offering cheap government insurance against the risks and decommissioning costs of nuclear power. The long-term response of Capitalism 4.0 to these issues is discussed at greater length in Chapter 19. But what could Western governments have done in the short-term to prevent the 2008 oil shock and the subsequent financial disaster—and what might governments do in the near future if another surge in the oil price to $150 a barrel were to threaten the global economy in the next few years?

But what could Western governments have done in the short-term to prevent the 2008 oil shock and the subsequent financial disaster—and what might governments do in the near future if another surge in the oil price to $150 a barrel were to threaten the global economy in the next few years? The fundamentalist view that market prices always reflect all possible information and lead to the best possible allocation of resources blinded governments and regulators to a crucial difference between the 2008 oil shock and the ones that occurred in 1974, 1979, and 1990. All earlier oil shocks were caused by geopolitical disruptions or deliberate OPEC actions that reduced the supply of oil. The surge in oil prices in 2008 was different. It was caused not by a shortfall in supply but an increase in demand. However, this demand was not due, as widely reported, to increased Chinese consumption. China’s growing use of oil was more than offset, even before the recession, by declining demand from America and Europe, as confirmed by statistics from the International Energy Agency, OPEC, and private oil companies, all of which showed almost zero growth in the world’s total use of oil in 2008 and a decline in 2009.11 What, then, caused the extra demand that drove up the oil price to $150?

Micawber and Mad Max CHAPTER TWO - Political Economy and Evolution CHAPTER THREE - The Four Ages of Capitalism Part II - The Arrow and the Ring CHAPTER FOUR - Annus Mirabilis CHAPTER FIVE - The Four Megatrends CHAPTER SIX - The Great Moderation The Platform Company: A New Business Model The Reinvention of Demand Management CHAPTER SEVEN - The Financial Revolution Megatrends in Housing and Finance CHAPTER EIGHT - The Ring of Finance CHAPTER NINE - Boom and Bust Forever The Theories of Boom-Bust Cycles Why Finance Is Different from Every Other Business Part III - Market Fundamentalism Self-Destructs CHAPTER TEN - The Economic Consequences of Mr. Paulson CHAPTER ELEVEN - There Is No Can Opener The First Era of Economics The Second Era: Keynes’s Government-Led Economics The Third Era: The Triumph of Rational and Efficient The Next Transition CHAPTER TWELVE - Toward a New Economics Part IV - The Great Transition CHAPTER THIRTEEN - The Adaptive Mixed Economy Energy Policy and the 2008 Oil Shock CHAPTER FOURTEEN - Irresistible Force Meets Immoveable Object CHAPTER FIFTEEN - What—Me Worry? Will Rising Interest Rates Choke Off Economic Recovery? Will Printing Money Unleash Inflation? Will the Dollar Collapse? Part V - Capitalism 4.0 and the Future CHAPTER SIXTEEN - Economic Policy in Capitalism 4.0 Will There Be a Government Debt Crisis? The Myth of National Bankruptcy The Myth of Burdening Our Grandchildren The Real Case for Tackling Deficits Japanese-Style Paralysis and Zombie Banks The Great Rebalancing of Global Growth Stagflation CHAPTER SEVENTEEN - Politics in Capitalism 4.0 Conservatives Will Keep Winning Until Progressives Find a Narrative More Government Means Smaller Government Democracy Means Less Power for Public Opinion Bigger Deficits Are Necessary but Impossible Priorities: Less Spending and More Taxes International Experience: Learning from Others’ Mistakes Commanding Heights: As Socialism Has Retreated, It Has Won Health Reform: More Government and More Market Health Care Reform Will Become a Conservative Issue Progressives Will Fight for Less Progressive Taxes CHAPTER EIGHTEEN - Finance and Banking in Capitalism 4.0 Finance Is Indispensable Uncertainty and Guarantees Regulation Capital Structures Accounting Credit Ratings and Macroeconomic Assumptions Mortgage Market Reform Fiduciary Duty and Government as a Silent Partner Bankers’ Earnings and Bank Profits Talent and Plunder CHAPTER NINETEEN - The World of Capitalism 4.0 Global Competition between the United States and China Convergence between the United States and Europe The Rivalry of Western and Asian Values Business Interests Will Embrace the New Model Trade and Industrial Structures Limits to Growth and Physical Resources The Environment Can Become a Positive Economic Story Prosperity without Growth Currencies and Financial Relations: Will There Be a New Bretton Woods?


pages: 262 words: 83,548

The End of Growth by Jeff Rubin

Ayatollah Khomeini, Bakken shale, banking crisis, Berlin Wall, British Empire, business cycle, call centre, carbon footprint, collateralized debt obligation, collective bargaining, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, deglobalization, energy security, eurozone crisis, Exxon Valdez, Fall of the Berlin Wall, fiat currency, flex fuel, full employment, ghettoisation, global supply chain, Hans Island, happiness index / gross national happiness, housing crisis, hydraulic fracturing, illegal immigration, income per capita, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, Kickstarter, McMansion, Monroe Doctrine, moral hazard, new economy, Occupy movement, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, quantitative easing, race to the bottom, reserve currency, Ronald Reagan, South China Sea, sovereign wealth fund, The Chicago School, The Death and Life of Great American Cities, Thomas Malthus, Thorstein Veblen, too big to fail, uranium enrichment, urban planning, urban sprawl, women in the workforce, working poor, Yom Kippur War, zero-sum game

The problems may take different guises, such as stagflation in the 1970s or the financial market meltdown in 2008. Regardless of what story made the most headlines at the time, oil prices were lurking at the root of the problem. Consider the first oil shock, created by the Organization of Petroleum Exporting Countries (OPEC) following the Yom Kippur War in 1973. Set off by this Arab-Israeli conflict, OPEC’s Arab members turned off the taps on roughly 8 percent of the world’s oil supply by cutting shipments to the United States and other Israeli allies. Crude prices spiked, and by 1974 real GDP in the United States had shrunk by 2.5 percent. The second OPEC oil shock happened during Iran’s revolution and the subsequent war with Iraq. Disruptions to Iranian production during the revolution sent crude prices higher, pushing the North American economy into a recession for the first half of 1980.

I’m betting some of them will be big enough to change the way we judge this new world. The stakes are high, and we can’t afford to lose, but we also have much to gain. [ CHAPTER 1 ] CHANGING THE ECONOMIC SPEED LIMIT THOSE WHO WERE AROUND IN THE 1970s will remember when speed limits were lowered in an attempt to stop drivers from burning so much gasoline. In the United States, the first OPEC oil shock spooked the president so much that he established a national speed limit of fifty-five miles per hour through the Emergency Energy Conservation Act. A slower speed limit didn’t win Richard Nixon any fans among car-loving voters, but his hand was forced by oil prices that were punishing the US economy. Well, speed limits aren’t the only thing that can change when crude prices go up. Today’s oil prices are changing the speed at which economies can grow.

Guess what oil prices were doing in 2008 when the world fell into the deepest recession since the 1930s? From trading around $30 a barrel in 2004, oil prices marched steadily higher before hitting a peak of $147 a barrel in the summer of 2008. Unlike past oil price shocks, this time there wasn’t even a supply disruption to blame. The spigot was wide open. The problem was, we could no longer afford to buy what was flowing through it. There are many ways an oil shock can deep-six an economy. When prices spike, most of us have little choice but to open our wallets and shell out more for what we burn. Unless we want to stop driving our cars or burning heating oil, what else can we do? Something has to give. Paying more for oil means we have less cash to spend on food, shelter, furniture, clothes, travel and pretty much anything else you can think of. A poll by the American Automobile Association in 2011 found that motorists still planned to hit the road for summer vacations, despite pump prices close to $4 a gallon.


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

"Robert Solow", 3D printing, bank run, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, market bubble, market clearing, means of production, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Early on during these developments, James Tobin (1918–2002), a distinguished economist at Yale and a Nobel Prize winner in 1981, proposed a tax on each forex transaction to slow down the hectic pace of the dealings. The world had never before seen so many currencies being required to carry on trade, and in which bonds and equities and other financial assets could be bought and sold. Tobin’s proposal is still being debated after 40-plus years. The Oil Shock Just at this juncture, inflation became a global problem. Decades of persistent full employment had strengthened the trade unions and made the wage demands of workers irresistible. There had been a notion for many years before World War II that the share of wages in total national income was constant. The work of Paul Douglas had given support to this idea. Now the wage share began to drift up and the share of profit declined.

Inflation was in one way a tranquilizer to ease the problem of the struggle between labor and capital for share in final income. Indeed the debate about the Phillips curve can be understood in this way. Could the workers be fobbed off with just nominal wage rises which could then be clawed back by inflation? The price of oil had not risen for nearly 50 years up until 1973. The Arab-Israeli War was one proximate reason for the oil shock. But the persistence of inflation meant that the purchasing power of the dollar, in which oil was priced, was eroding as far as oil exporters were concerned. The quadrupling of the price of oil in October 1973 was partly a political gesture, but it had a profound economic impact in terms of both theory and practice. Cheap oil, which had been available for nearly 50 years, had encouraged an energy-intensive technology to be built up for production as well as consumption (cars, refrigerators, air conditioners, washing machines).

The rise in the price of oil increased costs of manufacturing, which were passed on to consumers in the form of higher prices. Dependence on imports for oil supplies meant that the developed economies had to transfer as much as 5 percent of their GDP to oil-exporting countries. Even as their imports became expensive, the rich countries’ exports were being priced out of the market. A side effect of the “oil shock” was felt by the financial system. The oil-exporting economies had limited scope for spending their newfound wealth. To begin with they chose to leave their wealth as bank deposits. Western banks found themselves flush with deposits. But to service them, they needed to loan them out and earn some interest. Much of this money went to developing countries that had up until then relied on intergovernmental loans: foreign aid.


Rethinking Islamism: The Ideology of the New Terror by Meghnad Desai

Ayatollah Khomeini, battle of ideas, Berlin Wall, full employment, global village, illegal immigration, income per capita, invisible hand, liberal capitalism, liberation theology, Mahatma Gandhi, Martin Wolf, means of production, Nelson Mandela, oil shock, purchasing power parity, Ronald Reagan, structural adjustment programs, The Wealth of Nations by Adam Smith, Yom Kippur War

.฀ The฀ quadrupling฀ of฀ the฀ oil฀ price฀ was฀ a฀ huge฀ shock฀ for฀ the฀ oil-dependent฀ Western฀ economies฀ and฀ it฀ cost฀ them฀ ฀per฀cent฀of฀their฀national฀income,฀which฀was฀transferred฀to฀the฀ OPEC฀countries,฀mainly฀Saudi฀Arabia,฀the฀Gulf฀Emirates฀and฀Iran.฀ It฀ was฀ the฀ largest฀ such฀ transfer฀ in฀ recent฀ history.฀ It฀ amounted฀ to฀ $฀ billion฀ at฀ ฀ prices,฀ and฀ at฀ today’s฀ prices฀ about฀ ten฀ times฀ that฀amount. The฀ quadrupling฀ of฀ the฀ oil฀ price฀ –฀ the฀ oil฀ shock฀ as฀ it฀ came฀ to฀ be฀ known฀ –฀ was฀ perhaps฀ overdue.฀ The฀ price฀ of฀ a฀ barrel฀ of฀ crude฀ had฀not฀changed฀for฀nearly฀฀years,฀while฀inflation฀had฀been฀accelerating฀in฀the฀USA฀and฀elsewhere฀since฀.฀In฀the฀immediate฀ aftermath,฀it฀triggered฀stagflation,฀a฀combination฀of฀high฀inflation฀ and฀ high฀ unemployment,฀ in฀ many฀ developed฀ countries.฀ In฀ the฀ longer฀ run,฀ though,฀ it฀ helped฀ them฀ adopt฀ better฀ energy-saving฀ technologies.

฀The฀caliphate฀was฀gone฀long฀ago฀as฀part฀of฀the฀same฀process.฀ This฀ was,฀ Bin฀ Laden฀ claimed,฀ not฀ the฀ crisis฀ of฀ a฀ single฀ Muslim฀ country฀but฀of฀the฀umma฀itself.฀ What฀enabled฀Bin฀Laden฀to฀leverage฀a฀number฀of฀local฀battles฀between฀the฀religious฀parties฀and฀the฀secular฀authorities฀into฀a฀global฀ struggle฀was฀the฀quite฀independent฀developments฀that฀we฀now฀call฀ globalisation.฀This฀was฀another฀strand฀of฀the฀forces฀unleashed฀by฀ ฀and฀the฀oil฀shock.฀It฀led฀to฀a฀loss฀of฀competitiveness฀for฀Western฀manufacturing฀enterprises฀and฀the฀movement฀of฀manufacturing฀ away฀from฀the฀Western฀economies.฀It฀also฀led฀to฀a฀proliferation฀of฀ financial฀innovations฀and฀institutions฀as฀the฀world฀tried฀to฀absorb฀ the฀$฀billion฀of฀petrodollars฀which฀sat฀in฀Western฀banks฀and฀had฀ to฀ be฀ loaned฀ out฀ to฀ Third฀ World฀ governments.฀ Western฀ governments฀soon฀retrenched,฀abandoned฀Keynesian฀policies฀and฀squeezed฀ inflation฀ out฀ of฀ their฀ economies.฀ In฀ the฀ process฀ the฀ two฀ AngloSaxon฀economies,฀the฀USA฀and฀the฀UK,฀began฀to฀deregulate฀capital฀ movements฀so฀that฀it฀started฀to฀flow฀freely฀to฀all฀parts฀of฀the฀world฀   ฀  where฀ there฀ were฀ market฀ economies.฀ Technological฀ developments฀ in฀ information฀ processing,฀ telecommunications฀ and฀ transport฀ at฀ the฀same฀time฀had฀made฀travel฀and฀communications฀cheap฀beyond฀ imagination.

.฀ In฀ the฀ process฀ the฀ two฀ AngloSaxon฀economies,฀the฀USA฀and฀the฀UK,฀began฀to฀deregulate฀capital฀ movements฀so฀that฀it฀started฀to฀flow฀freely฀to฀all฀parts฀of฀the฀world฀   ฀  where฀ there฀ were฀ market฀ economies.฀ Technological฀ developments฀ in฀ information฀ processing,฀ telecommunications฀ and฀ transport฀ at฀ the฀same฀time฀had฀made฀travel฀and฀communications฀cheap฀beyond฀ imagination.฀The฀World฀Wide฀Web฀arrived฀in฀the฀s฀and฀gave฀ even฀the฀most฀isolated฀individual฀access฀to฀information฀about฀the฀ means฀of฀terror฀and฀enabled฀contact฀with฀friends฀in฀any฀part฀of฀the฀ world. The฀ oil฀ shock฀ also฀ accelerated฀ international฀ migration,฀ which฀ had฀slowed฀down฀after฀the฀First฀World฀War฀and฀resumed฀after฀฀ but฀ was฀ still฀ limited.฀ Full฀ employment฀ in฀ the฀ West฀ had฀ created฀ a฀ need฀ for฀ unskilled฀ labour฀ which฀ the฀ periphery฀ of฀ the฀ British,฀ Dutch฀and฀French฀empires฀was฀quite฀willing฀to฀provide.฀A฀diaspora฀ was฀slowly฀growing฀in฀the฀West฀of฀people฀from฀the฀Third฀World.฀ After฀,฀the฀oil-exporting฀countries฀imported฀labour฀from฀South฀ and฀ Southeast฀ Asia฀ and฀ North฀ Africa.฀ The฀ deregulation฀ of฀ capital฀ markets฀ and฀ the฀ increasing฀ liberalisation฀ of฀ trade฀ for฀ the฀ rich฀ countries฀also฀created฀a฀need฀for฀skilled฀immigrant฀labour.


pages: 372 words: 107,587

The End of Growth: Adapting to Our New Economic Reality by Richard Heinberg

3D printing, agricultural Revolution, back-to-the-land, banking crisis, banks create money, Bretton Woods, business cycle, carbon footprint, Carmen Reinhart, clean water, cloud computing, collateralized debt obligation, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, David Graeber, David Ricardo: comparative advantage, dematerialisation, demographic dividend, Deng Xiaoping, Elliott wave, en.wikipedia.org, energy transition, falling living standards, financial deregulation, financial innovation, Fractional reserve banking, full employment, Gini coefficient, global village, happiness index / gross national happiness, I think there is a world market for maybe five computers, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Kenneth Rogoff, late fees, liberal capitalism, mega-rich, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, naked short selling, Naomi Klein, Negawatt, new economy, Nixon shock, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, price stability, private military company, quantitative easing, reserve currency, ride hailing / ride sharing, Ronald Reagan, short selling, special drawing rights, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, trade liberalization, tulip mania, WikiLeaks, working poor, zero-sum game

But the impact of the collapse of the housing market could only have been amplified by an inability to increase the rate of supply of depleting petroleum. Hamilton again: “At a minimum it is clear that something other than [I would say: “in addition to”] housing deteriorated to turn slow growth into a recession. That something, in my mind, includes the collapse in automobile purchases, slowdown in overall consumption spending, and deteriorating consumer sentiment, in which the oil shock was indisputably a contributing factor.” Moreover, Hamilton notes that there was “an interaction effect between the oil shock and the problems in housing.” That is, in many metropolitan areas, house prices in 2007 were still rising in the zip codes closest to urban centers but already falling fast in zip codes where commutes were long.34 FIGURE 27. Real Oil Prices and Recessions. Rising oil prices bring economic instability. Almost every peak in oil price correlates with an economic downturn.

Reuters.com, posted November 8, 2010. 6. Charles Maxwell, quoted in Wallace Forbes, “Bracing For Peak Oil Production by Decade’s End,” Forbes.com, posted September 13, 2010; Eoin O’Carroll, “Pickens: Oil Production Has Peaked,” The Christian Science Monitor, posted June 18, 2008. 7. Clint Smith, “New Zealand Parliament Peak Oil Report: The Next Oil Shock?” Energy Bulletin, posted October 1, 2010, energybulletin.net/stories/2010-10-14/next-oil-shock; Stefan Schultz, “Military Study Warns of a Potentially Drastic Oil Crisis,” Spiegel Online, posted September 1, 2010; UK Industry study; US Joint Forces Command, The Joint Operating Environment 2010 (Suffolk, VA: USJFCOM, 2010). 8. See, for example, peakoil.net/headline-news/toyota-we-must-address-the-inevitability-of-peak-oil. 9. Ben German, “The Other Peak Oil: Demand From Developed World Falling,” Scientific American.

In its authoritative 2010 World Energy Outlook, the IEA announced that total annual global crude oil production will probably never surpass its 2006 level.2 However, the agency fudged the question a bit by declaring that the peak was not due to geological constraints, and that total volumes of liquid fuels (including crude oil, biofuels, synthetic oil from tar sands and coal, and natural gas liquids like butane and propane) will continue to grow — just a bit — until 2035. In discussing the IEA report, a few analysts declared that these latter claims were essentially just efforts to avoid panicking the markets.3 BOX 3.1 Oil Shock 2011? In the early months of 2011 street demonstrations erupted in Iraq, Iran, Tunisia, Egypt, Bahrain, Yemen, Libya, and Algeria. Libya became mired in civil war, and its rate of oil exports fell from 1.3 million barrels per day to a small fraction of that amount. In Saudi Arabia, banned opposition groups threatened a “day of rage.” In response to these events, the world oil price — already in the $90 range — shot up to $120.


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Oil Panic and the Global Crisis: Predictions and Myths by Steven M. Gorelick

California gold rush, carbon footprint, energy security, energy transition, flex fuel, income per capita, invention of the telephone, meta analysis, meta-analysis, North Sea oil, oil shale / tar sands, oil shock, peak oil, price stability, profit motive, purchasing power parity, RAND corporation, statistical model, Thomas Malthus

Third, a school of economic thought claims that there was a historical break in the effects of oil price shocks on economies such that subsequent oil shocks are not likely to be inflationary or cause a recession. Reasons for this break include decreased energy-use intensity, deregulation of key energy-producing and energy-consuming industries, and governmental monetary policy changes that have encouraged a low-inflation environment. However, as with many 6 Gasoline cost as a percent of 4 disposable income 2 0 1950 1970 1990 Figure 4.54 The cost of US gasoline consumption relative to personal disposable income. (Data: gasoline prices, EIA; US income, US Bureau of Economic Affairs) 2010 156 Counter-Arguments to Imminent Global Oil Depletion economic theories, it is not conclusive that any of these links is responsible for the relative insensitivity of the US economy to oil shocks.131,132 Myth VI: There Are No Substitutes for Oil Oil is different because there are no substitutes.

In inflation-adjusted terms, the price increased fivefold during the Counter-Arguments to Imminent Global Oil Depletion 155 period 1973 to 1980 (from $15 to $93 per barrel (2007$)). Recessionary pressures diminished only when the price of oil dropped during the 1980s, falling by nearly half from 1985 to 1986 ($27.56 to $14.43 per barrel). Although the spot price of oil in 2008 exceeded $145 per barrel, the 2008 average oil price took five years to double in inflation-adjusted terms; the price rise was much slower than during the 1970s’ oil shock. In terms of speed and magnitude, the oil price rise of 2008 itself was well tolerated by the economies of the world. It was the global financial crisis that began in 2008 that overwhelmed the world economy. Consequently demand and price dropped precipitously. Historically, the oil price increases of the 1860s, 1910s, and 1970s were each followed by a decade of declining oil prices.130 Before the economic crisis that began in 2008, the US economy stood up well to high oil prices for several reasons.

World Development Indicators database, World Bank, 1 July 2008; http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf and www.cia.gov/library/publications/the-world-factbook/geos/xx.html#Econ International Monetary Fund World Economic Outlook, 2006, Chapter II, Oil Prices and Global Imbalances, p. 73. www.globalfinancialdata.com/articles/Oil_Is_History_Repeating_Itself.doc (2006). Hooker, M. A. (2002). “Are oil shocks inflationary? Asymmetric and nonlinear specifications versus change in regime,” Journal of Money, Credit, and Banking, 34(2), May 2002: 540–61. Walton, D. (2006). “Has oil lost the capacity to shock?” Oxonomics, 1(2006): 9–12. Kirkemo, H., W. L. Newman, and R. P. Ashley (1997). “Gold,” US Geological Survey Report. World Gold Council, gold.org/discover www.usgs.gov/faq/list_faq_by_category/get_answer.asp?


pages: 363 words: 101,082

Earth Wars: The Battle for Global Resources by Geoff Hiscock

Admiral Zheng, Asian financial crisis, Bakken shale, Bernie Madoff, BRICs, butterfly effect, clean water, cleantech, corporate governance, demographic dividend, Deng Xiaoping, Edward Lorenz: Chaos theory, energy security, energy transition, eurozone crisis, Exxon Valdez, flex fuel, global rebalancing, global supply chain, hydraulic fracturing, Long Term Capital Management, Malacca Straits, Masdar, mass immigration, megacity, Menlo Park, Mohammed Bouazizi, new economy, oil shale / tar sands, oil shock, Panamax, Pearl River Delta, purchasing power parity, Ralph Waldo Emerson, RAND corporation, Shenzhen was a fishing village, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, spice trade, trade route, uranium enrichment, urban decay, WikiLeaks, working-age population, Yom Kippur War

Long History on the Nuclear Road Japan had been travelling the nuclear road for 40 years, having opened the Fukushima plant in March 1971 in response to environmental concerns and the 1967 oil export embargo imposed by some Arab producers following the Six-Day War between Israel and its Arab neighbours. That brief embargo was followed by the much more severe “oil shock” of 1973–1974, when Arab producers within the Organization of Petroleum Exporting Countries (OPEC) declared sharp price rises, production cuts, and an oil embargo targeting the United States and some other Western nations over their support for Israel in its October 1973 Yom Kippur War with Syria and Egypt. This second oil shock encouraged Japan and other advanced economies to further embrace the nuclear option. A third oil shock came in 1979, when the Iranian Revolution disrupted production there, sending global oil prices higher. That spurred increased oil production from a variety of new, non-OPEC sources in the 1980s, which, combined with energy conservation and slower economic growth, meant oil prices declined sharply from the mid-1980s.

Japanese electronics and precision equipment makers in particular are heavily reliant on rare earths. Although they are able to recycle some from discarded computers, mobile phones, and other electronic detritus, they get most of their supply from China. In fact, between 50 and 60 percent of China’s rare earth exports go to Japanese buyers. But in September 2010, the buyers suffered something akin to a mini “oil shock.” Their supplies from China slowed to a crawl, tied down by the sort of bureaucratic double-shuffling that the Japanese themselves once employed as a nontariff barrier against unwanted imports. There was no export ban, the Chinese declared, but the result was the same: shipments ground to a halt, and the Japanese electronics industry got very nervous. Japan’s crime was to arrest the skipper of a Chinese fishing boat that collided with two Japanese coast guard vessels near a group of uninhabited islands in the East China Sea.

France, the Nuclear Champion France is unique in the nuclear power world. Its 58 reactors, operated by state majority-owned nuclear power utility Electricite de France (EDF), produce 75 percent of its electricity, and the country has so much spare capacity that EDF exports more than 10 percent of its output to neighbours such as Germany, Italy, Spain, Switzerland, Belgium, and the United Kingdom. Energy independence, a policy pursued by France since the oil shocks of the 1970s, is at the heart of nuclear power’s prominence in France, and even with the inroads made by renewable energy sources and cheaper gas, nuclear is unlikely to lose much ground. France actively champions its nuclear capabilities. Areva, another state-owned (90 percent) entity, is the world’s largest nuclear company, and has multiple agreements and joint ventures around the world aimed at securing uranium supplies, processing deals, technology development—such as with Siemens in Germany—and customers for its nuclear reactors.


pages: 1,445 words: 469,426

The Prize: The Epic Quest for Oil, Money & Power by Daniel Yergin

anti-communist, Ayatollah Khomeini, bank run, Berlin Wall, British Empire, colonial exploitation, Columbine, continuation of politics by other means, cuban missile crisis, do-ocracy, energy security, European colonialism, Exxon Valdez, financial independence, fudge factor, informal economy, joint-stock company, land reform, liberal capitalism, megacity, Mikhail Gorbachev, Monroe Doctrine, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, old-boy network, postnationalism / post nation state, price stability, RAND corporation, rent-seeking, Ronald Reagan, shareholder value, Thomas Malthus, Yom Kippur War

All were swept up in it; nothing and no one escaped. When the wave finally spent its fury two years later, the survivors would look around and find themselves beached on a totally new terrain. Everything was different; relations among all of them were altered. The wave would generate the Second Oil Shock, carrying prices from thirteen to thirty-four dollars a barrel, and bringing massive changes not only in the international petroleum industry but also, for the second time in less than a decade, in the world economy and global politics. The new oil shock passed through several stages. The first stretched from the end of December 1978, when Iranian oil exports ceased, to the autumn of 1979. The loss of Iranian production was partly offset by increases elsewhere. Saudi Arabia pushed up production from its self-imposed ceiling of 8.5 million barrels per day to 10.5 by the end of 1978.

Not only were those developing nations hit by the same recessionary and inflationary shocks, but the price increases also crippled their balance of payments, constraining their ability to grow, or preventing growth altogether. They suffered further from the restrictions on world trade and investment. The way out for some was to borrow, and therefore, a goodly number of those OPEC surplus dollars were "recycled" through the banking system to these developing countries. Thus, they coped with the oil shock by the expedient of going into debt. But a new category also had to be invented—the "fourth world"—to cover the lower tier of developing countries, which were knocked flat on their backs and whose poverty was reinforced. The new and very difficult problems of the developing countries put the oil exporters into an awkward, even embarrassing situation. After all, they, too, were developing countries, and they now proclaimed themselves as the vanguard of the "South," the developing world, in its efforts to end the "exploitation" by the North, the industrial world.

Certainly, by 1978, such a consensus could be observed throughout the community of oil forecasters and among those who made decisions based on those forecasts: While Alaska, Mexico, and the North Sea would together add six to seven million barrels per day to world markets by the early or mid-1980s, those new sources were expected to serve only as a supplement and a sort of modern-day Fabius, holding off and postponing, but not decisively banishing the inevitable day of shortage and reckoning. For, most forecasters agreed, another oil crisis was highly probable a decade or so hence, in the second half of the 1980s, when demand would once again be at the very edge of available supply. The result, in popular parlance, was likely to be an "energy gap," a shortage. In economic terms, any such imbalance would be resolved by another major price increase, a second oil shock, as had happened in the early 1970s. Though variations were to be found among the forecasts, there was considerable unanimity on the central themes, whether the source was the major oil companies, the CIA, Western governments, international agencies, distinguished independent experts, or OPEC itself. Not only were the forecasters convinced, so were the decisionmakers who relied on the forecasts to make their policies and investments and choose their course of action.


pages: 932 words: 307,785

State of Emergency: The Way We Were by Dominic Sandbrook

anti-communist, back-to-the-land, banking crisis, Bretton Woods, British Empire, centre right, collective bargaining, Corn Laws, David Attenborough, Doomsday Book, edge city, estate planning, Etonian, falling living standards, fear of failure, Fellow of the Royal Society, feminist movement, financial thriller, first-past-the-post, fixed income, full employment, German hyperinflation, global pandemic, mass immigration, moral panic, Neil Kinnock, new economy, New Urbanism, Norman Mailer, North Sea oil, oil shock, Own Your Own Home, sexual politics, traveling salesman, union organizing, upwardly mobile, urban planning, Winter of Discontent, young professional

‘I realised very quickly’, said Anthony Barber, ‘that all we’d been trying to achieve was really coming to an end.’46 But it is also a myth that the oil shock was always bound to bring doom and disaster in its wake. In the United States – which was punished even more severely than Britain, because of its support for Israel – the Nixon and Ford administrations managed to weather the economic blizzard without plunging the economy into a devastating bout of inflation, and although there was a prolonged and painful recession, the American economy was in recovery by early 1976. But coming after three draining years of industrial conflict, pay restraint and rhetorical class warfare, the oil shock brought out the very worst in British politics. What was more, it exposed all the weaknesses of Heath’s economic policies: the wishful thinking, the reckless spending, the naive faith in rational bureaucratic solutions.

For while the events of 1972 had amply demonstrated the miners’ economic muscle, the Arab attack on Israel, launched just four days before the Coal Board’s offer, played right into the miners’ hands. The NUM was still considering the Coal Board’s offer when, on 16 October, OPEC broke the devastating news of their oil price rise, which changed the game completely. Not only did the oil shock put Heath’s counter-inflation policy under intense pressure, it left the miners in an even stronger position. Britain depended heavily on imported oil to meet its energy requirements; indeed, since 1972 the government had been quietly building up coal stocks by burning more oil instead. Thanks to the oil shock, however, the government could hardly rely on imported oil if negotiations with the miners broke down; indeed, with North Sea oil yet to come on stream, OPEC’s blackmail had left Britain more dependent on coal than ever. The miners had a knife to the government’s throat, and after years of redundancies they felt little compunction about using it.

After toiling through ‘years of austerity … suddenly here it all was, the world of Penthouse and the Beatles, the world of large steaks and double cream on real gateaux, the world of girls and nightclubs and expense account champagne’.9 And even though millions of people never went to nightclubs or quaffed champagne, they still enjoyed their slice of the ever-expanding cake. By 1973, one in three people told researchers they had gone out for a meal in the previous month, a luxury few of their parents could have imagined. And despite all the economic turmoil of the early 1970s, the strikes and inflation, the oil shock and the power cuts, most of Bexley’s voters remained far more prosperous than they could have expected twenty years before. Three years after Edward Heath had walked into 10 Downing Street, there were more cars on the roads than ever, more products on the supermarket shelves, more colour televisions in suburban homes, more planes taking off for the beaches of Spain.10 As a relatively affluent, Conservative-voting slice of London suburbia, Bexley was not exactly representative of the national experience at the dawn of the 1970s.


pages: 851 words: 247,711

The Atlantic and Its Enemies: A History of the Cold War by Norman Stone

affirmative action, Ayatollah Khomeini, bank run, banking crisis, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, Bretton Woods, British Empire, business cycle, central bank independence, Deng Xiaoping, desegregation, Dissolution of the Soviet Union, European colonialism, facts on the ground, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, Gunnar Myrdal, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, illegal immigration, income per capita, interchangeable parts, Jane Jacobs, Joseph Schumpeter, labour mobility, land reform, long peace, mass immigration, means of production, Mikhail Gorbachev, Mitch Kapor, new economy, Norman Mailer, North Sea oil, oil shock, Paul Samuelson, Ponzi scheme, popular capitalism, price mechanism, price stability, RAND corporation, rent-seeking, Ronald Reagan, Silicon Valley, special drawing rights, Steve Jobs, strikebreaker, The Death and Life of Great American Cities, trade liberalization, trickle-down economics, V2 rocket, War on Poverty, Washington Consensus, Yom Kippur War, éminence grise

The oil producers, left to themselves, would have been far too disunited for common action, and their common strategy at OPEC did not in fact last for very long. But the fall of the dollar in 1971 pushed them together: why accept valueless paper dollars? The same was true, though not to the same extent, for producers of other raw materials - coffee, tobacco, copper, rubber, iron ore, meat as well - and prices shot up, even in 1971, two years before the oil shock. The problem was symbolized by the Brazilian city of Manaos, deep in the jungle. There, once upon a time, rubber had appeared, and the place became opulent: famously Dame Adeline Patti, the great opera singer of the 1890s, appeared there. Then rubber was produced elsewhere, and Manaos relapsed back into semi-jungle. Now, the Middle East was becoming a huge Manaos. At least in the epoch of Manaos, there was one commodity that ruled everything else, including money: gold.

In 1972 the floating of the pound allowed inflows from abroad, and new credit-giving institutions were allowed to emerge, offering and taking loans in conditions no longer subject to the controls of the past. For a time, this seemed to work. Unemployment did indeed fall to 500,000, but this was classic fool’s gold. The ‘fringe banks’ for a time did well out of property prices, which had a dangerously more important role in England than elsewhere, and unlovely concrete spread and spread and spread. But then came the oil shock. Even food prices trebled by 1974 as against 1971, and the bubble burst in November 1973, when the minimum lending rate was pushed up to 13 per cent while public spending was cut back by £12bn. One of the new banks could not obtain credit, and the other banks had to set up a ‘lifeboat’. It was not enough. The Bank of England itself had to move in, in the winter of 1974-5, and a well-connected bucket shop concern, Slater Walker Securities, had to be rescued in 1975.

That is the history of the last twenty years.’ By 1976 the Treasury itself was somewhat converted to the idea of monetarism, a limitation of the quantity of money such that inflation could be contained. But the conversion was not enthusiastic. The Bank (and the City) expressed greater enthusiasm. It was an unhappy time, the country winding down, and a slow crisis started. In 1976-7 the world economy did pick up, as the oil-shock money was recycled back to the industrial and exporting countries (which grew overall at 5 per cent). But the British economy was by now too fragile to gain much more than a respite, and inflation still ran high - 25 per cent in 1975, 16 per cent in 1976 and in 1977 (earnings keeping apace until 1977). As the pound was now a petrol currency, it naturally rose; keeping it down meant selling it, and that made for inflationary pressures, compounded by the inrush of Arab money.


pages: 632 words: 159,454

War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt by Kwasi Kwarteng

accounting loophole / creative accounting, anti-communist, Asian financial crisis, asset-backed security, Atahualpa, balance sheet recession, bank run, banking crisis, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, California gold rush, capital controls, Carmen Reinhart, central bank independence, centre right, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, currency manipulation / currency intervention, Deng Xiaoping, discovery of the americas, Etonian, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Francisco Pizarro, full employment, German hyperinflation, hiring and firing, income inequality, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, liberal capitalism, market bubble, money: store of value / unit of account / medium of exchange, moral hazard, new economy, oil shock, plutocrats, Plutocrats, Ponzi scheme, price mechanism, quantitative easing, rolodex, Ronald Reagan, South Sea Bubble, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, The Wealth of Nations by Adam Smith, too big to fail, War on Poverty, Yom Kippur War

The mood throughout the mid- to late 1970s was gloomy and depressed. Contemporaries spoke of the ‘Great Recession’. It was recalled that the ‘price of oil had actually been falling through most of the postwar period, both absolutely and in relation to other world prices’.17 The oil shock of 1973 led to ‘visions of financial disaster for the west’. The spike in oil prices had increased all costs in the Western economies, which were heavily dependent on oil. ‘Prices were higher and employment lower’ as a consequence of the oil shock.18 Despite the arguments of a later generation of economists, contemporaries were very clear about the direct causal link between higher oil prices, increased inflation and stagnant economies. The Harvard economist Otto Eckstein wrote in 1978 that the ‘erosion of purchasing power caused by higher energy prices affected all categories of consumer spending’.

The Saudis had bought ‘all over the world and they sent the goods home’, but then they ‘couldn’t get anything off the ships and into use’.26 Increased revenues, which flowed into the treasuries of the oil-exporting countries, altered the international economic environment. David Rockefeller, scion of the wealthy dynasty and Chairman of the Chase Manhattan Bank, recalled that the ‘most immediate effect of the oil shock was the surge in the flow of dollars from oil-importing nations into OPEC’s coffers. Between 1973 and 1977, the earnings of the oil-exporting nations expanded 600 percent, to US$140 billion.’ There lay the problem confronting the world monetary system. The enormous dollar reserves acquired by the oil exporters needed to find some outlet. Rockefeller, somewhat self-importantly, remembered that the ‘task of recycling [these] dollars and maintaining the system of global trade and finance fell to the major international commercial banks, including Chase’.

The Kuwaitis, ‘less conservative’, invested ‘most of their revenues in the US and European money and stock markets’.28 Meanwhile both the Shah of Iran and Saddam Hussein, the Iraqi Vice President, used their new oil revenues to build infrastructure, to invest in education and, more ominously, to buy military hardware.29 Chase Manhattan and its American competitor banks were active in recycling the so-called ‘petrodollars’, the dollars earned by oil exports, as loans to foreign businesses. Loans were also extended to Latin America, Africa, East Asia and other parts of the developing world.30 Other American bankers and senior officials began to express anxiety about the political and economic outlook. Paul Volcker, the future Chairman of the Federal Reserve, remembered that by mid-decade the ‘combination of accelerating inflation and the oil shock late in 1973’ went far in ‘establishing floating currencies as the . . . international monetary system’. The mid-1970s were marked by ‘what was then the most serious of the postwar recessions’ and by ever-higher inflation. Floating currencies, and the end of any link to gold, were a novel feature of the period. It had been assumed that ‘both exchange rates and economies would stabilize as the world gained experience’ with floating rates.


pages: 1,373 words: 300,577

The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin

"Robert Solow", addicted to oil, Albert Einstein, Asian financial crisis, Ayatollah Khomeini, banking crisis, Berlin Wall, bioinformatics, borderless world, BRICs, business climate, carbon footprint, Carmen Reinhart, cleantech, Climategate, Climatic Research Unit, colonial rule, Colonization of Mars, corporate governance, cuban missile crisis, data acquisition, decarbonisation, Deng Xiaoping, Dissolution of the Soviet Union, diversification, diversified portfolio, Elon Musk, energy security, energy transition, Exxon Valdez, facts on the ground, Fall of the Berlin Wall, fear of failure, financial innovation, flex fuel, global supply chain, global village, high net worth, hydraulic fracturing, income inequality, index fund, informal economy, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), James Watt: steam engine, John von Neumann, Kenneth Rogoff, life extension, Long Term Capital Management, Malacca Straits, market design, means of production, megacity, Menlo Park, Mikhail Gorbachev, Mohammed Bouazizi, mutually assured destruction, new economy, Norman Macrae, North Sea oil, nuclear winter, off grid, oil rush, oil shale / tar sands, oil shock, Paul Samuelson, peak oil, Piper Alpha, price mechanism, purchasing power parity, rent-seeking, rising living standards, Robert Metcalfe, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, smart grid, smart meter, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, technology bubble, the built environment, The Nature of the Firm, the new new thing, trade route, transaction costs, unemployed young men, University of East Anglia, uranium enrichment, William Langewiesche, Yom Kippur War

It was primarily a credit recession, the result of too much debt, too much leverage, too many derivatives, too much cheap money, too much overconfidence—all of which engendered real estate and other asset bubbles in the United States and other parts of the world. But the surge in oil prices was an important contributing factor to the downturn. Between June 2007 and June 2008, oil prices doubled—an increase of $66—in absolute terms, a far bigger increase in oil prices than had ever been seen in any of the previous oil shocks, going back to the 1970s. “The surge in oil prices was an important factor that contributed to the economic recession,” observed Professor James Hamilton, one of the leading students of the relation between energy and the economy. The oil price shock interacted with the housing slowdown to tip the economy into a recession. The sudden increase of prices at the pump took purchasing power away from lower-income groups, making it more difficult for many of them to make payments on their subprime mortgages and their other debts.

It triggered a fourfold increase in the price of oil. The embargo, combined with the price increases, shook the structure of international relations and sent shock waves through the global economy, followed by several years of poor economic performance. The 1978–79 Iranian Revolution, which toppled the shah and ushered in the theocratic Islamic Republic, also ignited a worldwide panic in the petroleum market and another oil shock that contributed mightily to the difficult economic years of the early 1980s. Saddam Hussein’s 1990 invasion of Kuwait set off the Gulf crisis, leading to the loss of five million barrels a day of supply from Iraq and Kuwait. Other producers, notably Saudi Arabia, cranked up output and largely replaced the missing barrels over the next several months, even before Operation Desert Storm evicted Saddam’s forces from Kuwait.

France is also the largest exporter of electricity in the world: those sales to neighboring countries constitute France’s fourth-largest export. In Japan, too, nuclear power plants continued to come online—with more than a dozen in the decade following Chernobyl’s meltdown. But Japan’s cultural legacy regarding nuclear power was more complicated. It was the only country to have ever suffered a nuclear attack, and the politics of nuclear power could engender a powerful emotional response from voters and politicians alike. But the oil shocks of the 1970s, which threatened to undermine Japan’s postwar economic miracle, were deeply traumatic. Indeed, so much so that the political will to support the nuclear program remained strong. “Unlike the United States or the United Kingdom, Japan had no choice but to depend on imports for virtually all of its fossil-fuel supply,” said Masahisa Naitoh, a formerly senior energy official in Japan.


pages: 311 words: 17,232

Living in a Material World: The Commodity Connection by Kevin Morrison

addicted to oil, barriers to entry, Berlin Wall, carbon footprint, clean water, commoditize, commodity trading advisor, computerized trading, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Kickstarter, Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, Paul Samuelson, peak oil, price mechanism, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, uranium enrichment, young professional

I wanted to write a book about the connection between the consumer and the raw materials we use every day and to link the chain from the businesses that extract the materials, the governments that set the laws and the commodity markets where raw material prices are determined. In the simplest of acts we take raw materials for granted; like switching on a light or turning up the heating. I wanted to show T 2 | LIVING IN A MATERIAL WORLD how commodities are relevant to every body, every day – and how they are more relevant now than they have been at any time since the last oil shock nearly three decades ago (my memories of which include going to bed by candlelight during the energy rationing and three-day weeks of the 1970s). Everything we consume – whether through buying something, eating or even our physical actions – involves, at some level, the use of metals, fossil fuels or agricultural produce, which we take from planet Earth and use to make our lives more comfortable, more productive or more manageable.

The rise in living standards has come at a time of unparalleled population growth, technological and scientific breakthroughs, political upheaval and economic and trade liberalization. Economic growth in developing countries has accelerated global growth at a faster pace than at any time since the 1960s. In the 1950s and 1960s, the world economy rose by 5 % due to the reconstruction of Europe and Japan, as well as the economic competition between the US and the Soviet Union. The two oil shocks in the 1970s slowed growth to about 4 %, and then to 3 %, which became the average economic growth rate of the 1980s and 1990s. Higher oil and food prices together with the credit crisis in the US have prompted economists to cut global economic growth rates to around 3 % for 2008. Some experts cite this as the start of a prolonged downturn in the global economy. Others take the view that the build up in sovereign funds in China along with Middle Eastern and other Asian countries, accumulated on the back of higher energy prices, 6 | LIVING IN A MATERIAL WORLD will see more reliance on the developing world as the engine of global growth.

It is not the first financial meltdown we have seen towards the end of a decade in recent times: the Asian currency crisis and the Russian default came in the late 1990s and the stock market crash in the late 1980s, when companies who had over-borrowed were hit by rising interest rates. The credit crisis of 2007 followed a prolonged period of loose money supply where interest rates were kept below their long-term average. The combination of easy credit and high oil prices is eerily similar to the economic conditions in the early and late 1970s at the time of the world’s first two oil shocks, both of which were followed by recessions.3 The 1970s was the last time the world was seriously concerned about the supply and price of raw materials, and I refer to this period throughout the book.4 In December 1976, the US government issued a report on resource availability by the National Commission on Supplies and Shortages,5 8 | LIVING IN A MATERIAL WORLD which looked at the issue of whether the US was running out of resources and whether the country was dependent on importing raw materials from foreign countries (Eckes, 1978).


pages: 431 words: 107,868

The Great Race: The Global Quest for the Car of the Future by Levi Tillemann

Affordable Care Act / Obamacare, Any sufficiently advanced technology is indistinguishable from magic, autonomous vehicles, banking crisis, car-free, carbon footprint, cleantech, creative destruction, decarbonisation, deindustrialization, demand response, Deng Xiaoping, Donald Trump, Elon Musk, en.wikipedia.org, energy security, factory automation, global value chain, hydrogen economy, index card, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, Joseph Schumpeter, Kickstarter, manufacturing employment, market design, megacity, Nixon shock, obamacare, oil shock, Ralph Nader, RFID, rolodex, Ronald Reagan, Rubik’s Cube, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, skunkworks, smart cities, sovereign wealth fund, special economic zone, Steve Jobs, Tesla Model S, too big to fail, Unsafe at Any Speed, zero-sum game, Zipcar

Born in Ohio to immigrant Jewish parents in 1922, Ovshinsky was a consummate outsider. His father was a Lithuanian-born scrap metal dealer, and as a young man Ovshinsky himself had started his career as a lathe operator. Ovshinsky’s formal education went only as far as high school, but the public libraries were a fitful schoolroom for such a subversive genius. His self-directed study nurtured a deep streak of intellectual independence. Long before the oil shocks of the 1970s, Ovshinsky understood the environmental and geopolitical dangers of relying too much on oil to fuel an economy and set out to find alternatives. Together with his wife, Iris, he set up a “storefront lab” that eventually grew into the publicly traded company ECD Ovonics. At Ovonics, Ovshinsky invented a new family of semiconductors, hydrogen fuel cells, and thin-film solar cells. The Economist magazine called him the “Edison of our age.”

And so, he dryly told Angelenos, “faced with a choice between my freedom and your mobility, my freedom wins.”14 The Ruckelshaus EPA responded by proposing that the federal government should curtail development and ration gasoline shipments to California by 25 percent in summer months, with most of the cuts targeted toward the Los Angeles basin.15 Obviously, this would not be good for California’s economy—or for the automakers, or oil companies. So many in the business-minded community quickly learned to despise the EPA. Automakers in particular felt as if they were under siege: they were being required to both reduce emissions and increase fuel economy—in response to the oil shocks—at the same time. The technological burden was staggering. Technology Forcing—“Impossible” Standards All of this was very much in line with the new thinking at CARB. Tom Quinn’s attitude did not endear him to the automakers—not one bit. And under Quinn’s leadership CARB forced manufacturers out of their comfort zones—mining them for data about what was possible and pushing them precariously close to the technology frontier.

Sometimes he would write press releases during the automakers’ testimony in order to beat industry execs to the media punch.18 Other times he would just leave a hearing for hours, return, call for a vote mid-testimony, and adjourn.19 He had little patience for Detroit’s carefully crafted lobbying campaigns and public relations stagecraft. Some would argue that Quinn went too far. The new CARB chairman carried out policy irrespective of economic conditions and seemed impervious to the difficulties faced by Detroit. Japanese imports were surging, and the first oil shock had tremendously weakened the appeal of America’s biggest, most profitable cars. And the industry’s problems did not stop there. Quality was starting to sag. By the early 1970s, the average American-made car went to market with more than two dozen defects.20 But despite these tough times, Quinn was intent on making California into America’s pressure cooker for new environmental technologies. When it was discovered that a shaky Chrysler had sold 21,000 vehicles that transgressed California’s standards in 1975, Quinn forced an expensive recall.21 In another incident, the American Motors Corporation (AMC)—maker of Jeep, and later the Humvee—presented data that showed its emissions were the best in the industry.


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

The end of the Golden Age was marked by the First Oil Shock in 1973, in which oil prices rose fourfold overnight, thanks to the price collusion of the cartel of the oil-producing countries, OPEC (Organization of Petroleum Exporting Countries). Inflation had been slowly increasing in many countries since the late 1960s but, following the Oil Shock, it shot up. More importantly, the next several years were characterized by stagflation. This newly coined term referred to the breakdown of the age-long economic regularity that prices fall during a recession (or stagnation) and rise during a boom. Now, the economy was stagnating (albeit not exactly in a prolonged recession, like during the Great Depression) but prices were rising fast, at 10, 15 or even 25 per cent per year.27 The Second Oil Shock in 1979 finished off the Golden Age by bringing about another bout of high inflation and helping neo-liberal governments come to power in the key capitalist countries, especially in Britain and the US.

Capitalism falters: growth slows down and socialism outperforms capitalism The turmoil of the 1914–45 period reached its peak with the outbreak of the Second World War, which killed tens of millions of people, both soldiers and civilians (higher estimates put the death toll at 60 million). The war resulted in the first reversal in the acceleration in economic growth since the early nineteenth century.19 1945–73: The Golden Age of Capitalism Capitalism performs well on all fronts: growth, employment and stability The period between 1945, the end of the Second World War, and 1973, the first Oil Shock, is often called the ‘Golden Age of capitalism’. The period really deserves the name, as it achieved the highest growth rate ever. Between 1950 and 1973, per capita income in Western Europe grew at an astonishing rate of 4.1 per cent per year. The US grew more slowly, but at an unprecedented rate of 2.5 per cent. West Germany grew at 5.0 per cent, earning the title of the ‘Miracle on the Rhine’, while Japan grew even faster at 8.1 per cent, starting off the chain of ‘economic miracles’ in East Asia in the next half a century.

The Third World debt crisis and the end of the Third World Industrial Revolution The most lasting legacy of the high interest rate policy in the US in the late 1970s and the early 1980s – sometimes called the Volcker Shock, named after the then chairman of the US central bank (the Federal Reserve Board) – was not in the US but in the developing countries. Most developing countries had borrowed heavily in the 1970s and the early 1980s, partly to finance their industrialization and partly to pay for the more expensive oil, following the Oil Shocks. When the US interest rates doubled, so did international interest rates, and this led to a widespread default on foreign debts by developing nations, starting with the default of Mexico in 1982. This is known as the Third World Debt Crisis, thus known because the developing world was then called the Third World, after the First World (the advanced capitalist world) and the Second World (the socialist world).


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, business process, butterfly effect, call centre, capital controls, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, full employment, future of work, game design, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, low skilled workers, market clearing, means of production, Metcalfe's law, microservices, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, precariat, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, union organizing, universal basic income, urban decay, urban planning, Vilfredo Pareto, wages for housework, WikiLeaks, women in the workforce

The break occurs at the end of the First World War; the 1930s Depression, followed by the destruction of capital during the Second World War terminate the downswing. Late-1940s–2008: In the fourth long cycle transistors, synthetic materials, mass consumer goods, factory automation, nuclear power and automatic calculation create the paradigm – producing the longest economic boom in history. The peak could not be clearer: the oil shock of October 1973, after which a long period of instability takes place, but no major depression. In the late–1990s, overlapping with the end of the previous wave, the basic elements of the fifth long cycle appear. It is driven by network technology, mobile communications, a truly global marketplace and information goods. But it has stalled. And the reason it has stalled has something to do with neoliberalism and something to do with the technology itself.

America’s economy shrank by 6.5 per cent between January 1974 and March 1975,23 Britain’s by 3.4 per cent. Even Japan – which had averaged growth rates close to 10 per cent in the post-war period – went briefly negative.24 The crisis was unique because in the worst-hit countries falling growth coincided with high inflation. By 1975, inflation in Britain reached 20 per cent, and 11 per cent in the USA. The word ‘stagflation’ hit the headlines. Yet even at the time it was obvious that the oil shock was merely the trigger. The upswing had already been stuttering. In each developed country, growth in the late 1960s seemed beset by national or local problems: inflation, labour troubles, productivity concerns and flurries of financial scandal. But 1973 was the watershed, the point where the energy driving the fourth wave upwards caused it to peak and then invert. What made it happen is a question that has defined modern economics.

With this change, each stricken country was temporarily free to solve the underlying problems of productivity and profitability in ways the old system had made impossible: with higher state spending and lower interest rates. The years 1971–3 were lived in a kind of nervous euphoria. The inevitable stock market crash hit Wall Street and London in January 1973, triggering the collapse of several investment banks. The oil shock of October 1973 was the final straw. CARRY ON KEYNES By 1973, every aspect of the unique regime that had sustained the long boom was broken. But the crisis looked accidental: low input prices destroyed by OPEC; global rules ripped up by Richard Nixon; profits eroded by that figure of loathing, the ‘greedy worker’. The iconic British Carry On movie franchise chose this moment to switch from ludicrous historical parodies to an attempt at razor-sharp social commentary.


pages: 273 words: 87,159

The Vanishing Middle Class: Prejudice and Power in a Dual Economy by Peter Temin

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Legislative Exchange Council, American Society of Civil Engineers: Report Card, anti-communist, Bernie Sanders, Branko Milanovic, Bretton Woods, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carried interest, clean water, corporate raider, Corrections Corporation of America, crack epidemic, deindustrialization, desegregation, Donald Trump, Edward Glaeser, Ferguson, Missouri, financial innovation, financial intermediation, floating exchange rates, full employment, income inequality, intangible asset, invisible hand, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, manufacturing employment, Mark Zuckerberg, mass immigration, mass incarceration, means of production, mortgage debt, Network effects, New Urbanism, Nixon shock, obamacare, offshore financial centre, oil shock, plutocrats, Plutocrats, Powell Memorandum, price stability, race to the bottom, road to serfdom, Ronald Reagan, secular stagnation, Silicon Valley, Simon Kuznets, the scientific method, War on Poverty, Washington Consensus, white flight, working poor

This process was complicated greatly when the Organization of Petroleum Exporting Countries (OPEC) quadrupled the price of oil in 1973. The resulting “Oil Shock” sent many prices—including exchange rates—in motion.3 Anticipation of the Oil Shock led President Nixon to propose “Project Independence” in November 1971. Nixon’s emphasis was on domestic production and consumption, and his policy implied that the United States was to remain passive in the face of OPEC provocation. This idea was transformed over the next few years into a more active stance that would seek steady supplies of oil from the Middle East. Nixon also replaced the ailing draft for Army soldiers with the volunteer army at this time, a plan he also started before the Oil Shock. The draft had become difficult as the Vietnam War dragged on, and conservatives argued against the idea of forced service.

The draft had become difficult as the Vietnam War dragged on, and conservatives argued against the idea of forced service. This was an early step in the privatization of the military.4 The Oil Shock also raised the question of how the members of OPEC were going to hold their newly acquired wealth. The highly regulated financial system established at Bretton Woods in the 1940s could not easily absorb this large inflow of cash, and the cash found a temporary home in the arrangement for dollar deposits outside the United States. These dollar deposits in European banks were known as Eurodollars, and they were not heavily regulated by either the United States or Europe. Much of the cash went to Switzerland, where banks were willing to preserve the anonymity of the depositors. The combination of changing prices and large amounts of money seeking a safe home led to demands to deregulate the financial system that stimulated a general push for deregulation and affected policy decisions in the following decades.5 The Fed did not know how to contain the price shocks of the 1970s, and “stagflation”—both inflation and unemployment—was the result.


pages: 603 words: 182,781

Aerotropolis by John D. Kasarda, Greg Lindsay

3D printing, air freight, airline deregulation, airport security, Akira Okazaki, Asian financial crisis, back-to-the-land, barriers to entry, Berlin Wall, big-box store, blood diamonds, borderless world, Boris Johnson, British Empire, business cycle, call centre, carbon footprint, Cesare Marchetti: Marchetti’s constant, Charles Lindbergh, Clayton Christensen, cleantech, cognitive dissonance, commoditize, conceptual framework, credit crunch, David Brooks, David Ricardo: comparative advantage, Deng Xiaoping, deskilling, digital map, disruptive innovation, edge city, Edward Glaeser, failed state, food miles, Ford paid five dollars a day, Frank Gehry, fudge factor, full employment, future of work, Geoffrey West, Santa Fe Institute, George Gilder, global supply chain, global village, gravity well, Haber-Bosch Process, Hernando de Soto, hive mind, if you build it, they will come, illegal immigration, inflight wifi, intangible asset, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), intermodal, invention of the telephone, inventory management, invisible hand, Jane Jacobs, Jeff Bezos, Joan Didion, Kangaroo Route, Kickstarter, knowledge worker, kremlinology, low cost airline, Marchetti’s constant, Marshall McLuhan, Masdar, mass immigration, McMansion, megacity, Menlo Park, microcredit, Network effects, New Economic Geography, new economy, New Urbanism, oil shale / tar sands, oil shock, peak oil, Pearl River Delta, Peter Calthorpe, Peter Thiel, pets.com, pink-collar, pre–internet, RFID, Richard Florida, Ronald Coase, Ronald Reagan, Rubik’s Cube, savings glut, Seaside, Florida, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Skype, smart cities, smart grid, South China Sea, South Sea Bubble, sovereign wealth fund, special economic zone, spice trade, spinning jenny, starchitect, stem cell, Steve Jobs, supply-chain management, sustainable-tourism, telepresence, the built environment, The Chicago School, The Death and Life of Great American Cities, The Nature of the Firm, thinkpad, Thomas L Friedman, Thomas Malthus, Tony Hsieh, trade route, transcontinental railway, transit-oriented development, traveling salesman, trickle-down economics, upwardly mobile, urban planning, urban renewal, urban sprawl, walkable city, white flight, white picket fence, Yogi Berra, zero-sum game

The problem in this case is sharply curtailing CO2 emissions globally, which means the answer might not necessarily be found at Heathrow. The aftermath of previous oil shocks suggests efficiency is winning the argument. In the 1970s, when oil prices were the pressing issue instead of climate change, petroleum was hastily replaced wherever alternatives existed. Coal, natural gas, and nuclear power were pressed into service for heating homes, powering factories, and generating electricity. What we couldn’t phase out was gasoline—which continues to fuel 95 percent of all vehicles—although consumers rushed to embrace fuel-efficient Japanese imports, just as they do now. As a consequence, transportation’s oil consumption grew by about 1.3 percent per year between the first oil shock of 1973 and the 2008 peak. But residential uses fell 2.1 percent, commercial uses 2.4 percent, and power generation 4.8 percent.

(Then the crash and the law of large numbers kicked in.) The number of passengers in the United States this year is expected to hover around seven hundred million, 10 percent off its peak but still triple what it was in 1980. It’s grown five times faster than population since then. In thirty years, the number of miles flown by Americans dipped only once before our current crisis, in the wake of 9/11. Neither the early eighties oil shocks nor the first Gulf War slowed us down. Air travel follows the money. It’s a leading indicator of economic health, flying higher when times are good and falling faster when they turn bad. As it is, six hundred thousand Americans hopped a flight last week, more than the population of Milwaukee. Hubs are easily the world’s most central places, concentrating us like nowhere else. DFW annually handles some sixty million passengers, equal to one in five Americans.

The United Arab Emirates possesses a full twelfth of the world’s proven oil reserves, enough to keep pumping for a century. But almost all of that lies under Abu Dhabi; Dubai is running dry. This was hardly unexpected—Sheikh Mohammed’s father, Sheikh Rashid, knew it not long after oil was discovered in the 1960s. The knowledge defined Dubai, forcing its rulers to diversify and imagineer. While Abu Dhabi threw up topaz and tourmaline towers Dallas-style in the 1970s, Sheikh Rashid plowed his oil-shock profits into infrastructure. It was during his reign that Dubai built its ports, airport, drydocks, World Trade Center, and the first banks and hotels to cater to traders like Marwan Bibi. His greatest legacy was Jebel Ali, the largest man-made harbor ever created, carved from a stretch of empty beach. “I’m building this port now,” Sheikh Rashid told his son, “because there will come a time when you won’t be able to afford it.”


pages: 332 words: 89,668

Two Nations, Indivisible: A History of Inequality in America: A History of Inequality in America by Jamie Bronstein

Affordable Care Act / Obamacare, back-to-the-land, barriers to entry, basic income, Bernie Sanders, big-box store, blue-collar work, Branko Milanovic, British Empire, Capital in the Twenty-First Century by Thomas Piketty, clean water, cognitive dissonance, collateralized debt obligation, collective bargaining, Community Supported Agriculture, corporate personhood, crony capitalism, deindustrialization, desegregation, Donald Trump, ending welfare as we know it, Frederick Winslow Taylor, full employment, Gini coefficient, income inequality, interchangeable parts, invisible hand, job automation, John Maynard Keynes: technological unemployment, labor-force participation, land reform, land tenure, longitudinal study, low skilled workers, low-wage service sector, mandatory minimum, mass incarceration, minimum wage unemployment, moral hazard, moral panic, mortgage debt, New Urbanism, non-tariff barriers, obamacare, occupational segregation, Occupy movement, oil shock, plutocrats, Plutocrats, price discrimination, race to the bottom, rent control, road to serfdom, Ronald Reagan, Sam Peltzman, Scientific racism, Simon Kuznets, single-payer health, strikebreaker, too big to fail, trade route, transcontinental railway, Triangle Shirtwaist Factory, trickle-down economics, universal basic income, Upton Sinclair, upwardly mobile, urban renewal, wage slave, War on Poverty, women in the workforce, working poor, Works Progress Administration

During the Nixon administration, the President’s Commission on Income Maintenance recommended a basic income guarantee for low-income Americans, the Family Assistance Plan. The plan was never enacted, although the Earned Income Tax Credit had its origin in this idea. When the Family Assistance Plan stalled and died, the political will to broaden the social safety net evaporated under economic pressure. Stagflation, the oil shocks of the 1970s, and deindustrialization brought malaise to the United States. These conditions enabled widespread acceptance of an alternative theory of prosperity, discussed in Chapter 7. Divorced from both equality of condition and equality of opportunity, Ronald Reagan’s tax cuts, military spending, safety-net slashing, and “trickle-down” economics promoted the idea that the freest markets were most efficient, and the most efficient markets produced the most prosperity.

Although the plan was never enacted, the Earned Income Tax Credit (1975), a tax refund for low-income working families, had its origin in this idea.6 During the 1970s, philosophers as well as politicians struggled with ideas of fairness. The philosophers John Rawls’s A Theory of Justice (1971) and Robert Nozick’s Anarchy, State, and Utopia (1974) set out important interpretations of fair property-holding and distribution that have influenced divergent policies to this day. By the late 1970s, prosperity was lagging under the pressure of two oil shocks, unprecedented combined inflation and unemployment, and increasing American deindustrialization. The population shifted, following military bases and factories to southern states where unions were weaker or nonexistent and workers could be paid less. In the Rust Belt, the automobile factories that drove American prosperity furloughed workers.7 In the midst of this malaise, new voices began to blame the economic slowdown on Keynesian economics, taxation, and government economic regulation.

In the worst formulation, they described the poor as devious “welfare queens.”100 As the next chapter will show, Ronald Reagan, long an opponent of welfare programs, made those associations and claims central tenets of his administration. Under the pressure of neoliberalism, the Great Compression quickly began to unravel. CHAPTER 7 The Triumph of Neoliberalism: 1979–1999 Stagflation and the oil shocks of the 1970s had brought economic malaise to the United States, setting the stage for widespread acceptance of a new, “neoliberal” theory of prosperity, divorced from both equality of condition and equality of opportunity. Over the course of the next decade, Ronald Reagan’s severe tax cuts and George H. W. Bush’s “trickle-down” economics promoted the idea that Americans should nurture and cultivate “job creators,” the wealthiest Americans, who, it was assumed, would reinvest in the economy and cause growth that would benefit all.


pages: 202 words: 62,901

The People's Republic of Walmart: How the World's Biggest Corporations Are Laying the Foundation for Socialism by Leigh Phillips, Michal Rozworski

Berlin Wall, Bernie Sanders, call centre, carbon footprint, central bank independence, Colonization of Mars, combinatorial explosion, complexity theory, computer age, corporate raider, decarbonisation, discovery of penicillin, Elon Musk, G4S, Georg Cantor, germ theory of disease, Gordon Gekko, greed is good, hiring and firing, index fund, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, invisible hand, Jeff Bezos, Joseph Schumpeter, linear programming, liquidity trap, mass immigration, Mont Pelerin Society, new economy, Norbert Wiener, oil shock, passive investing, Paul Samuelson, post scarcity, profit maximization, profit motive, purchasing power parity, recommendation engine, Ronald Coase, Ronald Reagan, sharing economy, Silicon Valley, Skype, sovereign wealth fund, strikebreaker, supply-chain management, technoutopianism, The Nature of the Firm, The Wealth of Nations by Adam Smith, theory of mind, transaction costs, Turing machine, union organizing

The years 1957–58 saw a short recession precipitated in part by these higher rates. But Fed governors were explicit that they had deliberately applied the brakes to the economy and altered the costs of investment in order to change the climate in which capital bargained with workers. They planned, overriding what the (labor) market, left to its own devices, would otherwise have delivered. Similarly, during the first eight months of the 1973–75 oil-shock recession, interest rates continued to rise—nicely coinciding with UAW bargaining with the Big Three automakers. When the Fed finally lowered rates to stimulate investment and counteract the slump, Fed governors argued that, unlike expansionary fiscal policy carried out by Congress and the president, presumably at the behest of the democratic will, their independent actions would be much easier to undo when the economy “overheated” again and workers started to ask for more.

Rather than planning only how much healthcare there was, and where—the important questions that the 1960s planners had to tackle first—these reforms could also have laid the groundwork for planning that tackled how healthcare was produced and, most importantly, who participated in decision making. However, instead of ratcheting up democracy within the system, most of the 1970s reforms failed in the face of brewing economic crisis. The oil shock of the early 1970s saw both prices and unemployment spike at the same time—something that economists of all mainstream stripes had said was no longer supposed to happen. The regime of boom and bust was supposed to have been solved by Keynesianism, delivered by the postwar compromise between capital and labor. In response to the new crisis, throughout the 1970s and early 1980s, elites in the UK (as in the United States and much of the West) launched an assault on the postwar economic settlement that had guaranteed higher wages and expansive public services for workers in exchange for high growth rates and high profits for business.

Wasteful investment and unsustainable loans proliferated as underperforming enterprises attempted to improve their position in the market. To service these onerous debts, the reestablished managerial hierarchy, aided by a withered self-management apparatus, did what any normal capitalist manager does: squeeze wages and conditions. Unemployment made its return to the land. And all this before the global economic crises and oil shocks of the 1970s. Does this mean there is no room for market socialism or cooperatives in any conception of a just society? It depends on what time frame we consider. Let us abandon the view of market socialism and democratic planning as rivals. Instead, view cooperatives and market socialism (or elements of it) as bridging mechanisms toward decommodification and planning that build the confidence of ordinary people in their own capacity to govern a workplace without bosses—and ultimately to govern the entirety of the economy.


pages: 554 words: 168,114

Oil: Money, Politics, and Power in the 21st Century by Tom Bower

addicted to oil, Ayatollah Khomeini, banking crisis, bonus culture, corporate governance, credit crunch, energy security, Exxon Valdez, falling living standards, fear of failure, forensic accounting, index fund, interest rate swap, kremlinology, LNG terminal, Long Term Capital Management, margin call, Mikhail Gorbachev, millennium bug, MITM: man-in-the-middle, Nelson Mandela, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, passive investing, peak oil, Piper Alpha, price mechanism, price stability, Ronald Reagan, shareholder value, short selling, Silicon Valley, sovereign wealth fund, transaction costs, transfer pricing, zero-sum game, éminence grise

Rich would claim that he, like his rivals, had exploited a loophole in badly drafted regulations. However, he had set himself apart from other traders by ostensibly operating from Switzerland, in order to evade American taxes. That might have been ignored if he had not planned to profit by exploiting a crisis in Iran, where oil workers were striking to topple the Shah, disrupting supplies. Oil prices in Rotterdam rose by 150 percent, the harbinger of what would be called the second oil shock. Anticipating the shortage, Rich had again purchased oil for storage from corrupt Iranian officials. Among his customers was BP, the former owner of the Iranian oilfields, which was anxious to keep its refineries operating. BP’s reliance on Rich increased after the Shah was ousted from Tehran in January 1979 and replaced by the Islamic fundamentalist Ayatollah Khomeini. Fears of an oil embargo pushed prices further up.

The volatility of prices caused OPEC and most of the major oil companies concern, but BP seemed well placed to profit from the new uncertainty. Unlike other traders, Hall noticed that besides the increasing amounts of oil being imported by the USA and the simplicity of trading tankers of crude oil on the daily Rotterdam spot market, there was an opportunity to speculate about future prices by using schemes devised in the financial markets. The rapid changes in prices made those profits potentially lucrative. The second oil shock had hastened the development of speculation. The impetus for the change was BP’s discovery of oil in the North Sea. Before the discovery of the Forties field in 1970, few experts had believed that any riches would be found under the gray water. The surprise breakthrough fired a stampede, akin to a gold rush. Among the biggest reservoirs was “Brent,” discovered in 1971 beneath 460 feet of water, which would provide 13 percent of Britain’s oil and 10 percent of its gas.

The fear of oil shortages, rising imports and soaring prices symbolized by Jimmy Carter wearing a cardigan and declaring it was “the moral equivalent of war” to cut consumption had been forgotten. Size rather than the environment was again fashionable. Economy cars had been abandoned, and nearly a fifth of American motorists drove gas-guzzling SUVs, the biggest of which ran at four miles a gallon. Although oil imports were predicted by the US Government Accountability Office to rise to 60 percent by 2015, there was no fear of an oil shock. Smart technology that enabled drills to turn corners in rocks miles beneath the surface could be relied upon to produce more oil, and oil’s contribution to industrial production was diminishing. Raymond’s sense of certainty enhanced Exxon’s stature. He and Rex Tillerson were guided by their desire to satisfy their shareholders. They appeared to have no fear of failure. Exxon’s reserves, compared to those of their competitors, were enormous.


pages: 222 words: 70,559

The Oil Factor: Protect Yourself-and Profit-from the Coming Energy Crisis by Stephen Leeb, Donna Leeb

Buckminster Fuller, buy and hold, diversified portfolio, fixed income, hydrogen economy, income per capita, index fund, mortgage debt, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit motive, reserve currency, rising living standards, Ronald Reagan, shareholder value, Silicon Valley, Vanguard fund, Yom Kippur War, zero-coupon bond

In the pages ahead we explain why we think we are on the cusp of a major transition that, revolving around oil, will dominate the investment picture for many years to come. And we tell investors exactly how they best can deal with this challenging new environment so as to come out winners. We hope you find it provocative, informative, and helpful. Introduction At various moments in the past thirty-plus years, oil has thrust itself front and center into our consciousness. The first oil shock came during the Arab oil embargo of 1973, when oil prices rose precipitously and filling up our tanks at the local gas station became a major ordeal. A few years later during the revolution in Iran, and then in 1991 prior to the first Gulf War, prices also soared. During these times, everyone fretted about oil. When oil prices came down, though, as they always seemed to do, most of us once again were happy to take oil for granted.

In a free market system, price is always going to be the chief determining factor. Until oil prices rise sufficiently, we’re going to keep putting off facing reality. And that could be exceedingly dangerous. One reason for a sense of urgency about zeroing in on alternative energies as rapidly as possible, rather than dragging out the process by efforts at conservation, is that we can never know when we will experience a sudden oil shock that will abruptly choke off supplies. Unlike thirty years ago, when worldwide oil supplies were more abundant, we’re too close to the edge now to be sure we can survive such a blow. And with the world as fragile as it is, with most oil concentrated in politically hostile or unstable countries, it obviously would be naive to say that such a shock won’t happen. Whatever your view of the primary motives behind our unprecedented initiation of the war in Iraq, this reality—the importance of securing world oil supplies—surely wasn’t entirely absent from the minds of our leaders.

Whatever your view of the primary motives behind our unprecedented initiation of the war in Iraq, this reality—the importance of securing world oil supplies—surely wasn’t entirely absent from the minds of our leaders. In later chapters we talk about how our vulnerability to oil shortages makes it essential that we continue to build up our military might. But trying to police the oil-producing world through our soldiers and weapons will never be a hundred percent foolproof—oil shocks can still occur—and efforts to do so obviously are fraught with a great many risks and problems. The only long-term answer is to develop acceptable and viable alternative forms of energy, and the sooner we do it, the better. So yes, it does seem disgraceful that the average mileage achieved by cars has been dropping significantly, one of the statistics frequently pointed out by pro-conservationists.


pages: 204 words: 67,922

Elsewhere, U.S.A: How We Got From the Company Man, Family Dinners, and the Affluent Society to the Home Office, BlackBerry Moms,and Economic Anxiety by Dalton Conley

assortative mating, call centre, clean water, commoditize, dematerialisation, demographic transition, Edward Glaeser, extreme commuting, feminist movement, financial independence, Firefox, Frank Levy and Richard Murnane: The New Division of Labor, Home mortgage interest deduction, income inequality, informal economy, Jane Jacobs, Joan Didion, John Maynard Keynes: Economic Possibilities for our Grandchildren, knowledge economy, knowledge worker, labor-force participation, late capitalism, low skilled workers, manufacturing employment, mass immigration, McMansion, mortgage tax deduction, new economy, off grid, oil shock, PageRank, Ponzi scheme, positional goods, post-industrial society, post-materialism, principal–agent problem, recommendation engine, Richard Florida, rolodex, Ronald Reagan, Silicon Valley, Skype, statistical model, The Death and Life of Great American Cities, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, women in the workforce, Yom Kippur War

First from Japan; then from Taiwan and South Korea. And finally, from China and Southeast Asia. If it weren’t for death by a thousand imports, the Treaty of Detroit would have rotted from within, since—devoid of real competition—the system would have devolved into a Sovietlike goldbricking system of low-productivity work. Wages and prices would feed into the vicious circle of inflation, or rather stagflation (which, in fact, sparked by the oil shock of 1973, did befall us). Those generous provisions for health care and retirement have meant that American car companies (and other manufacturers) had little fat they could trim. Rather than give up defined benefit (i.e., guaranteed) pensions and health insurance for retirees, autoworkers clung to their hard-won gains—in part because union leaders are almost always closer to retirement than the rank-and-file workers they are meant to represent.

I am picking on cars to illustrate the point, but the story is no different in the rest of the manufacturing sector. The auto industry, if anything, has been spared the worst of it since there is somehow symbolic importance to “buying American” (whatever that means) to many U.S. citizens, especially veterans and politicians. The point is: Don’t blame the Asians; our midcentury system of wage growth and relative equality was going to collapse one way or another. The oil shock of 1973—when the members of OPEC took the position that they would no longer ship oil to nations that supported Israel in the Yom Kippur War, curtailing production and thereby raising prices—makes as good a marker as any for the beginning of the end. Urban manufacturing declined just as our borders were opening up. Thanks to the Hart-Cellar Act of 1965, which abolished national quotas in favor of a more flexible family reunification approach to admission, new immigrants began pouring into U.S. cities and suburbs.

Someone may counter that while prices have fallen for some goods in real terms for the average family, wages at the bottom have been stuck for most of the last four decades. Stagnant wage growth has been a mantra of Democratic politicians and labor activists for the past two decades. Yes, it is true that if you track median wages and plot them against price rises based on the official inflation rate—the consumer price index (CPI)— then it does look like real wages have stagnated for the bottom half for most of the period since the oil shock of 1973.10 However, as my graduate school economics professor pithily stated: “Inflation is a great measure in the short run; but it’s a lousy measure over longer periods.” That’s the case mainly because of the way it’s calculated. Basically, the U.S. Bureau of Labor Statistics takes a common “basket of goods” and tracks the changes in prices of those goods from one time period to the next. (This is an oversimplification, of course, but mostly true.)


pages: 585 words: 151,239

Capitalism in America: A History by Adrian Wooldridge, Alan Greenspan

"Robert Solow", 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, Affordable Care Act / Obamacare, agricultural Revolution, air freight, Airbnb, airline deregulation, American Society of Civil Engineers: Report Card, Asian financial crisis, bank run, barriers to entry, Berlin Wall, Bonfire of the Vanities, Bretton Woods, British Empire, business climate, business cycle, business process, California gold rush, Charles Lindbergh, cloud computing, collateralized debt obligation, collective bargaining, Corn Laws, corporate governance, corporate raider, creative destruction, credit crunch, debt deflation, Deng Xiaoping, disruptive innovation, Donald Trump, edge city, Elon Musk, equal pay for equal work, Everybody Ought to Be Rich, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, fixed income, full employment, George Gilder, germ theory of disease, global supply chain, hiring and firing, income per capita, indoor plumbing, informal economy, interchangeable parts, invention of the telegraph, invention of the telephone, Isaac Newton, Jeff Bezos, jimmy wales, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kitchen Debate, knowledge economy, knowledge worker, labor-force participation, Louis Pasteur, low skilled workers, manufacturing employment, market bubble, Mason jar, mass immigration, means of production, Menlo Park, Mexican peso crisis / tequila crisis, minimum wage unemployment, mortgage debt, Myron Scholes, Network effects, new economy, New Urbanism, Northern Rock, oil rush, oil shale / tar sands, oil shock, Peter Thiel, plutocrats, Plutocrats, popular capitalism, post-industrial society, postindustrial economy, price stability, Productivity paradox, purchasing power parity, Ralph Nader, Ralph Waldo Emerson, RAND corporation, refrigerator car, reserve currency, rising living standards, road to serfdom, Robert Gordon, Ronald Reagan, Sand Hill Road, savings glut, secular stagnation, Silicon Valley, Silicon Valley startup, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, Steve Wozniak, strikebreaker, supply-chain management, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, too big to fail, total factor productivity, trade route, transcontinental railway, tulip mania, Tyler Cowen: Great Stagnation, union organizing, Unsafe at Any Speed, Upton Sinclair, urban sprawl, Vannevar Bush, War on Poverty, washing machines reduced drudgery, Washington Consensus, white flight, wikimedia commons, William Shockley: the traitorous eight, women in the workforce, Works Progress Administration, Yom Kippur War, young professional

Americans could live in far-flung suburbs because filling their cars was cheap. They could build sprawling houses or locate them in climate-challenged places because fuel was abundant. California was America’s prime example of what happens when you build a civilization on the basis of cheap fuel: people choose space over proximity and retailers quickly adjust to a less dense civilization by offering giant shopping malls and drive-throughs. Occasional oil shocks such as the one in the 1970s represented a fundamental threat to America’s way of life and promoted lots of talk about kicking the oil habit. As soon as the oil price declined, Americans returned to their earlier habits. The 1880s saw the introduction of two revolutionary new technologies, electric power and the internal combustion engine. Economists call these “general purpose technologies” because they are great inventions in their own right that lead inexorably to lots of smaller inventions that, taken together, completely change the tenor of life.

Nixon had no choice but to close the so-called gold window, stabilizing America’s gold holdings at about 275 million ounces, where they remained until 1979, but his decision nevertheless jolted the global economy. In the more than forty years since then the country’s gold holdings have barely budged and currently number 265.5 million ounces (see chart). U.S. OFFICIAL GOLD RESERVES 1957 – 1980 On top of the gold shock came an oil shock. America had dominated the world oil industry from the birth of the oil era in the 1870s. Every time it looked as if the country was running out of oil, new fields came on line: just as the Pennsylvania fields ran dry in the early 1900s, Americans discovered vast new supplies of oil in Texas and California. This persuaded consumers to act as if cheap oil were just another of God’s gifts to them: more than 80 percent of adults drove to work, and the average American car consumed 18 percent more fuel in 1973 than in 1963.

Henry Kissinger shuttled around the Middle East trying to bring peace. Nothing changed much. The price of U.S. crude oil rose over ninefold between 1972 and 1981, sending shock waves through corporate America, starting with big energy consumers such as domestic transportation, oil refining, chemicals, steel, aluminum, and international shipping, but including the whole of the corporate world. Above all, the oil shock entrenched America’s biggest economic problem. Stagflation was a toxic combination of rising inflation and unemployment that Keynesian economists, citing the Phillips curve, which postulated a fixed trade-off between inflation and unemployment, said could never happen. In the fourteen-year stretch between 1969 and 1982, the annual rate of inflation only fell below 5 percent twice, and for four of those years it was in double digits, hitting 14.8 percent in March 1980.


pages: 275 words: 82,640

Money Mischief: Episodes in Monetary History by Milton Friedman

Bretton Woods, British Empire, business cycle, currency peg, double entry bookkeeping, fiat currency, financial innovation, fixed income, floating exchange rates, full employment, German hyperinflation, income per capita, law of one price, money market fund, oil shock, price anchoring, price stability, transaction costs

The sharp rise in the price of oil in the 1970s lowered the quantity of goods and services that was available for people to use because everyone had to export more abroad to pay for oil. This reduction in output raised the price level. But that was a once-for-all effect. It did not produce any longer-lasting effect on the rate of inflation. In the five years after the 1973 oil shock, inflation in both Germany and Japan declined, in Germany from about 7 percent a year to less than 5 percent, in Japan from over 30 percent to less than 5 percent. In the United States, inflation peaked a year after the oil shock at about 12 percent, declined to 5 percent in 1976, and then rose to over 13 percent in 1979. How can these very different experiences be explained by an oil shock that was common to all countries? Germany and Japan are 100 percent dependent on imported oil, yet they did better at cutting inflation than did either the United States, which is only 50 percent dependent on imported oil, or the United Kingdom, which has become a major producer of oil.


pages: 268 words: 74,724

Who Needs the Fed?: What Taylor Swift, Uber, and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank by John Tamny

Airbnb, bank run, Bernie Madoff, bitcoin, Bretton Woods, buy and hold, Carmen Reinhart, corporate raider, correlation does not imply causation, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, Donald Trump, Downton Abbey, fiat currency, financial innovation, Fractional reserve banking, full employment, George Gilder, Home mortgage interest deduction, Jeff Bezos, job automation, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, liquidity trap, Mark Zuckerberg, market bubble, money market fund, moral hazard, mortgage tax deduction, NetJets, offshore financial centre, oil shock, peak oil, Peter Thiel, price stability, profit motive, quantitative easing, race to the bottom, Ronald Reagan, self-driving car, sharing economy, Silicon Valley, Silicon Valley startup, Steve Jobs, The Wealth of Nations by Adam Smith, too big to fail, Travis Kalanick, Uber for X, War on Poverty, yield curve

With the dollar weak in the malaise-ridden 1970s, oil was expensive in dollars. For now, what the falling price of oil indicates is the irrelevance of the Organization of the Petroleum Exporting Countries (OPEC) to the price of oil. Lest we forget, OPEC formed in the 1960s but had no impact on the per barrel price. Furthermore, the oil “shocks” of the early and late 1970s similarly had nothing to do with OPEC. As Robert Bartley, the late editorial-page editor of the Wall Street Journal, explained in his spectacular 1992 book about the Reagan revival, The Seven Fat Years (in which he put “oil shocks” in mocking quotes): “The real shock was that the dollar was depreciating against oil, against gold, against foreign currencies and against nearly everything else.”13 Bartley pointed out, “In the confusion of the 1970s, no one noticed that OPEC officials told us plainly what was going to happen after the closing of the gold window.”

It also presumes that they coincidentally became “greedy” again in the 2000s based on oil’s spike. In truth, U.S. presidents, once again, get the dollar they want. Reagan and Bill Clinton were strong-dollar presidents as the low prices of gold and oil revealed in living color. George W. Bush got the weak dollar he wanted, as evidenced by the spike in the prices of gold and oil since 2001. We didn’t suffer “oil shocks” in the 2000s; we suffered the weak-dollar policies of President Bush, and during his first term, of President Barack Obama. In a replay of modern history, Bartley added, “When the price of oil shot up, the most fashionable sectors of American opinion persuaded themselves the world was running out of energy.” We heard much the same in the 2000s as the silly notion of “peak oil” became popular.


pages: 422 words: 113,830

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism by Kevin Phillips

algorithmic trading, asset-backed security, bank run, banking crisis, Bernie Madoff, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, collateralized debt obligation, computer age, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency peg, diversification, Doha Development Round, energy security, financial deregulation, financial innovation, fixed income, Francis Fukuyama: the end of history, George Gilder, housing crisis, Hyman Minsky, imperial preference, income inequality, index arbitrage, index fund, interest rate derivative, interest rate swap, Joseph Schumpeter, Kenneth Rogoff, large denomination, Long Term Capital Management, market bubble, Martin Wolf, Menlo Park, mobile money, money market fund, Monroe Doctrine, moral hazard, mortgage debt, Myron Scholes, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, plutocrats, Plutocrats, Ponzi scheme, profit maximization, Renaissance Technologies, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, Ronald Reagan, Satyajit Das, shareholder value, short selling, sovereign wealth fund, The Chicago School, Thomas Malthus, too big to fail, trade route

Between January 1969 and October 1970, the twenty-eight largest hedge funds saw 70 percent of their assets disappear; and between November 1969 and November 1970, roughly a hundred brokerage and financial firms were acquired or disappeared. Indexes cobbled together by Dun’s Review around the ten leading conglomerates and parallel tensomes for technology and computers tumbled between 77 percent and 86 percent. 3 Those excesses, by and large, were purged. The seventies were a confused era, marked by two major oil-price shocks (1973-74 and 1979-80) that bred a pair of serious stagflationary recessions in more or less the oil-shock time frames. However, mortgage debt expanded like gangbusters as housing prices soared between 1976 and 1979, letting owners refinance and tap spendable funds. Alan Greenspan, who was chairman of President Gerald Ford’s Council of Economic Advisers, would keep those supportive precedents in mind almost thirty years later as Fed chairman. And 1979 also brought the first leveraged buyout of a public company, Houdaille Industries, by a private equity firm, Kohlberg Kravis Roberts & Company, although the real LBO tide would await the more exuberant eighties.

Wheat, grains in general, and other produce are all climbing in price. Besides droughts that may be linked to climate change, experts cite new demand for foodstuffs from India, China, and the rest of Asia, as well as from the biofuels industry’s pursuit of corn for ethanol. One senior government minister in Australia raised the possibility of a global “food shock” to match the already obvious “oil shock.”14 The Russian government imposed retail price controls on some basic foodstuffs, Germany buzzed with newspaper headlines about milk and vegetable prices, and the director-general of the United Nations Food and Agricultural Organization noted in late 2007 that food prices in developing countries were up about 11 percent in the past year, spurring concern about food riots.15 In the United States, food represents 14 percent of the consumer price index, but the ratio is much higher in China (33 percent) and India (46 percent).

www.rgemonitor.com, November 15, 2007. 58 “How Jay-Z, Bundchen Got the Jump on Hedge Funds,” Bloomberg News, November 16, 2007. 59 “EU Says Oil Could One Day Be Priced in Euros,” Reuters, June 16, 2003. 60 “Iran Asks Japan to Pay Yen for Oil,” Bloomberg News, July 13, 2007. 61 “More Japanese Oil Firms Pay in Yen,” Iran Daily, October 10, 2007. 62 “Iran Presses Oil Customers to Pay in Currencies Other Than Dollars,” Reuters, March 27, 2007. 63 “Petroleos de Venezuela to Convert Accounts Away from Dollars,” Bloomberg News, September 17, 2007. 64 “Venezuela’s Oil Minister: OPEC Leaders May Discuss Creation of a Currency Basket to Price Crude,” Associated Press, November 16, 2007. 65 “St. Petersburg Bourse Selected as Trading Floor for Oil Prices,” RIA Novosti, November 14, 2007. 66 “Mansoor Mohi-uddin, “View of the Day: US Dollar,” Financial Times, September 11, 2007. 67 Phillips, American Theocracy, p. 87. 68 Ibid. 69 Ibid., p. 95. 70 Ibid. 71 Ibid., p. 96. 72 Ibid., p. 95. 73 Matthew Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (New York: Wiley, 2005). 74 Michael T. Klare, “Beyond the Age of Petroleum,” Nation, November 12, 2007. 6. THE POLITICS OF EVASION: DEBT, FINANCE, AND OIL 1 Mancur Olson, The Rise and Decline of Nations (New Haven, Conn.: Yale University Press, 1984). 2 Mother Jones, September-October 2002, p. 64. 3 Grover Norquist, “A Dynastic Disease in American Politics,” Financial Times, November 20, 2007. 4 Carl Bernstein, A Woman in Charge: The Life of Hillary Rodham Clinton (New York: Knopf, 2006); Jeff Gerth and Don Van Natta Jr., Her Way: The Hopes and Ambitions of Hillary Rodham Clinton (New York: Little Brown, 2006). 5 Cullen Murphy, Are We Rome?


The Geography of Nowhere: The Rise and Decline of America's Man-Made Landscape by James Howard Kunstler

A Pattern Language, blue-collar work, California gold rush, car-free, City Beautiful movement, corporate governance, Donald Trump, financial independence, fixed income, Ford paid five dollars a day, Frank Gehry, germ theory of disease, indoor plumbing, jitney, land tenure, mass immigration, means of production, megastructure, Menlo Park, new economy, oil shock, Peter Calthorpe, place-making, plutocrats, Plutocrats, postindustrial economy, Potemkin village, Ronald Reagan, urban planning, urban renewal, urban sprawl, Whole Earth Review, working poor, Works Progress Administration, yellow journalism

Work on the interstate highway system progressed despite the costs of the Vietnam War and by the early 1970s the system was all but completed. As expected, the new expressways promoted an ever-farther-flung subur­ ban expansion. A new merchandising gimmick called the shopping mall began to sprout up around the highway interchanges, offering a syn­ thetic privatized substitute for every Main Street in America. A golden age of ever-greater profit seemed to beckon . . . but then the first of the oil shocks struck: the so-called Arab Oil Embargo. Whether any actual oil shortage existed during those autumn weeks of 1973 is arguable, but the distribution and pricing apparatus certainly went amok at the threat of one. Since World War II, America's oil use had shot up so steeply that by the seventies many old American oil J O Y R I D E fields were pumped dry, and nearly half of our petroleum was coming from overseas.

Lines formed at pumps every­ where, people panicked, fistfights broke out, work schedules were disrupted, vacations were canceled, and nobody knew if the country would be able to carry on as before. A longer-term result was the rising cost of practically everything, otherwise known as inflation, since the . e of all commodi . _ods wer�_�Ilke�-,_ th��g� _manufact� ri!1..8 or distri utron, to the price�e oil shock also temporarily dis­ -;;ur;gea more mlgraffoi-it'o the new outer limits of the urban fringe. For instance, the trip from Mira Lorna to downtown Los Angeles might take only fifty minutes, but who was crazy enough to move that far when an Arab cartel could shut the oil spigot any time they pleased ? In short, the Great Enterprise of continued suburban expansion suddenly lost its plausibility. And the whole economy went to hell-in a strange new way.

The known global reserves of petroleum are expected to last roughly another thirty years. This means that in the lifetimes of most Ameri­ cans living today, the essential fuel that has powered the suburban1 1 1 ... T HE GE O G R A P H Y O F N O W HE RE , consumer way of life will no longer be available. Ii will not be necessary to run out of petroleum in order to fatally disrupt a petroleum­ dependent economy. As the 1970s oil shocks demonstrated, all that it takes to mess things up is some instability of supply and price, and surely we will reach that stage before the wells run dry. Despite a lot of wishful thinking, and a near-religious belief in the "magic of technol­ ogy," there is no alternative in sight to the internal combustion engine that the masses of Illotorists cO!lld aHord. C' ;��:��-y- In any case, by the late 1980s the Great Enterprise of an endless suburban expansion finally crashed up against the ultimate natural limit: Researchers discovered that the burning of fossil fuels was alter­ ing the earth's atmosphere so drastically that a projected "global warm­ ing" effect could melt the polar ice caps, flood low-lying areas where most of the world's population lived, and destroy world agriculture by disrupting weather patterns, all within the next sixty years.


pages: 421 words: 120,332

The World in 2050: Four Forces Shaping Civilization's Northern Future by Laurence C. Smith

Bretton Woods, BRICs, business cycle, clean water, Climategate, colonial rule, deglobalization, demographic transition, Deng Xiaoping, energy security, flex fuel, G4S, global supply chain, Google Earth, guest worker program, Hans Island, hydrogen economy, ice-free Arctic, informal economy, Intergovernmental Panel on Climate Change (IPCC), invention of agriculture, invisible hand, land tenure, Martin Wolf, megacity, Mikhail Gorbachev, New Urbanism, oil shale / tar sands, oil shock, peak oil, Pearl River Delta, purchasing power parity, Ronald Reagan, Ronald Reagan: Tear down this wall, side project, Silicon Valley, smart grid, sovereign wealth fund, special economic zone, standardized shipping container, The Wealth of Nations by Adam Smith, Thomas Malthus, trade liberalization, trade route, UNCLOS, UNCLOS, urban planning, Washington Consensus, Y2K

Even if total world oil production can be increased, if production cannot keep up with demand, that is still a supply decline. Disturbing twenty-first-century scenarios of intense competition for oil—even to the point of economic collapse and violent warfare—are described in the books Out of Gas by David Goodstein, Resource Wars and Rising Powers, Shrinking Planet: The New Geopolitics of Energy by Michael Klare, and Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy by Matt Simmons.111 These authors are neither hacks nor alarmists. Simmons is a lifelong Republican and oil industry insider, and is widely respected as one of the smartest data analysts in the business. Goodstein is a Caltech physicist, and Klare has long experience in military policy. “Of all the resources discussed in this book,” writes Klare in Resource Wars, “none is more likely to provoke conflict between states in the twenty-first century than oil.”

Andrews, “Mineral Resources, Economic Growth, and World Population,” Science 185 (1974): 13-10. 100 For more on this discussion of mineral exhaustion and the perils of a fixed-stock approach to resource assessment, see John E. Tilton, On Borrowed Time? Assessing the Threat of Mineral Depletion (Washington, D.C.: RFF Press, 2002), 160 pp. 101 Matthew R. Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Hoboken, N.J.: John Wiley & Sons, 2005), 428 pp. 102 A very detailed analysis comes from the National Institute for Materials Science in Tsukuba, Japan. The authors use the Goldman Sachs BRICs and G6 economic projections discussed in Chapter 2 to project future demand for twenty-two metals. K. Halada, M. Shimada, K. Ijima, “Forecasting of the Consumption of Metals up to 2050,” Materials Transactions 49, no. 3 (2008): 402-410. 103 J.

World Energy Outlook 2008, OECD/IEA (2008), 578 pp. 111 D. Goodstein, Out of Gas: The End of the Age of Oil (New York: W. W. Norton & Company, 2005), 148 pp.; M. Klare, Resource Wars: The New Landscape of Global Conflict (New York: Holt Paperbacks, 2002), 304 pp.; and Rising Powers, Shrinking Planet: The New Geopolitics of Energy, reprint ed. (New York: Holt Paperbacks, 2009), 352 pp.; M. Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Somerset, N.J.: John Wiley & Sons, 2005), 428 pp. 112 On average, postpeak oil field decline rates are 3.4% for supergiant fields, 6.5% for giant fields, and 10.4% for large fields, World Energy Outlook 2008, OECD/IEA (2008), 578 pp. 113 A successful Al Qaeda attack on the Abqaia facilities would have shocked world oil markets, as it handles two-thirds of the Saudi Arabian oil supply.


pages: 415 words: 103,231

Gusher of Lies: The Dangerous Delusions of Energy Independence by Robert Bryce

addicted to oil, Berlin Wall, Charles Lindbergh, Colonization of Mars, decarbonisation, en.wikipedia.org, energy security, energy transition, financial independence, flex fuel, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), John Markoff, Just-in-time delivery, low earth orbit, Nelson Mandela, new economy, oil shale / tar sands, oil shock, peak oil, price stability, Project for a New American Century, rolodex, Ronald Reagan, Silicon Valley, Stewart Brand, Thomas L Friedman, Whole Earth Catalog, X Prize, Yom Kippur War

Mills, writer of the Forbes column “Energy Intelligence,” and co-author of The Bottomless Well: The Twilight of Fuel, the Virtue of Waste, and Why We Will Never Run Out of Energy “In Gusher of Lies Robert Bryce does political leaders around the world an enormous favor by debunking in its entirety the myth that anymajor energy-consuming countrywith flat or declining energysupplies can ever achieve the utopia called ‘energy independence.’ He also lucidly spells outexactly whyAmerica is the least likely country even to come close.” —Matthew Simmons, chairman of the Houston-based investment banking firm Simmons & Company International, and author of Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy “He blasts Republicans, Democrats, the presidential candidates, Al Gore, Robert Redford, environmentalists, and energy analysts for misleading the public about our energy needs. . . . Meticulously researched with copious facts—nearly all footnoted—this illuminating and sometimes witty work offers another view of the current state of energy.” —Library Journal “Veteran energy analyst Robert Bryce challenges what has become a policy axiom of the American political establishment . . .

After more than 300 pages of a mostly clear-eyed survey of the global energy business, he concludes that every year that goes by is “another year in which our unstable energy economy moves so much closer to the point of no return.”56 While there is much to recommend in Roberts’s book, he fails to provide readers with an understanding of the rapid globalization of the energy business. Instead, he sticks with a U.S.-centric approach, and in doing so, he implies that America holds the keys to the global energy future. That’s no longer true. Another notable book that raised anxiety about future oil production was Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, written by Matthew Simmons, the founder and chairman of the Houston-based investment banking firm Simmons & Co. International. Published in 2005, the book gained particular attention because Simmons is a Republican and was an adviser to George W. Bush on energy issues. Simmons’s book claims that Saudi Arabia has been obscuring the problems in its oil fields and that the kingdom will not be able to significantly boost its oil output.

Prindle, David E. Petroleum Politics and the Texas Railroad Commission. Austin: University of Texas Press, 1981. Roberts, Paul. The End of Oil: On the Edge of a Perilous New World. New York: Houghton Mifflin, 2004. Sifry, Micah L., and Christopher Cerf. The Iraq War Reader: History, Documents, Opinions. New York: Touchstone, 2003. Bibliography 375 Simmons, Matthew. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, N.J.: John Wiley & Sons, 2005. Smil, Vaclav. Energy at the Crossroads: Global Perspectives and Uncertainties. Cambridge: MIT Press, 2003. Stagliano, Vito A. A Policy of Discontent: The Making of a National Energy Strategy. Tulsa, Okla.: PennWell, 2001. Woodward, Bob. Plan of Attack. New York: Simon & Schuster, 2004. This page intentionally left blank INDEX Abqaiq, 30–31 Adams, John, 58 Adams, Samuel, 58 ADM.


pages: 309 words: 91,581

The Great Divergence: America's Growing Inequality Crisis and What We Can Do About It by Timothy Noah

assortative mating, autonomous vehicles, blue-collar work, Bonfire of the Vanities, Branko Milanovic, business cycle, call centre, collective bargaining, computer age, corporate governance, Credit Default Swap, David Ricardo: comparative advantage, Deng Xiaoping, easy for humans, difficult for computers, Erik Brynjolfsson, Everybody Ought to Be Rich, feminist movement, Frank Levy and Richard Murnane: The New Division of Labor, Gini coefficient, Gunnar Myrdal, income inequality, industrial robot, invisible hand, job automation, Joseph Schumpeter, longitudinal study, low skilled workers, lump of labour, manufacturing employment, moral hazard, oil shock, pattern recognition, Paul Samuelson, performance metric, positional goods, post-industrial society, postindustrial economy, purchasing power parity, refrigerator car, rent control, Richard Feynman, Ronald Reagan, shareholder value, Silicon Valley, Simon Kuznets, Stephen Hawking, Steve Jobs, The Spirit Level, too big to fail, trickle-down economics, Tyler Cowen: Great Stagnation, union organizing, upwardly mobile, very high income, Vilfredo Pareto, War on Poverty, We are the 99%, women in the workforce, Works Progress Administration, Yom Kippur War

But while the economics profession isn’t much better at soothsaying than any other, it performs an enormously valuable, greatly underappreciated service in documenting and interpreting the past. Economic trends are hard to interpret in real time because doing so requires data, and the best and most complete data sets often aren’t available for five or ten years. By the time they are available, the world has moved on to fretting about newer trends. As a result, when the day arrives for us to understand better, say, the oil shocks of 1973, or the recession of 1982–83, we are preoccupied with trying to figure out the tech boom of the late 1990s or the housing bubble of the aughts. By “we,” I mean all of American society but especially my own fraternity of political and policy-wonk journalists. History isn’t news. But the Great Divergence has been going on for so long that it manages to be both. It’s history because it began when Jimmy Carter was in the White House.

But it didn’t contribute as much as is often supposed. The Trinity University economist Barry Hirsch calculated in a 2007 paper that if the only change between 1983 and 2002 had been the shift in where the jobs were, private-sector union density would have fallen by less than two percentage points. Instead, it fell by eight.12 Many of the calamitous economic conditions of the 1970s were not unique to the United States. The oil shocks affected all industrialized nations, similar productivity declines were observed elsewhere, and the very nature of global competition is that it’s, well, global. But in other industrialized nations, the effects were quite different. Union density actually increased in most industrialized countries during the 1970s even as it was decreasing in the United States. (Since then union density has tended to decrease in other industrialized countries, but not nearly so dramatically as in the United States.)

Everybody remembers the 1973 oil embargo and the clout enjoyed by the newly potent OPEC cartel, but few people remember the accompanying food shock of that same year, which saw a 20 percent increase in U.S. food prices. The latter was caused partly by rising food consumption in more prosperous economies abroad and partly by a deliberate policy by the Nixon administration to reduce domestic agricultural production (and thereby increase food prices) to court the farm vote in 1972. 9. Frank Levy, interview with author, Apr. 22, 2011. 10. The disruptive oil shocks of the 1970s—in 1973 and 1974 alone oil prices quadrupled—likely played a significant role. 11. William J. Baumol and Alan S. Blinder, Macroeconomics: Principles and Policy (Mason, OH: South-Western College Publishing, 2010), 145; Paul Krugman and Robin Wells, Macroeconomics (New York: Worth, 2009), 233; Susan Fleck, John Glaser, and Shawn Sprague, “The Compensation-Productivity Gap: A Visual Essay,” Monthly Labor Review, Jan. 2011, 57–69. 12.


pages: 327 words: 90,542

The Age of Stagnation: Why Perpetual Growth Is Unattainable and the Global Economy Is in Peril by Satyajit Das

"Robert Solow", 9 dash line, accounting loophole / creative accounting, additive manufacturing, Airbnb, Albert Einstein, Alfred Russel Wallace, Anton Chekhov, Asian financial crisis, banking crisis, Berlin Wall, bitcoin, Bretton Woods, BRICs, British Empire, business cycle, business process, business process outsourcing, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clayton Christensen, cloud computing, collaborative economy, colonial exploitation, computer age, creative destruction, cryptocurrency, currency manipulation / currency intervention, David Ricardo: comparative advantage, declining real wages, Deng Xiaoping, deskilling, disintermediation, disruptive innovation, Downton Abbey, Emanuel Derman, energy security, energy transition, eurozone crisis, financial innovation, financial repression, forward guidance, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global reserve currency, global supply chain, Goldman Sachs: Vampire Squid, happiness index / gross national happiness, Honoré de Balzac, hydraulic fracturing, Hyman Minsky, illegal immigration, income inequality, income per capita, indoor plumbing, informal economy, Innovator's Dilemma, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Jane Jacobs, John Maynard Keynes: technological unemployment, Kenneth Rogoff, knowledge economy, knowledge worker, light touch regulation, liquidity trap, Long Term Capital Management, low skilled workers, Lyft, Mahatma Gandhi, margin call, market design, Marshall McLuhan, Martin Wolf, Mikhail Gorbachev, mortgage debt, mortgage tax deduction, new economy, New Urbanism, offshore financial centre, oil shale / tar sands, oil shock, old age dependency ratio, open economy, passive income, peak oil, peer-to-peer lending, pension reform, plutocrats, Plutocrats, Ponzi scheme, Potemkin village, precariat, price stability, profit maximization, pushing on a string, quantitative easing, race to the bottom, Ralph Nader, Rana Plaza, rent control, rent-seeking, reserve currency, ride hailing / ride sharing, rising living standards, risk/return, Robert Gordon, Ronald Reagan, Satyajit Das, savings glut, secular stagnation, seigniorage, sharing economy, Silicon Valley, Simon Kuznets, Slavoj Žižek, South China Sea, sovereign wealth fund, TaskRabbit, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, the market place, the payments system, The Spirit Level, Thorstein Veblen, Tim Cook: Apple, too big to fail, total factor productivity, trade route, transaction costs, uber lyft, unpaid internship, Unsafe at Any Speed, Upton Sinclair, Washington Consensus, We are the 99%, WikiLeaks, Y2K, Yom Kippur War, zero-coupon bond, zero-sum game

In Europe, the Baader-Meinhof group and the Italian Red Brigades engaged in armed resistance, carrying out sophisticated assassinations of political, business, and military figures, including Deutsche Bank chairman Alfred Herrhausen and former Italian prime minister Aldo Moro. Japan too had a radical group known as the Red Army. The 1969 film Easy Rider provided the coda for the period, symbolizing the confused dissent of a generation. Wyatt (played by Peter Fonda, Jane's brother) admits in the film's climax that they had failed, blown it. The seventies was the decade of oil shocks, which occurred in 1973 and 1979 and ended a period of low prices. In the US this was compounded by oil production peaking. In October 1973, Arab members of the Organization of the Petroleum Exporting Countries (OPEC) proclaimed an oil embargo, in response to US backing for Israel during the Yom Kippur War and in support of the Palestinians. The price of oil rose from US$3 per barrel to nearly US$12.

Financial engineering was to ultimately become more important than real engineering. Commencing in the 1980s, there was unprecedented expansion in cross-border trade and flow of capital. The large US deficits resulting from the Vietnam War and Great Society programs had created significant overseas holdings of US dollars. The need to lend these out led to a nascent international money market centered in London—the euro market. The oil shocks had created petrodollars, US dollars paid to oil-exporting countries. Saudi Arabia, Kuwait, and others amassed large surpluses of petrodollars, which they could not immediately use because of their small populations and lack of industrialization. The surpluses were deposited in the euro market and lent out, mainly to less developed countries. Between 1973 and 1977, the foreign debts of these countries increased by 150 percent, ending in a debt crisis.

A young management consultant, Peter Drucker, doubted that a company could forecast its ability to meet such obligations decades into the future.6 In the 1950s and early 1960s, the immense profitability of GM and favorable economics supported the schemes. In the late 1960s, GM's profitability declined. With car ownership having reached very high levels, the market was saturated. In 1965, Ralph Nader's bestselling Unsafe at Any Speed drew unwelcome attention to the auto industry's safety issues, mechanical defects, and quality problems, placing additional pressure on earnings. Then came the oil shocks of the 1970s and an increased demand for compact, fuel-efficient vehicles, which US car makers had shunned in favor of ever larger, more powerful dream machines. Foreign carmakers captured market share. The quality and features of Japanese cars, once the object of jokes, improved. Sophisticated buyers came to prefer European luxury marquee brands, such as Mercedes-Benz, BMW, Porsche, and Ferrari.


pages: 169 words: 55,866

Generation X: Tales for an Accelerated Culture by Douglas Coupland

gravity well, McJob, oil shock, place-making, Ponzi scheme

"You get the impression," says Dag as we drive past the gas station at hearse speed, "that back in, say, 1958, Buddy Hackett, Joey Bishop, and a bunch of Vegas entertainers all banded together to make a bundle on this place, but a key investor split town and the whole place just died." • But again, the village is not entirely dead. A few people do live there, and these few troopers have a splendid view of the windmill ranch down below them that borders the highway—tens of thousands of turbo blades set on poles and aimed at Mount San Gorgonio, one of the windiest places in America. Conceived of as a tax dodge after the oil shock, these windmills are so large and powerful that any one of their blades could cut a man in two. Curiously, they turned out to be functional as well as a good tax dodge, and the volts they silently generate power detox center air conditioners and cellulite vacuums of the region's burgeoning cosmetic surgery industry. Claire is dressed today in bubble gum capri pants, sleeveless blouse, scarf, and sunglasses: starlet manque.

And about the only good thing that happens there is the cultivation of cold, unglamorous wheat in which Texlahomans a justifiable pride; by law, all citizens must put bumper stickers I their cars saying: NO FARMERS: NO FOOD. Life is boring there, but are some thrills to be had: all the adults keep large quantities of cheaply sewn scarlet sex garments in their chests of drawers. These are panties and ticklers rocketed in from Korea— and I say rocketed in because Texlahoma is an asteroid orbiting the earth, where the year is permanently 1974, the year after the oil shock and the year starting from which real wages in the U.S. never grew ever again. The atmosphere contains oxygen, wheat chaff, and A.M. radio transmissions. It's a fun place to spend one day, and then you just want to get the hell out of there. Anyhow, now that you know the setting, let's jump into Claire's story. "This is a story about an astronaut named Buck. One afternoon, Buck the Astronaut had a problem with his spaceship and was forced to land in Texlahoma—in the suburban backyard of the Monroe family.


pages: 665 words: 146,542

Money: 5,000 Years of Debt and Power by Michel Aglietta

bank run, banking crisis, Basel III, Berlin Wall, bitcoin, blockchain, Bretton Woods, British Empire, business cycle, capital asset pricing model, capital controls, cashless society, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, David Graeber, debt deflation, dematerialisation, Deng Xiaoping, double entry bookkeeping, energy transition, eurozone crisis, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, forward guidance, Francis Fukuyama: the end of history, full employment, German hyperinflation, income inequality, inflation targeting, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invention of writing, invisible hand, joint-stock company, Kenneth Arrow, Kickstarter, liquidity trap, margin call, means of production, money market fund, moral hazard, Nash equilibrium, Network effects, Northern Rock, oil shock, planetary scale, plutocrats, Plutocrats, price stability, purchasing power parity, quantitative easing, race to the bottom, reserve currency, secular stagnation, seigniorage, shareholder value, special drawing rights, special economic zone, stochastic process, the payments system, the scientific method, too big to fail, trade route, transaction costs, transcontinental railway, Washington Consensus

This was a self-sustaining process, because the incoming capital overvalued the peso, creating an external current deficit which required the influx of fresh capital. The risk of borrowing in foreign currency rose ever higher. It was for this reason that the turnaround of US monetary policy in October 1979, which would provoke a global recession and a catastrophic fall in raw materials prices, necessarily brought a devastating devaluation of the peso. The recession caused by the US monetary policy reversal brought an oil shock, which, combined with prohibitive international interest rates, drove fresh crises in all raw-materials producer countries. Mexico initiated the chain of crises in Latin America in August 1982. Brazil experienced sharp inflation across the 1980s, to which a series of monetary plans were unable to put a stop. Four-figure hyperinflation appeared in 1989, and only came to an end after the activation of the Real plan launched on 1 July 1994.

For their part, the rich countries could make a mockery of this supposed monitoring, but the accords did allow the IMF to take on a new role as a mentor for indebted developing countries. The true winners of the destruction of the Bretton Woods system were the international investment banks, who were able to arbitrate between currencies and throw themselves into credit distribution policies at the international level, with all the risks of financial crisis that this entailed. From the second oil shock in 1978 onwards, they swept across the whole world in an orgy of indebtedness that lasted thirty years, before once more opening up an era of financial crises. The second financial globalisation process that resulted was very different from the first such process, because while the first had been inscribed in the gold standard monetary order, the second was coupled with a return to the international monetary jungle.

In what sense can there be said to be an international currency? Given the lack of any common rule, what can be said about exchange movements and the adjustment effects that they supposedly bring? AFTER THE JAMAICA ACCORDS: THE DECENTRALISED DOLLAR SEMI-STANDARD SYSTEM The second financial globalisation process began with two almost simultaneous events: the failure of the C20’s attempt to reform the international monetary system, and the first oil shock in 1973. This shock radically altered the extent and direction of international capital flows. There was now a polarisation between oil exporter and importer countries. The preservation of global growth demanded a powerful expansion of international credit. American investment banks and European universal banks sank into the breach opened up by governments’ incapacity to reorganise the financing of development and by the extremely small volume of IMF resources in relation to the financing that was required.


pages: 524 words: 155,947

More: The 10,000-Year Rise of the World Economy by Philip Coggan

"Robert Solow", accounting loophole / creative accounting, Ada Lovelace, agricultural Revolution, Airbnb, airline deregulation, Andrei Shleifer, anti-communist, assortative mating, autonomous vehicles, bank run, banking crisis, banks create money, basic income, Berlin Wall, Bob Noyce, Branko Milanovic, Bretton Woods, British Empire, business cycle, call centre, capital controls, carbon footprint, Carmen Reinhart, Celtic Tiger, central bank independence, Charles Lindbergh, clean water, collective bargaining, Columbian Exchange, Columbine, Corn Laws, credit crunch, Credit Default Swap, crony capitalism, currency peg, debt deflation, Deng Xiaoping, discovery of the americas, Donald Trump, Erik Brynjolfsson, European colonialism, eurozone crisis, falling living standards, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, Frederick Winslow Taylor, full employment, germ theory of disease, German hyperinflation, gig economy, Gini coefficient, global supply chain, global value chain, Gordon Gekko, greed is good, Haber-Bosch Process, Hans Rosling, Hernando de Soto, hydraulic fracturing, Ignaz Semmelweis: hand washing, income inequality, income per capita, indoor plumbing, industrial robot, inflation targeting, Isaac Newton, James Watt: steam engine, job automation, John Snow's cholera map, joint-stock company, joint-stock limited liability company, Kenneth Arrow, Kula ring, labour market flexibility, land reform, land tenure, Lao Tzu, large denomination, liquidity trap, Long Term Capital Management, Louis Blériot, low cost airline, low skilled workers, lump of labour, M-Pesa, Malcom McLean invented shipping containers, manufacturing employment, Marc Andreessen, Mark Zuckerberg, Martin Wolf, McJob, means of production, Mikhail Gorbachev, mittelstand, moral hazard, Murano, Venice glass, Myron Scholes, Nelson Mandela, Network effects, Northern Rock, oil shale / tar sands, oil shock, Paul Samuelson, popular capitalism, popular electronics, price stability, principal–agent problem, profit maximization, purchasing power parity, quantitative easing, railway mania, Ralph Nader, regulatory arbitrage, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, Second Machine Age, secular stagnation, Silicon Valley, Simon Kuznets, South China Sea, South Sea Bubble, special drawing rights, spice trade, spinning jenny, Steven Pinker, TaskRabbit, Thales and the olive presses, Thales of Miletus, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, transatlantic slave trade, transcontinental railway, Triangle Shirtwaist Factory, universal basic income, Unsafe at Any Speed, Upton Sinclair, V2 rocket, Veblen good, War on Poverty, Washington Consensus, Watson beat the top human players on Jeopardy!, women in the workforce, Yom Kippur War, zero-sum game

Brendan Greeley, “America has never worried about financing its priorities”, Financial Times, January 16th 2019 Chapter 14 – The second era of globalisation: the developed world, 1979–2007 1. Many people use the word neoliberal for this trend, but its definition is fairly vague, and it has become a catch-all term of abuse. 2. Jones, Multinationals and Global Capitalism, op. cit. 3. Max Roser, “Life expectancy”, Our World in Data, https://ourworldindata.org/life-expectancy 4. Laurel Graefe, “Oil shock of 1978–79”, https://www.federalreservehistory.org/essays/oil_shock_of_1978_79 5. Ibid. 6. Source: https://www.nber.org/cycles.html 7. J.-P. Fitoussi and E.S. Phelps, “Causes of the 1980s slump in Europe”, https://core.ac.uk/download/pdf/6252244.pdf 8. Olivier Blanchard and Lawrence Summers, “Hysteresis and the European unemployment problem”, https://www.nber.org/chapters/c4245.pdf 9. Blanchard and Summers mentioned this issue but thought that shortfalls in aggregate demand were just as likely an explanation. 10.

In global terms, life expectancy rose more than 11 years between 1973 and 2015.3 From the point of view of the average human, the second era of globalisation has been good news (see chart). So much happened in this period that the subject needs to be divided into two. This chapter will deal with developments in the rich world before picking up the story of the developing world in Chapter 16. Another oil crisis and recession These developments were not predictable in the immediate context of 1979. The immediate problem the world economy had to deal with was another oil shock. In the turmoil surrounding its revolution in early 1979, Iranian oil production fell by 4.8 million barrels a day, or 7% of global output. Many oil users reacted by building up their inventories, thus creating extra demand; and Opec added further pressure by announcing a price increase in December 1979. The combined weight of all these factors caused the oil price to more than double between April 1979 and April 1980.4 The headline rate of US inflation was duly pushed up to 9% by the end of 1979.

Second, remaining capital controls within the EU were eased as part of the single market process, aimed at integrating economies more closely, and the lack of controls made it easier to mount speculative attacks against a weak currency. Third, Britain joined the system in the hope that ERM membership would deliver the discipline needed to control inflation. The tighter monetary policy that followed German reunification exacerbated an early 1990s recession. The US had a mild downturn from July 1990 to March 1991 that was associated with higher rates and another oil shock after Iraq invaded Kuwait and was subsequently expelled by a Western-led coalition.39 British interest rates were in double digits for much of its ERM membership, inflicting considerable pain on the domestic economy. Speculators, of whom the most prominent was George Soros, a hedge-fund manager, bet on a falling pound and the Bank of England’s reserves started to dwindle. On September 16th 1992, the British government first pushed up rates to 12% and then to 15% in a desperate attempt to support the currency.


pages: 353 words: 355

The Long Boom: A Vision for the Coming Age of Prosperity by Peter Schwartz, Peter Leyden, Joel Hyatt

American ideology, Asian financial crisis, Berlin Wall, centre right, computer age, crony capitalism, cross-subsidies, Deng Xiaoping, Dissolution of the Soviet Union, European colonialism, Fall of the Berlin Wall, financial innovation, hydrogen economy, industrial cluster, informal economy, intangible asset, Just-in-time delivery, knowledge economy, knowledge worker, life extension, market bubble, mass immigration, megacity, Mikhail Gorbachev, Nelson Mandela, new economy, oil shock, open borders, Productivity paradox, QR code, Ronald Reagan, shareholder value, Silicon Valley, Steve Jobs, the scientific method, upwardly mobile, Washington Consensus, Y2K

The boom also saw the emergence of a generation—the Baby Boom generation—that reaped all the benefits of this prosperity. But just about the time that the first Baby Boomers finished their formal education and began to enter the economy, the boom began to falter. The oil price shock of 1973 started the stumble, pushing the economy into stagnation coupled with inflation, so-called stagflation. The second major oil shock, in 1979, which brought another quadrupling of prices, dashed any hope that the boom could pick up again. For the rest of the twentieth century, the post-World War II boom was the standard that we always wanted to attain. If only we could achieve the level of growth enjoyed in that era. If only prosperity could spread as quickly. If only all workers could enjoy such improvement in their prospects and standards of living.

To this day, Americans look bac on the 1950s as the economic Golden Age. But that economic boom didn't stop in the United States, and it didn't stop in the 1950s. That same boom spread throughout the Free World in the 1960s. Europe got back on its feet after the war, and Japan also rebuilt. All these economies were booming throughout the 1960s—causing huge repercussions in their social and political arenas as well. This high growth continued until the oil shocks of 1973, when the quadrupling in price of oil, the lifeblood of the Industrial Age economy, helped choke off the growth and push the economies of the developed world into the stagflation of the 1970s. Still, the economic expansion had had a good twenty-five-year run. Those same two megatrends are driving through our Long Boom era today. In the wake of the Cold War, that quasi-war of military preparedness, another array of new technologies is flooding into the pri- 50 TltE Lowq BOOM vate sector—not the least of which is the Internet.


pages: 226 words: 59,080

Economics Rules: The Rights and Wrongs of the Dismal Science by Dani Rodrik

airline deregulation, Albert Einstein, bank run, barriers to entry, Bretton Woods, business cycle, butterfly effect, capital controls, Carmen Reinhart, central bank independence, collective bargaining, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Donald Davies, Edward Glaeser, endogenous growth, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, Fellow of the Royal Society, financial deregulation, financial innovation, floating exchange rates, fudge factor, full employment, George Akerlof, Gini coefficient, Growth in a Time of Debt, income inequality, inflation targeting, informal economy, information asymmetry, invisible hand, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labor-force participation, liquidity trap, loss aversion, low skilled workers, market design, market fundamentalism, minimum wage unemployment, oil shock, open economy, Pareto efficiency, Paul Samuelson, price stability, prisoner's dilemma, profit maximization, quantitative easing, randomized controlled trial, rent control, rent-seeking, Richard Thaler, risk/return, Robert Shiller, Robert Shiller, school vouchers, South Sea Bubble, spectrum auction, The Market for Lemons, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, trade route, ultimatum game, University of East Anglia, unorthodox policies, Vilfredo Pareto, Washington Consensus, white flight

The relationship between industry supply and market prices is not an assumption, but a result that follows from the assumptions, in particular, that demand curves slope downward and that market prices are determined by equating the quantities demanded and supplied. In our oil example, this is a fairly innocuous mechanism that passes the verification test comfortably. The relationship between quantities supplied and prices makes sense intuitively, and there are plenty of real-world examples in which shocks to supply have had observable effects on prices in the hypothesized direction; consider the oil shock of 1973–74, for example. We do not need to have seen a demand curve or know what the technical definition of a market equilibrium is—both abstract concepts that do not have physical counterparts—to believe that the mechanism the model relies on is reasonable. But in other cases, the mechanism may result from more complicated behavior and may require greater justification. When the justification is weak, we should be concerned about whether the model in question really applies.

In the absence of either, the government has to act: fiscal spending must be raised to make up for lack of private demand. This demand-side view of macroeconomics prevailed pretty much through the 1970s. It was elaborated in models of increasing variety and spawned large-scale computerized versions that could generate quantitative forecasts of major macroeconomic aggregates such as employment levels and capacity utilization rates. Then two things happened: the oil shock and Robert Lucas. The oil crisis of 1973, precipitated by the embargo applied by the Organization of the Petroleum Exporting Countries (OPEC), fomented a new set of economic circumstances that had not been on economists’ radar screen: recession and inflation at the same time, or “stagflation.” Demand-side models wouldn’t be much help in the face of what was patently a supply-side shock. Of course, the Keynesian model could be tweaked to accommodate the effect of a rise in input prices.


Player One by Douglas Coupland

Albert Einstein, call centre, double helix, Marshall McLuhan, neurotypical, oil shock, peak oil, post-oil, selective serotonin reuptake inhibitor (SSRI), uranium enrichment, Y2K

Karen said, “Actually, it was just this one guy named Hubbert.” Rick asked, “Who’s Hubbert?” Warren said, “Dr. Marion King Hubbert was a Shell Oil geologist who predicted in 1956 that US domestic oil production would peak around 1970 and that global production would peak around 2000.” “And . . . ?” Warren continued, “That production peak is called Hubbert’s Peak. And it looks like it’s finally happened.” As an aside, Karen said, “The 1970s oil shock set his calendar back by a decade. But he was right.” “How on earth do you people know this?” “It’s kind of weird,” Karen said. “We met in a — God, this is so embarrassing — a Peak Oil Apocalypse chat room.” “Man,” Warren said, “wouldn’t Hubbert freak to see oil over $250 a barrel.” Rick said, “You mean you two actually did meet in a Peak Oil Apocalypse chat room?” Warren said, “Yeah, so what?

He may be home now.” He pauses. “Okay,” Karen says, “while we try to figure out some other way of getting help, I’m having a drink. Who else wants one?” ___ The quartet sat on the floor behind the bar with their drinks, positioned halfway between the exits — the safest location, given all options. There was some discussion about the chaos that would surely ensue in the outside world, echoes of the 1973 oil shock but infinitely worse: the only gas people were going to get was whatever they still had in their tanks, maybe enough to get to work a few more times — except work was probably gone now too. Kill your neighbour for a tank? Why not? Will the military help out? Oh, please. Karen remembered a few months back seeing a truck that looked military, but she wasn’t sure if it was real or from a film shoot.


pages: 526 words: 160,601

A Generation of Sociopaths: How the Baby Boomers Betrayed America by Bruce Cannon Gibney

1960s counterculture, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, affirmative action, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, Bernie Madoff, Bernie Sanders, Bretton Woods, business cycle, buy and hold, carbon footprint, Charles Lindbergh, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate personhood, Corrections Corporation of America, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, dark matter, Deng Xiaoping, Donald Trump, Downton Abbey, Edward Snowden, Elon Musk, ending welfare as we know it, equal pay for equal work, failed state, financial deregulation, Francis Fukuyama: the end of history, future of work, gender pay gap, gig economy, Haight Ashbury, Home mortgage interest deduction, Hyperloop, illegal immigration, impulse control, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jane Jacobs, Kitchen Debate, labor-force participation, Long Term Capital Management, Lyft, Mark Zuckerberg, market bubble, mass immigration, mass incarceration, McMansion, medical bankruptcy, Menlo Park, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, neoliberal agenda, Network effects, obamacare, offshore financial centre, oil shock, operation paperclip, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, Ralph Waldo Emerson, RAND corporation, rent control, ride hailing / ride sharing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, Rubik’s Cube, school choice, secular stagnation, self-driving car, shareholder value, short selling, side project, Silicon Valley, smart grid, Snapchat, source of truth, stem cell, Steve Jobs, Stewart Brand, survivorship bias, TaskRabbit, The Wealth of Nations by Adam Smith, Tim Cook: Apple, too big to fail, War on Poverty, white picket fence, Whole Earth Catalog, women in the workforce, Y2K, Yom Kippur War, zero-sum game

All those oil dollars, liberated from individual pockets, were concentrated and sent back to a limited number of American financial institutions, providing them with capital that would be deployed in the investment-banking economy that has prevailed since the 1980s. The other major problem was unemployment, which was rising, albeit from the exceedingly low level of 3.9 percent in January 1970 to 5.1 percent just after the first oil shock, then rising substantially as recession set in. By 1979, it was back to 5.6 percent, before another oil shock wrought more havoc, but through the 1970s, conditions never quite achieved the same severity as what happened post-2008.17 It was a fairly good result considering the oil shocks, the large numbers of veterans returning to civilian employment after Vietnam, and the hordes of Boomers entering the workforce every year. But unemployment threatened the young Boomers most of all; the economy was simply not growing fast enough for them.

Transport depends heavily on gas taxes, and as with taxes of all kinds under Boomer tenure, these have been falling. The federal gas tax is 18.4 cents plus a (volume-weighted) average 26.59 cents at the state level, for a total of 44.99 cents per gallon as of 2015.15 Until the 1970s, this arrangement had a certain logic, as prices were stable and road use tightly correlated with gas consumption. However, the oil shocks of the 1970s encouraged citizens to shift to somewhat more efficient cars while spurring inflation that diminished the real value of gas taxes because the federal and most state gas taxes are not indexed to inflation (unlike benefits payments or tax brackets that benefit Boomers).16 Technology may only exacerbate the disconnect, because if electric cars are ever widely adopted, their use will only expand funding gaps; e-cars are literal free riders.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

“She was the one who really brought the story that inflation could be too low, and she was very effective. Once she said it, it seemed so obvious and sensible,” said Fed governor Laurence H. Meyer.109 Greenspan did not concede but, recognizing the argument could not be won, he proposed the Fed should cut inflation to 2 percent, then decide what came next.110 Bad luck played an underappreciated role in the failures of Keynesianism in the 1970s. The Vietnam War, a pair of oil shocks, and a slump in productivity growth all contributed to the unraveling of confidence in “activist economics.” Conversely, in the 1990s, the winds seemed permanently at the back of trust-the-market economics. The “peace dividend” from the end of the Cold War made it easier to reduce federal spending; globalization weighed on wages and prices; new technologies drove a surge in productivity and prosperity.

Leonid Brezhnev, the leader of the Soviet Union, hailed “the possibility of a profound crisis of the capitalist system.”38 The rest of the world was less enthused. “A Declaration of War in Trade Policy” read the banner headline in one of Germany’s leading newspapers, Süddeutsche Zeitung.39 Oil-producing states, which had long insisted on payment in dollars, threatened to raise prices, the initial step toward the first “oil shock” two years later. Japanese prime minister Eisaku Satō, already rocked by Nixon’s decision to go to China, got a call from Secretary of State William P. Rogers just ten minutes before Nixon spoke. “Not again!” Satō said.40 Over the next few years, exchange rates jitterbugged and nations wasted vast amounts of money trying to make those rates stop moving. The Archbishop of Canterbury urged the British to “pray earnestly” for the pound sterling.41 The New Yorker ran cartoons about exchange rates.

Of the other kind, Sprinkel said, “They’re not useful to me because I won’t listen to them.”80 Pressed by Congress about the dollar’s rise, Sprinkel responded modestly that markets were much smarter than bureaucrats. “For the U.S. to tell the foreign exchange markets what the rate of the dollar, the yen, the mark, or any currency should be strikes me as the height of arrogance,” Sprinkel said.81 America’s faith in markets was a mixed blessing for many foreign nations, too. The rise of the dollar caused a third oil shock for the rest of the world, which had to buy dollars to buy oil. Pierre Mauroy, the French prime minister, complained bitterly that the United States was taking advantage of its “exorbitant privilege” as the issuer of the nearest thing to an international currency, reviving a phrase coined by one of his predecessors in the 1960s — though that dubious privilege was now being conferred by the market rather than the Bretton Woods system.82 Foreign companies that had borrowed in dollars also were punished.


pages: 376 words: 118,542

Free to Choose: A Personal Statement by Milton Friedman, Rose D. Friedman

affirmative action, agricultural Revolution, air freight, back-to-the-land, bank run, banking crisis, business cycle, Corn Laws, Fractional reserve banking, full employment, German hyperinflation, invisible hand, means of production, minimum wage unemployment, oil shale / tar sands, oil shock, price stability, Ralph Nader, RAND corporation, rent control, road to serfdom, Sam Peltzman, school vouchers, Simon Kuznets, The Wealth of Nations by Adam Smith, union organizing, Unsafe at Any Speed, Upton Sinclair, urban renewal, War on Poverty, working poor, Works Progress Administration

The reduction in output raised the price level. But that was a once-for-all effect. It did not produce any longer-lasting effect on the rate of inflation from that higher price level. In the five years after the 1973 oil shock, inflation in both Germany and Japan declined, in Germany from about 7 percent a year to less than 5 percent; in Japan from over 30 percent to less than 5 percent. In the United States inflation peaked a year after the oil shock at about 12 percent, declined to 5 percent in 1976, and then rose to over 13 percent in 1979. Can these very different experiences be explained by an oil shock that was common to all countries? Germany and Japan are 100 percent dependent on imported oil, yet they have done better at cutting inflation than the United States, which is only 50 percent dependent, or than the United Kingdom, which has become a major producer of oil.


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Andrei Shleifer, Asian financial crisis, bank run, banking crisis, basic income, Berlin Wall, Bernie Madoff, bitcoin, blockchain, Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, market bubble, market clearing, market fundamentalism, means of production, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price stability, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, secular stagnation, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, working-age population

Rising welfare rolls may have been a big political problem, but a runaway welfare state more broadly just wasn’t an issue—hey, these days right-wingers complaining about a nation of takers tend to use the low-dependency seventies as a baseline. What we did have was a wage-price spiral: workers demanding large wage increases (those were the days when workers actually could make demands) because they expected lots of inflation, firms raising prices because of rising costs, all exacerbated by big oil shocks. It was mainly a case of self-fulfilling expectations, and the problem was to break the cycle. So why did we need a terrible recession? Not to pay for our past sins, but simply as a way to cool the action. Someone—I’m pretty sure it was Martin Baily—described the inflation problem as being like what happens when everyone at a football game stands up to see the action better, and the result is that everyone is uncomfortable but nobody actually gets a better view.

The remaining two periods show the seventies, the period from the business cycle peak of 1973 to that of 1979, and the eighties, from the 1979 peak to the 1989 peak. What do we see in the figure? First, the 1947–1973 numbers show what real, broad-based prosperity looks like. Over that period incomes of all groups rose at roughly the same rapid clip, more than 2.5 percent annually. Between 1973 and 1979, as the economy was battered by slow productivity growth and oil shocks, income growth became both much slower and more uneven. Finally, a new pattern emerged after 1979: generally slower income growth, but in particular a strong tilt in the growth pattern, with incomes rising much faster at the top end of the distribution than in the middle, and actually declining at the bottom. In some of the conservative critiques I will describe below, apologists claim that the 1980s represented a normal process, that there was nothing unusual or distressing about the rise in inequality.

., 150, 208, 302, 320, 362 on health care, 53–55, 66, 339, 361 and international trade, 252 and taxes, 216, 219, 229 Obama administration: on debt and unemployment, 208 “hijacked” commission of, 198–200 and revenue growth, 225 stimulus plan of, 104, 107–8, 113–14, 115–17, 118–20, 131, 193, 206, 362 Obamacare, see Affordable Care Act O’Brien, Michael, 126 Ocasio-Cortez, Alexandria (AOC), 234, 236, 237, 320–21 Occupy Wall Street, 285 O’Connor, Reed, 367, 369 oil shocks, 126 Oklahoma, tax cuts in, 293 Okun’s Law, 113 oligarchy, 283, 349, 350 Olson, Mancur, The Logic of Collective Action, 354–55 Operation Coffee Cup (1961), 322 optimum currency areas, 177 Palin, Sarah, 54 Panama Papers, 349 Pangloss, Doctor (fict.), 135, 140 “paperclip maximizers,” 357 “Paranoid Style in American Politics, The” (Hofstadter), 346 parasites, 354–57 Paulson, Henry, 91 PBS Newshour, 169–71 Pelosi, Nancy: achievements of, 361–63 and Affordable Care Act, 35–36, 55, 361, 367 and financial reform, 362 as House Speaker, 76, 344, 362, 363 on “monstrous endgame,” 367, 369 on Social Security, 15, 35, 306, 361 and stimulus plan, 362 and trade agreement, 372 on the wall as “manhood thing,” 370 Pence, Mike, 73 pensions: defined benefit, 14 defined contribution, 14–15 401(k)-type plans, 31–32 private, decline of, 31–32 Perlstein, Rick, 302, 354, 355 Perot, H.


pages: 358 words: 119,272

Anatomy of the Bear: Lessons From Wall Street's Four Great Bottoms by Russell Napier

Albert Einstein, asset allocation, banking crisis, Bretton Woods, business cycle, buy and hold, collective bargaining, Columbine, cuban missile crisis, desegregation, diversified portfolio, floating exchange rates, Fractional reserve banking, full employment, hindsight bias, Kickstarter, Long Term Capital Management, market bubble, mortgage tax deduction, Myron Scholes, new economy, oil shock, price stability, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Reagan, short selling, stocks for the long run, yield curve, Yogi Berra

In 1973, Nixon dismantled price controls and inflation was quickening, and the equity market declining, when along came the “oil shock” as the Organisation of Petroleum Exporting Countries (OPEC) more than tripled the price of oil - from $3.12 a barrel in October 1973 to $11.63 in December. Annual inflation, running at 2.9% in August 1972, surged to 12.5% by December 1974. There were actually two oil shocks in the 1970s. The first began in October 1973, when Arab members of the OPEC announced they would no longer ship oil to countries supporting Israel in its war with Egypt. The oil price had tripled by Christmas 1973. The second oil crisis was caused by a decline in oil exports from Iran following the revolution of January 1979. By year-end, the oil price had risen 150%. Within 12 months of both oil shocks, G7 GDP contracted. From December 2002 to June 2005, the oil price has risen 160%.


pages: 255 words: 68,829

How PowerPoint Makes You Stupid by Franck Frommer

Albert Einstein, business continuity plan, cuban missile crisis, dematerialisation, hypertext link, invention of writing, inventory management, invisible hand, Just-in-time delivery, knowledge worker, Marshall McLuhan, means of production, new economy, oil shock, Ronald Reagan, Silicon Valley, Steve Jobs, Steve Wozniak, union organizing

It is a regular and permanent occupation intended to spread their good methods, their perceptive analyses, their organizational methods, their strategic recommendations—in short, models of thinking concocted in managerial agencies primarily based in the United States. This democratization and proliferation of new models of thinking surfaced in the early 1980s after various economic disturbances, particularly the two oil shocks. Companies at the time were forced to substantially change their organizational and operational methods. They had to resolve to take the medication prescribed by the only “therapists” able to treat them—consultants, strategic advisers serving many companies in public relations and information systems.1 Thanks to the thousands of person-days sold to client companies and the millions of slides repeating essentially the same models and the same arguments, these experts in recommendations have been able to link rationality, authority, and entertainment, if not to help their clients, at least to enrich their employers.

His three most famous books, which he published himself for reasons of graphic precision, are The Visual Display of Quantitative Information (1983), Envisioning Information (1990), and Visual Explanation (1997), all published by Graphics Press, Cheshire, CT. 20. Tufte comments ironically on the barrels, gas pumps, and derricks widely used as illustrative devices in American magazines during the oil shocks of 1973 and 1979. 21. The literature in England and America on this subject has been plentiful in the last twenty years. See in particular three papers by Vivien Beattie and Michael J. Jones: “A Six-Country Comparison of the Use of Graphs in Annual Reports,” International Journal of Accounting 36, no. 2 (2001): 195–222; “A Comparative Study of the Use of Financial Graphs in the Corporate Annual Reports of Major U.S. and U.K.


The Age of Turbulence: Adventures in a New World (Hardback) - Common by Alan Greenspan

"Robert Solow", addicted to oil, air freight, airline deregulation, Albert Einstein, asset-backed security, bank run, Berlin Wall, Bretton Woods, business cycle, business process, buy and hold, call centre, capital controls, central bank independence, collateralized debt obligation, collective bargaining, conceptual framework, Corn Laws, corporate governance, corporate raider, correlation coefficient, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cuban missile crisis, currency peg, Deng Xiaoping, Dissolution of the Soviet Union, Doha Development Round, double entry bookkeeping, equity premium, everywhere but in the productivity statistics, Fall of the Berlin Wall, fiat currency, financial innovation, financial intermediation, full employment, Gini coefficient, Hernando de Soto, income inequality, income per capita, invisible hand, Joseph Schumpeter, labor-force participation, laissez-faire capitalism, land reform, Long Term Capital Management, Mahatma Gandhi, manufacturing employment, market bubble, means of production, Mikhail Gorbachev, moral hazard, mortgage debt, Myron Scholes, Nelson Mandela, new economy, North Sea oil, oil shock, open economy, Pearl River Delta, pets.com, Potemkin village, price mechanism, price stability, Productivity paradox, profit maximization, purchasing power parity, random walk, reserve currency, Right to Buy, risk tolerance, Ronald Reagan, shareholder value, short selling, Silicon Valley, special economic zone, stocks for the long run, the payments system, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, total factor productivity, trade liberalization, trade route, transaction costs, transcontinental railway, urban renewal, working-age population, Y2K, zero-sum game

I was convinced that the answer would not lie in big, hasty, expensive gestures. It's typical that in times of great national urgency, every congressman feels he has to put out a bill; presidents feel the pressure to act too. Under those conditions you can get shortsighted, ineffective, often counterproductive policies, like the gasoline rationing that President Nixon imposed during the first OPEC oil shock in 1973. (That policy caused gas lines in some parts of the country that fall.) But with fourteen years under my belt as Fed chairman, I'd seen the economy pull through a lot of crises—including the largest one-day crash in the history of the stock market, which happened five weeks after I took the job. We'd survived the real-estate boom and bust of the 1980s, the savings and loan crisis, and the Asian financial upheavals, not to mention the recession of 6 More ebooks visit: http://www.ccebook.cn ccebook-orginal english ebooks This file was collected by ccebook.cn form the internet, the author keeps the copyright.

The Category 5 kind happens when demand itself collapses—when consumers stop spending and businesses stop investing. As we talked through the possibilities, President Ford worried that America would find itself trapped in a vicious circle of falling demand, layoffs, and gloom. Since none of the forecasting models could deal with the circumstances we were facing, we were flying blind. All we could tell him was that this might be an inventory-based recession, aggravated by the oil shock and inflation—maybe a Category 2 or 3. Or it might be a Category 5. The president had to make a choice. With the discomfort index nearing 20 percent, there was tremendous political pressure from Congress to slash taxes or massively pump up government spending. That was the way to deal with a Category 5. It could revive growth in the short term, though it risked pushing inflation even higher, with potentially disastrous longterm effects.

One thing that surprised everyone was the lack of public protest. Coming off a decade of civil rights and anti-Vietnam War marches, anyone who could have foreseen 9 percent unemployment would have expected massive demonstrations and barricades in the streets, not just in the United States but also in Europe and Japan, where the economic problems were equally severe. Yet that didn't happen. Perhaps the world was simply exhausted by the oil shock and the decade that had led up to it. But the era of protest was over. America was going through this period with what seemed like a new sense of cohesion. President Ford held off the pressure, and his economic program eventually made it into law (Congress did raise the tax rebate by almost 50 percent, to about $125 per average household). More important, the recovery began when we promised the public it would, in mid-1975.


Falling Behind: Explaining the Development Gap Between Latin America and the United States by Francis Fukuyama

Andrei Shleifer, Atahualpa, barriers to entry, Berlin Wall, British Empire, business climate, Cass Sunstein, central bank independence, collective bargaining, colonial rule, conceptual framework, creative destruction, crony capitalism, European colonialism, Fall of the Berlin Wall, first-past-the-post, Francis Fukuyama: the end of history, Francisco Pizarro, Hernando de Soto, income inequality, income per capita, land reform, land tenure, Monroe Doctrine, moral hazard, New Urbanism, oil shock, open economy, purchasing power parity, rent-seeking, Ronald Reagan, The Wealth of Nations by Adam Smith, total factor productivity, trade liberalization, transaction costs, upwardly mobile, Washington Consensus, zero-sum game

While these events had important consequences for all countries in the Western 6 Falling Behind Hemisphere, their impact was arguably less severe in Latin America than in the United States. The gap widened again in the last three decades of the twentieth century with the spread of authoritarian regimes throughout the region. In addition, many of the large countries in Latin America catastrophically failed to adjust to the rapidly changing external environment, resulting from the two oil shocks of the 1970s. Burgeoning fiscal deficits, attempts to monetize deficits through growth in money supplies, hyperinflation, and overvalued exchange rates in Mexico, Brazil, Argentina, Peru, and other countries set the stage for the debt crisis of the 1980s and the subsequent drop in real growth rates throughout Latin America. The United States, on the other hand, controlled the inflationary spiral set off by the oil crisis relatively quickly in the early 1980s and put into place a series of liberalizing economic policies that laid the groundwork for two decades of almost uninterrupted growth in per capita income.

., Japan, South Korea, and Taiwan) grew even more rapidly in this period despite heavy state intervention in capital markets and protection of domestic markets against foreign goods and investment. Indeed, Alice Amsden has pointed out that, by the 1970s, South Korea’s average rate of tariff protection was comparable to that of Argentina.7 Across-theboard openness to market forces and minimal state intervention were thus not the sine qua non of economic growth in either region. Economic performance began diverging dramatically between East Asia and Latin America primarily after the oil shocks of the 1970s; the difference in long-term performance (and thus the reason for Latin America’s failure to close the gap with the United States) was largely Conclusion 273 the result of Latin America’s failure to adjust to the changed conditions of the external environment. As current account deficits began piling up in all non–oil producing countries, many of those in East Asia tightened their belts, cut government spending, and kept fiscal deficits under control.

This history suggests that good policies are not, in themselves, sufficient to produce sustained economic growth. Latin America, as Dani Rodrik has pointed out, grew impressively under the sway of heterodox protectionist policies in the benign environment of the 1950s and 1960s, and its performance has been uneven during the era of liberal reform from the late 1980s onward.8 The real problems emerged as a result of the region’s failure to adjust to the oil shocks and to the sharply less benign international environment that emerged during the 1970s, something the East Asian fast developers managed much more successfully. This suggests a second critical factor that explains the development gap: institutions. 274 Conclusion Institutions Many of the authors in this volume, including Robinson, Roett and González, Przeworski and Curvale, and Fukuyama, identified weak or defective institutions as one of the most significant sources of the development gap.


pages: 627 words: 127,613

Transcending the Cold War: Summits, Statecraft, and the Dissolution of Bipolarity in Europe, 1970–1990 by Kristina Spohr, David Reynolds

anti-communist, bank run, Berlin Wall, Bretton Woods, computer age, conceptual framework, cuban missile crisis, Deng Xiaoping, failed state, Fall of the Berlin Wall, Kickstarter, Kitchen Debate, liberal capitalism, Mikhail Gorbachev, mutually assured destruction, Nixon shock, oil shock, open borders, Ronald Reagan, Ronald Reagan: Tear down this wall, shared worldview, Thomas L Friedman, Yom Kippur War, zero-sum game

Nor had Soviet-American relations sustained the mood of détente created in Moscow in 1972. A second agreement on strategic arms limitation (the SALT II treaty) was delayed until 1979 and it failed to grapple with the issue of nuclear weapons stationed in Europe. All this generated uncertainty in Western Europe about the viability of détente at a time when the developed world was also wracked by the oil shock, economic recession, and rampant inflation. The summitry of 1978–9 (chapter 5) tried to address these problems, with the consolidation of the Group of 7 (G7) as an instrument of international economic governance and the Guadeloupe summit of January 1979—an attempt to re-establish the credibility of NATO’s defence posture. These were different kinds of summits, meetings of allies rather than adversaries, characterized by far more informality than the set-piece summits examined in part one.

After Helsinki, Ford and Brezhnev would never meet again. More significant at Helsinki were the talks that Ford held with his British, French, and West German counterparts. Meeting at the British ambassador’s residence, the West’s leading statesmen reflected on the Final Act, which they judged a success. But then they debated their common predicament of ‘economic and social disorder and rising unemployment’ following the 1973–4 oil shocks.84 The ‘self-evident inability’ of governments ‘to do anything in the face of this crisis’, warned French president Valéry Giscard d’Estaing, was ‘a serious weakness for the West’, upon which the USSR would ‘play’. West German Chancellor Helmut Schmidt circulated a ‘private memorandum’ arguing for concerted international action to address ‘economic problems’ that were, he asserted, ‘a greater threat to the West than the Soviet Union’.85 Schmidt urged Ford: ‘Your strong leadership is needed’.

In the second half of the 1970s it was driven by the Western Europeans in reaction to the friction and drift at the superpower level. This aroused a profound sense of insecurity, especially in the minds of Valéry Giscard d’Estaing and Helmut Schmidt, the leaders of France and the Federal Republic, who directed the Western response. Part of their concern was economic—Western Europe was far more vulnerable to the oil shock than energy-rich America and also more seriously ravaged by stagflation—but they also feared that the lack of a new financial order to replace Bretton Woods would be exploited politically by Moscow. Acting on their shared concerns, Giscard and Schmidt convened the Rambouillet economic summit in November 1975, precursor of the annual meetings of key Western leaders that became known as the G7. The Western sense of insecurity was military as well as economic.


Blindside: How to Anticipate Forcing Events and Wild Cards in Global Politics by Francis Fukuyama

Asian financial crisis, banking crisis, Berlin Wall, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, cognitive bias, cuban missile crisis, energy security, flex fuel, global pandemic, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John von Neumann, mass immigration, Menlo Park, Mikhail Gorbachev, moral hazard, Norbert Wiener, oil rush, oil shale / tar sands, oil shock, packet switching, RAND corporation, Ray Kurzweil, reserve currency, Ronald Reagan, The Wisdom of Crowds, trade route, Vannevar Bush, Vernor Vinge, Yom Kippur War

The fact that ten of the top fourteen oil-exporting countries are politically unstable, that the United States may be facing a long period of increased hurricane activity in the Gulf of Mexico, and that, following the Abqaiq attack, al-Qaeda promised that “we shall not cease our attacks until our territories are liberated,” implies that it is only a matter of time before the United States finds itself in the midst of a severe oil shock.3 Here is an eminently predictable catastrophe if ever there was one. The Energy Weapon Is Back Transportation underlies the modern U.S. economy. With 97 percent of U.S. transportation energy based on petroleum, oil is the lifeblood of America’s economy. Without oil, goods and raw materials cannot reach their destinations, service providers cannot arrive at their clients, and children cannot go to school.

An aggressive, inventive energy policy can gradually diminish the role of oil in world politics and reduce predictable friction between consumers and producers and among consumers themselves. Such a vision is both practical and economical—far cheaper than maintaining the current energy system. The only question is whether our leaders will lead or will instead be dragged to act by the most painful oil shock in American history. 2990-7 ch08 barrett 7/23/07 12:12 PM Page 82 8 Emerging Infectious Diseases: Are We Prepared? Scott Barrett N ews that a person has become infected with HIV is a personal tragedy but of no consequence to the world at large. News of the first person to be infected with HIV—now that, had it been revealed years ago at the start of the pandemic, would have been of monumental importance.


pages: 233 words: 73,772

The Secret World of Oil by Ken Silverstein

business intelligence, clean water, corporate governance, corporate raider, Donald Trump, energy security, Exxon Valdez, failed state, Google Earth, offshore financial centre, oil shock, paper trading, rolodex, Ronald Reagan, WikiLeaks, Yom Kippur War

“As he was talking, the minister started taking off his tie, and then his jacket, and then his shirt—and there were whip marks on his back, scars. ‘You know who gave these to me?’ he asked. ‘Two British police who arrested me when we were fighting for our independence. And you know what? I don’t bear a grudge. I’ll do business with the British as long as you give me the right price. So don’t give me your political propaganda, just give me a good contract.” After the first OPEC oil shock, in 1973, Calil became seriously involved in the petroleum business, first trading oil and then obtaining concessions and reselling them. Within five years, oil had become the largest sector of his business. Calil’s influence and wealth soared after the Nigerian general Ibrahim Babangida assumed power in a 1985 coup. When I asked Calil about his relationship with Babangida, who is still a power broker in Nigeria, he acknowledged that they were close friends.

Others I spoke with acknowledged—some with satisfaction and others dismay—that traders played a more substantial role in the speculation that has agitated oil markets in recent years. I took a fifty-minute train ride from Geneva to the town of Montreux, at the foot of the Alps, to meet with a retired commodities broker who got his start in the 1980s trading cement, rice, and spices before moving on to buying and selling oil and refined products. We had lunch across the street from the train station at the Grand Hotel. Since the oil shocks of the 1970s, the prevailing analysis has tended to describe oil prices in strict supply-and-demand terms, often placed in a geopolitical context. If it wasn’t conflict in the Middle East that was jacking up prices, it was devious oil cartels tinkering with the spigot, Hugo Chávez nationalizing refineries, rebels in the Niger Delta blowing up pipelines, or demand from the emerging middle class in India and China.


Global Governance and Financial Crises by Meghnad Desai, Yahia Said

Asian financial crisis, bank run, banking crisis, Bretton Woods, business cycle, capital controls, central bank independence, corporate governance, creative destruction, credit crunch, crony capitalism, currency peg, deglobalization, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, financial repression, floating exchange rates, frictionless, frictionless market, German hyperinflation, information asymmetry, knowledge economy, liberal capitalism, liberal world order, Long Term Capital Management, market bubble, Mexican peso crisis / tequila crisis, moral hazard, Nick Leeson, oil shock, open economy, price mechanism, price stability, Real Time Gross Settlement, rent-seeking, short selling, special drawing rights, structural adjustment programs, Tobin tax, transaction costs, Washington Consensus

It opposed developed and developing countries on the link between reserve creation and aid to development. Meanwhile market events had overpowered the ambition of reestablishing a rule-based system. As early as February 1973, the par-value exchange rate system had burst out and generalized floating had spread in a vacuum of consistent responses to mounting inflationary pressures. Finally, the first oil shock of October 1973 triggered much larger capital flows than experienced beforehand with the recycling by Euro-banks of the surpluses of oil producing countries. Faced with such adverse phenomena, the C20 changed course. Giving up its grand design, it focused on the task of arming the Fund with a legal framework to operate in an environment quite at odds with the Bretton Woods era. The negotiation led to the Jamaica Accord in 1976, resulting in the Second Amendment to the Articles of Agreement adopted by the Council of Governors in 1978.

It offered an ideological background to the rebound of monetary nationalism according to which “each country should put its own house in order.” This view expected capital markets to take care of themselves and to drive exchange rates to their equilibrium values reflecting the conditions prevailing in domestic economies. However, the interplay between foreign borrowing and exchange rates dynamics was the locus of new problems which arose in the wake of the second oil shock. International capital markets fed the world with a fast-increasing amount of reserves, but they proved unable to regulate the distribution of borrowed reserves among countries. Sovereign indebtedness was not properly assessed, entailing abrupt disruptions between excessive tolerance to borrowing and acute credit crunches. Besides, equilibrium exchange rates were elusive. Huge gyrations of floating exchange rates and foreign exchange crises, which devastated pegged regimes, convinced most governments that exchange rates were too important to be left to the markets.


pages: 302 words: 86,614

The Alpha Masters: Unlocking the Genius of the World's Top Hedge Funds by Maneet Ahuja, Myron Scholes, Mohamed El-Erian

activist fund / activist shareholder / activist investor, Asian financial crisis, asset allocation, asset-backed security, backtesting, Bernie Madoff, Bretton Woods, business process, call centre, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, Donald Trump, en.wikipedia.org, family office, fixed income, high net worth, interest rate derivative, Isaac Newton, Long Term Capital Management, Marc Andreessen, Mark Zuckerberg, merger arbitrage, Myron Scholes, NetJets, oil shock, pattern recognition, Ponzi scheme, quantitative easing, quantitative trading / quantitative finance, Renaissance Technologies, risk-adjusted returns, risk/return, rolodex, short selling, Silicon Valley, South Sea Bubble, statistical model, Steve Jobs, systematic trading, zero-sum game

Even back then, I was never really concerned with money past a certain point of utility. I was happy sleeping on a cot in a studio apartment. All I cared about was having the freedom to do what I wanted to do.” As luck would have it, Dalio’s return to Harvard coincided with a huge surge of inflation. The breakdown of the monetary system in 1971 had caused a surge that pushed commodity prices higher and created the first oil shock in 1973. To combat inflation, the Federal Reserve tightened monetary policy, which brought on what until then was the worst bear market since the Great Depression. All of a sudden, there was a rush into previously unfashionable commodities futures trading, and brokerage houses clamored to build new trading departments. Because Dalio had experience trading commodities, had worked for the commodity division head at Merrill Lynch the previous summer, and had a Harvard MBA, he immediately got a job as the director of commodities at a midsize brokerage and was tasked with setting up the new division.

Once a natural reserve filled with large lakes, there is a serene ambience to Dalio’s inner sanctum. Somewhat contradictory to its placid work environment, however, the Bridgewater team is awfully focused on crisis. Dalio creates universal investment and management principles by learning from history. He analyzes how different countries, cultures, and people around the world react to different incidents like debt or oil shocks, for example, and figures out the variables that affected the different outcomes. Stripping away all the variables let Bridgewater arrive at universal laws for doing business. “If you’re limiting yourself to what you experienced, you are going to be in trouble. . . . I studied the Great Depression. I studied the Weimar Republic. I studied important events that didn’t happen to me.” Doing this over time led Bridgewater to develop ideas such as its crisis indicator.


pages: 287 words: 81,970

The Dollar Meltdown: Surviving the Coming Currency Crisis With Gold, Oil, and Other Unconventional Investments by Charles Goyette

bank run, banking crisis, Ben Bernanke: helicopter money, Berlin Wall, Bernie Madoff, Bretton Woods, British Empire, Buckminster Fuller, business cycle, buy and hold, California gold rush, currency manipulation / currency intervention, Deng Xiaoping, diversified portfolio, Elliott wave, fiat currency, fixed income, Fractional reserve banking, housing crisis, If something cannot go on forever, it will stop - Herbert Stein's Law, index fund, Lao Tzu, margin call, market bubble, McMansion, money market fund, money: store of value / unit of account / medium of exchange, mortgage debt, oil shock, peak oil, pushing on a string, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Saturday Night Live, short selling, Silicon Valley, transaction costs

Stocks fell about 15 percent in 1973, more than 25 percent in 1974. Unemployment hit 9 percent, while the official inflation rate climbed to 12.2 percent in 1974 and 13.3 percent in 1979. It was a period of confused monetary policy. Businesses encountered Nixon’s disastrous wage and price controls, which fixed the prices at which they could sell, while they also had to contend with huge increases in borrowing costs. And then came the oil shocks. OPEC warned repeatedly that a change in the value of the dollar would result in higher nominal oil prices, so when Nixon suspended dollar convertibility to gold in 1971, oil prices were bound to climb. They quadrupled from $3 per barrel in 1972 to $12 in 1974. They spiked again beginning in the late 1970s until they hit $35 in 1981. Periods of stagflation are particularly painful because of the proliferation of mixed economic messages.

The average U.S. price of gas peaked in July 2008 at $4.11 per gallon. By December it had fallen to $1.66. Even with gas lower than it had been since 2004, the sting of $4.00 gasoline is not likely to be forgotten by drivers for some time. The destruction of demand caused by high prices can persist even after prices have fallen back. As American consumers began moving massively to smaller cars after the oil shocks of the 1970s, average fuel consumption declined and continued to do so for years even after the price of gasoline had retreated sharply. By the end of 2008, in response to the recent price shocks, plants making SUVs were closing left and right. On December 23, General Motors closed an Ohio plant that had turned out 3.7 million large SUVs. In response to lower gas and oil prices, OPEC nations, having already agreed to production cuts of 2 million barrels a day in the fall, announced an additional cut of 2.2 million barrels a day in December 2008.


pages: 309 words: 85,584

Nine Crises: Fifty Years of Covering the British Economy From Devaluation to Brexit by William Keegan

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, capital controls, congestion charging, deindustrialization, Donald Trump, Etonian, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial thriller, floating exchange rates, full employment, gig economy, inflation targeting, Just-in-time delivery, light touch regulation, liquidity trap, Martin Wolf, moral hazard, negative equity, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, oil shock, Parkinson's law, Paul Samuelson, pre–internet, price mechanism, quantitative easing, Ronald Reagan, school vouchers, short selling, South Sea Bubble, The Chicago School, transaction costs, tulip mania, Winter of Discontent, Yom Kippur War

This was the version also being put out by 10 Downing Street. The unfortunate fact of the matter was that this doubling in the price of oil was obviously going to drive a coach and horses through the government’s economic strategy, even before the next batch of price increases. This exercise in procrastination did the government no good. It might have been wise to get their excuses in early about the way the oil shock was going to damage their economic strategy, but they chose not to own up immediately to the full impact. There can be something funny about even the most authoritative of newspapers – a curious lack of confidence and a temptation to believe that the truth lies elsewhere. When the FT’s editor, Fredy Fisher, noticed the difference between his own correspondent’s version and that of the others, he summoned Adrian and told him to print an apology the following day.

Bitterly resisted by the trade unions, it was in the end also condemned by the employers.’ Dell added: ‘Barbara Castle’s legislation might well have proved equally unworkable.’ I wonder. Indeed, the background to the onset of the three-day week and the fall of the Heath government can be pinned down to three factors: first, the succession of events that led to the collapse of what was known as the Selsdon Man approach; secondly, the way in which the oil crisis – or ‘oil shock’, as the Japanese christened it – compounded the government’s economic problems; and thirdly (in my opinion), a missed opportunity during crucial talks at a meeting of ministers, employers and unions under the auspices of the National Economic Development Council on 9 January 1974. Selsdon Man was the phrase with which Harold Wilson had derided the policies that lay behind the Conservative manifesto in the 1970 general election – supposedly hammered out at a weekend meeting at the Selsdon Park Hotel, Croydon, Surrey.


The New Map: Energy, Climate, and the Clash of Nations by Daniel Yergin

3D printing, 9 dash line, activist fund / activist shareholder / activist investor, addicted to oil, Admiral Zheng, Albert Einstein, American energy revolution, Asian financial crisis, autonomous vehicles, Ayatollah Khomeini, Bakken shale, Bernie Sanders, BRICs, British Empire, coronavirus, COVID-19, Covid-19, decarbonisation, Deng Xiaoping, disruptive innovation, distributed generation, Donald Trump, Edward Snowden, Elon Musk, energy security, energy transition, failed state, gig economy, global pandemic, global supply chain, hydraulic fracturing, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), inventory management, James Watt: steam engine, Kickstarter, LNG terminal, Lyft, Malacca Straits, Malcom McLean invented shipping containers, Masdar, mass incarceration, megacity, Mikhail Gorbachev, mutually assured destruction, new economy, off grid, oil rush, oil shale / tar sands, oil shock, open economy, paypal mafia, peak oil, pension reform, price mechanism, purchasing power parity, RAND corporation, rent-seeking, ride hailing / ride sharing, Ronald Reagan, self-driving car, Silicon Valley, smart cities, South China Sea, sovereign wealth fund, supply-chain management, trade route, Travis Kalanick, Uber and Lyft, uber lyft, ubercab, UNCLOS, UNCLOS, uranium enrichment, women in the workforce

The Role of History 22. Oil and Water? 23. China’s New Treasure Ships 24. The Test of Prudence 25. Belt and Road Building MAPS OF THE MIDDLE EAST 26. Lines in the Sand 27. Iran’s Revolution 28. Wars in the Gulf 29. A Regional Cold War 30. The Struggle for Iraq 31. The Arc of Confrontation 32. The Rise of the “Eastern Med” 33. “The Answer” 34. Oil Shock 35. Run for the Future 36. The Plague ROADMAP 37. The Electric Charge 38. Enter the Robot 39. Hailing the Future 40. Auto-Tech CLIMATE MAP 41. Energy Transition 42. Green Deals 43. The Renewable Landscape 44. Breakthrough Technologies 45. What Does “Energy Transition” Mean in the Developing World? 46. The Changing Mix Conclusion: The Disrupted Future Photographs Acknowledgments Notes Illustration Credits Index Introduction This book is about the new global map that is being shaped by dramatic shifts in geopolitics and energy.

There were still an estimated fifteen to twenty thousand ISIS fighters, plus another ten thousand held in makeshift prisons, plus the affiliates and followers around the world. Yet in one significant way ISIS’s impact had faded much earlier. In 2014, its lightning advance across Iraq had induced panic in the oil market and caused it to spike. But, the impact on oil prices had hardly lasted. Chapter 34 OIL SHOCK For three years, 2011 through 2013, the oil price had been surprisingly stable—a little over $100 a barrel. Though that was almost five times higher than it had been a decade earlier, the world had become accustomed to this new price. It was called the “new normal,” and on this basis countries could make their budgets and companies would finance their projects. When it turned out not to be so normal, the oil world was rocked, countries would reel from the shock, and, out of the price crisis, new geopolitical alignments would emerge.

“Timeline: The Rise, Spread, and Fall of the Islamic State,” Wilson Center, October 28, 2019. 16. “In Audio Recording, ISIS Leader Abu Bakr Al-Baghdadi Says Operations Underway, Urges ‘Caliphate Soldiers’ to Free Captives,” MEMRI, September 16, 2019. 17. Department of Defense Briefing on Baghdadi raid, October 30, 2019, www.defense.gov/Newsroom/Transcripts/Transcript/Article/2004092/department-of-defense-press-briefing-by-assistant-to-the-secretary-of-defense-f/. Chapter 34: Oil Shock 1. Neil Hume and Anjli Raval, “Iraq Violence Lights Fuse to Oil Price Spike,” Financial Times, June 20, 2014. 2. Ali Al-Naimi, Out of the Desert: My Journey from Nomadic Bedouin to the Heart of Global Oil (New York: Portfolio/Penguin, 2016), pp. 286–88; Robert McNally, Crude Volatility: The History and the Future of Boom-Bust Oil Prices (New York: Columbia University Press, 2017), pp. 212–16; Raf Sanchez, “Barack Obama: Iran Could Be a ‘Successful Power,” Telegraph, December 29, 2014. 3.


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Food and Fuel: Solutions for the Future by Andrew Heintzman, Evan Solomon, Eric Schlosser

agricultural Revolution, Berlin Wall, big-box store, clean water, Community Supported Agriculture, corporate social responsibility, David Brooks, deindustrialization, distributed generation, energy security, Exxon Valdez, flex fuel, full employment, half of the world's population has never made a phone call, hydrogen economy, Kickstarter, land reform, microcredit, Negawatt, Nelson Mandela, oil shale / tar sands, oil shock, peak oil, RAND corporation, risk tolerance, Silicon Valley, statistical model, Upton Sinclair, uranium enrichment

Second, when policies promote both efficiency and supply, customers typically use only one, usually the cheaper one. Third, efficiency is far faster than new supply. Ordinary people are able to implement efficiency long before big, slow, centralized plants can be built, let alone paid for. Since Western economies ceased to think that oil was infinite and reliably available, more efficient use has been the biggest “source” of new energy — not oil, gas, coal, or nuclear power. After the 1979 oil shock, efficient use of energy enabled Americans to cut oil consumption by 15 percent in six years while the economy grew 16 percent. There are many ways to measure progress in saving energy but even by the broadest and crudest measure — lower primary energy consumption per dollar of real GDP — progress has been dramatic. If the energy use of 1975 is taken as a base measure, by 2000, reduced “energy intensity” was providing 40 percent of all U.S. energy services.

Could there really be a demand for some thirty nuclear reactor units in the Canadian Maritime provinces by 2000, as some Atomic Energy of Canada Ltd. projections suggested? For the two preceding decades energy demand had indeed been growing rapidly, fueled by low oil prices and the post-war economic expansion. For many of the megaproject proponents, the link between growth in energy use and growth in the GDP seemed not only strong historically but inflexible and essential. Of course new supply projects would be needed! Then in 1973 came the first oil shock. With little warning the Arab oil producers embargoed the United States for some months, and the Organization of Petroleum Exporting Countries (OPEC) declared they would no longer negotiate but would instead adopt a take-it-or-leave-it approach to oil pricing. By the end of 1974 the price of a barrel of oil was eight times higher than it had been five years earlier.1 The resulting impacts shocked the Western world, both economically and politically.


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Street Smart: The Rise of Cities and the Fall of Cars by Samuel I. Schwartz

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, active transport: walking or cycling, Affordable Care Act / Obamacare, American Society of Civil Engineers: Report Card, autonomous vehicles, car-free, City Beautiful movement, collaborative consumption, congestion charging, crowdsourcing, desegregation, Enrique Peñalosa, Ford paid five dollars a day, Frederick Winslow Taylor, if you build it, they will come, Induced demand, intermodal, invention of the wheel, lake wobegon effect, Loma Prieta earthquake, longitudinal study, Lyft, Masdar, megacity, meta analysis, meta-analysis, moral hazard, Nate Silver, oil shock, Productivity paradox, Ralph Nader, rent control, ride hailing / ride sharing, Rosa Parks, self-driving car, skinny streets, smart cities, smart grid, smart transportation, the built environment, the map is not the territory, transportation-network company, Uber and Lyft, Uber for X, uber lyft, Unsafe at Any Speed, urban decay, urban planning, urban renewal, walkable city, Wall-E, white flight, white picket fence, Works Progress Administration, Yogi Berra, Zipcar

More unhappy drivers. The gas crises were the only times I had seen traffic volumes go down significantly in my long career until 2005 or so. It wasn’t the cost of gas that was keeping drivers out of their cars; it was the difficulty of getting gas. We made this observation after the supply crisis was over, when even though prices surged, VMT started rising again. The purpose for reminding ourselves about the oil shocks and gas lines is not to make a purely economic argument. The price of filling a tank is, of course, higher today than it was before OPEC started flexing its muscles (and before China and India started putting millions of new cars on the road, thus increasing demand for a shrinking resource like petroleum). But it’s not quite the whole story. Gas might have jumped to a price of $1.35 a gallon by 1981, but if you adjust for inflation, it was about the same as it was in the middle of 2014: $3.47 in current dollars.

When the price of gas dropped below $2.00 in many parts of the United States at the beginning of 2015, it was still higher than the 1979 price in inflation-adjusted terms. In 1920, the height of the popularity of the Model T, gas cost 20 cents a gallon, which is equivalent to $3.87 in 2015. Gas prices go up, and they go down. More important than the inflation-corrected price per gallon is how drivers thought about the cost of a fill-up. And repairs. And insurance. And traffic jams. From the second oil shock on, their daily commute and weekly fill-up gave them more and more reasons to be annoyed about tradeoffs demanded by the six- or eight-cylinder money pits taking up space in their suburban garages. By 2004, economists were calculating that what they called the commuting effect (an increase of about twenty minutes in commuting time daily) was about as costly, in emotional terms, as breaking up with a boyfriend or girlfriend.


When the Money Runs Out: The End of Western Affluence by Stephen D. King

Albert Einstein, Asian financial crisis, asset-backed security, banking crisis, Basel III, Berlin Wall, Bernie Madoff, British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, full employment, George Akerlof, German hyperinflation, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, market clearing, mass immigration, moral hazard, mortgage debt, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

The recessions of my childhood and my early adulthood were extraordinarily painful affairs both for nations as a whole and, on a personal level, for my own family: in Thatcherism’s darkest days, my father was unemployed for many months. Even during the deepest recessions, however, there was always the hope of subsequent recovery. Long-­ term economic growth was supposedly God-­given. Recessions were merely annoying interruptions, blamed variously on policy-­making incompetence, excessive union power, short-­sighted financial institutions, lazy managers and nasty oil shocks. Our modern era of economic stagnation is a fundamentally different proposition. Many of the factors that led to such scintillating rates of economic expansion in the Western world in earlier decades are no longer working their magic: the forces of globalization are in retreat, the boomers are ageing, women are thankfully better represented in the workforce,3 wages are being squeezed as competition from the emerging superpowers hots up and, as those superpowers demand a bigger share of the world’s scarce resources, Westerners are forced to pay more for food and energy.

All successful monetary unions depend on the free flow of capital within their constituent parts, whether as a result of market forces or thanks to government transfers. A home bias within the eurozone would remove, at a stroke, the benefits of the single market and likely condemn the southern nations to decades of grinding economic adjustment. That, surely, would be politically unsustainable. In time, and making up for lost ground, maybe money will be recycled into risky ventures in hitherto untapped parts of the world economy. Following the first oil shock in 1973, the money earned by Arab nations eventually found its way via the US banking system to Latin America. Yet Latin America was unable to deal with the scale of capital inflows. Poorly invested, they eventually paved the way to the Latin American debt crisis between 1982 and 1984. Hunting for yield is all very well but, without a proper understanding of the associated risk, unsustainable financial bubbles too often become an unfortunate way of life. 216 4099.indd 216 29/03/13 2:23 PM Dystopia MISTRUST OF GOVERNMENT Ultimately, governments are faced with tough decisions where the costs are felt now but the benefits appear only much later.


pages: 304 words: 90,084

Net Zero: How We Stop Causing Climate Change by Dieter Helm

3D printing, autonomous vehicles, Berlin Wall, blockchain, Boris Johnson, carbon footprint, clean water, congestion charging, coronavirus, COVID-19, Covid-19, decarbonisation, deindustrialization, demand response, Deng Xiaoping, Donald Trump, fixed income, food miles, Francis Fukuyama: the end of history, Haber-Bosch Process, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, market design, means of production, North Sea oil, off grid, oil shale / tar sands, oil shock, peak oil, planetary scale, price mechanism, quantitative easing, remote working, reshoring, Ronald Reagan, smart meter, South China Sea, sovereign wealth fund, statistical model, Thomas Malthus

The sheer scale of Chinese economic growth is unprecedented: nothing on this scale – or that of the environmental shock it has created – has happened before over such a short period of time. Only the Covid-19 outbreak has been able to make a serious dent, causing the economy to contract after decades of growth. Think back to 1979. Most of the world’s attention was on the Iranian revolution and the oil shock it produced. Nobody gave much thought to the impoverished Chinese communist country oppressed since 1949 by Chairman Mao. The Great Leap Forward (1958–62) and the Cultural Revolution (1966–76) left around 70 million Chinese dead from famine and the intellectual class decimated. China was a poor country, insignificant except for its nuclear weapons and its challenge to Russia for communist leadership.

Saudi Arabia and its OPEC allies can collude and thereby temporarily force the price up by cutting production, and this is in the interests of all the producers (including Russia and the US). In a normal competitive market, the cheapest reserves would be produced first. In this market, the Saudis in particular choose not to do this to their full potential capacity. As the price is credibly kept well above $5 a barrel, other supplies come into the market which would not otherwise be produced. The North Sea oil and gas industry developed because of the oil shocks in the 1970s, with much higher costs than in the Middle East. So too did Alaska, the offshore Gulf of Mexico, and eventually even the tar sands of Alberta in Canada could turn a profit at the higher prices. These high-cost producers need the Saudis and others to manipulate the market to keep the price up. The relevance of all this for carbon and climate change is that this premium on the costs of production has an effect similar to a carbon price.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, Bernie Madoff, Black Swan, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, Carmen Reinhart, central bank independence, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, invisible hand, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, performance metric, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, Robert Shiller, savings glut, selection bias, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stocks for the long run, survivorship bias, systematic trading, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

Inflation expectations were insufficiently adaptive: investors should have looked more at the most recent year’s inflation than the past decade’s inflation when setting expectations:• It seems harsh and hindsighted to call this irrational, given that the inflation process was changing dramatically. If we recognize that inflation expectations in the 1970s and 1980s evolved amidst almost unprecedented structural uncertainty (the end of Bretton Woods, oil shocks, and other wrenching changes), rational learning models may be relevant. In a regime shift context, people may have adjusted too slowly to the probability of being in a high-inflation or low-inflation regime. • A few decades earlier, price stability was the long-run norm (zero inflation expectations and little persistence in annual inflation rates); by the 1970s, the level of and uncertainty regarding inflation were rising and so was its persistence; the inflation rate (as opposed to the price level) became close to a random walk.

In the U.S., wars (Korea and Vietnam) again coincided with rising fiscal deficits and rising inflation; aggressive demand man-agement and insufficient understanding of expectations also contributed. After the Bretton Woods regime (a quasi gold standard) collapsed in 1971, the major economies were clearly in a fiat money regime and inflation expectations became further unanchored. The two 1970s’ oil shocks coincided with productivity decline, while the Fed’s overestimation of trend output and therefore slack in the economy resulted in overly loose monetary policy, contributing to the Great Inflation. Under Paul Volcker’s leadership, which began in 1979, the Fed finally ended and reversed the decades-long uptrend in inflation—at the cost of deep recessions in 1980–1982. The decades of the Great Moderation followed, although inflation scares (1984, 1987, 1990, 1994) did still occur until the Fed’s anti-inflation credibility was firmly established.

In most countries there were no hyperinflations nor deep depressions. Capitalism, democracy, the rule of law, deregulation, and market-friendly economic policies gained ground across the globe over almost the entire period. No wonder market optimism was rife but, as we know, all did not end well. In contrast, the preceding period involved an increasing role for the state and doubts about capitalism, a shift to fiat currencies, two oil shocks, rising inflation and economic volatility, declining productivity, falling asset valuations, and relatively low realized asset returns. This period of mostly bad news did not last the full 20 years from 1968 to 1987, but essentially came to an end in the summer of 1982 when the massive 1980s’ bull market began. Table 27.1 contrasts the U.S. experience in five areas across the two 20-year periods:• Macroeconomy.


pages: 769 words: 224,916

The Bin Ladens: An Arabian Family in the American Century by Steve Coll

American ideology, anti-communist, Berlin Wall, borderless world, Boycotts of Israel, British Empire, business climate, colonial rule, Donald Trump, European colonialism, Fall of the Berlin Wall, financial independence, forensic accounting, global village, haute couture, intangible asset, Iridium satellite, Khyber Pass, low earth orbit, margin call, new economy, offshore financial centre, oil shock, RAND corporation, Ronald Reagan, Saturday Night Live, Silicon Valley, Silicon Valley startup, urban planning, Yogi Berra

Yet within two decades, by the time this generation of Bin Ladens became young adults, they found themselves bombarded by Western-influenced ideas about individual choice, by gleaming new shopping malls and international fashion brands, by Hollywood movies and alcohol and changing sexual mores—a dizzying world that was theirs for the taking, since they each received annual dividends that started in the hundreds of thousands of dollars. These Bin Ladens, like other privileged Saudis who came of age during the oil shock decade of the 1970s, became Arabian pioneers in the era of globalization. The Bin Ladens were the first private Saudis to own airplanes, and in business and family life alike, they devoured early on the technologies of global integration. It is hardly an accident that Osama’s first major tactical innovation as a terrorist involved his creative use of a satellite telephone. It does not seem irrelevant, either, that shocking airplane crashes involving Americans were a recurrent motif of the family’s experience long before September 11.

His education in the former French colonial spheres of Damascus and Lebanon, and his first wife’s Syrian roots, helped draw him toward Paris, where he bought an enormous apartment on the Quai d’Orsay—although, like many of his half-brothers, he often preferred the easy convenience of luxury hotels, and typically, he forsook his apartment for the Ritz. Bakr spoke some French, but he conducted most of his business in English or in Arabic, and he kept private secretaries to assist him in each language; over the course of a typical day, he would slip frequently and easily between the two tongues. In this he resembled many younger, privileged Saudis who had adapted rapidly to global business idioms in the aftermath of the oil shock. In some respects, he was unprepared for the leadership role he now occupied. As an engineer and an operations man, as Salem’s loyal number two, he had learned to work hard and to concentrate on results, but he lacked a natural touch for the richly diverse human foibles and quandaries that his family members continually presented him. As almost anyone would, Bakr suffered by comparison to Salem.

Many gathered in Los Angeles, where they poured their agitations into business. First-and second-generation Lebanese and Armenian entrepreneurs maneuvered among them—builders, restaurateurs, retailers, developers, and hustlers sui generis. Some blocks on the west side of Los Angeles already resembled a stucco-and-Spanish-tile bazaar when the Saudis turned up in numbers, their pockets bulging after the second oil shock. Young merchant scions from Jeddah and Riyadh and Dhahran rolled through Beverly Hills in Porsches and Mercedes-Benzes, their sunglasses just a little too fashionable, their aftershave a little too pungent—as conspicuous a population of marks as ever swam in the seas of capitalism. Accountants looked at them and saw fees; lawyers saw billable hours; stockbrokers saw commissions; jewelers saw gold.


pages: 736 words: 233,366

Roller-Coaster: Europe, 1950-2017 by Ian Kershaw

airport security, anti-communist, Ayatollah Khomeini, banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, business cycle, centre right, colonial rule, cuban missile crisis, deindustrialization, Deng Xiaoping, Donald Trump, European colonialism, eurozone crisis, Exxon Valdez, failed state, Fall of the Berlin Wall, falling living standards, feminist movement, first-past-the-post, fixed income, floating exchange rates, Francis Fukuyama: the end of history, full employment, illegal immigration, income inequality, Johann Wolfgang von Goethe, labour market flexibility, land reform, late capitalism, liberal capitalism, liberation theology, low skilled workers, mass immigration, means of production, Mikhail Gorbachev, mutually assured destruction, Nelson Mandela, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open borders, precariat, price stability, quantitative easing, race to the bottom, reserve currency, rising living standards, road to serfdom, Ronald Reagan, Ronald Reagan: Tear down this wall, Sinatra Doctrine, The Chicago School, trade liberalization, union organizing, upwardly mobile, washing machines reduced drudgery, Washington Consensus, Winter of Discontent, young professional

Capitulating to a miners’ strike that year, the first national coal strike since 1926, the government had conceded a pay rise more than double the rate of inflation. A policy of stimulating growth through reductions in taxation had meanwhile been introduced. Although the rate of growth sharply (and temporarily) rose, the boom merely added fuel to the flames of inflation, which the government then vainly sought to control by imposing limits on wage rises. And all this was before the oil shock. The gathering crisis in industrial relations, as the economy reeled from the impact of soaring energy prices, came to a head in 1974 after the National Union of Mineworkers – the most powerful trade union in the country – had demanded a big pay rise, well in excess of the wage restriction recently introduced by the Conservative government. This led to a state of emergency, the rationing of electricity usage, and a three-day week for industry.

Italy’s national debt remained unhealthily high, however, while northern Italy benefited disproportionately from the growing economy, leaving the south, as ever, far behind. The governments of Western Europe’s other two biggest industrial nations, West Germany and France, navigated the economic storm-waves with fewer traumas than did either Britain or Italy. They faced similar economic problems as energy prices soared. But they handled them better. They benefited from strong economies that could cushion the worst of the oil shock. Their governments were also under highly competent new management. Helmut Schmidt succeeded Willy Brandt as Chancellor of West Germany on 16 May 1974 following the revelation that one of Brandt’s closest aides, Günter Guillaume, had been spying for the East German intelligence services. Only three days later, Valéry Giscard d’Estaing, head of the centre-right Independent Republicans, narrowly defeated François Mitterrand in the French presidential election.

Germans had an even greater fear of inflation. So the tripling of inflation rates to over 6 per cent per annum by the mid-1970s, if low by the standards of neighbouring countries, was a cause of anxiety. In West Germany, as elsewhere, there was no agreed recipe for dealing with ‘stagflation’. But if no new economic model was plainly in view, it was clear that the old Keynesian solutions were out of date. The second oil shock of 1979 was more damaging to the West German economy than the first, of 1973, had been. Economic growth slumped to only 1.9 per cent in 1980, minus 0.2 per cent in 1981 and minus 1.1 per cent in 1982. Unemployment reached post-war record levels – two million by 1983 (nearly a tenth of the workforce). Inflation at 6.1 per cent in 1981 remained stubbornly high. Wages, for those still in work, fell in terms of what they would buy.


pages: 780 words: 168,782

Strange Rebels: 1979 and the Birth of the 21st Century by Christian Caryl

anti-communist, Ayatollah Khomeini, Berlin Wall, Bretton Woods, British Empire, colonial rule, Deng Xiaoping, financial deregulation, financial independence, friendly fire, full employment, income inequality, industrial robot, Internet Archive, Kickstarter, land reform, land tenure, liberal capitalism, liberation theology, Mahatma Gandhi, means of production, Mikhail Gorbachev, Mohammed Bouazizi, Mont Pelerin Society, Neil Kinnock, new economy, New Urbanism, oil shock, open borders, open economy, Pearl River Delta, plutocrats, Plutocrats, price stability, rent control, road to serfdom, Ronald Reagan, single-payer health, special economic zone, The Chicago School, union organizing, upwardly mobile, Winter of Discontent, Xiaogang Anhui farmers, Yom Kippur War

Macroeconomic orthodoxy held that inflation tended to stimulate economic activity, so slow growth and high unemployment were assumed to be at odds with high price levels. Central banks in the United States, Europe, and Japan jointly cut interest rates, desperately hoping to stimulate a recovery. But nothing happened. Investment and employment failed to respond—yet inflation, already high before the “oil shock,” now began to climb. “Stagflation,” as this new phenomenon was called, defied all expert prognoses. The experts in Washington, and in the other capitals of the Western world, no longer appeared as the guarantors of prosperity. In some ways, the first energy crisis merely exacerbated shifts that were already under way. The impact of the Arab oil embargo on the economies of the West was so devastating in part because the rules that had governed the postwar order were already in flux.

Thus was born what came to be known as the “postwar consensus,” the bedrock of British politics until the end of the 1970s. The postwar consensus endured because it worked—at least for the first few decades. The British economy grew steadily through the 1950s and 1960s, widely spreading the benefits of expanding national wealth. But by the 1970s, the bloom was off. Rising global competition had revealed the structural rigidities of Britain’s social-democratic system. The oil shock hit at a moment when traditional British manufacturing industries were already affected by painful decline. Once-proud working-class cities had turned into landscapes of blight, factory ruins defaced with graffiti. In the 1970s, the British economy tottered from one crisis to another. In 1974, in the wake of the Arab oil embargo, Conservative prime minister Edward Heath was forced to introduce electricity rationing and a three-day workweek.

A country that had been at the heart of the Western economic and political system found itself reduced to the status of a banana republic. Callaghan diagnosed the problems but was unable to come up with a remedy. Something always seemed to get in the way: the resistance of the unions, the global economic climate, the accustomed way of doing things. The old ideas no longer worked—that much was clear. But where were the new ones? Britain was waiting for something to give. There were, of course, countries that benefited from the oil shock. First and foremost among them was the Imperial State of Iran, one of America’s key Cold War allies in the Middle East. Nevertheless, the shah of Iran, Mohammad Reza Pahlavi, welcomed the cash that poured into his coffers as a result of the OPEC embargo. He had ambitious plans for the remaking of Iranian society, and changes on the scale he envisioned certainly did not come cheap. Ten years earlier, in 1963, he had inaugurated the grand reform scheme that he called the “White Revolution.”


pages: 559 words: 169,094

The Unwinding: An Inner History of the New America by George Packer

Affordable Care Act / Obamacare, Apple's 1984 Super Bowl advert, bank run, big-box store, citizen journalism, cleantech, collateralized debt obligation, collective bargaining, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, deindustrialization, diversified portfolio, East Village, El Camino Real, Elon Musk, family office, financial independence, financial innovation, fixed income, Flash crash, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, housing crisis, income inequality, informal economy, Jane Jacobs, life extension, Long Term Capital Management, low skilled workers, Marc Andreessen, margin call, Mark Zuckerberg, market bubble, market fundamentalism, Maui Hawaii, Menlo Park, Neil Kinnock, new economy, New Journalism, obamacare, Occupy movement, oil shock, paypal mafia, peak oil, Peter Thiel, Ponzi scheme, Richard Florida, Robert Bork, Ronald Reagan, Ronald Reagan: Tear down this wall, shareholder value, side project, Silicon Valley, Silicon Valley startup, single-payer health, smart grid, Steve Jobs, strikebreaker, The Death and Life of Great American Cities, the scientific method, too big to fail, union organizing, urban planning, We are the 99%, We wanted flying cars, instead we got 140 characters, white flight, white picket fence, zero-sum game

The Thiels moved around a lot when Peter was young—he attended seven different elementary schools. Although he had a younger brother, he was a lonely boy, almost without friends until he approached his teens, lonely and inward in the way of the extremely gifted. By the age of five he knew the names of all the countries and could draw the world map from memory. When he was six, his father got a job with a uranium mining company—it was just after the 1973 oil shock, when America seemed to be headed toward nuclear energy—and the Thiels spent two and a half years in South Africa and South-West Africa, under apartheid. Peter began to play chess with his parents and quickly mastered it. In Swakopmund, a little German town on the coast of South-West Africa, he spent hours making up adventures for himself in the dried-up riverbed facing the desert sand dunes behind their house, or reading atlases, nature books, and French comics in the local bookstore.

As he reconsidered the years since the seventies, years that had seemed so bright and hopeful, especially in Silicon Valley, even Facebook lost its glow. But Thiel’s pessimism also led him to form radical new ideas about the future. 2008 BAM SLAMS HILLARY IN HISTORIC VICTORY He’s First Black to Win Iowa Caucus as Voters Embrace Message of Change … REAL ESTATE APPRAISED: FROM MALAISE TO CRITICAL … GM POSTS RECORD US AUTOMOTIVE LOSS OF $38.7B FOR 2007 Offers Buyouts to 74,000 US Workers … OIL SHOCK: ANALYST PREDICTS $7 GAS, “MASS EXODUS” OF US CARS … DEPRESSION QUESTIONS RETURN IN NEW CENTURY … IN WEEK OF IRAQ WAR ANNIVERSARY, OBAMA’S RACE SPEECH DOMINATED MEDIA COVERAGE … Obama’s entire campaign is built on class warfare and human envy. The “change” he peddles is not new. We’ve seen it before. It is change that diminishes individual liberty for the soft authoritarianism of socialism.… that there is something happening in America, that we are not as divided as our politics suggests, that we are one people, that we are one nation … LEHMAN FILES FOR BANKRUPTCY, MERRILL SOLD, AIG SEEKS CASH … BUSH ASKING FOR $700 BILLION BAILOUT … McCAIN PICKS FAILING OHIO FACTORY TO LAUD FREE TRADE He used his own recent political fortunes—a dramatic fade followed by an unexpected comeback to secure the Republican presidential nomination—to illustrate that depressed Rust Belt cities such as Youngstown can rebound.… PALIN REIGNITES CULTURE WARS … We believe that the best of America is in these small towns that we get to visit, and in these wonderful little pockets of what I call real America, being here with all of you hard working very patriotic … I bet bin Laden feels like a real asshole now, huh?

If a sort of unwinding was happening in America, status markers became weirdly problematic—in a screwed-up society, they could not be the correct, real things. Almost nothing that had high status was a good thing to invest in. After the global financial crisis, Thiel developed a theory about the past and the future. It went back to 1973—“the last year of the fifties.” That was the year of the oil shock, the year when median wages in America began to stagnate. The seventies was the decade when things started going wrong. A lot of institutions stopped working. Science and technology stopped progressing, the growth model broke down, government no longer worked as well as in the past, middle-class life started to fray. Then came the eighties—when Thiel graduated from high school in 1985, things had seemed very optimistic, anything was possible.


pages: 337 words: 103,273

The Great Disruption: Why the Climate Crisis Will Bring on the End of Shopping and the Birth of a New World by Paul Gilding

airport security, Albert Einstein, Bob Geldof, BRICs, carbon footprint, clean water, cleantech, Climategate, commoditize, corporate social responsibility, creative destruction, decarbonisation, energy security, Exxon Valdez, failed state, fear of failure, income inequality, Intergovernmental Panel on Climate Change (IPCC), Joseph Schumpeter, market fundamentalism, mass immigration, Naomi Klein, Nelson Mandela, new economy, nuclear winter, oil shock, peak oil, Ponzi scheme, purchasing power parity, Ronald Reagan, shareholder value, The Spirit Level, The Wealth of Nations by Adam Smith, union organizing, University of East Anglia

Governments and the corporate sector were engaged deeply on these issues, and the public, driven by major climatic events and high-profile campaigners like Al Gore and Tim Flannery, had put the issue at the forefront of public and political debate. So many experts argued we’d turned the corner and would now start to see serious political action. Jorgen was skeptical of that view. He had seen the issue ebb and flow over many decades, from the 1970s oil shock through various peaks of attention in the 1980s and 1990s to the then emerging global financial crisis. He was convinced the world still wasn’t ready for the type of transformational action required to shift the global economy. He mounted a convincing argument, so our conversation moved to when we thought real action was likely to occur and what the science told us about the implications of acting at that stage.

With the transformation thus in full swing by the end of this decade, anyone guiding a company or investment fund needs to pay careful attention now. While it will start with a focus on energy and water it will soon spread to all aspects of the high-carbon economy and then to sustainability more broadly. Some of you are thinking, “Haven’t we heard all this before, several times? Wasn’t the energy revolution going to start in the 1970s with the oil shock and the beginning of the solar revolution? Then oil prices went down and it all went away? Haven’t people been saying ever since that the boom is ‘just around the corner’?” Yes, all true, but this is fundamentally different for a simple reason. Each previous time, the transformation has been driven by economics; fossil-fuel prices went up so alternatives became competitive. We have let the market determine the pace of change, yet put no price into that market for the damage caused by climate change.


pages: 364 words: 99,613

Servant Economy: Where America's Elite Is Sending the Middle Class by Jeff Faux

back-to-the-land, Bernie Sanders, Black Swan, Bretton Woods, BRICs, British Empire, business cycle, call centre, centre right, cognitive dissonance, collateralized debt obligation, collective bargaining, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, David Brooks, David Ricardo: comparative advantage, disruptive innovation, falling living standards, financial deregulation, financial innovation, full employment, hiring and firing, Howard Zinn, Hyman Minsky, illegal immigration, indoor plumbing, informal economy, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kickstarter, lake wobegon effect, Long Term Capital Management, market fundamentalism, Martin Wolf, McMansion, medical malpractice, mortgage debt, Myron Scholes, Naomi Klein, new economy, oil shock, old-boy network, Paul Samuelson, plutocrats, Plutocrats, price mechanism, price stability, private military company, Ralph Nader, reserve currency, rising living standards, Robert Shiller, Robert Shiller, rolodex, Ronald Reagan, school vouchers, Silicon Valley, single-payer health, South China Sea, statistical model, Steve Jobs, Thomas L Friedman, Thorstein Veblen, too big to fail, trade route, Triangle Shirtwaist Factory, union organizing, upwardly mobile, urban renewal, War on Poverty, We are the 99%, working poor, Yogi Berra, Yom Kippur War

In a similar way, Carter began the process of deregulating the airline, banking, trucking, and telecommunications industries that Reagan later built on as he unraveled the economic base of the Roosevelt social contract. Carter provided a bridge from the age of Roosevelt to the age of Reagan. At the same time, Carter, more than any president since, seemed to understand the geopolitical lesson of the 1970s oil shocks: that the United States had become dangerously dependent on foreign supplies of oil. A year after he became president, Carter proposed a comprehensive multiyear plan for conservation and the development of new energy technologies. He spent most of his political capital trying to convince Congress and the people that (aside from the prevention of nuclear war) energy dependence was “the greatest challenge our country will face during our lifetimes,” as he told the nation in a televised speech on April 18, 1977.

As the finance sector grew in political importance, maintaining low interest rates to protect the bondholders grew in importance to the Washington politicians. That high federal deficits always lead to inflation is an economic urban myth. In the modern American experience, there has been virtually no peacetime example of budget deficits triggering inflation and higher interest rates. The last serious bout of U.S. inflation had occurred in the 1970s, and it was driven not by federal deficits but by three separate oil shocks generated by the global oil cartel. The previous episode of inflation resulted from the cost of the Vietnam War added to an economy already at full employment. The episode of inflation before that was fueled by the Korean War, and the one before that was caused by the pent-up demand for consumer goods and the loosening of price controls after World War II. In the 2009–2010 recession in which the Obama administration found itself, the threat from inflation being generated by too much money in circulation was as close to zero as one could get.


pages: 356 words: 103,944

The Globalization Paradox: Democracy and the Future of the World Economy by Dani Rodrik

affirmative action, Asian financial crisis, bank run, banking crisis, bilateral investment treaty, borderless world, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, collective bargaining, colonial rule, Corn Laws, corporate governance, corporate social responsibility, credit crunch, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, Doha Development Round, en.wikipedia.org, endogenous growth, eurozone crisis, financial deregulation, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, George Akerlof, guest worker program, Hernando de Soto, immigration reform, income inequality, income per capita, industrial cluster, information asymmetry, joint-stock company, Kenneth Rogoff, land reform, liberal capitalism, light touch regulation, Long Term Capital Management, low skilled workers, margin call, market bubble, market fundamentalism, Martin Wolf, mass immigration, Mexican peso crisis / tequila crisis, microcredit, Monroe Doctrine, moral hazard, night-watchman state, non-tariff barriers, offshore financial centre, oil shock, open borders, open economy, Paul Samuelson, price stability, profit maximization, race to the bottom, regulatory arbitrage, savings glut, Silicon Valley, special drawing rights, special economic zone, The Wealth of Nations by Adam Smith, Thomas L Friedman, Tobin tax, too big to fail, trade liberalization, trade route, transaction costs, tulip mania, Washington Consensus, World Values Survey

International capital flows remained tightly circumscribed. The Bretton Woods compromise was a roaring success: the industrial countries recovered and became prosperous while most developing nations experienced unprecedented levels of economic growth. The world economy flourished as never before. The Bretton Woods monetary regime eventually proved unsustainable as capital became internationally more mobile and as the oil shocks of the 1970s hit the advanced economies hard. This regime was superseded in the 1980s and 1990s by a more ambitious agenda of economic liberalization and deep integration—an effort to establish what we may call hyperglobalization. Trade agreements now extended beyond their traditional focus on import restrictions and impinged on domestic policies; controls on international capital markets were removed; and developing nations came under severe pressure to open their markets to foreign trade and investment.

Moreover, the belief system that supported capital controls began to dissolve over the 1970s and was replaced in subsequent decades by an alternative narrative emphasizing the inevitability of liberalization and the benefits of capital mobility. Just as in trade, an agenda of deep integration centered on free capital mobility would replace the Bretton Woods compromise. The 1960s were the heyday of Keynesian ideas on economic management. The oil shocks and the stagflation of the 1970s—which confronted advanced economies with unemployment and inflation together—pushed attention away from Keynes’s focus on demand management to the supply side of the economy. In the traditional Keynesian model, unemployment was the result of too little demand for domestic products; but the simultaneous increase in inflation belied that explanation. Discretionary monetary and fiscal policies à la Keynes began to be seen by economists and technocrats as a force for instability rather than stability.


pages: 375 words: 105,067

Pound Foolish: Exposing the Dark Side of the Personal Finance Industry by Helaine Olen

American ideology, asset allocation, Bernie Madoff, buy and hold, Cass Sunstein, Credit Default Swap, David Brooks, delayed gratification, diversification, diversified portfolio, Donald Trump, Elliott wave, en.wikipedia.org, estate planning, financial innovation, Flash crash, game design, greed is good, high net worth, impulse control, income inequality, index fund, London Whale, longitudinal study, Mark Zuckerberg, money market fund, mortgage debt, oil shock, payday loans, pension reform, Ponzi scheme, post-work, quantitative easing, Ralph Nader, RAND corporation, random walk, Richard Thaler, Ronald Reagan, Saturday Night Live, Stanford marshmallow experiment, stocks for the long run, too big to fail, transaction costs, Unsafe at Any Speed, upwardly mobile, Vanguard fund, wage slave, women in the workforce, working poor, éminence grise

Julia Child, who arguably did for fine cooking what Porter did for financial advice, is still widely known, while Porter is so forgotten that a mention of her name to anyone under the age of fifty-five will elicit not an opinion about the columnist deemed one of the most important women of the 1970s by Ladies Home Journal, but rather the simple query: “Who?” There isn’t even a single nostalgia-trip clip of this once ubiquitous television presence on YouTube. Sylvia Porter’s descent into oblivion began at the height of her fame. The oil shocks, inflation, unemployment, and overall recessionary environment of the 1970s led to a growing demand for financial and investment information. Porter initially rode the wave, publishing her biggest bestseller Sylvia Porter’s Money Book in 1975. The book featured more than a thousand pages devoted to all things financial, from how to dress appropriately for the office without busting the budget to tips on how to cut your grocery and medical bills.

Like the MoneyShow, televised financial news began in a much more highfalutin way than this. In the early 1970s, longtime foreign correspondent Irving R. Levine pioneered the business beat for NBC News, after network honchos dinged his request to cover the State Department. What seemed like an assignment destined to send Levine to career Siberia turned out to be anything but as the economy turned into the defining story of the decade. Through oil shocks, inflation, and job woes, Levine, wearing a trademark bow tie, explained it all in a calm, almost phlegmatic tone. Soon, PBS joined in, picking up Wall Street Week with Louis Rukeyser from a local Maryland affiliate. As for the now-ubiquitous CNBC, its origins are in second-tier Los Angeles UHF television station KWHY. In the mid-1980s, it changed its name to the Financial News Network and expanded its national presence via cable.


pages: 741 words: 179,454

Extreme Money: Masters of the Universe and the Cult of Risk by Satyajit Das

affirmative action, Albert Einstein, algorithmic trading, Andy Kessler, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Basel III, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, capital asset pricing model, Carmen Reinhart, carried interest, Celtic Tiger, clean water, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, debt deflation, Deng Xiaoping, deskilling, discrete time, diversification, diversified portfolio, Doomsday Clock, Edward Thorp, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, eurozone crisis, Everybody Ought to Be Rich, Fall of the Berlin Wall, financial independence, financial innovation, financial thriller, fixed income, full employment, global reserve currency, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, happiness index / gross national happiness, haute cuisine, high net worth, Hyman Minsky, index fund, information asymmetry, interest rate swap, invention of the wheel, invisible hand, Isaac Newton, job automation, Johann Wolfgang von Goethe, John Meriwether, joint-stock company, Jones Act, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kevin Kelly, laissez-faire capitalism, load shedding, locking in a profit, Long Term Capital Management, Louis Bachelier, margin call, market bubble, market fundamentalism, Marshall McLuhan, Martin Wolf, mega-rich, merger arbitrage, Mikhail Gorbachev, Milgram experiment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, Naomi Klein, negative equity, NetJets, Network effects, new economy, Nick Leeson, Nixon shock, Northern Rock, nuclear winter, oil shock, Own Your Own Home, Paul Samuelson, pets.com, Philip Mirowski, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, profit maximization, quantitative easing, quantitative trading / quantitative finance, Ralph Nader, RAND corporation, random walk, Ray Kurzweil, regulatory arbitrage, rent control, rent-seeking, reserve currency, Richard Feynman, Richard Thaler, Right to Buy, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, Robert Shiller, Rod Stewart played at Stephen Schwarzman birthday party, rolodex, Ronald Reagan, Ronald Reagan: Tear down this wall, Satyajit Das, savings glut, shareholder value, Sharpe ratio, short selling, Silicon Valley, six sigma, Slavoj Žižek, South Sea Bubble, special economic zone, statistical model, Stephen Hawking, Steve Jobs, survivorship bias, The Chicago School, The Great Moderation, the market place, the medium is the message, The Myth of the Rational Market, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, trickle-down economics, Turing test, Upton Sinclair, value at risk, Yogi Berra, zero-coupon bond, zero-sum game

Alan Greenspan put the practice down to a slowdown in innovation and excess capital.14 Stock buybacks left the company with more debt and a weaker financial position.15 In 1987 Standard Oil of Ohio (Sohio), once part of the grand dame of oil companies but now owned by Britain’s BP, advertised in leading financial magazines—“Standard Oil not standard thinking.”16 An arty graphic depicted a drop of oil in which a reflection of an oil well was visible. The text mentioned “a new very active management strategy,” a subtext for financialization. “Assets not strategic to Standard Oil have been divested” spoke of redeploying the firm’s capital by divesting underperforming investments. “We have also become fast creative traders” declared the trend to trading in financial instruments for profit. The text ended: “in a world of oil sheikhs and oil shocks, the more liquid we are the more solid.” The advertisement spoke of a financial strategy. The oil company had become the oil bank.17 Marriages and Separations Corporations restructured constantly, acquiring and disposing of assets and companies, making comparison of performance over time impossible. Merger activity was the market for corporate control. Like Ronin, lord-less mercenary Samurai, groups of corporate managers competed for control of assets, providing the necessary discipline on errant businesses.

In the new economy, there were three kinds of people: the haves, the have-nots, and the have-not-paid-for-what-they-haves.7 Casino Banking Banks also began to trade financial instruments, taking the advice of Fear of Flying author Erica Jong: “If you don’t risk anything then you risk even more.” Initially, banks traded currencies and government bonds. Volatility of currencies increased following the collapse of the Bretton Woods agreement and the demise of the gold standard. Volatility of interest rates increased, following removal of controls on interest rates and a rise in inflation as a result of the oil shocks of 1974 and 1979. Derivatives—different forms of price insurance on currencies, interest rates, and equities—began trading in the 1970s. As volatility forced businesses and investors to hedge their financial risks, banks moved into the protection racket. Initially, they acted primarily as an intermediary, matching transactions between clients. Over time, banks began to take positions without having a matching counterparty.

The Gipper and the Iron Lady In 1956, Clinton Rossiter, a political scientist, identified the skills needed by the occupant of the Oval Office: “scoutmaster, Delphic Oracle, hero of the silver screen and father of the multitudes.”16 Ronald Wilson Reagan, a Hollywood B film actor, possessed one of these qualities. A Democrat who switched to the Republican Party, Reagan was elected governor of California to send welfare bums back to work and to clean up the University of California at Berkeley, a reference to antiwar and anti-establishment student protests. In the 1970s, growth slowed as a result of the twin oil shocks of 1974 and 1979, leading to higher oil prices. Inflation and interest rates were in double figures. Unemployment was high and there was increasing labor unrest. America’s public finances were in poor shape. The Bretton Woods system of fixed exchange rate collapsed. Since the end of the go-go years of the 1960s, the stock market had been moribund. Americans were racked with self-doubt by the effects of the Vietnam War, race problems, the Watergate scandal, as well as increasing instability and uncertainty.


pages: 7,371 words: 186,208

The Long Twentieth Century: Money, Power, and the Origins of Our Times by Giovanni Arrighi

anti-communist, Asian financial crisis, barriers to entry, Bretton Woods, British Empire, business climate, business process, colonial rule, commoditize, Corn Laws, creative destruction, cuban missile crisis, David Ricardo: comparative advantage, declining real wages, deindustrialization, double entry bookkeeping, European colonialism, financial independence, financial intermediation, floating exchange rates, income inequality, informal economy, invisible hand, joint-stock company, Joseph Schumpeter, late capitalism, London Interbank Offered Rate, means of production, money: store of value / unit of account / medium of exchange, new economy, offshore financial centre, oil shock, Peace of Westphalia, profit maximization, Project for a New American Century, RAND corporation, reserve currency, spice trade, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, trade route, transaction costs, transatlantic slave trade, transcontinental railway, upwardly mobile, Yom Kippur War

But whereas before 1968 they rose more slowly than labor productivity (in Western Europe) or in step with it (in the United States), between THE LONG TWENTIETH CENTURY 315 1968 and 1973 they rose much faster, thereby provoking a major contraction in returns to capital invested in trade and production (Itoh 1990: 50-3; Armstrong, Glyn, and Harrison 1984: 269-76; Armstrong and Glyn 1986). The pay explosion was still in full swing when at the end of 1973 an equally powerful upward pressure on the purchase price of select primary products materialized in the first “oil shock.” Between 1970 and 1973 this upward pressure had already led to a doubling in the price of crude oil imported by OECD countries. But in 1974 alone that same price increased three-fold, deepening further the crisis of profitability (Itoh 1990: 53—4, 60-8, and table 3.3). After surveying the evidence, Makoto Itoh (1990: 116) concludes that “[o]veraccumulation of capital in relation to the inelastic supply of both the laboring population and primary products . . . was more fundamental in launching the current great depression than mismanagement of macroeconomic policies.”

Since only a fraction of this huge and growing mass of “oil rent” could be redeployed promptly in productive or useful undertakings by its recipients, a good part of the rent was “parked” or invested in the Eurocurrency market where it enjoyed comparatively high returns and freedom of action. This tendency began to develop in the early 1970s, when the price of crude oil doubled within a few years. But the first oil shock of late 1973, which quadrupled the price of crude oil in a few months, not only produced the $80 billion surpluses of “petrodollars” for the banks to recycle, thus swelling the importance of the financial markets and the institutions operating in them, but it also introduced a new, sometimes decisive and usually quite unpredictable factor affecting the balance of payments positions of both the consumer, and eventually the producing, countries.

The attempt of the US government to cope with the situation by relying on the manipulation of regional balances of power perhaps helped in some directions but ended in disaster where success mattered most — in the Middle East. Massive investments of money and prestige in building up Iran as the main lever of US power in the region went up in smoke when the friendly regime of the shah was displaced by the unfriendly regime of the ayatollahs. This new setback for US world power — which not accidentally brought in its train the crisis of confidence in the US dollar, the second oil shock, and the Soviet invasion of Afghanistan — finally convinced the US government that the time had come to abandon the New Deal tradition of confrontation with private high finance, and to seek instead by all available means the latter’s assistance in regaining the upper hand in the global power struggle. The resulting “alliance” yielded returns that went beyond the rosiest 334 THE LONG TWENTIETH CENTURY expectations.


pages: 401 words: 112,784

Hard Times: The Divisive Toll of the Economic Slump by Tom Clark, Anthony Heath

Affordable Care Act / Obamacare, British Empire, business cycle, Carmen Reinhart, credit crunch, Daniel Kahneman / Amos Tversky, debt deflation, deindustrialization, Etonian, eurozone crisis, falling living standards, full employment, Gini coefficient, hedonic treadmill, hiring and firing, income inequality, interest rate swap, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Rogoff, labour market flexibility, low skilled workers, MITM: man-in-the-middle, mortgage debt, new economy, Northern Rock, obamacare, oil shock, plutocrats, Plutocrats, price stability, quantitative easing, Right to Buy, Ronald Reagan, science of happiness, statistical model, The Wealth of Nations by Adam Smith, unconventional monetary instruments, War on Poverty, We are the 99%, women in the workforce, working poor

In mid-2013, 64 months into the downturn, output was still 2% below where it started, whereas the full depth of the dip in the Depression was recovered within 48 months. Again, this sustained decline would be even more marked if we looked at national income per head. For the US, the figure opposite tracks the recent slump against the two nastiest recessions since the Second World War.6 The American slide that began with the credit crunch in 2007 is confirmed as both deeper and more enduring than any since the 1930s. The oil shock of 1973 called time on America's motoring way of life, forcing the introduction of a national speed limit and requiring President Nixon to plead with filling stations not to sell fuel on Saturdays; but the crisis of 2008 knocked half as much again off GDP. The great Reagan industrial shake-out of the 1980s felt as though it dragged on for ever, but the graph shows that after the recent recession it took GDP a whole year longer to bounce back.

In the US, which has been seriously unequal for longer, stuck wages for both the middling and the poor had slowly become an established fact of life long before the recession. In the post-war years from 1948 through to 1973, the value of what the typical worker was producing (‘labour productivity’) and the average wage he or she took home, rose exactly in proportion, at 2.8% a year: workers were gaining in line with the fruits of their efforts. Since that year of the first oil shock, there has not been any dearth of ingenuity – labour productivity has continued to rise by a very similar 2.6% a year. The big difference concerns wages, which have subsequently climbed by only 0.6% annually at the median.17 That implies that the typical employee has now been missing out on something like three-quarters of the extra prosperity that America has been generating over 40 years. The graph below captures this great divergence for male workers, for whom it has been most acute.


pages: 423 words: 118,002

The Boom: How Fracking Ignited the American Energy Revolution and Changed the World by Russell Gold

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, activist lawyer, addicted to oil, American energy revolution, Bakken shale, Bernie Sanders, Buckminster Fuller, clean water, corporate governance, corporate raider, energy security, energy transition, hydraulic fracturing, Intergovernmental Panel on Climate Change (IPCC), margin call, market fundamentalism, Mason jar, North Sea oil, oil shale / tar sands, oil shock, peak oil, Project Plowshare, risk tolerance, Ronald Reagan, shareholder value, Silicon Valley, Upton Sinclair

Tankers full of crude arrived at the then-new Louisiana Offshore Oil Port, or LOOP, America’s single largest point of entry for crude. Deepwater tankers idled a few miles off the coast and unloaded the cargos into floating buoys connected to pipelines. Within a few years, more than five million barrels a day of OPEC crude was imported into the United States. In 1973 surging fuel costs led to the first “oil shock,” a period when geopolitical disputes cut off supplies and global economic growth was clipped by pricey oil. This pattern of a strong economy leading to high oil prices that, in turn, contributed to recessions repeated in 1979, 2001, and 2008. Expensive foreign oil has long been a brake on the economy. In 1973 President Richard Nixon announced Project Independence, an effort to eliminate dependence on foreign energy by 1980.

I determined average wages by using state US Bureau of Labor Statistics data and was guided by Michael Ziesch, manager of the Labor Market Information Center of Job Service North Dakota. Details on the preliminary production of the Irene Kovaloff provided by Marathon Oil. Hamilton, James D. “Oil and the Macroeconomy Since World War II.” Journal of Political Economy 91, no. 2 (April 1983): 228–48. ———. “Causes and Consequences of the Oil Shock of 2007–08.” Brookings Papers on Economic Activity (Spring 2009): 215–59. Nordeng, Stephan. “A Brief History of Oil Production from the Bakken Formation in the Williston Basin.” Geo News (January 2010): 5. Rankin, R., M. Thibodeau, M. C. Vincent, and T. T. Palisch. “Improved Production and Profitability Achieved with Superior Completions in Horizontal Wells: A Bakken/Three Forks Case History.”


pages: 429 words: 120,332

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

Asian financial crisis, asset-backed security, bank run, battle of ideas, Bernie Madoff, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business climate, call centre, capital controls, collapse of Lehman Brothers, computerized trading, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, Double Irish / Dutch Sandwich, failed state, financial deregulation, financial innovation, Fractional reserve banking, full employment, high net worth, income inequality, Kenneth Rogoff, laissez-faire capitalism, land reform, land value tax, light touch regulation, Long Term Capital Management, Martin Wolf, money market fund, New Journalism, Northern Rock, offshore financial centre, oil shock, old-boy network, out of africa, passive income, plutocrats, Plutocrats, Ponzi scheme, race to the bottom, regulatory arbitrage, reserve currency, Ronald Reagan, shareholder value, The Spirit Level, too big to fail, transfer pricing, Washington Consensus

A major new study in 2009 by the economists Carmen Reinhardt and Kenneth Rogoff, looking back over eight hundred years of economic history, concluded that, as reviewer Martin Wolf put it, “Financial liberalisation and financial crises go together like a horse and carriage.”23 We cannot infer too much from these very different episodes. Other reasons exist for the high growth rates during the golden age, not least postwar rebuilding and productivity improvements during the war. The 1970s oil shocks go some way toward explaining the subsequent slide into crisis and stagnation. Still, less drastic but nevertheless powerful conclusions do emerge. The golden age shows that it is quite possible for countries, and the world economy, to grow quickly and steadily while under the influence of widespread and even bureaucratic curbs on the flow of capital, and high taxes. China carefully and systematically restricts inward and outward investments and other flows of capital, and at the time of writing it is growing fast.

“There was never any sense that old English bankers were competing with us in any way,” said Michael Lewis of Salomon Brothers. “It was much more, ‘how much did we have to pay them to clear out of town and do something else with their lives.’”60 By then, the Euromarkets had grown to exceed the size of the entire world’s foreign exchange reserves.61 At the same time, a new source of dollars had begun to feed the markets, as the OPEC oil shocks hit in the 1970s, and oil-rich countries’ surpluses were re-lent through the Euromarkets to finance deficit-plagued oil consumer countries. This gigantic financial recycling via London and its satellites, to be lent out to Latin America and elsewhere, often amid great secrecy and corruption, laid the foundations for the subsequent debt crises of the 1980s. As the Euromarket bonfire raged ever more strongly, financial capital began a new assault on the citadels of power and the democratic nation-state.


pages: 412 words: 113,782

Business Lessons From a Radical Industrialist by Ray C. Anderson

addicted to oil, Albert Einstein, banking crisis, business cycle, carbon footprint, centralized clearinghouse, clean water, cleantech, corporate social responsibility, Credit Default Swap, dematerialisation, distributed generation, energy security, Exxon Valdez, fear of failure, Gordon Gekko, greed is good, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), intermodal, invisible hand, late fees, Mahatma Gandhi, market bubble, music of the spheres, Negawatt, new economy, oil shale / tar sands, oil shock, old-boy network, peak oil, renewable energy credits, shareholder value, Silicon Valley, six sigma, supply-chain management, urban renewal, Y2K

The last time we faced prices like these, OPEC had turned off the taps for purely political reasons. There was plenty of oil in the ground relative to the global demand for it. It was the delivery of that oil to market that was being constrained artificially. The result? In 1972, crude oil traded at $3 a barrel. By the end of 1974, it quadrupled, to $12. This precipitated the recession in whose grips we found ourselves during Interface’s start-up. We called it an oil shock, and it was. But there were other shocks to follow. The one-two punch of the Iranian revolution and their war with Iraq pushed oil up from $14 a barrel in 1978 to $35 a barrel in 1981. Saudi Arabia’s oil minister, Ahmed Yamani, warned his fellow OPEC members that those sky-high prices could lead to a fall in demand. His fellow oil ministers didn’t pay attention. Fortunately, many Americans were listening.

They responded to spiking energy costs by installing better insulation in their homes, achieving greater efficiency in industrial processes, and buying automobiles that went a lot farther on a gallon of gasoline. Burning oil to generate electricity died a long overdue death. These factors along with a global recession caused crude oil prices to collapse below $10 a barrel in 1986. But today’s oil shock is very different. No one is throttling the pipelines or holding back the tankers. The wells are pumping for all they are worth, and then some. Why? Because most oil-exporting countries (and the companies that own, refine, and distribute petroleum products) are amassing profits at a rate more commonly found in the illegal drug trade. Oil prospecting is under way in ever more remote regions of the world.


pages: 393 words: 115,263

Planet Ponzi by Mitch Feierstein

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Bernie Madoff, break the buck, centre right, collapse of Lehman Brothers, collateralized debt obligation, commoditize, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, disintermediation, diversification, Donald Trump, energy security, eurozone crisis, financial innovation, financial intermediation, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, high net worth, High speed trading, illegal immigration, income inequality, interest rate swap, invention of agriculture, light touch regulation, Long Term Capital Management, low earth orbit, mega-rich, money market fund, moral hazard, mortgage debt, negative equity, Northern Rock, obamacare, offshore financial centre, oil shock, pensions crisis, plutocrats, Plutocrats, Ponzi scheme, price anchoring, price stability, purchasing power parity, quantitative easing, risk tolerance, Robert Shiller, Robert Shiller, Ronald Reagan, too big to fail, trickle-down economics, value at risk, yield curve

Equity markets have such a remarkable gift for self-deceit that, for all I know, stock prices will race back to 1500 before reality finally catches up. What I would say, however, is just what I said in relation to the housing markets. Why should we expect equity prices to normalize when we are living in extraordinarily abnormal times? The period in recent economic history which bears the greatest resemblance to our own is the troubled decade of the 1970s. The 1970s saw oil shocks, inflation, weak growth, high unemployment, and the breakdown of global currency systems. Between the oil shock of 1973 and the start of recovery a decade later, Shiller’s CAPE ratio averaged just 10.2. If the S&P were to return to those bargain basement levels, it would need to fall by some 50% to around 600 or 700. If you think that a fall on that scale is impossible, you might want to take this book back to the place you bought it and ask for a refund.


pages: 823 words: 206,070

The Making of Global Capitalism by Leo Panitch, Sam Gindin

accounting loophole / creative accounting, active measures, airline deregulation, anti-communist, Asian financial crisis, asset-backed security, bank run, banking crisis, barriers to entry, Basel III, Big bang: deregulation of the City of London, bilateral investment treaty, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collective bargaining, continuous integration, corporate governance, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, currency peg, dark matter, Deng Xiaoping, disintermediation, ending welfare as we know it, eurozone crisis, facts on the ground, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, full employment, Gini coefficient, global value chain, guest worker program, Hyman Minsky, imperial preference, income inequality, inflation targeting, interchangeable parts, interest rate swap, Kenneth Rogoff, Kickstarter, land reform, late capitalism, liberal capitalism, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, manufacturing employment, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, money: store of value / unit of account / medium of exchange, Monroe Doctrine, moral hazard, mortgage debt, mortgage tax deduction, Myron Scholes, new economy, non-tariff barriers, Northern Rock, oil shock, precariat, price stability, quantitative easing, Ralph Nader, RAND corporation, regulatory arbitrage, reserve currency, risk tolerance, Ronald Reagan, seigniorage, shareholder value, short selling, Silicon Valley, sovereign wealth fund, special drawing rights, special economic zone, structural adjustment programs, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, trade liberalization, transcontinental railway, trickle-down economics, union organizing, very high income, Washington Consensus, Works Progress Administration, zero-coupon bond, zero-sum game

The Treasury and Fed began meetings to address the likely inability of Mexico to meet the payments on its loans from both Wall Street and other foreign banks, and this led to their secretly launching a rescue operation explicitly designed to bail out the banks that held Mexico’s debts—and then conscripting the British, Japanese, and Swiss central banks into the operation too. What concerns us here, however, is the changing role of the American state in relation to the new domestic contradictions that emerged after the Volcker shock. By the time Volcker was replaced by Alan Greenspan, in 1987, “the Great Inflation was over” and “markets recognized it was over.”81 But just as the “demons of the 1970s—high inflation, oil shocks, bitter labor disputes, stagnation—seemed to be receding, banished by liberalized markets, monetarism, Reaganism, Thatcherism, and by the vogue for aggressive financial management,”82 a stock market crash confronted Greenspan with a stark new contradiction: the inherent volatility of the new age of finance. It was under Greenspan that the Fed’s lender-of-last-resort role now came to play a much more systemic function than ever before.

At the end of the 1970s, when the US and most of Europe were facing double-digit inflation, Japan’s inflation rate was 3.6 percent.47 Its levels of unemployment remained low (just above 2 percent), and its per capita rate of growth—while a far cry from what it had been in the 1950s and 1960s—stayed above that of the other G7 economies. Japan was immediately able to compensate for the upward revaluation of its currency (and for the oil shock of 1973) by establishing a dramatic gap between productivity and wage increases (which had run in tandem from 1968 to 1973) that averaged over 3 percent a year from 1975 to 1985. This sustained manufacturing profit rates, after their fall in the early 1970s from the stratospheric levels of the previous two decades, at a higher level than those prevailing in the rest of the G7 until the mid 1980s.48 A key reason for this was that increased capital investment in the leading Japanese manufacturing sectors did not confront, as it had in the US, militant shop-floor resistance to the organizational changes necessary to yield high productivity increases.

The so-called Brazilian miracle remained in many ways “a clear descendent of the earlier era of import substitution” in which the home market still dominated, even as many of the old ISI price and tariff regulations were loosened and external bank financing allowed for large fiscal and trade deficits.91 For its part, the establishment of maquiladoras at the US–Mexican border proved at best a partial outlet for ISI’s contradictions.92 Such industrial development as occurred depended on a nine-fold rise in capital goods imports, which contributed heavily to a more than six-fold increase in public-sector foreign debt, mostly borrowed from US banks.93 The recycling of petrodollars through New York and London after the 1973 oil shock further fueled international bank lending to Latin American governments. This was only partly because large US banks were encouraged to do their “patriotic duty” (as one Ford administration economic advisor put it) by thus recycling dollars to Latin American dictatorships;94 the main reason was that the profits were so tempting, hitting a peak of 233 percent of their total capital and reserves in 1981.95 This left Latin America more subject than ever to crises generated in the North American imperial heartland, as was fully revealed when it became the unintended casualty of the Volcker shock.


pages: 127 words: 51,083

The Oil Age Is Over: What to Expect as the World Runs Out of Cheap Oil, 2005-2050 by Matt Savinar

Albert Einstein, clean water, energy security, hydrogen economy, illegal immigration, invisible hand, new economy, oil shale / tar sands, oil shock, peak oil, post-oil, Ralph Nader, reserve currency, Rosa Parks, The Wealth of Nations by Adam Smith, Y2K

This fact, as much as anything else you read in this book, indicates the absolutely breathtaking scope of our problem. 19. But I just heard on the news that they made a huge oil discovery somewhere! Nowadays, an oil discovery of 200 million barrels is considered huge, and will garner much attention in the press. The world uses 75 million barrels per day. So even a huge find is really only a 3- to 4-day supply. It will certainly make a lot of money for whoever found it, but it won't do much to soften the oil shocks. 20. Is it possible that things might get better before they get worse? Yes. Once an oil find is made, it takes about 5 years for production to come online. As stated in the previous question, the last remotely decent year for oil finds was 2000. This means the last decent year for new production to come online will be about 2005. By 2008-2010, those projects will be in decline. 21. Can't technology just find better, more efficient ways to use the oil that is left?


pages: 134 words: 41,085

The Wake-Up Call: Why the Pandemic Has Exposed the Weakness of the West, and How to Fix It by John Micklethwait, Adrian Wooldridge

Admiral Zheng, Affordable Care Act / Obamacare, basic income, battle of ideas, Berlin Wall, Bernie Sanders, Boris Johnson, carried interest, cashless society, central bank independence, Corn Laws, coronavirus, COVID-19, Covid-19, creative destruction, David Ricardo: comparative advantage, Deng Xiaoping, Dominic Cummings, Donald Trump, Etonian, failed state, Fall of the Berlin Wall, global pandemic, Internet of things, invisible hand, Jones Act, knowledge economy, laissez-faire capitalism, McMansion, night-watchman state, offshore financial centre, oil shock, Panopticon Jeremy Bentham, Parkinson's law, pensions crisis, QR code, rent control, road to serfdom, Ronald Reagan, school vouchers, Shoshana Zuboff, Silicon Valley, smart cities, trade route, universal basic income, Washington Consensus

The expert “gentlemen from Whitehall” turned on the Keynesian taps only to produce stagflation; they crammed poor schoolchildren into “comprehensive” schools that failed and their parents into concrete high-rises that became aerial slums. Trade unions turned striking into a regular ritual and, by the mid-1970s, the country seemed to be spiraling out of control. “Goodbye Britain, it was nice knowing you,” crowed the Wall Street Journal in 1976, as the Labor government went, begging bowl in hand, to the IMF.3 Britain was an extreme case, but no part of the West looked healthy. This was the era of oil shocks and dystopian films such as Death Wish (1974) and Taxi Driver (1976). For America, the Vietnam War ended in humiliation. Richard Nixon tried a variety of ways of kicking the economy back to life, including quitting the gold standard and freezing prices, but nothing worked. He worried in private that the United States had “become subject to the decadence which eventually destroys a civilization”—before becoming, through Watergate, a symbol of that decadence himself.4 In Europe, the Baader-Meinhof Group and the Red Brigade terrorists were on the rampage.


pages: 465 words: 124,074

Atomic Obsession: Nuclear Alarmism From Hiroshima to Al-Qaeda by John Mueller

airport security, Albert Einstein, Black Swan, Cass Sunstein, conceptual framework, cuban missile crisis, Doomsday Clock, energy security, F. W. de Klerk, failed state, long peace, Mikhail Gorbachev, mutually assured destruction, nuclear winter, oil shock, RAND corporation, Ronald Reagan, side project, uranium enrichment, William Langewiesche, Yom Kippur War

Currently in the research phase, it may become possible in the future to reduce radically the cost of producing nuclear energy by using lasers for isotope separation to produce the fuel required by reactors.29 This, of course, might also make it easier, or at any rate less costly, for terrorists and rogue states to develop nuclear weapons. Accordingly, a balanced assessment of costs and benefits would have to be made if the technique ever proves to be feasible. But there is an excellent chance no one will ever make it: like the technology Schelling discusses, it will be dismissed out of hand. There is also something of a security aspect to this process. Ever since the oil shocks of the 1970s, it has become common in American politics to espy a danger to the country’s security in allowing it to be so dependent on a product that is so disproportionately supplied to the world by regimes in the Middle East that are sometimes contemptible, hostile, and/or unstable. Little or no progress has been made on this constantly repeated goal, but one obvious solution would be to rely much more on nuclear energy.

See also overstatement alarm, 162 all-out thermonuclear war, 8–9 atomic theater, 69–70 blast, 5 “certainty,” ix–x contamination, 6 deterring potential attack, 143 direct radiation and nuclear bomb, 4 disadvantages to acquiring, 103 economic and organizational cost, 110–112 ego trip, 143 electromagnetic pulse, 4 enhancing appeal, 143–149 existence of, and security, 251n.26 fallout, radiation and “dirty bombs,” 5–7 groundburst Hiroshima-size device, 10–11 Hiroshima and Nagasaki, 9–10 historical impact, 236–237 horizontal proliferation, 73 hostility, 25–26 indirect and longer-term effects, 8 influence on history, xii lacking technological imperative, 104–105 military attacks, 147 military value, 108–110 overstatement, 27–28 overstating importance of existence, 23 proliferation, 237 sanctions, 145–147 spread within and to states, xii–xiii status effects, 147–149 status symbol, 105–108 taboo, 61–63 thermal pulse of heat and light, 5 threats, 144–145 United States and USSR freezing programs, 79 vertical proliferation, 73, 76 weapons designers, 167 weapons of mass destruction (WMD), 11–13 WMD and battlefield messiness, 14–15 nuclear weapons laboratories, 266–267n.43 nuclear weapon state, definition, 148–149 nuclear winter, nuclear attack, 8 Obama, President B., potential atomic bomb, x–xi obsession, ix, xiii, 237, 237 Office of Technology Assessment, sarin, 12 oil shocks, American politics and security, 139–140 Oklahoma City, truck bomb, 19 Olympics, China’s quest to host, 108 Omar, Mullah, Taliban leader, 211 On the Beach, nuclear fears, 57 Oppenheimer, J. Robert atomic bomb, 162 exaggeration of bomb capacity, 17–18 politically productive terror, 26 priestly exaggerations, 243n.2 world government, 74 “oppositional nationalist,” Hymans, 261n.2 Oren, Michael, 262n.20, 263n.27, 264n.24 organizational costs, nuclear weapons, 110–112 overstatement consequences of, 27–28 existence of nuclear weapons, 23 explanations for, 25–27 physical effects, 17–19 social and political effects, 19–22 Pakistan apprehensions about chaos, 108 conversations with scientists in, 203–205 criticism of Musharraf’s regime, 260n.24 economics of nuclear weapons, 111 fissile material, 169 nuclear arsenal and United States, 145 opposition of Taliban regime after 9/11, 225 troubles with Taliban, 167 United States and, 164 Paris, image of destruction, 24 partial test ban treaty of 1963, arms race, 75–77 Pasdaran, sanctions, 146 Payne, Keith, threat to use nuclear weapons, 109 “peacetime standards,” radiation, 6 Pearl Harbor, 193, 247n.23, 269–270n.23 Perle, Richard, 261n.4 physical effects, overstating, 17–19 plutonium dangers and difficulties, 168 implosion trigger on hydrogen bomb, 250n.17 Mahmood in Pakistan, 205 sensitivity, 174 terrorists, 265n.20, 269n.16 Podheretz, Norman, 261n.4 points of no return, cascades of proliferation, 91 policing wars, 257n.5 political advantage, existential bombast, 232 politicization, terror, 26 Pollack, Kenneth, The Threatening Storm: The Case for Invading Iraq, 130 poor man’s nuclear weapon, “dirty bombs,” 13 Porter, Patrick, 224–225, 226 port security, Los Angeles/Long Beach, 141 postwar world, international relations, 52 Potsdam Declaration, 249n.4 Potter, William, points of no return, 20–21, 94–95 Powell, General Colin, nuclear options, 63 predictions, bombing, 195 probability, terrorists overcoming barriers, 187–189 proliferation cascadology, 89–95 China, 95–97 deterring war, 117–118 domination, 97–99 espy benefit, 257n.5 nuclear weapons, 237 pace, 103 reducing effective threat, 116–117 solving specific security problems, 118 value in, 115–118 proliferation fixation comparing costs, 141–142 foreign policy and economic costs, 137–141 human costs, 130–137 Iraq, 130–135 North Korea, 135–137 propaganda, stigmatizing Germans, 245n.26 propaganda video, Gadahn, 219 publications, 223, 244–245n.19 Putin, Vladimir, role in Russia, 137 Qaddafi, Colonel Muammar, Libya, 124–126, 154 race to demobilize, post-cold war, 84–85 radiation acceptable levels, 241–242n.10 background levels, 6–7 coping mechanisms of body, 7 Department of Homeland Security, 196–197 direct, and neutron bomb, 4 education about effects, 195–196 fear and anxiety, 196 “hormesis” hypothesis, 242n.12 nuclear explosions, 18 nuclear weapons, 5–7 Reagan, President Ronald building up U.S. military forces, 59–60 Intermediate-range Nuclear Forces (INF) agreement, 80 neutron bomb, 81 Soviet joining family of nations, 51 terrorists and Libya, 125 Reiss, Mitchell, 117, 147, 257n.18 Revolutionary Guards, sanctions, 146 rhetoric, xii, 231 rhetoric of alarm atomic bomb and World War II, 55–56 nuclear fear declining again, 60–61 nuclear fear during classic cold war, 56–57 nuclear fear reviving in early 1980s, 58–60 nuclear fear subsiding in 1960s and 1970s, 57–58 Rhodes, Richard, 80, 252n.37 Rice, Condoleezza, 131, 230 Richardson, Louise, loose-nuke stories, 208, 209, 213 Ridge, Tom, nuclear worry, 163 risk, acceptable, of catastrophic events, 197–198 rogue state, 86, 95–97, 237 Rosecrance, Richard, nuclear dispersion, 91, 251n.26 Rosenberg, Julius and Ethel, atomic traitors, 49 Rove, Karl, weapons of mass destruction, 131 Rush–Bagot Agreement, formal arms control, 83 Russia fissile material, 169–170 fixation of Putin, 137 gas fatalities, 244n.16 “naughty child” effect, 108 North Korea support, 135, 136 safety devices, nuclear weapons, 100 Sageman, Marc, 220–221, 229 SALT I (Strategic Arms Limitation Treaty) of 1972, 77–78 SALT II of 1979, arms race, 78–79 “Samson Option,” Israel, 110 sanctions appeal of nuclear weapons, 145–147 Iraq, 134, 145, 147 North Korea, 136 sanitation, nuclear attack, 8 sarin, 12, 228 scaremongers, weapons laboratories, 266–267n.43 scenario, atomic terrorist’s task in most likely, 185 Schell, Jonathan, “The Fate of the Earth,” 60, 61 Schelling, Thomas deterrence by Iran, 154–155 energy production, 139 nuclear weapons, 61–62 Scheuer, Michael, 202, 209, 214, 230, 272n.27 Schultz, George, terrorists and Libya, 125 secrets, 49–50, 237 security American politics, 139–140 balance with accident prevention, 85 existence of nuclear weapons, 251n.26 homeland, and weapons of mass destruction, 140 Israeli anxieties about, 150–151 port, 140–141 security problems, solving, 118 September 11, 2001, plot envisioning as type of Hiroshima, 200–202 9/11 Commission, 161 terrorism probability, 192–193 World Trade Center, 22 Silberman–Robb Commission, 111–112 Simon, Steven, 20, 21 Six-Day War, nuclear threat, 48 size, al-Qaeda’s capacity, 220–221 sky-is-still-falling profession, Arkin, 92 Slaughter, Anne-Marie, 258n.1 sleep disorders, atomic obsession, xi, xiii, 239 sleeper cells, al-Qaeda, 222, 275–276n.37 smuggling, atomic devices, 177 society, 20, 22 Solingen, Etel, 113, 119–120, 122, 124, 125, 254n.8 South Africa, 110, 121–122, 138, 171 South Korea, 124, 138 Soviet-Chinese confrontation, 48, 250n.14 Soviet power, external expansion, 246n.15 Soviet Union Afghanistan, 109 Afghanistan invasion, 78–79 assumptions for Western Europe invasion, 35–36 back down in Cuban missile crisis, 248n.32 “cautious opportunism,” 246n.15 Chernobyl nuclear reactor meltdown, 7 danger for United States, 52 deterrence of United States and, 65–66 end of cold war, 50–51 end of expansionary threat, 250n.21 expansionary ideology, 50–51 first Strategic Arms Limitation Treaty, 77–78 hot line between capitals with U.S., 76–77 ideology, 33–35 Japanese and, intervention, 45–46 lessons of Korean War, 38 postwar contentment, 33–35 potential invasion of Europe, 35–38 supplies by United States, 37 triple-warhead missiles, 59 world war deterrence, 32 stability, proliferation, 99 Stalin, Joseph, 36, 47, 49–50 “Star Wars,” United States and USSR, 79 status appeal of nuclear weapons, 147–149 value of nuclear weapons as, 105–108, 237 Stenersen, Anne, 207, 214 sting operation, nuclear, 194 stolen bombs, loose nukes, 165–168 Strategic Defense Initiative (SDI), 79–80, 253n.12 success, modest, of antiproliferation, 126–127 Sudan, death and destruction, 271n.10 suicide, Japanese civilians, 45 suicide pills, 85–86, 253n.26 suitcase bomb Fox Television’s 24 series, 167 possibility, 162 Soviet-made, 272n.35 stolen or illicit purchase, 165 Sunstein, Cass, case for fear, 197–198 “Superbomb,” nuclear weapon, 206 supermissile MX, Strategic Defense Initiative, 81 “supreme priority,” 129, 155–158 taboo, aftermath of Hiroshima and Nagasaki, 61–63 Taiwan, 118, 124, 138 Taiwan Straits crises, nuclear threat, 48 Takeyh, Ray, invasion of Iran, 156 Taliban hosts to al-Qaeda, 224 leader Omar in Afghanistan, 211 opposition by Pakistan after 9/11, 225 Pakistan’s trouble with, 167 retaking Afghanistan and seizing power, 265n.12 Taubman, William, world war and Soviets, 32 Tauscher, Rep.


pages: 435 words: 127,403

Panderer to Power by Frederick Sheehan

"Robert Solow", Asian financial crisis, asset-backed security, bank run, banking crisis, Bretton Woods, British Empire, business cycle, buy and hold, call centre, central bank independence, collateralized debt obligation, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, deindustrialization, diversification, financial deregulation, financial innovation, full employment, inflation targeting, interest rate swap, inventory management, Isaac Newton, John Meriwether, margin call, market bubble, McMansion, Menlo Park, money market fund, mortgage debt, Myron Scholes, new economy, Norman Mailer, Northern Rock, oil shock, Paul Samuelson, place-making, Ponzi scheme, price stability, reserve currency, rising living standards, rolodex, Ronald Reagan, Sand Hill Road, savings glut, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, stocks for the long run, supply-chain management, supply-chain management software, The Great Moderation, too big to fail, transaction costs, trickle-down economics, VA Linux, Y2K, Yom Kippur War, zero-sum game

Greenspan couldn’t see a bubble and now sat on his hands waiting for a recession. When a problem confronted the chairman, he walked away from it. The Federal Reserve, like a ship’s captain, is expected to act in extremis; once again, Greenspan deserted the bridge. Greenspan pinned the model problem on oil: “[W]e have never been able to use our model structures to forecast a recession out of an oil shock. We’ve had three oil shocks in recent decades that were followed by recessions.”31 Given this observation, why did he need a model at all to prepare for a recession? The definition of a recession is debated and redefined by committees. The simplest (though not official) measurement of recession is whether the GDP has contracted for two consecutive quarters. Real GDP fell 0.1 percent in the second quarter of 2000, rose +0.5 percent in the third quarter, and fell 0.1 percent in the fourth quarter.


pages: 478 words: 126,416

Other People's Money: Masters of the Universe or Servants of the People? by John Kay

Affordable Care Act / Obamacare, asset-backed security, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bonfire of the Vanities, bonus culture, Bretton Woods, buy and hold, call centre, capital asset pricing model, Capital in the Twenty-First Century by Thomas Piketty, cognitive dissonance, corporate governance, Credit Default Swap, cross-subsidies, dematerialisation, disruptive innovation, diversification, diversified portfolio, Edward Lloyd's coffeehouse, Elon Musk, Eugene Fama: efficient market hypothesis, eurozone crisis, financial innovation, financial intermediation, financial thriller, fixed income, Flash crash, forward guidance, Fractional reserve banking, full employment, George Akerlof, German hyperinflation, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, income inequality, index fund, inflation targeting, information asymmetry, intangible asset, interest rate derivative, interest rate swap, invention of the wheel, Irish property bubble, Isaac Newton, John Meriwether, light touch regulation, London Whale, Long Term Capital Management, loose coupling, low cost airline, low cost carrier, M-Pesa, market design, millennium bug, mittelstand, money market fund, moral hazard, mortgage debt, Myron Scholes, NetJets, new economy, Nick Leeson, Northern Rock, obamacare, Occupy movement, offshore financial centre, oil shock, passive investing, Paul Samuelson, peer-to-peer lending, performance metric, Peter Thiel, Piper Alpha, Ponzi scheme, price mechanism, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, random walk, regulatory arbitrage, Renaissance Technologies, rent control, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Reagan, Schrödinger's Cat, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, sovereign wealth fund, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, Steve Wozniak, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Tobin tax, too big to fail, transaction costs, tulip mania, Upton Sinclair, Vanguard fund, Washington Consensus, We are the 99%, Yom Kippur War

In the immediate post-war era it was expected that America would remain the world’s dominant creditor nation. The post-war institutions of global finance, such as the International Monetary Fund (IMF) and World Bank, were designed around this assumption. But as Germany and Japan recovered rapidly from wartime destruction, and the American economy weakened in the 1960s, US economic hegemony declined, and in 1971 the dollar was devalued. The oil shock of 1973–4 gave oil-producing countries, particularly Saudi Arabia and other states in the Persian Gulf, windfalls beyond their capacity to spend. ‘Petrodollars’ were recycled as loans to Europe and the USA. Meanwhile Japan, followed by other Asian countries such as South Korea, Taiwan and Hong Kong, first imitated and then improved modern production methods, and began to export manufactured goods to Europe and North America.

.: Hyperion 220 Loomis, Carol 108 lotteries 65, 66, 68, 72 Lucas, Robert 40 Lynch, Dennios 108 Lynch, Peter 108, 109 M M-Pesa 186 Maastricht Treaty (1993) 243, 250 McCardie, Sir Henry 83, 84, 282, 284 McGowan, Harry 45 Machiavelli, Niccolò 224 McKinley, William 44 McKinsey 115, 126 Macy’s department store 46 Madoff, Bernard 29, 118, 131, 132, 177, 232, 293 Madoff Securities 177 Magnus, King of Sweden 196 Manhattan Island, New York: and Native American sellers 59, 63 Manne, Henry 46 manufacturing companies, rise of 45 Marconi 48 marine insurance 62, 63 mark-to-market accounting 126, 128–9, 320n22 mark-to-model approach 128–9, 320n21 Market Abuse Directive (MAD) 226 market economy 4, 281, 302, 308 ‘market for corporate control, the’ 46 market risk 97, 98, 177, 192 market-makers 25, 28, 30, 31 market-making 49, 109, 118, 136 Markets in Financial Instruments Directive (MIFID) 226 Markkula, Mike 162, 166, 167 Markopolos, Harry 232 Markowitz, Harry 69 Markowitz model of portfolio allocation 68–9 Martin, Felix 323n5 martingale 130, 131, 136, 139, 190 Marx, Groucho 252 Marx, Karl 144, 145 Capital 143 Mary Poppins (film) 11, 12 MasterCard 186 Masters, Brooke 120 maturity transformation 88, 92 Maxwell, Robert 197, 201 Mayan civilisation 277 Meade, James 263 Means, Gardiner 51 Meeker, Mary 40, 167 Melamed, Leo 19 Mercedes 170 merchant banks 25, 30, 33 Meriwether, John 110, 134 Merkel, Angela 231 Merrill Lynch 135, 199, 293, 300 Merton, Robert 110 Metronet 159 Meyer, André 205 MGM 33 Microsoft 29, 167 middleman, role of the 80–87 agency and trading 82–3 analysts 86 bad intermediaries 81–2 from agency to trading 84–5 identifying goods and services required 80, 81 logistics 80, 81 services from financial intermediaries 80–81 supply chain 80, 81 transparency 84 ‘wisdom of crowds’ 86–7 Midland Bank 24 Milken, Michael 46, 292 ‘millennium bug’ 40 Miller, Bill 108, 109 Minuit, Peter 59, 63 Mises, Ludwig von 225 Mittelstand (medium-size business sector) 52, 168, 169, 170, 171, 172 mobile banking apps 181 mobile phone payment transfers 186–7 Modigliani-Miller theorem 318n9 monetarism 241 monetary economics 5 monetary policy 241, 243, 245, 246 money creation 88 money market fund 120–21 Moneyball phenomenon 165 monopolies 45 Monte Carlo casino 123 Monte dei Paschi Bank of Siena 24 Montgomery Securities 167 Moody’s rating agency 21, 248, 249, 313n6 moral hazard 74, 75, 76, 92, 95, 256, 258 Morgan, J.P. 44, 166, 291 Morgan Stanley 25, 40, 130, 135, 167, 268 Morgenthau, District Attorney Robert 232–3 mortality tables 256 mortgage banks 27 mortgage market fluctuation in mortgage costs 148 mechanised assessment 84–5 mortgage-backed securities 20, 21, 40, 85, 90, 100, 128, 130, 150, 151, 152, 168, 176–7, 284 synthetic 152 Mozilo, Angelo 150, 152, 154, 293 MSCI World Bank Index 135 muckraking 44, 54–5, 79 ‘mugus’ 118, 260 multinational companies, and diversification 96–7 Munger, Charlie 127 Munich, Germany 62 Munich Re 62 Musk, Elon 168 mutual funds 27, 108, 202, 206 mutual societies 30 mutualisation 79 mutuality 124, 213 ‘My Way’ (song) 72 N Napoleon Bonaparte 26 Napster 185 NASA 276 NASDAQ 29, 108, 161 National Economic Council (US) 5, 58 National Employment Savings Trust (NEST) 255 National Institutes of Health 167 National Insurance Fund (UK) 254 National Provincial Bank 24 National Science Foundation 167 National Westminster Bank 24, 34 Nationwide 151 Native Americans 59, 63 Nazis 219, 221 neo-liberal economic policies 39, 301 Netjets 107 Netscape 40 Neue Markt 170 New Deal 225 ‘new economy’ bubble (1999) 23, 34, 40, 42, 98, 132, 167, 199, 232, 280 new issue market 112–13 New Orleans, Louisiana: Hurricane Katrina disaster (2005) 79 New Testament 76 New York Stock Exchange 26–7, 28, 29, 31, 49, 292 New York Times 283 News of the World 292, 295 Newton, Isaac 35, 132, 313n18 Niederhoffer, Victor 109 NINJAs (no income, no job, no assets) 222 Nixon, Richard 36 ‘no arbitrage’ condition 69 non-price competition 112, 219 Norman, Montagu 253 Northern Rock 89, 90–91, 92, 150, 152 Norwegian sovereign wealth fund 161, 253 Nostradamus 274 O Obama, Barack 5, 58, 77, 194, 271, 301 ‘Obamacare’ 77 Occidental Petroleum 63 Occupy movement 52, 54, 312n2 ‘Occupy Wall Street’ slogan 305 off-balance-sheet financing 153, 158, 160, 210, 250 Office of Thrift Supervision 152–3 oil shock (1973–4) 14, 36–7, 89 Old Testament 75–6 oligarchy 269, 302–3, 305 oligopoly 118, 188 Olney, Richard 233, 237, 270 open market operations 244 options 19, 22 Organisation for Economic Co-operation and Development (OECD) 263 Osborne, George 328n19 ‘out of the money option’ 102, 103 Overend, Gurney & Co. 31 overseas assets and liabilities 179–80, 179 owner-managed businesses 30 ox parable xi-xii Oxford University 12 P Pacific Gas and Electric 246 Pan Am 238 Paris financial centre 26 Parliamentary Commission on Banking Standards 295 partnerships 30, 49, 50, 234 limited liability 313n14 Partnoy, Frank 268 passive funds 99, 212 passive management 207, 209, 212 Patek Philippe 195, 196 Paulson, Hank 300 Paulson, John 64, 109, 115, 152, 191, 284 ‘payment in kind’ securities 131 payment protection policies 198 payments system 6, 7, 25, 180, 181–8, 247, 259–60, 281, 297, 306 PayPal 167, 168, 187 Pecora, Ferdinand 25 Pecora hearings (1932–34) 218 peer-to-peer lending 81 pension funds 29, 98, 175, 177, 197, 199, 200, 201, 208, 213, 254, 282, 284 pension provision 78, 253–6 pension rights 53, 178 Perkins, Charles 233 perpetual inventory method 321n4 Perrow, Charles 278, 279 personal financial management 6, 7 personal liability 296 ‘petrodollars’ 14, 37 Pfizer 96 Pierpoint Morgan, J. 165 Piper Alpha oil rig disaster (1987) 63 Ponzi, Charles 131, 132 Ponzi schemes 131, 132, 136, 201 pooled investment funds 197 portfolio insurance 38 Potts, Robin, QC 61, 63, 72, 119, 193 PPI, mis-selling of 296 Prebble, Lucy: ENRON 126 price competition 112, 219 price discovery 226 price mechanism 92 Prince, Chuck 34 private equity 27, 98, 166, 210 managers 210, 289 private insurance 76, 77 private sector 78 privatisation 39, 78, 157, 158, 258, 307 probabilistic thinking 67, 71, 79 Procter & Gamble 69, 108 product innovation 13 property and infrastructure 154–60 protectionism 13 Prudential 200 public companies, conversion to 18, 31–2, 49 public debt 252 public sector 78 Q Quandt, Herbert 170 Quandt Foundation 170 quantitative easing 245, 251 quantitative style 110–11 quants 22, 107, 110 Quattrone, Frank 167, 292–3 queuing 92 Quinn, Sean 156 R railroad regulation 237 railway mania (1840s) 35 Raines, Franklin 152 Rajan, Raghuram 56, 58, 79, 102 Rakoff, Judge Jed 233, 294, 295 Ramsey, Frank 67, 68 Rand, Ayn 79, 240 ‘random walk’ 69 Ranieri, Lew 20, 22, 106–7, 134, 152 rating agencies 21, 41, 84–5, 97, 151, 152, 153, 159, 249–50 rationality 66–7, 68 RBS see Royal Bank of Scotland re-insurance 62–3 Reagan, Ronald 18, 23, 54, 59, 240 real economy 7, 18, 57, 143, 172, 190, 213, 226, 239, 271, 280, 288, 292, 298 redundancy 73, 279 Reed, John 33–4, 48, 49, 50, 51, 242, 293, 314n40 reform 270–96 other people’s money 282–5 personal responsibility 292–6 principles of 270–75 the reform of structure 285–92 robust systems and complex structures 276–81 regulation 215, 217–39 the Basel agreements 220–25 and competition 113 the origins of financial regulation 217–19 ‘principle-based’ 224 the regulation industry 229–33 ‘rule-based’ 224 securities regulation 225–9 what went wrong 233–9 ‘Regulation Q’ (US) 13, 14, 20, 28, 120, 121 regulatory agencies 229, 230, 231, 235, 238, 274, 295, 305 regulatory arbitrage 119–24, 164, 223, 250 regulatory capture 237, 248, 262 Reich, Robert 265, 266 Reinhart, C.M. 251 relationship breakdown 74, 79 Rembrandts, genuine/fake 103, 127 Renaissance Technologies 110, 111, 191 ‘repo 105’ arbitrage 122 repo agreement 121–2 repo market 121 Reserve Bank of India 58 Reserve Primary Fund 121 Resolution Trust Corporation 150 retirement pension 78 return on equity (RoE) 136–7, 191 Revelstoke, first Lord 31 risk 6, 7, 55, 56–79 adverse selection and moral hazard 72–9 analysis by ‘ketchup economists’ 64 chasing the dream 65–72 Geithner on 57–8 investment 256 Jackson Hole symposium 56–7 Kohn on 56 laying bets on the interpretation of incomplete information 61 and Lloyd’s 62–3 the LMX spiral 62–3, 64 longevity 256 market 97, 98 mitigation 297 randomness 76 socialisation of individual risks 61 specific 97–8 risk management 67–8, 72, 79, 137, 191, 229, 233, 234, 256 risk premium 208 risk thermostat 74–5 risk weighting 222, 224 risk-pooling 258 RJR Nabisco 46, 204 ‘robber barons’ 44, 45, 51–2 Robertson, Julian 98, 109, 132 Robertson Stephens 167 Rockefeller, John D. 44, 52, 196 Rocket Internet 170 Rogers, Richard 62 Rogoff, K.S. 251 rogue traders 130, 300 Rohatyn, Felix 205 Rolls-Royce 90 Roman empire 277, 278 Rome, Treaty of (1964) 170 Rooney, Wayne 268 Roosevelt, Franklin D. v, 25, 235 Roosevelt, Theodore 43–4, 235, 323n1 Rothschild family 217 Royal Bank of Scotland 11, 12, 14, 24, 26, 34, 78, 91, 103, 124, 129, 135, 138, 139, 211, 231, 293 Rubin, Robert 57 In an Uncertain World 67 Ruskin, John 60, 63 Unto this Last 56 Russia defaults on debts 39 oligarchies 303 Russian Revolution (1917) 3 S Saes 168 St Paul’s Churchyard, City of London 305 Salomon Bros. 20, 22, 27, 34, 110, 133–4 ‘Salomon North’ 110 Salz Review: An Independent Review of Barclays’ Business Practices 217 Samuelson, Paul 208 Samwer, Oliver 170 Sarkozy, Nicolas 248, 249 Savage, L.J. 67 Scholes, Myron 19, 69, 110 Schrödinger’s cat 129 Scottish Parliament 158 Scottish Widows 26, 27, 30 Scottish Widows Fund 26, 197, 201, 212, 256 search 195, 209, 213 defined 144 and the investment bank 197 Second World War 36, 221 secondary markets 85, 170, 210 Securities and Exchange Commission (SEC) 20, 64, 126, 152, 197, 225, 226, 228, 230, 232, 247, 292, 293, 294, 313n6 securities regulation 225–9 securitisation 20–21, 54, 100, 151, 153, 164, 169, 171, 222–3 securitisation boom (1980s) 200 securitised loans 98 See’s Candies 107 Segarra, Carmen 232 self-financing companies 45, 179, 195–6 sell-side analysts 199 Sequoia Capital 166 Shad, John S.R. 225, 228–9 shareholder value 4, 45, 46, 50, 211 Sharpe, William 69, 70 Shell 96 Sherman Act (1891) 44 Shiller, Robert 85 Siemens 196 Siemens, Werner von 196 Silicon Valley, California 166, 167, 168, 171, 172 Simon, Hermann 168 Simons, Jim 23, 27, 110, 111–12, 124 Sinatra, Frank 72 Sinclair, Upton 54, 79, 104, 132–3 The Jungle 44 Sing Sing maximum-security gaol, New York 292 Skilling, Jeff 126, 127, 128, 149, 197, 259 Slim, Carlos 52 Sloan, Alfred 45, 49 Sloan Foundation 49 small and medium-size enterprises (SMEs), financing 165–72, 291 Smith, Adam 31, 51, 60 The Wealth of Nations v, 56, 106 Smith, Greg 283 Smith Barney 34 social security 52, 79, 255 Social Security Trust Fund (US) 254, 255 socialism 4, 225, 301 Société Générale 130 ‘soft commission’ 29 ‘soft’ commodities 17 Soros, George 23, 27, 98, 109, 111–12, 124, 132 South Sea Bubble (18th century) 35, 132, 292 sovereign wealth funds 161, 253 Soviet empire 36 Soviet Union 225 collapse of 23 lack of confidence in supplies 89–90 Spain: property bubble 42 Sparks, D.L. 114, 283, 284 specific risk 97–8 speculation 93 Spitzer, Eliot 232, 292 spread 28, 94 Spread Networks 2 Square 187 Stamp Duty 274 Standard & Poor’s rating agency 21, 99, 248, 249, 313n6 Standard Life 26, 27, 30 standard of living 77 Standard Oil 44, 196, 323n1 Standard Oil of New Jersey (later Exxon) 323n1 Stanford University 167 Stanhope 158 State Street 200, 207 sterling devaluation (1967) 18 stewardship 144, 163, 195–203, 203, 208, 209, 210, 211, 213 Stewart, Jimmy 12 Stigler, George 237 stock exchanges 17 see also individual stock exchanges stock markets change in organisation of 28 as a means of taking money out of companies 162 rise of 38 stock-picking 108 stockbrokers 16, 25, 30, 197, 198 Stoll, Clifford 227–8 stone fei (in Micronesia) 323n5 Stone, Richard 263 Stora Enso 196 strict liability 295–6 Strine, Chancellor Leo 117 structured investment vehicles (SIVs) 158, 223 sub-prime lending 34–5, 75 sub-prime mortgages 63, 75, 109, 149, 150, 169, 244 Summers, Larry 22, 55, 73, 119, 154, 299 criticism of Rajan’s views 57 ‘ketchup economics’ 5, 57, 69 support for financialisation 57 on transformation of investment banking 15 Sunday Times 143 ‘Rich List’ 156 supermarkets: financial services 27 supply chain 80, 81, 83, 89, 92 Surowiecki, James: The Wisdom of Crowds xi swap markets 21 SWIFT clearing system 184 Swiss Re 62 syndication 62 Syriza 306 T Taibbi, Matt 55 tailgating 102, 103, 104, 128, 129, 130, 136, 138, 140, 152, 155, 190–91, 200 Tainter, Joseph 277 Taleb, Nassim Nicholas 125, 183 Fooled by Randomness 133 Tarbell, Ida 44, 54 TARGET2 system 184, 244 TARP programme 138 tax havens 123 Taylor, Martin 185 Taylor Bean and Whitaker 293 Tea Party 306 technological innovation 13, 185, 187 Tel Aviv, Israel 171 telecommunications network 181, 182 Tesla Motors 168 Tetra 168 TfL 159 Thai exchange rate, collapse of (1997) 39 Thain, John 300 Thatcher, Margaret 18, 23, 54, 59, 148, 151, 157 Thiel, Peter 167 Third World debt problem 37, 131 thrifts 25, 149, 150, 151, 154, 174, 290, 292 ticket touts 94–5 Tobin, James 273 Tobin tax 273–4 Tolstoy, Count Leo 97 Tonnies, Ferdinand 17 ‘too big to fail’ 75, 140, 276, 277 Tourre, Fabrice ‘Fabulous Fab’ 63–4, 115, 118, 232, 293, 294 trader model 82, 83 trader, rise of the 16–24 elements of the new trading culture 21–2 factors contributing to the change 17–18 foreign exchange 18–19 from personal relationships to anonymous markets 17 hedge fund managers 23 independent traders 22–3 information technology 19–20 regulation 20 securitisation 20–21 shift from agency to trading 16 trading as a principal source of revenue and remuneration 17 trader model 82, 83 ‘trading book’ 320n20 transparency 29, 84, 205, 210, 212, 226, 260 Travelers Group 33, 34, 48 ‘treasure islands’ 122–3 Treasuries 75 Treasury (UK) 135, 158 troubled assets relief program 135 Truman, Harry S. 230, 325n13 trust 83–4, 85, 182, 213, 218, 260–61 Tuckett, David 43, 71, 79 tulip mania (1630s) 35 Turner, Adair 303 TWA 238 Twain, Mark: Pudd’nhead Wilson’s Calendar 95–6 Twitter 185 U UBS 33, 134 UK Independence Party 306 unemployment 73, 74, 79 unit trusts 202 United States global dominance of the finance industry 218 house prices 41, 43, 149, 174 stock bubble (1929) 201 universal banks 26–7, 33 University of Chicago 19, 69 ‘unknown unknowns’ 67 UPS delivery system 279–80 US Defense Department 167 US Steel 44 US Supreme Court 228, 229, 304 US Treasury 36, 38, 135 utility networks 181–2 V value discovery 226–7 value horizon 109 Van Agtmael, Antoine 39 Vanderbilt, Cornelius 44 Vanguard 200, 207, 213 venture capital 166 firms 27, 168 venture capitalists 171, 172 Vickers Commission 194 Viniar, David 204–5, 233, 282, 283, 284 VISA 186 volatility 85, 93, 98, 103, 131, 255 Volcker, Paul 150, 181 Volcker Rule 194 voluntary agencies 258 W wagers and credit default swaps 119 defined 61 at Lloyd’s coffee house 71–2 lottery tickets 65 Wall Street, New York 1, 16, 312n2 careers in 15 rivalry with London 13 staffing of 217 Wall Street Crash (1929) 20, 25, 27, 36, 127, 201 Wall Street Journal 294 Wallenberg family 108 Walmart 81, 83 Warburg 134 Warren, Elizabeth 237 Washington consensus 39 Washington Mutual 135, 149 Wasserstein, Bruce 204, 205 Watergate affair 240 ‘We are the 99 per cent’ slogan 52, 305 ‘We are Wall Street’ 16, 55, 267–8, 271, 300, 301 Weber, Max 17 Weill, Sandy 33–4, 35, 48–51, 55, 91, 149, 293, 314n40 Weinstock, Arnold 48 Welch, Jack 45–6, 48, 50, 52, 126, 314n40 WestLB 169 Westminster Bank 24 Whitney, Richard 292 Wilson, Harold 18 windfall payments 14, 32, 127, 153, 290 winner’s curse 103, 104, 156, 318n11 Winslow Jones, Alfred 23 Winton Capital 111 Wolfe, Humbert 7 The Uncelestial City 1 Wolfe, Tom 268 The Bonfire of the Vanities 16, 22 women traders 22 Woodford, Neil 108 Woodward, Bob: Maestro 240 World Bank 14, 220 World.Com bonds 197 Wozniak, Steve 162 Wriston, Walter 37 Y Yellen, Janet 230–31 Yom Kippur War (1973) 36 YouTube 185 Z Zurich, Switzerland 62


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Power Hungry: The Myths of "Green" Energy and the Real Fuels of the Future by Robert Bryce

addicted to oil, Bernie Madoff, carbon footprint, Cesare Marchetti: Marchetti’s constant, cleantech, collateralized debt obligation, corporate raider, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, decarbonisation, Deng Xiaoping, en.wikipedia.org, energy security, energy transition, flex fuel, greed is good, Hernando de Soto, hydraulic fracturing, hydrogen economy, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Isaac Newton, James Watt: steam engine, Menlo Park, new economy, offshore financial centre, oil shale / tar sands, oil shock, peak oil, Ponzi scheme, purchasing power parity, RAND corporation, Ronald Reagan, Silicon Valley, smart grid, Stewart Brand, Thomas L Friedman, uranium enrichment, Whole Earth Catalog, WikiLeaks

Valero had tried to sell the refineries but couldn’t find buyers.65 Though we cannot predict the future, we can look backward and see that the beginning of the latest economic recession—like many recessions before it—coincided with a major spike in oil prices. History shows that sharp increases in oil prices are often followed by recessions. Those oil price spikes also lead to sharp decreases in oil demand. For instance, in 1978, U.S. oil consumption peaked at 18.8 million barrels per day. But the high prices that came with the 1979 oil shock, the second big price spike in six years, sent U.S. consumption tumbling. In fact, it took two decades for U.S. oil demand to recover after the price shocks of the 1970s. It wasn’t until 1998, when U.S. consumption hit 18.9 million barrels per day, that the 1978 level of consumption was surpassed.66 And it took two decades for oil demand to recover, even though oil prices were remarkably low.

Sterling, VA: Earthscan, 2008. Prindle, David E. Petroleum Politics and the Texas Railroad Commission. Austin: University of Texas Press, 1981. Roberts, Paul. The End of Oil: On the Edge of a Perilous New World. New York: Houghton Mifflin, 2004. Schumacher, E. F. Small Is Beautiful: Economics as if People Mattered. New York: Harper and Row, 1973. Simmons, Matthew. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, NJ: John Wiley and Sons, 2005. Smil, Vaclav. Creating the Twentieth Century: Technical Innovations of 1867–1914 and Their Lasting Impact. New York: Oxford University Press, 2005. ———. Energies: An Illustrated Guide to the Biosphere and Civilization. Cambridge: MIT Press, 1999. ———. Energy: A Beginner’s Guide. Oxford, UK: Oneworld Publications, 2006. ———. Energy at the Crossroads: Global Perspectives and Uncertainties.


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Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives by Satyajit Das

accounting loophole / creative accounting, Albert Einstein, Asian financial crisis, asset-backed security, beat the dealer, Black Swan, Black-Scholes formula, Bretton Woods, BRICs, Brownian motion, business process, buy and hold, buy low sell high, call centre, capital asset pricing model, collateralized debt obligation, commoditize, complexity theory, computerized trading, corporate governance, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, currency peg, disintermediation, diversification, diversified portfolio, Edward Thorp, Eugene Fama: efficient market hypothesis, Everything should be made as simple as possible, financial innovation, fixed income, Haight Ashbury, high net worth, implied volatility, index arbitrage, index card, index fund, interest rate derivative, interest rate swap, Isaac Newton, job satisfaction, John Meriwether, locking in a profit, Long Term Capital Management, mandelbrot fractal, margin call, market bubble, Marshall McLuhan, mass affluent, mega-rich, merger arbitrage, Mexican peso crisis / tequila crisis, money market fund, moral hazard, mutually assured destruction, Myron Scholes, new economy, New Journalism, Nick Leeson, offshore financial centre, oil shock, Parkinson's law, placebo effect, Ponzi scheme, purchasing power parity, quantitative trading / quantitative finance, random walk, regulatory arbitrage, Right to Buy, risk-adjusted returns, risk/return, Satyajit Das, shareholder value, short selling, South Sea Bubble, statistical model, technology bubble, the medium is the message, the new new thing, time value of money, too big to fail, transaction costs, value at risk, Vanguard fund, volatility smile, yield curve, Yogi Berra, zero-coupon bond

Derivatives have always been about knowledge – people who knew, people who didn’t. If you didn’t know then somewhere along the line you would pay school fees to learn about the other side of derivatives. Whole lotta swapping going on When I started in 1977, banking was changing. In 1973, Richard Nixon abolished the gold standard. The Bretton Woods Agreement on fixed exchange rates collapsed. Two oil shocks (1973 and 1978) contributed to high inflation. Under Paul Volcker, US interest rates surged. The prime rate peaked at an incomprehensible 21.50% pa. Interest rates, currencies and share prices began to fluctuate in a way that no one had ever experienced. DAS_C02.QXP 8/7/06 34 4:22 PM Page 34 Tr a d e r s , G u n s & M o n e y Banking systems were deregulated, exposing the incumbents to the strange phenomenon of competition.

Knowledge of credit (avoiding taking responsibility for bad loans), the ability to court clients and a reasonable golf game were all that was required. Walter Wriston, the head of Citibank, was the intellectual giant amongst bankers of this era. He was famed for two pronouncements: ‘Risk is a four letter word’ and ‘Countries do not go bankrupt’. On the first, it was hard to dispute the great man but the second proved more controversial. Following the oil shocks of the 1970s, the oil exporting countries, especially in the Middle East, were awash in cash (petrodollars). The oil importing countries were running massive trade deficits. Wriston led the charge for international banks to lend petrodollars deposited with the banks to oil importers. The theory that countries didn’t go bankrupt proved to be not entirely well founded. Citibank, together with other global banks, wrote off several billion dollars in loan losses in the 1980s.


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The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger by Marc Levinson

"Robert Solow", air freight, anti-communist, barriers to entry, Bay Area Rapid Transit, British Empire, business cycle, call centre, collective bargaining, conceptual framework, David Ricardo: comparative advantage, deindustrialization, deskilling, Edward Glaeser, Erik Brynjolfsson, full employment, global supply chain, intermodal, Isaac Newton, job automation, Jones Act, knowledge economy, Malcom McLean invented shipping containers, manufacturing employment, Network effects, New Economic Geography, new economy, oil shock, Panamax, Port of Oakland, post-Panamax, Productivity paradox, refrigerator car, South China Sea, trade route, Works Progress Administration, Yom Kippur War, zero-sum game

In the decade after the container first came into international use, in 1966, the volume of international trade in manufactured goods grew more than twice as fast as the volume of global manufacturing production, and two and a half times as fast as global economic output. Something was accelerating the growth of trade even though the economic expansion that normally stimulates trade was weak. Something was driving a vast increase in international commerce in manufactured goods even though oil shocks were making the world economy sluggish. While attributing the vast changes in the world economy to a single cause would be foolhardy, we should not dismiss out of hand the possibility that the extremely sharp drop in freight costs played a major role in increasing the integration of the global economy.10 The subject of this book lies at the confluence of several major streams of research. One delves into the impact of changes in transportation technology, a venerable subject for both historians and economists.

The economics of container shipping were equally treacherous for ship operators themselves. Many ship lines sacrificed the potential advantages of containerization by ordering vessels that carried containers along with other types of cargo or even passengers. Others guessed wrong about how big their ships or their containers should be. McLean himself went badly astray several times: he ordered fuel-guzzling SL-7s just ahead of the 1973 oil shock, built the sluggish but fuel-efficient Econships just as fuel prices plummeted, and sailed the Econships on a round-the-world route that left some legs heavily booked but others operating well below capacity. The “experts” who deemed container shipping uncompetitive on long routes, such as those across the Pacific, were proven to be wildly off course, and Asia’s containerports, filled with boxes destined for North America and Europe, soon became the largest in the world.


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Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

The fact is there have been very few empirical testings of this kind ... while assertions of conviction are plentiful, factual findings are rare." 8 Indeed, it is difficult to think of any issue on which a position once held by a substantial, respected group of economists has been vacated as a result of empirical refutation. Perhaps the Phillips curve-an empirical correlation between unemployment and inflation that broke down after the oil shock of the 1970s-falls into this category. But then I turned again to Mankiw's elementary textbook, and discovered an entire chapter devoted to the Phillips curve: and that George Akerlof, receiving the Nobel Prize in 2001, described the Phillips curve as "probably the single most important macroeconomic relationship." 9 No modern chemistry textbook describes the phlogiston theory. No physics laureate commends the theory that the sun rotates the earth.

Economists may design and describe markets, but are rarely hired by those who made decisions in markets. In those antitrust issues, economists would increasingly describe behavior in terms that were not recognized by those whose behavior was described. This golden age of the professional economist came to an abrupt end. Formal planning systems went into decline, and accelerating inflation from the 1960s, exacerbated by the 1973 oil shock, meant that confidence in macroeconomic policies declined. As economies went wrong, politicians would increasingly make jokes at the expense of economists. But economists, sensitive to market trends, reinvented themselves, as Culture and Prosperity { 335} cheerleaders for conservative, market-oriented policies, and a new simple theory-monetarism-supposedly took the place of the Keynesian economics which had supposedly been discredited.


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The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Swan, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Hyman Minsky, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Shiller, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

But in the late 1960s differences in inflation across countries, especially between the United States and Germany, appeared to be more than temporary, and led to the breakdown of the Bretton Woods system in 1970–1. By the early 1970s, the major economies had moved to a system of ‘floating’ exchange rates, in which currency values are determined by private sector supply and demand in the markets for foreign exchange. Inevitably, the early days of floating exchange rates reduced the discipline on countries to pursue low inflation. When the two oil shocks of the 1970s – in 1973, when an embargo by Arab countries led to a quadrupling of prices, and 1979, when prices doubled after disruption to supply following the Iranian Revolution – hit the western world, the result was the Great Inflation, with annual inflation reaching 13 per cent in the United States and 27 per cent in the United Kingdom.7 Economic experiments From the late 1970s onwards, the western world then embarked on what we can now see were three bold experiments to manage money, exchange rates and the banking system better.

(1938), 44, 355 Harman, Jeremiah, 189 Harrods, 142–3 Harvard University, 12, 51, 58 Hastings, Max, 88–9 Hayek, Friedrich, 286 hedge funds, 93, 97, 98, 102, 114, 120–1 Hegel, Georg Wilhelm Friedrich, 334 Hicks, Sir John, ‘Mr Keynes and the Classics’ (1937), 298, 300, 302, 309 Hieronymos, Archbishop of Athens, 225–6 Hollande, President, 227 Hoover Moratorium (1931), 341 Hope, Bob, 101 house prices, 23, 31–2, 124–5, 150, 173, 320–1, 325, 362 housing markets, 23, 31–2, 35–6, 47, 103, 307, 323, 324 HSBC, 95 Huizenga, Bill, 168–9 Hume, David, 78–9, 163 Hungary, 69 Hunter, Sir William, 67–8 Huygens, Christiaan, 123 Hyun Song Shin, 31 IBM, 129 ICBC, 92 Iceland, 4, 33, 118, 243, 283 India, 38, 67–8 Industrial Revolution, 2–3, 4–5, 18–19, 260 inequality, 92, 147, 290, 369 inflation: in aftermath of First World War, 70, 86, 164, 326, 327; and Bretton Woods system, 21; calculation of, 67; causes of, 5, 20; conquering of, 5–6, 22, 25, 70, 71, 77, 78, 164, 209, 318, 357; and EMU, 221–2, 232, 237; Great Inflation (1970s), 5, 16, 21, 52, 68, 70, 165–6, 303–4, 306, 318; hyperinflation, 5, 20, 52, 68, 69–70, 86, 158–9, 190, 287; and interest rates, 185–6, 326; and Keynesian policies, 292; ‘New Keynesian’ models, 305–6; oil shocks of 1970s, 21, 306, 318; and pre-election stimulus, 164–5; ‘rigidities’ in price adjustment, 167, 171, 304; in Saddam’s Iraq, 238–9; in sixteenth century, 57; ‘stagflation’ (1970s), 5, 302–3, 318; wage and price controls (1970s), 307 inflation targeting policy, 164, 169–70, 172, 177–8, 186, 247, 315, 322, 329, 330; adoption of (early 1990s), 7, 77, 167; current targets, 70, 170; and econometric models, 305–6; goal of price stability, 22, 71, 167–8, 207–8; and radical uncertainty, 171; two elements of, 168 innovation, 4, 17, 291, 354–5, 356, 365–6 insurance, 32, 102, 112, 127, 140–1, 142, 183, 192, 204 interest rates: and asset prices, 23, 24, 29, 31–2, 33, 125, 257, 319, 335, 336, 337–8; and Bretton Woods system, 20–1; during crisis, 181, 305, 335; in currency unions, 212–13, 221–2, 232, 237, 335; determination of, 28–9, 173, 174, 207–8; falls due to external imbalances, 23, 24, 28, 29–30, 33–4, 46–7, 319–20, 325, 326, 349; ‘forward guidance’, 179, 185–6; and inflation, 185–6, 326; LIBOR (London Inter-Bank Offer Rate), 36, 150–1; the ‘lower bound’, 298–301; and market expectations, 28, 176–8, 304–5, 330–1, 332, 336; and money supply, 63, 180; ‘natural’ real rate, 44; need for return to normal, 353; negative, 29, 44, 185, 291, 299, 300–1, 335–6; real, 29; and ‘savings glut’, 28, 29, 46, 319, 325; and unemployment, 169, 298–300; very low levels post-crisis, 11, 40, 43, 44–5, 48, 183–5, 291, 312, 322–3, 335–6, 337 International Monetary Fund (IMF), 25, 190–1, 216, 229, 230, 339, 340, 352, 353; and Asian financial crisis (1990s), 349, 350–1; and Bretton Woods system, 21; membership of, 188, 212, 214–15; and sovereign debt restructuring, 346–7; and troika in European crisis, 229, 231, 350–1; US veto power, 349–50, 350, 353 investment, 29–30, 47, 101–3, 141, 309, 317–18; misdirected, 47, 49, 322, 327, 357, 362, 363; and radical uncertainty, 84, 150–5, 293–7, 310–17; rate of return on, 11, 29–30, 32–3, 356, 359, 365; risk premium, 32–3, 115, 183; ‘search for yield’, 32–3 investment banks, 23, 24, 36, 94, 98, 109, 256, 257, 260, 349 Iranian Revolution (1979), 21 Iraq, 218, 238–42, 248 Ireland, 4, 33, 47, 118, 217, 224, 243, 254 Islamic State (extremist group), 214 Issing, Otmar, 235, 344 Italy, 216, 219, 221, 224, 225, 227, 229, 234, 236, 322, 348, 364 Jackson, Andrew (economist), 262 Jackson, President Andrew, 60, 160–1 Japan, 43, 46, 62, 70, 77, 93, 113, 184, 215, 281, 348; Abe’s ‘three arrows’, 363; Bank of Japan, 163, 166, 170; lost decade (1990s), 159, 279, 363, 367 Jarvie, J.R., The Old Lady Unveiled (1934), 156–7 Jefferson, Thomas, 87 J.P.


Finding Community: How to Join an Ecovillage or Intentional Community by Diana Leafe Christian

back-to-the-land, dumpster diving, en.wikipedia.org, hive mind, off grid, oil shock, peak oil

In retrospect, the 1970s Št that description well: a generation of young people, disillusioned and alienated by a pointless and costly war in Southeast Asia and surrounded by a culture of soulless consumerism, understandably struck out on their own for other destinations, founding thousands of communes and communities as they went — some of them still in existence, such as The Farm in Tennessee and Twin Oaks in Virginia. Any competent analyst of social trends would have to conclude that we are today entering a period in which the potential for economic and cultural decline far outstrips that of the 1970s. Then, the world staggered from the effects of temporary oil shocks; today we stand on the verge of the granddaddy of oil shocks — the all-time peak of global petroleum production. Then, the economy suffered from stagšation; today, the bursting of the mortgage, derivatives, and debt bubbles threatens to unleash a tide of foreclosures, bankruptcies, and currency devaluations not seen since the 1930s. Then, we were witnessing the end of America’s oil supremacy and the sunset of its resourceextraction and manufacture-based economy, to be replaced by imports, globalization, and debt.


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MONEY Master the Game: 7 Simple Steps to Financial Freedom by Tony Robbins

3D printing, active measures, activist fund / activist shareholder / activist investor, addicted to oil, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, asset allocation, backtesting, bitcoin, buy and hold, clean water, cloud computing, corporate governance, corporate raider, correlation does not imply causation, Credit Default Swap, Dean Kamen, declining real wages, diversification, diversified portfolio, Donald Trump, estate planning, fear of failure, fiat currency, financial independence, fixed income, forensic accounting, high net worth, index fund, Internet of things, invention of the wheel, Jeff Bezos, Kenneth Rogoff, lake wobegon effect, Lao Tzu, London Interbank Offered Rate, market bubble, money market fund, mortgage debt, new economy, obamacare, offshore financial centre, oil shock, optical character recognition, Own Your Own Home, passive investing, profit motive, Ralph Waldo Emerson, random walk, Ray Kurzweil, Richard Thaler, risk tolerance, riskless arbitrage, Robert Shiller, Robert Shiller, self-driving car, shareholder value, Silicon Valley, Skype, Snapchat, sovereign wealth fund, stem cell, Steve Jobs, survivorship bias, telerobotics, the rule of 72, thinkpad, transaction costs, Upton Sinclair, Vanguard fund, World Values Survey, X Prize, Yogi Berra, young professional, zero-sum game

Surely this change wouldn’t inspire confidence in the US economy or government. This was a head scratcher. This market boom eventually became known as the “Nixon rally.” But it wasn’t all great news. By letting the value of the dollar be determined by “whatever we all think it’s worth,” an inflationary storm brewed on the horizon. Ray elaborates: “But then in 1973, it set up the ingredients for the first oil shock. We never had an oil shock before. We never had inflation to worry about before. And all of those things became, in a sense, surprises. And I developed a modus operandi to expect surprises.” It’s the surprises that we can’t afford, or stomach. It’s the next 2008. It’s the next shock wave sure to rumble through our markets. The Nixon rally was a catalyst for Ray: the beginning of a lifelong obsession to prepare for anything—the unknown around every corner.

THE 1970S Ray Dalio, now 65, came of age in the 1970s. It was a time of violent change in seasons and arguably the worst economic environment since the Great Depression. High unemployment was accompanied by massive inflation, causing interest rates to skyrocket into the high teens. Remember I shared with you that my first mortgage coming out of the inflation of the 1970s was a whopping 18% interest! There was also an “oil shock” in 1973, as an embargo caught the United States off guard, causing oil prices to rise from $2.10 a barrel to $10.40. No one was prepared for this. Just a few years later, the government imposed odd-even rationing, where people were forced not only to wait in line at the pump for hours but also were allowed to gas up only on odd or even days of the month! It was a season of political strife as faith in our government dwindled after Vietnam and Watergate.


The New Class War: Saving Democracy From the Metropolitan Elite by Michael Lind

affirmative action, anti-communist, basic income, Bernie Sanders, Boris Johnson, Bretton Woods, business cycle, capital controls, Cass Sunstein, central bank independence, centre right, collective bargaining, commoditize, corporate governance, crony capitalism, deindustrialization, Doha Development Round, Donald Trump, Edward Snowden, future of work, global supply chain, guest worker program, Haight Ashbury, illegal immigration, immigration reform, invisible hand, knowledge economy, liberal world order, low skilled workers, low-wage service sector, manufacturing employment, Mark Zuckerberg, mass immigration, means of production, moral panic, Nate Silver, new economy, offshore financial centre, oil shock, open borders, plutocrats, Plutocrats, Ponzi scheme, purchasing power parity, Ralph Nader, regulatory arbitrage, rent-seeking, Richard Florida, Ronald Reagan, Silicon Valley, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, union organizing, universal basic income, upwardly mobile, WikiLeaks, Wolfgang Streeck, working poor

Similar deregulatory reforms and anti-union measures were adopted by many European governments, including those of center-left leaders like Tony Blair and Gerhard Schröder, following the example of free market conservatives like British prime minister Margaret Thatcher. Neoliberal economic reforms initially were justified as a response to the “stagflation” (combined stagnation and inflation) that afflicted Europe and North America in the 1970s. While the oil shocks of the 1970s contributed to the problem, in hindsight there were several structural causes: slower productivity growth as a result of the exhaustion of the technological possibilities of the earlier electromechanical revolution, before the benefits of the information technology (IT) revolution had become important; pressure on corporate profits from overproduction in manufacturing, caused by the postwar recovery of Germany and Japan and their export-oriented manufacturing strategies; and pressure on profits as well from trade unions enabled by tight, low-immigration labor markets to demand wage increases outstripping productivity growth, which fueled wage-push inflation.


Britannia Unchained: Global Lessons for Growth and Prosperity by Kwasi Kwarteng, Priti Patel, Dominic Raab, Chris Skidmore, Elizabeth Truss

Airbnb, banking crisis, Carmen Reinhart, central bank independence, clockwatching, creative destruction, Credit Default Swap, demographic dividend, Edward Glaeser, eurozone crisis, fear of failure, glass ceiling, informal economy, James Dyson, Kenneth Rogoff, knowledge economy, long peace, margin call, Mark Zuckerberg, Martin Wolf, megacity, Mexican peso crisis / tequila crisis, Neil Kinnock, new economy, North Sea oil, oil shock, open economy, paypal mafia, pension reform, price stability, profit motive, Ronald Reagan, Sand Hill Road, Silicon Valley, Stanford marshmallow experiment, Steve Jobs, Walter Mischel, wealth creators, Winter of Discontent, working-age population, Yom Kippur War

Government deficits might add demand to an economy, but more demand isn’t always a good thing. If you run a deficit, you will allow public spending to grow unsustainably with little checks to make sure that the public are getting good value for money. When the inevitable crash comes, a spendthrift Government will soon discover that it is a lot easier to hand out goodies than to take them back again. Economists used to believe that the high inflation of the 1970s was the result of the oil shocks, an outside emergency that no Government could ever have avoided. We now know that an equally significant cause were Governments themselves, desperately trying to boost economies by increasing deficits beyond what was sustainable. The 1950s and 1960s were a golden age for Western economies. Growth has never been as fast since. Eventually this boom faded, but Western policy-makers were reluctant to accept just how much growth had slowed.


pages: 161 words: 52,058

The Art of Corporate Success: The Story of Schlumberger by Ken Auletta

Albert Einstein, Bretton Woods, George Gilder, job satisfaction, offshore financial centre, oil shale / tar sands, oil shock, Ronald Reagan, the scientific method, union organizing

Because Schlumberger does not sell, or even lease, its equipment, and because its equipment is the most technologically advanced, so that the company provides the best technical service, it remains the most highly regarded company in the oilfield-service industry. Of course, oil companies can afford to pay its prices. Since the cost of logging a well—the wireline process—is only 2 to 5 percent of the oil company’s cost, wrote John C. Wellemeyer, managing director of the investment-banking firm of Morgan Stanley, in 1973, “Schlumberger should be able to increase prices as much as required to maintain its margins.” Until the current oil shock, that is what it has done. “To measure a successful company, you need time—a long span of time,” Riboud says. By that measure, too, Schlumberger is a success. Figures on the company’s profits were first made public for a full year in 1958, and in all but two years of the quarter century since, its profits have climbed. (In those two years, 1961 and 1963, they fell only slightly.) Profits jumped from $12.2 million in 1958 to $1.35 billion in 1982.


pages: 488 words: 144,145

Inflated: How Money and Debt Built the American Dream by R. Christopher Whalen

Albert Einstein, bank run, banking crisis, Black Swan, Bretton Woods, British Empire, business cycle, buy and hold, California gold rush, Carmen Reinhart, central bank independence, commoditize, conceptual framework, corporate governance, corporate raider, creative destruction, cuban missile crisis, currency peg, debt deflation, falling living standards, fiat currency, financial deregulation, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, housing crisis, interchangeable parts, invention of radio, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, means of production, money: store of value / unit of account / medium of exchange, moral hazard, mutually assured destruction, non-tariff barriers, oil shock, Paul Samuelson, payday loans, plutocrats, Plutocrats, price stability, pushing on a string, quantitative easing, rent-seeking, reserve currency, Ronald Reagan, special drawing rights, The Chicago School, The Great Moderation, too big to fail, trade liberalization, transcontinental railway, Upton Sinclair, women in the workforce

In that year the government was going to spend about $390 billion and take in $291 billion, including a cut in taxes of about $25 billion. The chart in Figure 8.1 illustrates the federal government’s spending in that period. Figure 8.1 Federal Outlays, Receipts, and Balance (1968–1976) (Millions of $) Source: Office of Management and Budget. Ford had the bad luck of serving in the worst economy since the Great Depression. The mid-1970s were difficult years in the United States, with the oil shock and double-digit unemployment breaking the renewed sense of confidence that had prevailed in the post-WWII era. The fact that the fiscal deficits were rising at a time of slack economic demand made the public uneasy. Despite the fact that members of both political parties tacitly accepted the need for deficits, the public at large was still largely unaware of the change in the basic assumptions of government which had occurred during the Cold War.

In heartland manufacturing states such as Indiana, Michigan, and Illinois joblessness reached into the teens. The U.S. economy was mired in recession for three years. This illustrated the level of adjustment that the two oil price increases of the decade, 1973 and 1979, required literally to squeeze the inflationary increases out of the system. The United States was unable to remove the impact of the oil shocks, but could merely slow the rate of increases in prices by brutally suppressing the economy. In a 1982 memo from Paul Krugman and Larry Summers, who were both then working in the Reagan White House, to William Poole and Martin Feldstein, the two economists predicted that inflation would again begin to accelerate because the reduction in inflation engineered by the Fed was only temporary. But Summers, Krugman, and many other liberal economists were wrong.


pages: 537 words: 158,544

Second World: Empires and Influence in the New Global Order by Parag Khanna

"Robert Solow", Admiral Zheng, affirmative action, anti-communist, Asian financial crisis, Bartolomé de las Casas, Branko Milanovic, British Empire, call centre, capital controls, central bank independence, cognitive dissonance, colonial rule, complexity theory, continuation of politics by other means, crony capitalism, Deng Xiaoping, different worldview, Dissolution of the Soviet Union, Donald Trump, Edward Glaeser, energy security, European colonialism, facts on the ground, failed state, flex fuel, Francis Fukuyama: the end of history, friendly fire, Gini coefficient, global reserve currency, global supply chain, haute couture, Hernando de Soto, illegal immigration, income inequality, informal economy, invisible hand, Islamic Golden Age, Khyber Pass, Kickstarter, knowledge economy, land reform, low cost airline, low skilled workers, mass immigration, means of production, megacity, Monroe Doctrine, Nelson Mandela, oil shale / tar sands, oil shock, open borders, open economy, Parag Khanna, Pax Mongolica, Pearl River Delta, pirate software, Plutonomy: Buying Luxury, Explaining Global Imbalances, Potemkin village, price stability, race to the bottom, RAND corporation, reserve currency, rising living standards, Ronald Reagan, Silicon Valley, Skype, South China Sea, special economic zone, stem cell, Stephen Hawking, Thomas L Friedman, trade route, trickle-down economics, uranium enrichment, urban renewal, Washington Consensus, women in the workforce

Philadelphia: Wharton School Publishing, 2005. Shikaki, Khalil. Building a State, Building Peace: How to Make a Roadmap That Works for Palestinians and Israelis. Saban Center for Middle East Policy, Monograph no. 1. Washington, D.C.: Brookings Institution Press, 2003. Siddiqa, Ayesha, Military, Inc.: Inside Pakistan’s Military Economy. London: Pluto Press, 2007. Simmons, Matthew R. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, N.J.: John Wiley and Sons, 2005. Simon, Sheldon W., ed. The Many Faces of Asian Security. Lanham, Md.: Rowman and Littlefield, 2001. Simons, Thomas W., Jr. Islam in a Globalizing World. Stanford, Calif.: Stanford University Press, 2003. Singer, Peter. One World: The Ethics of Globalization. New Haven, Conn.: Yale University Press, 2003. Smith, Peter H. Democracy in Latin America: Political Change in Comparative Perspective.

See Afshin Molavi, “The Real ‘New Middle East,’” Washington Post, August 20, 2006; and Nawaf Obaid and Khalid al-Rhodan, “Saudi Arabia’s Sustainable Capacity and Security Issues,” Center for Strategic and International Studies, September 27, 2005. 15. There is constant debate over the longevity of Saudi Arabia’s oil reserves based on whether or not it has reached its peak production point, the number of years of oil remaining in its fields based on global demand, and the volume of oil contained in new discoveries. See Matthew R. Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Hoboken, N.J.: John Wiley and Sons, 2005); and Peter Maass, “The Breaking Point,” New York Times Magazine, August 21, 2005. 16. Peter Bergen and Alec Reynolds, “Blowback Revisited,” Foreign Affairs, November–December 2005, 2–6. As the U.S. Defense Science Board notes, “Muslims do not hate our freedoms, but rather they hate our policies.” 17. See John Bradley, Saudi Arabia Exposed: Inside a Kingdom in Crisis (New York: Palgrave Macmillan, 2005); and International Crisis Group, The Shiite Question in Saudi Arabia, Middle East Report no. 145, September 19, 2005. 18.


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How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

The steamroller approach In the most investment-intensive era of industrial growth, from approximately 1965 to the early 1980s, there developed a pattern in which each time Korea hit a road block in the form of an external economic shock and/or a domestic financial crisis, government did whatever was financially necessary to maintain developmental momentum. In the early 1970s, in addition to the kerb market interest moratorium, General Park’s government forced state banks to swap loans for chaebol shares and abandoned the high domestic interest rate policy begun in 1965. It met each crisis with cheaper money. With the first global oil shock, and a deep world recession, from late 1973 until 1975, the government massively increased domestic credit, while foreign debt rose from 31 to 40 per cent of GNI. With the second international oil crisis of 1979, plus increased US interest rates that helped trigger a world recession from 1980, Korea cranked up foreign debt again; the level, which had been pulled back to 30 per cent of GNI before the crisis, was increased to 50 per cent.23 Korea grew through a cataclysm which, in 1982, brought similarly indebted Latin American countries, and then the Philippines, to their knees.

China has experienced the bursting of a few localised property bubbles as a result of recent excesses, but this does not pose an immediate systemic risk. Chinese finance remains on a leash, even if that leash is inevitably, inexorably lengthening. Forward march China’s recent reaction to external crises is best viewed, then, not as a sudden loss of financial discipline but in the historical context of the Japanese, Korean and Taiwanese responses to the global currency and oil shocks of the 1970s. The Chinese government has intervened to maintain the momentum of the country’s developmental learning process. ‘School’ has not been suspended because of external economic shocks. Of course, this does not mean that China has no debt issues. If one adds together different central government debts, local government debts for which Beijing is ultimately responsible and other near-term contingent liabilities (although not long-run liabilities like China’s huge state pension fund gap), then public debt is perhaps 80 per cent of GDP.62 However, some of this debt is offset by readily saleable assets, almost none is owed to foreigners, and capital controls mean that banks do not need to worry about insolvency (that is, their potential losses on bad loans exceeding their capital) because they always have cash on hand.


Triumph of the Optimists: 101 Years of Global Investment Returns by Elroy Dimson, Paul Marsh, Mike Staunton

asset allocation, banking crisis, Berlin Wall, Bretton Woods, British Empire, buy and hold, capital asset pricing model, capital controls, central bank independence, colonial rule, corporate governance, correlation coefficient, cuban missile crisis, discounted cash flows, diversification, diversified portfolio, dividend-yielding stocks, equity premium, Eugene Fama: efficient market hypothesis, European colonialism, fixed income, floating exchange rates, German hyperinflation, index fund, information asymmetry, joint-stock company, negative equity, new economy, oil shock, passive investing, purchasing power parity, random walk, risk tolerance, risk/return, selection bias, shareholder value, Sharpe ratio, stocks for the long run, survivorship bias, technology bubble, transaction costs, yield curve

The equivalent multiples for bonds and bills are a growth in real terms to 5.0 and 2.4 times the initial investment, respectively. These terminal wealth figures correspond to annualized real returns of 6.7 percent on equities, 1.6 percent on bonds, and 0.9 percent on bills. Figure 4-2 shows that US equities totally dominated bonds and bills. There were setbacks of course, most notably during the First World War; the Wall Street Crash of 1929 and its aftermath, including the Great Depression; and the OPEC oil shock of the 1970s. Each shock was severe at the time. At the depths of the Wall Street Crash, the Dow Jones Industrial Index had fallen by 89 percent. Many investors were ruined, especially those who had bought stocks with borrowed money. The crash lived on in the memories of investors—and indeed, those who subsequently chose to shun equities—for at least a generation. Yet in Figure 4-2, it features as little more than a short-term setback.

Figure 8-6: Correlation coefficients between four core countries over seven successive sub-periods 0.7 0.6 0.5 0.4 Correlation coefficients US:UK US:Fra UK:Fra Average US:Ger UK:Ger Ger:Fra .40 .26 0.3 0.2 0.1 .09 .14 .15 .01 0.0 -0.1 -.07 -0.2 -0.3 -0.4 -0.5 1872–1889 1889–1914 Source: Goetzmann, Li, and Rouwenhorst, 2001 1915–1918 1919–1939 1940–1945 1946–1971 1972–2000 Chapter 8: International investment 117 Longin and Solnik (1995) provide further evidence of high correlations during periods of poor performance. They find that markets become more closely related during turmoil such as the 1974 oil shock, the October 1987 crash, the 1990 invasion of Kuwait and the ensuing Gulf War in 1991, or by extension, the aftershock from September 11, 2001. This raises the obvious question of whether international diversification works when it is most needed. Das and Uppal (2001) provide reassurance by showing that the impact of this is small for longterm investors, who should still hold highly international portfolios.


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Pacific: Silicon Chips and Surfboards, Coral Reefs and Atom Bombs, Brutal Dictators, Fading Empires, and the Coming Collision of the World's Superpowers by Simon Winchester

9 dash line, Albert Einstein, BRICs, British Empire, California gold rush, colonial rule, Deng Xiaoping, desegregation, Frank Gehry, Intergovernmental Panel on Climate Change (IPCC), land tenure, Loma Prieta earthquake, Maui Hawaii, Monroe Doctrine, oil shock, polynesian navigation, Ralph Waldo Emerson, RAND corporation, Ronald Reagan, Silicon Valley, South China Sea, trade route, transcontinental railway, UNCLOS, UNCLOS, undersea cable, uranium enrichment

All his achievements, so many of them won at enormous cost to the taxpayer, helped to concoct a formula that was ready-made for political disaster. And given that so many popular politicians unwittingly flirt with hubris, the disaster was not long in coming. It had much to do, as ultimately the whole scandal had, with money. It was one specific spending scheme that triggered his government’s spectacular fall. Late in 1974, in the aftermath of the worldwide oil shock and its associated economic turmoil, Whitlam launched an attempt to insulate Australia from any such energy-related problems in the future by boosting the country’s immense and untapped supplies of energy. Specifically, it needed to create a number of large new mines to extract coal and other of the many minerals with which Australia had been blessed, to build a giant new gas pipeline, and to electrify a long series of freight railways in the country’s southeast.

., 53–54 radioactive contamination and, 20, 33–37 Soviets and, 32–33, 41 Truman and, 41–43, 66–67 Nude with Violin (Coward), 108 NYK container ships, 115 Oahu, 144, 427, 429 Oahu, 357n Oak Ridge, Tennessee, 47 Obama, Barack, 367–68, 420 Oceana, 21 Ocean Island, 212 Ocean Passages for the World, 3 octopus, deep-sea, 321 Oeno atoll, 216 Office of Naval Intelligence, 388 Office of Net Assessment, 416, 416, 419 oil shock of 1973, 270 oil spills, 362 Okeechobee hurricane of 1928, 243 Okinawa, 418 Typhoon Haiyan and, 240, 241 U.S. base at, 115, 392, 422 Okinawa, USS (assault ship), 211 olo (long surfboard), 128–29 Olympic Games, 25, 138–39 Omai of Ra’iatea, 5 o’o bird, 354–55 OPEC, 270 Operation Clickbeetle, 157 Operation Crossroads, 52–65, 61 Operation Damayan, 240 Operation Fiery Vigil, 383 Operation Frequent Wind, 209–10 Operation Linebacker, 209 Operation Paul Bunyan, 177 Operation Rolling Thunder, 209 Operation Sovereign Borders, 300 Opium Wars, 225, 228 Oppenheimer, J.


America Right or Wrong: An Anatomy of American Nationalism by Anatol Lieven

American ideology, British Empire, centre right, cognitive dissonance, colonial rule, cuban missile crisis, desegregation, European colonialism, failed state, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, illegal immigration, income inequality, laissez-faire capitalism, mass immigration, Mikhail Gorbachev, millennium bug, mittelstand, Monroe Doctrine, moral hazard, moral panic, new economy, Norman Mailer, oil shock, Ralph Waldo Emerson, Robert Bork, Ronald Reagan, Thomas L Friedman, World Values Survey, Y2K

Across large areas of America, these religious beliefs in turn form a central part of the identity of the original White American colonist population, above all in the Greater South, or what former First Lady Lady Bird Johnson described simply as "us—the simple American stock."21 The religious beliefs of large sections of this core population are under constant, daily threat from modern secular culture, above all via the mass media. And perhaps of equal importance in the long term will be the relative decline in recent decades in the real incomes of the American middle classes, where these groups are situated socially. This decline and the wider economic changes which began with the oil shock of 1973 have had the side effect of helping force more and more women to go to work, thereby undermining traditional family structures even among those groups most devoted to them. The relationship between this traditional White Protestant world on one hand and the forces of American economic, demographic, social and cultural change on the other may be compared to the genesis of a hurricane. A mass of warm, humid air rises from the constantly churning sea of American capitalism to meet a mass of cooler layers of air, and as it rises it sucks in yet more air from the sides, in the form of immigration.

Limited but vocal sections of American youths revolted against military service and patriotic values; and for the first time in its history, America was defeated in a major war.97 The Catholics had been hated in the past, but at least their ideas of family, sexual morality and manly behavior were not really different from those of the hard-line evangelicals. To a traditional mind, the American culture which developed after the 1960s by contrast seemed like something out of Hieronymus Bosch, literally a pandemonium of scarcely credible monsters and abominations; and much of television constitutes nothing less than a daily assault on their world of faith and culture. Finally, beginning with the oil shock of 1973, the 1970s saw the end of the long postwar boom and the beginning of three decades of unprecedented longterm stagnation in real incomes for the American middle classes. The old White working class of the Midwest had gotten used to a world in which respectability and steady work guaranteed a steadily rising income and social status. The end of this world has been a dreadful blow to their "moral economy."98 These defeats provide much of the explanation for the embittered, mean-spirited, defensive and 142 A N T I T H E S I S PART II: F U N D A M E N T A L I S T S AND GREAT F E A R S aggressive edge to the contemporary American right wing and to the American nationalism it espouses.


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Principles: Life and Work by Ray Dalio

Albert Einstein, asset allocation, autonomous vehicles, backtesting, cognitive bias, Deng Xiaoping, diversification, Elon Musk, follow your passion, hiring and firing, iterative process, Jeff Bezos, Long Term Capital Management, margin call, microcredit, oil shock, performance metric, planetary scale, quantitative easing, risk tolerance, Ronald Reagan, Silicon Valley, Steve Jobs, transaction costs, yield curve

He was surprised because people from places like Harvard Business School weren’t typically interested in commodities, which were considered an obscure stepchild of the Wall Street brokerage industry. Up until then, as far as I know, no Harvard Business School student had ever worked in commodity futures anywhere. Most Wall Street firms didn’t even have commodity futures divisions, and Merrill Lynch’s was small, tucked away on a side street, and furnished with basic metal desks. A few months later, when I was back for my second year at HBS, the first oil shock began, with prices quadrupling in a matter of months. The U.S. economy slowed, commodity prices soared, and in 1973 the stock market took a dive. Once again, I was blindsided—but in retrospect I could see that the dominoes had fallen in a logical sequence. In this case, the debt-financed overspending of the 1960s had continued into the early 1970s. The Fed had funded this spending with easy-credit policies, but by paying back its debts with depreciated paper money instead of gold-backed dollars, the U.S. effectively defaulted.

Interest rates and inflation soared and crashed; stocks, bonds, commodities, and currencies went through one of their most volatile periods ever; and unemployment hit its highest level since the Great Depression. It was a time of extreme turbulence for the global economy, for the markets, and for me personally. In 1978–80 (as in 1970–71 and in 1974–75) different markets began to move in unison because they were more influenced by swings in money and credit growth than by changes in their individual supply-demand balances. These big moves were exacerbated by the oil shock that followed the fall of the Shah of Iran. That oil market volatility led to the creation of the first oil futures contract, which gave me trading opportunities (by then, there were futures markets in interest rates and currencies as well, and I was making bets in all of them). Because all markets were being driven by these factors, I immersed myself in macroeconomics and historical data (especially interest rates and currency data) to improve my understanding of the machine at play.


pages: 807 words: 154,435

Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

Famously, in early 1973 he presented senior management with a scenario in which Middle East oil producers formed a cartel to exert monopoly power. In October of that year the Yom Kippur war broke out between Israel and its neighbours. Arab states imposed an oil embargo on the United States and other western countries which were perceived as supporters of Israel. Oil prices rose sharply and continued to rise even after the embargo was relaxed the following year. Wack and his team were credited with having helped Shell anticipate the ‘oil shock’. Since then, scenario planning has been central to Shell’s strategic thinking, and other companies have undertaken similar exercises. Shell scenarios make extensive use of quantitative data and emphasis is placed on their internal consistency but they are, essentially, narratives. A useful narrative may be turgid prose rather than literary masterpiece – a washing machine instruction manual rather than Pride and Prejudice – but Wack’s unusual background helped gain attention for his thinking.

., 295 , 407 , 412 business cycles, 347 business history (academic discipline), 286 business schools, 318 business strategy: approach in 1970s, 183 ; approach in 1980s, 181–2 ; aspirations confused with, 181–2 , 183–4 ; business plans, 223–4 , 228 ; collections of capabilities, 274–7 ; and the computer industry, 27–31 ; corporate takeovers, 256–7 ; Lampert at Sears, 287–9 , 292 ; Henry Mintzberg on, 296 , 410 ; motivational proselytisation, 182–3 , 184 ; quantification mistaken for understanding, 180–1 , 183 ; and reference narratives, 286–90 , 296–7 ; risk maps, 297 ; Rumelt’s MBA classes, 10 , 178–80 ; Shell’s scenario planning, 223 , 295 ; Sloan at General Motors, 286–7 ; strategy weekends, 180–3 , 194 , 296 , 407 ; three common errors, 183–4 ; vision or mission statements, 181–2 , 184 Buxton, Jedediah, 225 Calas, Jean, 199 California, 48–9 Cambridge Growth Project, 340 Canadian fishing industry, 368–9 , 370 , 423 , 424 cancer, screening for, 66–7 Candler, Graham, 352 , 353–6 , 399 Cardiff City Football Club, 265 Carlsen, Magnus, 175 , 273 Carnegie, Andrew, 427 Carnegie Mellon University, 135 Carré, Dr Matt, 267–8 Carroll, Lewis, Through the Looking-Glass , 93–4 , 218 , 344 , 346 ; ‘Jabberwocky’, 91–2 , 94 , 217 Carron works (near Falkirk), 253 Carter, Jimmy, 8 , 119 , 120 , 123 , 262–3 cartography, 391 Casio, 27 , 31 Castro, Fidel, 278–9 cave paintings, 216 central banks, 5 , 7 , 95 , 96 , 103–5 , 285–6 , 348–9 , 350 , 351 , 356–7 Central Pacific Railroad, 48 Centre for the Study of Existential Risk, 39 Chabris, Christopher, 140 Challenger disaster (1986), 373 , 374 Chamberlain, Neville, 24–5 Chandler, Alfred, Strategy and Structure , 286 Chariots of Fire (film, 1981), 273 Charles II, King, 383 Chelsea Football Club, 265 chess, 173 , 174 , 175 , 266 , 273 , 346 Chicago economists, 36 , 72–4 , 86 , 92 , 111–14 , 133–7 , 158 , 257–8 , 307 , 342–3 , 381–2 Chicago Mercantile Exchange, 423 chimpanzees, 161–2 , 178 , 274 China, 4–5 , 419–20 , 430 cholera, 283 Churchill, Winston: character of, 25–6 , 168 , 169 , 170 ; fondness for gambling, 81 , 168 ; as hedgehog not fox, 222 ; on Montgomery, 293 ; restores gold standard (1925), 25–6 , 269 ; The Second World War , 187 ; Second World War leadership, 24–5 , 26 , 119 , 167 , 168–9 , 170 , 184 , 187 , 266 , 269 Citibank, 255 Civil War, American, 188 , 266 , 290 Clapham, John, 253 Clark, Sally, 197–8 , 200 , 202 , 204 , 206 Clausewitz, Carl von, On War , 433 climate systems, 101–2 Club of Rome, 361 , 362 Coase, Ronald, 286 , 342 Cochran, Johnnie, 198 , 217 Cochrane, John, 93 coffee houses, 55–6 cognitive illusions, 141–2 Cohen, Jonathan, 206–7 Colbert, Jean-Baptiste, 411 Cold War, 293–4 , 306–7 Collier, Paul, 276–7 Columbia disaster (2003), 373 Columbia University, 117 , 118 , 120 Columbus, Christopher, 4 , 21 Colyvan, Mark, 225 Comet aircraft, 23–4 , 228 communication: communicative rationality, 172 , 267–77 , 279–82 , 412 , 414–16 ; and decision-making, 17 , 231 , 272–7 , 279–82 , 398–9 , 408 , 412 , 413–17 , 432 ; eusociality, 172–3 , 274 ; and good doctors, 185 , 398–9 ; human capacity for, 159 , 161 , 162 , 172–3 , 216 , 272–7 , 408 ; and ill-defined concepts, 98–9 ; and intelligibility, 98 ; language, 98 , 99–100 , 159 , 162 , 173 , 226 ; linguistic ambiguity, 98–100 ; and reasoning, 265–8 , 269–77 ; and the smartphone, 30 ; the ‘wisdom of crowds’, 47 , 413–14 Community Reinvestment Act (USA, 1977), 207 comparative advantage model, 249–50 , 251–2 , 253 computer technologies, 27–31 , 173–4 , 175–7 , 185–6 , 227 , 411 ; big data, 208 , 327 , 388–90 ; CAPTCHA text, 387 ; dotcom boom, 228 ; and economic models, 339–40 ; machine learning, 208 Condit, Phil, 228 Condorcet, Nicolas de, 199–200 consumer price index, 330 , 331 conviction narrative theory, 227–30 Corinthians (New Testament), 402 corporate takeovers, 256–7 corporations, large, 27–31 , 122 , 123 , 286–90 , 408–10 , 412 , 415 Cosmides, Leda, 165 Cretaceous–Paleogene extinction, 32 , 39 , 71–2 Crick, Francis, 156 cricket, 140–1 , 237 , 263–5 crime novels, classic, 218 crosswords, 218 crypto-currencies, 96 , 316 Csikszentmihalyi, Mihaly, 140 , 264 Cuba, 278–80 ; Cuban Missile Crisis, 279–81 , 299 , 412 Custer, George, 293 Cutty Sark (whisky producer), 325 Daily Express , 242–3 , 244 Damasio, Antonio, 171 Dardanelles expedition (1915), 25 Darwin, Charles, 156 , 157 Davenport, Thomas, 374 Dawkins, Richard, 156 de Havilland company, 23–4 Debreu, Gerard, 254 , 343–4 decision theory, xvi ; critiques of ‘American school’, 133–7 ; definition of rationality, 133–4 ; derived from deductive reasoning, 138 ; Ellsberg’s ‘ambiguity aversion’, 135 ; expected utility , 111–14 , 115–18 , 124–5 , 127 , 128 – 30 , 135 , 400 , 435–44 ; hegemony of optimisation, 40–2 , 110–14 ; as unable to solve mysteries, 34 , 44 , 47 ; and work of Savage, 442–3 decision-making under uncertainty: and adaptation, 102 , 401 ; Allais paradox, 133–7 , 437 , 440–3 ; axiomatic approach extended to, xv , 40–2 , 110–14 , 133–7 , 257–9 , 420–1 ; ‘bounded rationality concept, 149–53 ; as collaborative process, 17 , 155 , 162 , 176 , 411–15 , 431–2 ; and communication, 17 , 231 , 272–7 , 279–82 , 398–9 , 408 , 412 , 413–17 , 432 ; communicative rationality, 172 , 267–77 , 279–82 , 412 , 414–16 ; completeness axiom, 437–8 ; continuity axiom, 438–40 ; Cuban Missile Crisis, 279–81 , 299 , 412 ; ‘decision weights’ concept, 121 ; disasters attributed to chance, 266–7 ; doctors, 184–6 , 194 , 398–9 ; and emotions, 227–9 , 411 ; ‘evidence-based policy’, 404 , 405 ; excessive attention to prior probabilities, 184–5 , 210 ; expected utility , 111–14 , 115–18 , 124–5 , 127 , 128–30 , 135 , 400 , 435–44 ; first-rate decision-makers, 285 ; framing of problems, 261 , 362 , 398–400 ; good strategies for radical uncertainty, 423–5 ; and hindsight, 263 ; independence axiom, 440–4 ; judgement as unavoidable, 176 ; Klein’s ‘primed recognition decision-making’, 399 ; Gary Klein’s work on, 151–2 , 167 ; and luck, 263–6 ; practical decision-making, 22–6 , 46–7 , 48–9 , 81–2 , 151 , 171–2 , 176–7 , 255 , 332 , 383 , 395–6 , 398–9 ; and practical knowledge, 22–6 , 195 , 255 , 352 , 382–8 , 395–6 , 405 , 414–15 , 431 ; and prior opinions, 179–80 , 184–5 , 210 ; ‘prospect theory’, 121 ; public sector processes, 183 , 355 , 415 ; puzzle– mystery distinction, 20–4 , 32–4 , 48–9 , 64–8 , 100 , 155 , 173–7 , 218 , 249 , 398 , 400–1 ; qualities needed for success, 179–80 ; reasoning as not decision-making, 268–71 ; and ‘resulting’, 265–7 ; ‘risk as feelings’ perspective, 128–9 , 310 ; robustness and resilience, 123 , 294–8 , 332 , 335 , 374 , 423–5 ; and role of economists, 397–401 ; Rumelt’s ‘diagnosis’, 184–5 , 194–5 ; ‘satisficing’ (’good enough’ outcomes), 150 , 167 , 175 , 415 , 416 ; search for a workable solution, 151–2 , 167 ; by securities traders, 268–9 ; ‘shock’ and ‘shift’ labels, 42 , 346 , 347 , 348 , 406–7 ; simple heuristics, rules of thumb, 152 ; and statistical discrimination, 207–9 , 415 ; triumph of probabilistic reasoning, 20 , 40–2 , 72–84 , 110–14 ; von Neumann– Morgenstern axioms, 111 , 133 , 435–44 ; see also business strategy deductive reasoning, 137–8 , 147 , 235 , 388 , 389 , 398 Deep Blue, 175 DeepMind, 173–4 The Deer Hunter (film, 1978), 438 democracy, representative, 292 , 319 , 414 demographic issues, 253 , 358–61 , 362–3 ; EU migration models, 369–70 , 372 Denmark, 426 , 427 , 428 , 430 dentistry, 387–8 , 394 Derek, Bo, 97 dermatologists, 88–9 Digital Equipment Corporation (DEC), 27 , 31 dinosaurs, extinction of, 32 , 39 , 71–2 , 383 , 402 division of labour, 161 , 162 , 172–3 , 216 , 249 DNA, 156 , 198 , 201 , 204 ‘domino theory’, 281 Donoghue, Denis, 226 dotcom boom, 316 , 402 Doyle, Arthur Conan, 34 , 224–5 , 253 Drapers Company, 328 Drescher, Melvin, 248–9 Drucker, Peter, Concept of the Corporation (1946), 286 , 287 Duhem–Quine hypothesis, 259–60 Duke, Annie, 263 , 268 , 273 Dulles, John Foster, 293 Dutch tulip craze (1630s), 315 Dyson, Frank, 259 earthquakes, 237–8 , 239 Eco, Umberto, The Name of the Rose , 204 Econometrica , 134 econometrics, 134 , 340–1 , 346 , 356 economic models: of 1950s and 1960s, 339–40 ; Akerlof model, 250–1 , 252 , 253 , 254 ; ‘analogue economies’ of Lucas, 345 , 346 ; artificial/complex, xiv–xv , 21 , 92–3 , 94 ; ‘asymmetric information’ model, 250–1 , 254–5 ; capital asset pricing model (CAPM), 307–8 , 309 , 320 , 332 ; comparative advantage model, 249–50 , 251–2 , 253 ; cost-benefit analysis obsession, 404 ; diversification of risk, 304–5 , 307–9 , 317–18 , 334–7 ; econometric models, 340–1 , 346 , 356 ; economic rent model, 253–4 ; efficient market hypothesis, 252 , 254 , 308–9 , 318 , 320 , 332 , 336–7 ; efficient portfolio model, 307–8 , 309 , 318 , 320 , 332–4 , 366 ; failure over 2007–08 crisis, xv , 6–7 , 260 , 311–12 , 319 , 339 , 349–50 , 357 , 367–8 , 399 , 407 , 423–4 ; falsificationist argument, 259–60 ; forecasting models, 7 , 15–16 , 68 , 96 , 102–5 , 347–50 , 403–4 ; Goldman Sachs risk models, 6–7 , 9 , 68 , 202 , 246–7 ; ‘grand auction’ of Arrow and Debreu, 343–5 ; inadequacy of forecasting models, 347–50 , 353–4 , 403–4 ; invented numbers in, 312–13 , 320 , 363–4 , 365 , 371 , 373 , 404 , 405 , 423 ; Keynesian, 339–40 ; Lucas critique, 341 , 348 , 354 ; Malthus’ population growth model, 253 , 358–61 , 362–3 ; misuse/abuse of, 312–13 , 320 , 371–4 , 405 ; need for, 404–5 ; need for pluralism of, 276–7 ; pension models, 312–13 , 328–9 , 405 , 423 , 424 ; pre-crisis risk models, 6–7 , 9 , 68 , 202 , 246–7 , 260 , 311–12 , 319 , 320–1 , 339 ; purpose of, 346 ; quest for large-world model, 392 ; ‘rational expectations theory, 342–5 , 346–50 ; real business cycle theory, 348 , 352–4 ; role of incentives, 408–9 ; ‘shift’ label, 406–7 ; ‘shock’ label, 346–7 , 348 , 406–7 ; ‘training base’ (historical data series), 406 ; Value at risk models (VaR), 366–8 , 405 , 424 ; Viniar problem (problem of model failure), 6–7 , 58 , 68 , 109 , 150 , 176 , 202 , 241 , 242 , 246–7 , 331 , 366–8 ; ‘wind tunnel’ models, 309 , 339 , 392 ; winner’s curse model, 256–7 ; World Economic Outlook, 349 ; see also axiomatic rationality; maximising behaviour; optimising behaviour; small world models Economic Policy Symposium, Jackson Hole, 317–18 economics: adverse selection process, 250–1 , 327 ; aggregate output and GDP, 95 ; ambiguity of variables/concepts, 95–6 , 99–100 ; appeal of probability theory, 42–3 ; ‘bubbles’, 315–16 ; business cycles, 45–6 , 347 ; Chicago School, 36 , 72–4 , 86 , 92 , 111–14 , 133–7 , 158 , 257–8 , 307 , 342–3 , 381–2 ; data as essential, 388–90 ; division of labour, 161 , 162 , 172–3 , 216 , 249 ; and evolutionary mechanisms, 158–9 ; ‘expectations’ concept, 97–8 , 102–3 , 121–2 , 341–2 ; forecasts and future planning as necessary, 103 ; framing of problems, 261 , 362 , 398–400 ; ‘grand auction’ of Arrow and Debreu, 343–5 ; hegemony of optimisation, 40–2 , 110 – 14 ; Hicks–Samuelson axioms, 435–6 ; market fundamentalism, 220 ; market price equilibrium, 254 , 343–4 , 381–2 ; markets as necessarily incomplete, 344 , 345 , 349 ; Marshall’s definition of, 381 , 382 ; as ‘non-stationary’, 16 , 35–6 , 45–6 , 102 , 236 , 339–41 , 349 , 350 , 394–6 ; oil shock (1973), 223 ; Phillips curve, 340 ; and ‘physics envy’, 387 , 388 ; and power laws, 238–9 ; as practical knowledge, 381 , 382–3 , 385–8 , 398 , 399 , 405 ; public role of the social scientist, 397–401 ; reciprocity in a modern economy, 191–2 , 328–9 ; and reflexivity, 35–6 , 309 , 394 ; risk and volatility, 124–5 , 310 , 333 , 335–6 , 421–3 ; Romer’s ‘mathiness’, 93–4 , 95 ; shift or structural break, 236 ; Adam Smith’s ‘invisible hand’, 163 , 254 , 343 ; social context of, 17 ; sources of data, 389 , 390 ; surge in national income since 1800, 161 ; systems as non-linear, 102 ; teaching’s emphasis on quantitative methods, 389 ; validity of research findings, 245 ‘Economists Free Ride, Does Anyone Else?’


pages: 944 words: 243,883

Private Empire: ExxonMobil and American Power by Steve Coll

addicted to oil, anti-communist, Atul Gawande, banking crisis, Berlin Wall, call centre, carbon footprint, clean water, collapse of Lehman Brothers, corporate governance, corporate social responsibility, decarbonisation, energy security, European colonialism, Exxon Valdez, failed state, Fall of the Berlin Wall, Google Earth, hydraulic fracturing, hydrogen economy, illegal immigration, income inequality, industrial robot, Intergovernmental Panel on Climate Change (IPCC), inventory management, kremlinology, market fundamentalism, McMansion, medical malpractice, Mikhail Gorbachev, oil shale / tar sands, oil shock, peak oil, place-making, Ponzi scheme, price mechanism, profit maximization, profit motive, Ronald Reagan, Saturday Night Live, Scramble for Africa, shareholder value, Silicon Valley, smart meter, statistical model, Steve Jobs, WikiLeaks

As Tariq Shafiq had observed about the First World War, access by Western companies to Iraq’s oil did not need to be an explicit cause of the Bush administration’s invasion to become an outcome. Douglas Feith had been thinking about global oil security issues since the first term of the Reagan administration, when he worked on energy policy as a young staffer at the National Security Council. He considered himself something of a contrarian on the subject. After the oil shocks and embargoes of the 1970s, it was common in Washington to think of “energy security” as a problem in which newly powerful Arab exporters could wield the “oil weapon” over vulnerable Western importers. This was the political science model of oil security, as Feith put it. Oil supplies lay scattered around the globe, as on the board of a Risk game, and governments competed for advantage and control.

The chemical processes by which ethanol could be extracted from sugar and grain had been known to mankind for centuries—mainly because they produced an alcohol that made people drunk and happy, or at least temporarily distracted them from their miseries. Ethanol had also been burned as a fuel in the industrializing West since the early nineteenth century, but it was not as efficient as oil-derived fuels such as kerosene. It first emerged as a subject of possible federal regulation and mandates for use in the United States after the oil shocks of the 1970s. In that era’s search for freedom from Middle Eastern oil, ethanol distilled from corn surfaced as a possible solution. The fuel’s advocates—primarily in the agricultural Midwest—also promoted ethanol blends as a way to reduce air-polluting carbon monoxide emissions from burned gasoline. Initially, gasoline blenders added MTBE to their fuels to reduce carbon monoxide pollution. When concerns about MTBE’s impact on human health surfaced, ethanol reemerged as a potentially safer alternative.

New York: Mariner Books, 2004. Roderick, Jack. Crude Dreams: A Personal History of Oil & Politics in Alaska. Fairbanks, AK: Epicenter Press, 1997. Safina, Carl. A Sea in Flames: The Deepwater Horizon Oil Blowout. New York: Crown, 2011. Shaxon, Nicholas. Poisoned Wells: The Dirty Politics of African Oil. New York: Palgrave Macmillan, 2007. Simmons, Matthew R. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, NJ: Wiley, 2005. Suskind, Ron. The Price of Loyalty. New York: Simon & Schuster, 2004. Tarbell, Ida M. The History of the Standard Oil Company. New York: McClure, Phillips, 1904. Taylor, Jean Gelman. Indonesia: Peoples and Histories. New Haven, CT: Yale University Press, 2004. Woodward, Bob. Plan of Attack. New York: Simon & Schuster, 2004. Yergin, Daniel.


Trend Commandments: Trading for Exceptional Returns by Michael W. Covel

Albert Einstein, Bernie Madoff, Black Swan, business cycle, buy and hold, commodity trading advisor, correlation coefficient, delayed gratification, diversified portfolio, en.wikipedia.org, Eugene Fama: efficient market hypothesis, family office, full employment, Lao Tzu, Long Term Capital Management, market bubble, market microstructure, Mikhail Gorbachev, moral hazard, Myron Scholes, Nick Leeson, oil shock, Ponzi scheme, prediction markets, quantitative trading / quantitative finance, random walk, Sharpe ratio, systematic trading, the scientific method, transaction costs, tulip mania, upwardly mobile, Y2K, zero-sum game

Do not strive for things occurring to occur as you wish, but wish the things occurring as they occur, and you will flow well.1 Ignition Trading for exceptional returns may not appear realistic in the schizophrenic cacophony: “What is the right approach for investors faced with an unusually uncertain economic outlook and volatile markets?” “Big concerns over job insecurity, consumer and corporate spending, and housing prices.” “Should you buy gold?” “Where are markets headed?” “Oil shock, dollar drop, Japanese earthquake, elections!” That’s white noise. Yes, sure, of course, you may have more options, but an explosion of naiveté has muddied the waters. Ignorance and confusion reign supreme. The idiot box is no longer just the bedroom flat screen. It is every PC, Mac, iPhone, and iPad. People absorb TMZ and Drudge via an intravenous drip. We are in a voyeuristic world where living vicariously through someone or something is accepted without hesitation and, in fact, encouraged.


pages: 330 words: 59,335

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike

Albert Einstein, Atul Gawande, Berlin Wall, Checklist Manifesto, choice architecture, Claude Shannon: information theory, collapse of Lehman Brothers, compound rate of return, corporate governance, discounted cash flows, diversified portfolio, Donald Trump, Fall of the Berlin Wall, Gordon Gekko, intangible asset, Isaac Newton, Louis Pasteur, Mark Zuckerberg, NetJets, Norman Mailer, oil shock, pattern recognition, Ralph Waldo Emerson, Richard Feynman, shared worldview, shareholder value, six sigma, Steve Jobs, Thomas Kuhn: the structure of scientific revolutions

Over the long term, this systematic, methodical blend of low buying and high selling produced exceptional returns for shareholders. A Distant Mirror: 1974–1982 In assessing the current relevance of these outsider CEOs, it’s worth looking at how each navigated the post–World War II period that looks most like today’s extended economic malaise: the brutal 1974–1982 period. That period featured a toxic combination of an external oil shock, disastrous fiscal and monetary policy, and the worst domestic political scandal in the nation’s history. This cocktail of negative news produced an eight-year period that saw crippling inflation, two deep recessions (and bear markets), 18 percent interest rates, a threefold increase in oil prices, and the first resignation of a sitting US president in over one hundred years. In the middle of this dark period, in August 1979, BusinessWeek famously ran a cover story titled “Are Equities Dead?”


pages: 217 words: 61,407

Twilight of Abundance: Why the 21st Century Will Be Nasty, Brutish, and Short by David Archibald

Bakken shale, Climategate, Climatic Research Unit, deindustrialization, energy security, failed state, Francis Fukuyama: the end of history, income per capita, Intergovernmental Panel on Climate Change (IPCC), means of production, mutually assured destruction, oil shale / tar sands, oil shock, out of africa, peak oil, price discovery process, rising living standards, sceptred isle, South China Sea, University of East Anglia, uranium enrichment, Yom Kippur War

A few pilot plants producing liquid fuels from coal were also operating in the United States until cheap oil killed off those efforts in the early 1950s. South Africa adopted CTL technology as a way of sidestepping the international oil embargo imposed on it because of apartheid. A similar technology has actually been operating in the United States since 1984. The Carter administration started building the Great Plains Synfuels Plant in Beulah, North Dakota, in response to the oil shock of 1980. Based, like so many Carter administration initiatives, on a flawed understanding of the world, it was begun with good intentions, but its results fell short of what they should have been. The Beulah plant could be making, and should be making, liquid fuels. Instead, it manufactures synthetic natural gas. When the plant was being built, it was thought that the United States had a greater shortage of natural gas than of oil.


100 Baggers: Stocks That Return 100-To-1 and How to Find Them by Christopher W Mayer

bank run, Bernie Madoff, business cycle, buy and hold, cloud computing, disintermediation, Dissolution of the Soviet Union, dumpster diving, Edward Thorp, hindsight bias, housing crisis, index fund, Jeff Bezos, market bubble, Network effects, new economy, oil shock, passive investing, peak oil, shareholder value, Silicon Valley, Stanford marshmallow experiment, Steve Jobs, survivorship bias, The Great Moderation, The Wisdom of Crowds

Ben Graham’s greatest student was Warren Buffett—also a great ignorer of forecasts. In his 1994 shareholder letter, Buffett showed he had taken Graham’s lesson to heart: We will continue to ignore political and economic forecasts which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. . . . But, surprise—none of these blockbuster events made the slightest dent in Ben Graham’s investment principles. MISCELLANEOUS MENTATION ON 100-BAGGERS 1 45 I often hear sweeping pronouncements made about the stock market and where it’s going from pundits and investors everywhere, as I’m sure you do too.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

In Brazil, for example, the military toppled an increasingly left-leaning government in a 1964 coup and moved quickly to restart the economy by cutting red tape, creating a central bank, working to lower budget deficits, and cutting taxes for exporters. The economic growth rate accelerated from less than 5 percent to double digits until the first oil price shock hit in 1974, and the military government—increasingly embattled by its violent crackdown on critics at home and abroad—tried to command a continued boom. It started borrowing heavily, piling up foreign debts it could no longer pay, when the second oil shock hit in 1979. The economy slid into recession and runaway inflation by the time the junta agreed to new elections in 1984. In some respects, the country never recovered from the meddling instincts of the later military government, and its per capita income relative to the United States is at the same level as it was in the 1970s. In contrast, democracies dominate the list of countries that since 1950 have registered the fewest years of extreme growth.

Bernstein Research, December 6, 2013. Reid, Jim, Nick Burns, and Seb Barker, “Long-Term Asset Return Study: Bonds: The Final Bubble Frontier?” Deutsche Bank Markets Research Report, September 10, 2014. Schofield, Mark. “Challenging the Consensus on Inflation.” Citigroup Research, June 29, 2015. Scott, David. “Deflationary Boom—Some Random Thoughts and Questions.” Cha-am Advisors, March 2, 2015. Sharma, Ruchir. “The Oil Shock with No Pain.” Newsweek, October 31, 2005. ——. “Cracking Inflation Should Be India’s Priority.” Financial Times, December 8, 2013. Stephens, Bret. “Book Review: ‘The Myth of America’s Decline,’ by Josef Joffe.” Wall Street Journal, November 6, 2013. Ward, Justin. “Commodity Super Cycle Analysis.” Wells Fargo Research, January 15, 2015. Warsh, Kevin, and Stanley Druckenmiller. “The Asset-Rich, Income-Poor Economy.”


pages: 257 words: 64,285

The End of Traffic and the Future of Transport: Second Edition by David Levinson, Kevin Krizek

2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 3D printing, American Society of Civil Engineers: Report Card, autonomous vehicles, barriers to entry, Bay Area Rapid Transit, big-box store, Chris Urmson, collaborative consumption, commoditize, crowdsourcing, DARPA: Urban Challenge, dematerialisation, Elon Musk, en.wikipedia.org, Google Hangouts, Induced demand, intermodal, invention of the printing press, jitney, John Markoff, labor-force participation, lifelogging, Lyft, means of production, megacity, Menlo Park, Network effects, Occam's razor, oil shock, place-making, post-work, Ray Kurzweil, rent-seeking, ride hailing / ride sharing, Robert Gordon, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, technological singularity, Tesla Model S, the built environment, Thomas Kuhn: the structure of scientific revolutions, transaction costs, transportation-network company, Uber and Lyft, Uber for X, uber lyft, urban renewal, women in the workforce, working-age population, Yom Kippur War, zero-sum game, Zipcar

But it can ramp up by applying real-time information and mobile communications. Notably, conventional micro-transit typically focuses on work trips, while the newer MaaS systems are primarily for anything but commuting. Intercity trips have their own and separate dynamics.240 Vanpool. Micro-transit is a continuum from the automobile and MaaS. This is best illustrated at the most basic level, the vanpool, which gained popularity with the oil shocks of the 1970s. Ranging from a scaled-up carpool where riders chip in to pay the driver/owner who is also a commuter to systems that are organized collectively with professional drivers, vanpools have long served niche markets. They face the dilemma that passengers must forego any demand for schedule flexibility. There will not be a vanpool following if you miss this one. Jitneys. Today Via, a smartphone app-powered service operating in Manhattan advertises "Smarter than the subway.


pages: 305 words: 69,216

A Failure of Capitalism: The Crisis of '08 and the Descent Into Depression by Richard A. Posner

Andrei Shleifer, banking crisis, Bernie Madoff, business cycle, collateralized debt obligation, collective bargaining, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, debt deflation, diversified portfolio, equity premium, financial deregulation, financial intermediation, Home mortgage interest deduction, illegal immigration, laissez-faire capitalism, Long Term Capital Management, market bubble, money market fund, moral hazard, mortgage debt, Myron Scholes, oil shock, Ponzi scheme, price stability, profit maximization, race to the bottom, reserve currency, risk tolerance, risk/return, Robert Shiller, Robert Shiller, savings glut, shareholder value, short selling, statistical model, too big to fail, transaction costs, very high income

Doom" about a reputable academic economist, a professor at New York University named Nouriel Roubini, who for years had been predicting with uncanny accuracy what has now happened. The article reported that in September 2006—two years before the financial crisis but after the bursting of the housing bubble—Roubini had "announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac."


pages: 232 words: 70,361

The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay by Emmanuel Saez, Gabriel Zucman

activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Berlin Wall, business cycle, Cass Sunstein, collective bargaining, corporate governance, Donald Trump, financial deregulation, income inequality, income per capita, informal economy, intangible asset, Jeff Bezos, labor-force participation, Lyft, Mark Zuckerberg, market fundamentalism, Mont Pelerin Society, mortgage debt, mortgage tax deduction, new economy, offshore financial centre, oil shock, patent troll, profit maximization, purchasing power parity, race to the bottom, rent-seeking, ride hailing / ride sharing, Ronald Reagan, shareholder value, Silicon Valley, single-payer health, Skype, Steve Jobs, The Wealth of Nations by Adam Smith, transfer pricing, trickle-down economics, uber lyft, very high income, We are the 99%

In the 1950s and up to the late 1960s, with virtually no competition from Europe or Japan, US corporations were highly profitable. This started to change in 1969 and 1970, when the US economy entered a recession as the government increased taxes to close the budget deficits of the Vietnam War and the Federal Reserve tightened interest rates to fight inflation. The decline in profitability continued with the Oil Shock of 1973 which led to a severe recession and the large increase in interest rates during the 1970s. Because interest is tax deductible, high interest payments reduce the tax base and hence corporate tax revenue. These macroeconomic effects were followed, in the late 1970s and in the first half of the 1980s, by the birth of the corporate tax-dodging industry—at the same time the tax-sheltering industry swelled, and in the same ideological context.


pages: 272 words: 19,172

Hedge Fund Market Wizards by Jack D. Schwager

asset-backed security, backtesting, banking crisis, barriers to entry, beat the dealer, Bernie Madoff, Black-Scholes formula, British Empire, business cycle, buy and hold, Claude Shannon: information theory, cloud computing, collateralized debt obligation, commodity trading advisor, computerized trading, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, delta neutral, diversification, diversified portfolio, Edward Thorp, family office, financial independence, fixed income, Flash crash, hindsight bias, implied volatility, index fund, intangible asset, James Dyson, Jones Act, Long Term Capital Management, margin call, market bubble, market fundamentalism, merger arbitrage, money market fund, oil shock, pattern recognition, pets.com, Ponzi scheme, private sector deleveraging, quantitative easing, quantitative trading / quantitative finance, Right to Buy, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Rubik’s Cube, Sharpe ratio, short selling, statistical arbitrage, Steve Jobs, systematic trading, technology bubble, transaction costs, value at risk, yield curve

That’s how the Bridgewater system began and developed in the early years. That same process continued and was improved with the help of many others over the years. Are the individual rules in the compendium of rules that make up the Bridgewater system sometimes revised or do they remain static through time? They are sometimes revised. For example, we used to look at how changes in the oil price affected countries. Between the first oil shock and the second oil shock in the 1970s, crude oil was discovered in the North Sea, and the U.K. went from being a net importer to a net exporter. That event prompted us to change how we configured the decision rule that related to oil prices so that when the mix of export and import items changed, the rule changed. How are you able to manage such a large amount of money without substantially impeding your performance?


How to Hide an Empire: A History of the Greater United States by Daniel Immerwahr

Albert Einstein, book scanning, British Empire, Buckminster Fuller, call centre, citizen journalism, City Beautiful movement, clean water, colonial rule, deindustrialization, Deng Xiaoping, desegregation, Donald Trump, drone strike, European colonialism, friendly fire, gravity well, Haber-Bosch Process, Howard Zinn, immigration reform, land reform, Mercator projection, offshore financial centre, oil shale / tar sands, oil shock, QWERTY keyboard, Ralph Waldo Emerson, Richard Feynman, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transcontinental railway, urban planning, wikimedia commons

It is hard to imagine Kissinger embarking on such unbounded flights of imperialist reverie on behalf of rubber, tin, or any other former colonial commodity. Still, even when it comes to oil, flare-ups of naked imperialism have been rare and haven’t ultimately led to annexations. Kissinger’s idea of a U.S. overseas territory of Abu Dhabi was a daydream, not a plan (though it does appear that the Nixon administration was serious about seizing Middle Eastern oil fields if necessary). And, however painful the 1970s oil shock was for the U.S. economy, its danger was a matter of rising prices rather than of absolute, “we can’t fight a war” shortages. At no point in the twentieth century was there a serious possibility that oil would actually run out. Today, with new technologies enabling the exploitation of Canadian tar sands and the partial substitution of natural gas for oil, that danger seems as remote as ever. * * * In 1969 the United States achieved what was probably its most technically difficult goal since the Second World War: the moon landing.

: The United States and Western Europe, 1945–52,” Journal of Peace Research 23 (1966): 264. “may have to,” etc.: Daniel J. Sargent, A Superpower Transformed: The Remaking of American Foreign Relations in the 1970s (New York, 2015), 185. Nixon administration was serious: Lizette Alvarez, “Britain Says U.S. Planned to Seize Oil in ’73 Crisis,” NYT, January 2, 2004. matter of rising prices: A governmental investigation attributed the 1973–74 oil shock to panicked hoarding rather than inadequate supply. NSCC, Nation’s Resources, chap. 4. Also see Timothy Mitchell, Carbon Democracy: Political Power in the Age of Oil (London, 2011), chap. 7. The moon suits: NASA, “Space Suit Evolution: From Custom Tailored to Off-the-Rack,” 1994, history.nasa.gov/spacesuits.pdf. The fifty-star flag that: DuPont, “DuPont Science: Out of This World and Down to Earth,” www2.dupont.com/Media_Center/en_US/assets/downloads/pdf/DuPont_SpaceEarth_FactSheet.pdf. 17.


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, G4S, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, sovereign wealth fund, stem cell, Stewart Brand

The romantics prefer wind power, tidal power, and solar power, all of which are readily intelligible to ordinary citizens; nuclear power harnesses forces of nature only intelligible to a scientific elite. Unfortunately, however, wind, wave, and sun power are not yet scalable in the way that nuclear power is scalable. By far the most carbon-efficient advanced economy is France, which, following the oil shock of 1974, decided to achieve energy security by investing in nuclear power. France was able to do this because whereas elsewhere the political left was hostile to nuclear energy, in France it was nationalistic and so supported the idea of independence from imported oil. Wind, wave, and solar power may eventually become scalable (provided enough money is put into research), but for the moment pragmatists such as Stewart Brand, one of the pioneers of the environmental movement, have accepted that nuclear power is an essential part of the battle to contain global warming.


pages: 251 words: 76,868

How to Run the World: Charting a Course to the Next Renaissance by Parag Khanna

Albert Einstein, Asian financial crisis, back-to-the-land, bank run, blood diamonds, Bob Geldof, borderless world, BRICs, British Empire, call centre, carbon footprint, charter city, clean water, cleantech, cloud computing, commoditize, continuation of politics by other means, corporate governance, corporate social responsibility, Deng Xiaoping, Doha Development Round, don't be evil, double entry bookkeeping, energy security, European colonialism, facts on the ground, failed state, friendly fire, global village, Google Earth, high net worth, index fund, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Kickstarter, laissez-faire capitalism, Live Aid, Masdar, mass immigration, megacity, microcredit, mutually assured destruction, Naomi Klein, Nelson Mandela, New Urbanism, off grid, offshore financial centre, oil shock, open economy, out of africa, Parag Khanna, private military company, Productivity paradox, race to the bottom, RAND corporation, reserve currency, Silicon Valley, smart grid, South China Sea, sovereign wealth fund, special economic zone, sustainable-tourism, The Fortune at the Bottom of the Pyramid, The Wisdom of Crowds, too big to fail, trade liberalization, trickle-down economics, UNCLOS, uranium enrichment, Washington Consensus, X Prize

As Robert Hormats, a veteran America Sherpa recently returned to the Obama administration, recalls, Sherpas think of themselves as “munchkins,” like the old but diminutive Wizard of Oz characters. So many young diplomats today want to become Sherpas—but first they have to do an apprenticeship as “yaks.” For Jay and his counterparts, being a Sherpa is the peak of professional achievement in diplomacy: “It’s a tough job, but huge fun!” Since the 1970s oil shocks, the Sherpa job has attracted some of the best troubleshooters from the world’s leading governments. For thirty-five years, their main job was to coordinate financial stability policies among the Group of Seven (G-7), which until recently was the exclusive club of the world’s leading industrial economies.* But in late 2008, their task was nothing less than saving the world from a looming depression.


pages: 265 words: 74,941

The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work by Richard Florida

banking crisis, big-box store, blue-collar work, business cycle, car-free, carbon footprint, collapse of Lehman Brothers, congestion charging, creative destruction, deskilling, edge city, Edward Glaeser, falling living standards, financial innovation, Ford paid five dollars a day, high net worth, Home mortgage interest deduction, housing crisis, if you build it, they will come, income inequality, indoor plumbing, interchangeable parts, invention of the telephone, Jane Jacobs, Joseph Schumpeter, knowledge economy, low skilled workers, manufacturing employment, McMansion, Menlo Park, Nate Silver, New Economic Geography, new economy, New Urbanism, oil shock, Own Your Own Home, pattern recognition, peak oil, Ponzi scheme, post-industrial society, postindustrial economy, reserve currency, Richard Florida, Robert Shiller, Robert Shiller, secular stagnation, Silicon Valley, Silicon Valley startup, social intelligence, sovereign wealth fund, starchitect, the built environment, The Wealth of Nations by Adam Smith, Thomas L Friedman, total factor productivity, urban decay, urban planning, urban renewal, white flight, young professional, Zipcar

.: Prince ton University Press, 2001); James Kunstler, The Long Emergency: Surviving the End of the Oil Age, Climate Change, and Other Converging Catastrophes (New York: Atlantic Monthly Press, 2005); Paul Roberts, The End of Oil: On the Edge of a Perilous New World (Boston: Houghton Mifflin, 2004); Michael Ruppert, Crossing the Rubicon: The Decline of the American Empire at the End of the Age of Oil (Gabriola Island, Canada: New Society Press, 2005); Matthew Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy (Hoboken, N.J.: Wiley & Sons, 2005); Christopher Steiner, $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better (New York: Grand Central Publishing, 2009); Jeff Rubin, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization (New York: Random House, 2009). 4. James Kunstler, “The Long Emergency,” Rolling Stone, March 24, 2005. 5.


pages: 267 words: 74,296

Unhappy Union: How the Euro Crisis - and Europe - Can Be Fixed by John Peet, Anton La Guardia, The Economist

bank run, banking crisis, Berlin Wall, Bretton Woods, business cycle, capital controls, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, debt deflation, Doha Development Round, eurozone crisis, Fall of the Berlin Wall, fixed income, Flash crash, illegal immigration, labour market flexibility, labour mobility, light touch regulation, market fundamentalism, moral hazard, Northern Rock, oil shock, open economy, pension reform, price stability, quantitative easing, special drawing rights, supply-chain management, The Great Moderation, too big to fail, transaction costs, éminence grise

Indeed, at a summit meeting of heads of government in Paris in December 1972, all nine national leaders, including the UK’s Edward Heath, signed up blithely not only to monetary union but also to political union by 1980. A last-minute attempt by the Danish prime minister to ask his colleagues exactly what was meant by political union was ignored by the French president, Georges Pompidou, who was in the chair.8 It was the final collapse of Bretton Woods, followed by the Arab-Israeli war and oil shock and then by the global recession of 1974–75, that upset most of these ambitious plans. Yet by then West Germany, always on the look-out for greater currency stability, had already set up a system linking most of Europe’s currencies to the Deutschmark, swiftly dubbed the “snake in the tunnel”. The idea was to set limits to bilateral currency fluctuations, enforced by central-bank intervention. However, it turned out that the snake had only a fitful and unsatisfactory life.


pages: 333 words: 76,990

The Long Good Buy: Analysing Cycles in Markets by Peter Oppenheimer

"Robert Solow", asset allocation, banking crisis, banks create money, barriers to entry, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, business cycle, buy and hold, Cass Sunstein, central bank independence, collective bargaining, computer age, credit crunch, debt deflation, decarbonisation, diversification, dividend-yielding stocks, equity premium, Fall of the Berlin Wall, financial innovation, fixed income, Flash crash, forward guidance, Francis Fukuyama: the end of history, George Akerlof, housing crisis, index fund, invention of the printing press, Isaac Newton, James Watt: steam engine, joint-stock company, Joseph Schumpeter, Kickstarter, liberal capitalism, light touch regulation, liquidity trap, Live Aid, market bubble, Mikhail Gorbachev, mortgage debt, negative equity, Network effects, new economy, Nikolai Kondratiev, Nixon shock, oil shock, open economy, price stability, private sector deleveraging, Productivity paradox, quantitative easing, railway mania, random walk, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, Simon Kuznets, South Sea Bubble, special economic zone, stocks for the long run, technology bubble, The Great Moderation, too big to fail, total factor productivity, trade route, tulip mania, yield curve

But there has been a renewed fall since the financial crisis. Although the 1990s is often referred to as the period of the ‘Great Moderation’ because of its stable growth and low inflation, it came to an end largely as a result of the technology bubble in equity markets at the end of the century. But, since then, macro volatility has fallen again. Typical drivers of past recessions, such as industrial shocks, oil shocks and inflationary overheating, have become less of a threat since the financial crisis. Together with this, the current cycle looks likely to be even longer in the absence of significant rises in interest rates, financial bubbles or macro imbalances. Exhibit 9.13 Volatility of US GDP growth, inflation and unemployment rates has declined, especially since the 1980s (5-year rolling volatility) SOURCE: Goldman Sachs Global Investment Research.


pages: 235 words: 73,873

Half In, Half Out: Prime Ministers on Europe by Andrew Adonis

banking crisis, Berlin Wall, Big bang: deregulation of the City of London, Boris Johnson, Bretton Woods, British Empire, centre right, colonial rule, congestion charging, Corn Laws, cuban missile crisis, Dominic Cummings, eurozone crisis, imperial preference, mass immigration, Neil Kinnock, oil shock

Ever the realist, Callaghan was now as anxious as Wilson for a resolution that kept Britain in Europe, paving the way for him to become Wilson’s successor with support of a unified Labour right wing. The ‘language of Chaucer’ became the language of barter, of which Callaghan was master. The new Chancellor of Germany, Helmut Schmidt, and President of France Giscard d’Estaing, both Anglophiles and English speakers, and desperate to avoid the collapse of the EEC in the midst of the ‘oil shock’ economic turbulence of the mid-1970s, obliged with the deals that Wilson and Callaghan sought on better access and lower consumer prices for Commonwealth meat, cheese and butter. This enabled them to proclaim a successful renegotiation. More importantly to Wilson the campaigner, it gave a strong line on cheaper food in the shops, which is why he put Commonwealth agricultural products, not arcane treaty changes or even the British contribution to the EU budget, at the centre of the renegotiation.


pages: 305 words: 79,356

Drowning in Oil: BP & the Reckless Pursuit of Profit by Loren C. Steffy

Berlin Wall, clean water, corporate governance, corporate raider, Exxon Valdez, Fall of the Berlin Wall, North Sea oil, oil rush, oil shock, peak oil, Piper Alpha, Ronald Reagan, South China Sea, sovereign wealth fund

Priest, Tyler. The Offshore Imperative: Shell Oil’s Search for Petroleum in Postwar America. College Station: Texas A&M University Press, 2007. The Report of the BP U.S. Refineries Independent Safety Review Panel, January 2007. Sampson, Anthony. The Seven Sisters: The Great Oil Companies and the World They Shaped. New York: Bantam Books, 1991. Simmons, Matthew R. Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy. Hoboken, N.J.: John Wiley & Sons, 2005. Solomon, Charlene M., and Michael S. Schell. Managing across Cultures: The Seven Keys to Doing Business with a Global Mindset. New York: McGraw-Hill, 2009. Tarbell, Ida M. The History of the Standard Oil Company. Edited by David M. Chambers. Mineola, N.Y.: Dover Publications, 1966. U.S. Chemical Safety and Hazard Investigation Board.


pages: 276 words: 82,603

Birth of the Euro by Otmar Issing

"Robert Solow", accounting loophole / creative accounting, Bretton Woods, business climate, business cycle, capital controls, central bank independence, currency peg, financial innovation, floating exchange rates, full employment, inflation targeting, information asymmetry, labour market flexibility, labour mobility, market fundamentalism, money market fund, moral hazard, oil shock, open economy, price anchoring, price stability, purchasing power parity, reserve currency, Y2K, yield curve

The European Currency Unit (ECU), though formally at the heart of the system, played a much more limited role (as a unit of account, etc.) than originally intended by the French. 2. Exchange rates were determined between the member currencies (the ‘parity grid’). 3. Compulsory interventions were correspondingly tied not to the ECU, that is, to a currency basket, but to the parity grid. It soon became apparent that the EMS was a system founded on the strongest currency; in short, it was a ‘DM bloc’. In the wake of the strong price pressures exerted by the second oil shock in 1979/80, the consequences of this currency system quickly came to light. The Deutsche Bundesbank fought against the inflation risks with a clear, stability-oriented monetary policy, thereby sparing Germany a repetition of the sequence of inflation and stagflation that had marked the period after the first oil price shock in the 1970s. Those countries that were unable or unwilling to join in this The rocky road to monetary union • 7 disinflationary process were forced into repeated devaluations of their currencies as their atte