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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

07 September 2010

Private sector deleveraging

In my last entry I wrote about the debt reduction imperative confronting governments and how this deleveraging need not harm economic growth. What I did not address was the need for the private sector to deleverage as well. The Bank for International Settlements (BIS) has devoted a chapter in its latest Quarterly Review (here) on private sector deleveraging, which contains valuable insights and builds on the argument I made. 

First, the BIS shows there is a significant reduction in non-government debt after a crisis where credit was booming. In fact, “on average, private sector credit over GDP increased by 44 percentage points before the crisis, followed by a drop of almost the same magnitude (38 percentage points).” So countries end up with a similar private-sector debt level after the crisis as they had before the credit expansion took place. 

Second, the debt reduction path was driven equally by GDP growth, inflation and lower credit, meaning that the debt was not inflated away but there was either GDP growth that was faster than new borrowing or there was an outright reduction in debt (the BIS says that it cannot distinguish between paying off or defaulting on debt based on the data it has.) This is important since markets are jittery that high debt ratios will produce inflation – although governments can inflate away debt more easily than the private sector if they have the help of a central bank. 

Third, the BIS argues that debt reduction is compatible with economic growth, even though its evidence for this is not quite apparent in the paper; what it says is, “A possible concern is that a sustained period of debt reduction might lead to low growth in the future. Our analysis casts doubt on this. Growth rebounds rather quickly in most of our episodes, even though debt ratios continue to fall.” 

The one aspect that the BIS does not explore is what happens when deleveraging needs to take place in both the public and the private sector at the same time. In that case, a country can only resort to exports or savings-financed private investment for growth. And while the latter can be generated internally, the former depends on others sustaining demand, which makes collective deleveraging more difficult. And while this stands as the main caveat to take away to investigate further from the BIS study, I am still heartened by the results presented here.


05 September 2010

Is Debt Destiny?

The accumulation of debt stands out as the greatest economic challenge facing many developed countries. But the idea that debt is destiny – that a country is “trapped” by debt – is hardly true, and neither is the idea that paying down is extremely painful, if not impossible. In fact, several countries have managed successful fiscal adjustments in relatively short periods, and there is much evidence that these adjustments coincided with (and were aided by) economic growth (see for example, here, here and here). The following graphs are my own attempt to contextualize the story of debt reduction across various countries.

The first graph, from the Congressional Budget Office, shows federal debt held by the public since 1790. As is clear, there are at least four episodes during which the United States has made significant reductions to its debt: from 1790 to 1830 (minus 29.6 percentage points), from 1865 to 1916 (-28.3), from 1919 to 1929 (-18.5), and from 1945 to 1973 (-87.9). Some of these episodes coincided with long-term increases in the standard of living, although these periods also included recessions and times of stagnant incomes.
The second graph shows a similar experience for a much broader set of countries (I have stopped at 2007 before the current recession led to fiscal worsening). Each of these countries managed to make a sustained reduction in gross government debt (the graph above shows net government debt). And each started and ended in very different debt levels suggesting that adjustment was possible for countries with varying initial levels of indebtedness.

In this sample, countries made a fiscal adjustment that was on average 43 percentage points from peak to through and lasted on average 14 years. At one extreme is Ireland which reduced its gross debt from almost 113% of GDP in 1987 to 24.93% of GDP in 2006 (16 years). On the other end is Finland which reduced its debt from 57% in 1996 (debt peaked in 1994) to 34.22% in 2008.
These graphs make clear that debt reduction is possible. The next graph also shows that these adjustments coincided with strong economic growth: on average, these countries grew by 2.65% during their fiscal adjustment periods (real per capita GDP growth). And for all countries save two (Netherlands and Belgium), the growth they experienced after the entered into the process of reducing debt was higher than in the previous five years when debt was either rising or stable.
Of course, there are an enormous number of caveats between what I have written above and saying “therefore a fiscal adjustment for country x in time y is possible.” Nor is it my intention to make this general point. Rather, my goal is to demonstrate (a) that a significant debt reduction is possible, (b) that it can happen during a time when real incomes are rising and (c) that it can be accomplished in the span of a generation or even less.


04 September 2010

Greece’s Convergence with Europe

Our generation has grown up with the idea of Greece as a laggard in Europe: in this narrative, Greece’s entry into the European Economic Community in 1981 was a political gesture, even though the country was economically less developed than its European peers at the time. The graph below tells a more nuanced story of Greece’s economic path in the last half-century.

The graph shows Greece’s per capita Gross Domestic Product as a share of the average in the EU-15. What it means is that at 100, Greece’s per capita income is equal to the average in the European Union (EU-15) – at 94, it means that Greece’s average income is 6% less than the average European Union income, adjusted for differences in prices (purchasing power parity). Note also that this comparison is against the EU-15, so it includes countries that were not, at the time of the comparison, members of the European Union. 

I have colored certain landmark political years to facilitate the story telling. In 1960, Greece’s average income was 57, which means that on average Greek citizens had a standard of living that was 43% below their European peers. Since 1962, however, the country started to converge with Europe, a trend that remained even during the years of the military junta (1967 to 1974). In fact, by 1973 – the last full year of the military junta and the time of the first oil shock – Greeks were barely below their European counterparts (94 vs. 100).

Between the restoration of democracy in 1974 and the entry into the European Economic Community in 1981, Greece was more or less able to sustain this gap, and in 1978, Greece’s per capita GDP peaked at just 5% below the European average. Then started a secular fall in living standards relative to other European countries and by 1989, Greece had returned the same relative standard of living that it had in 1967.

The next ten years until the entry into the Eurozone in 2001 were a wash as Greece grew just enough to sustain its gap with the rest of Europe. Then came a mini convergence which peaked in 2004 and then again in 2009 (it is not clear to me how much the revision in GDP, which I believe has been backdated only to 1997 affects this mini trend). Effectively, the 2009 number is the highest since 1983, but the European Commission forecasts that the ratio will drop to 80 by 2011.

In other words, the story of Greece as a laggard is true but incomplete. By the time of its entry into the EEC, Greece had accomplished an extraordinary feat in convergence with European incomes. It was in the 1980s when Greece fell behind and throughout the 1990s it just managed to sustain its gap as the focus of economic policy was on meeting the criteria to enter the Eurozone rather than to raise real incomes. By 2009, Greek incomes were on par – relative to the rest of Europe – to what they were in 1970 (rising at the time) and 1983 (falling).


14 May 2010

Can Greece Avoid Default?

A few days ago, the IMF published its assessment on Greece’s request for stand-by arrangement. Reading it makes me wonder if Greece can possibly avoid default.

Greece started the crisis with a public debt level of 115% of GDP (given the opacity of data, Eurostat may raise this by five to seven points). The IMF’s baseline projection shows debt rising to 149% of GDP by 2013 and then declining to 120% of GDP by 2020. This baseline projection, however, is bracketed by a sensitivity analysis that ranges in the best case scenario from 80% (if GDP growth is higher by one percentage point) to a worst case scenario of 175% (if higher deflation persists from 2010 to 2012).

What this means is that even in the IMF’s most optimist scenario, debt does not reach its 2009 levels until 2016; in the baseline scenario, 2020 debt is still above 2010 levels. Obviously, when looking at the risk of default, initial position (debt level) matters as much as trajectory (deficits), so looking at the absolute debt level is not enough. Even so, it is worth pointing out that, at best, it will take Greece seven years to reach its current debt level, which is already unsustainable. This is not a good start.

Repayment indicators confirm this negative picture. By 2015, external debt service will take up 26.4% of GDP, up from 13.8% in 2010. It would also require all the country’s exports just to service external debt (95.4%). Meanwhile, external public debt service would equal 69.5% of central government revenue.

The IMF notes that these figures “underscore the scale of market access that needs to be secured soon after the end of the program.” Put otherwise, Greece will avoid default only if it can access market funds and roll over debt at a time when its debt-to-GDP ratio will be at its peak (2013) and much higher than in 2010. Again not an encouraging sign.


28 April 2010

The Greek crisis

It is hard for your country to be plastered on the front page of major newspapers. But what has become plain to the world has been obvious to Greeks for many years – that the country has been headed towards a crisis. The global financial crisis triggered this downfall but it did not cause it. Blame lies with those who governed Greece – on the left and on the right – over the last three decades. And while much pain lies ahead, it is hard to have expected reform without crisis. If Greece can manage to pass some common sense reforms, and if the EU or the IMF can act as lighting rods to diffuse pressure and ensure change, then this could be beneficial for Greece.

A crisis long in the making

A few numbers illustrate precisely the roots of the current crisis. Greece has not had a balanced budget or a balanced current account in a long time. From 1980 to 2009 its budget deficit was 7.5% of GDP, while its current account was 5.2%. The last time Greece almost balanced its current account was in 1994, while its lowest budget deficit was in 1980 at 2.1% of GDP. So the closest that Greece has come to balancing its budget was in 1980 and its current account in 1994.

By themselves, these numbers are indicative but not indicting. Countries can run deficits without much hassle. This does not mean, as Dick Cheney put it, that “deficits don’t matter.” Rather it means that a deficit in itself is no guarantee of crisis. But breaking down the numbers reveals much more to worry about. The Greek government spends as much on goods and services as other European governments (50.4% of GDP in 2009), although it ranks 11th on that measure (meaning ten European governments spend a greater share of their GDP than Greece). In terms of revenue, however, it’s a different story. Greece’s revenues were 7.1 percentage points below the EU average: the Greek government took in 37% of GDP while European governments on average took in 44%.

Greece therefore, had a welfare state on par with Europe but without the revenues to support it. Greece also spent much more than its peers on defense (second highest after Britain) and general services, while devoting less on the environment (ranked 16th in Europe), health (19th), public order and safety (24th) and education (27th). So the Greek government spent a lot of money but mostly to provide services rather than investment or quality of life.

This system represents patronage and corruption. The imprints of both are deeply embedded in my mind – from politicians helping secure a job in the highly coveted public sector with its lifelong employment, to getting a painless transfer in the military, to being told what the price of a good is “with and without a receipt,” to leveraging political connections to get a second phone line, to bribing doctors to do their jobs, to payments made to tax officials so that they eschew imposing whatever penalties they wished. Little moves without corruption.

Having a welfare system but not paying for it meant that Greece’s debt was rising. The data on government debt paints a bad picture, but not a worsening one, at least until 2009 rolls around, with debt hovering around 100% of GDP. The data on household debt show a rapidly deteriorating position from a debt level of 17% of income in 2000 to 71% of income in 2008. Greece’s position relative to other European countries was much worse in terms of government debt than household debt: Greece has had the second worst government debt-to-GDP ratio in Europe since 2004 (after Italy). For household debt, it ranks 14th in Europe with its 71% debt-to-income ratio comparing favorably with a Euro-area average of 93.2%.

This indebtedness would have sparked a crisis sooner had it not been for the Euro, to which Greece was admitted in 2000. Once in the Euro, Greece borrowed at low interest rates – in fact, the spread to German bonds all but disappeared. This is hard to explain since the Eurozone agreement disavowed the bailing out of any insolvent Euro member. Currency was common but debts were national. Lower bond yields meant markets had ruled out devaluation (rightly, since Greece had no control over monetary policy to devalue) but they also discounted default. What could have been an orderly nudge to the Greek state to contain its deficits became an abrupt push when markets lost faith in Greece.

The Greek government was hardly alarmed at the ballooning deficits. I remember asking George Alogoskoufis, then Greece’s finance ministry, during a visit to Washington about Greece’s current account deficit, which at the time was around 13% of GDP. His response: “this shows the faith that foreign investors have in the Greek economy.” Effectively, we was taking a chapter from the debate on the US current account deficit and applying it to Greece, arguing that it was a capital inflow rather than imports running amok. To close the deficit meant painful and unpopular reforms – and who wants that? In fact – and my memory may be faulty here – it is hard to think back to any major structural reforms that have been implemented in the country in the recent past.

In that sense, an external force to implement reforms can be welcome. I realize that there is much quarrel in the world with the IMF and the conditionality it attaches to its loans. But there is also something frustratingly simple about the Greek crisis – it may be a political minefield but it is an economics plain-field. What Greece needs is Econ 101 – not much more than that.

Why Greece matters

The Greek crisis has two components: first, there is a short-term liquidity issue as Greece needs to raise about of €50-€55 billion per year in the next few years from a market that is unwilling to lend it money at low rates; and second, a long-term structural crisis which hinges on the Greek government producing a credible plan to reduce spending and raise revenues.

Greece matters economically and politically. Economically, it matters because a Greek default would spill over in two ways; first, it would make Greek debt almost worthless (or create much uncertainty around its value). Banks using Greek debt as collateral will need to post new collateral, triggering a potential sell-off that pushes other prices down as well (this may have been accomplished already as Greek bonds were given a junk rating by S&P). According to the Bank for International Settlements, foreign banks had a $216 billion exposure to Greece at the end of 2009 – of which French and German banks held more than 50%.

Second, markets are worried that other European countries may follow soon. Fear can raise borrowing costs for other EU members: Ireland, Spain and Italy have already seen their spreads relative to German bonds spike, although nowhere near Greek levels (around 651 basis points). Higher interest rates could mean other countries may seek a non-market solution (a bail out) for their borrowing needs.

The political reason that Greece matters is that this is Europe’s first crisis and there is much interest to see how it deals with it. The Eurozone agreement had an explicit decree to prevent the Eurozone countries from assuming each other’s debts. This was a precondition for approval for countries such as Germany which feared they would be called to bail out profligate members (and this is the main reason why the German public is so opposed to a bail-out for Greece).

Against this, however, stand two ideas: first is the idea of solidarity, which says that Europeans need to stick with and support one another. Second, there is the broader question of relevance – what is the point of being in the European club if it cannot assist you in a crisis. This is not the first time that Greece has felt this way; in 1974, it pulled out of NATO’s military structure after it felt that the alliance had done little to assuage its fears of a Turkish attack. So for a second time in forty years, Greece is in a crisis, and its main allies are wavering or cannot help it.

More importantly, what kind of Europe emerges from this crisis? The Eurozone agreement had an unsustainable compromise. Countries pledged to a common monetary policy, but they retained control over fiscal policy. Since Europe has no powers to tax people, the bargain makes sense. But Europe also lacked powers to police and punish members whose fiscal policies were excessive. Clearly, markets did not differentiate between German debts and Greek debts so “market discipline” was insufficient. Since 2002, one to six countries have had annual budget deficits exceeding the recommended 3% of GDP ceiling, and yet Europe was powerless to do anything.

In other words, the bigger question for Europe is whether it will implement measures that give it some authority over fiscal matters – and whether in doing so it will seek the support or approval of the European public. It may well look for new powers without new mandates, in which case, the greatest implication of this crisis may have been to redraw the boundaries between core and periphery in Europe, shifting a great deal of power from nation states to the center.


25 October 2009

Brian the revolutionary

It is easy to see Monty Python's Life of Brian (1979) as a satire on religion. The signs are there. The biblical setting. Talk of messiah. Blasphemy. Crucifixion. But as commentary on religion, it is not especially profound. Following false prophets, splitting among ludicrous divisions of creed (shoe versus gourd), seeing meaning in garble. These are its messages. Yet it is far deeper as a satire of the revolutionary. What endures is not Brian the prophet but Brian the revolutionary.

The parody of the revolutionary reverberates throughout. Brian hates the occupying Romans “as much as anybody,” but joins the People's Front of Judea as much to fight the Romans as for Judith. From all the in-fighting, Stan/Loretta does not even know the name of his group. “The only people we hate more than the Romans are the fucking Judean People's Front,” says Reg, the group's leader. When Brian suggests to his group and the “Campaign for Free Galilee” that “we should be united against the common enemy,” the unison answer is “The Judean People's Front?!”

Not all revolutionaries have the same task. Reg, the “glorious leader and founder of the P.F.J.,” will be coordinating the kidnapping of Pilate's wife, but “will not be taking part in any terrorist action, as he has a bad back.” Aren't you coming with us, asks Brian. “Solidarity, brother” is Reg's response. “Oh, yes. Solidarity, Reg.” A fanatic's vocabulary is full of symbols to stifle debate and dissent.

There is opportunism in revolution. The People's Front of Judea is secular. After listening to Jesus, Francis notes that, “Well, blessed is just about everyone with a vested interest in the status quo, as far as I can tell, Reg.” To which Reg replies, “Yeah. Well, what Jesus blatantly fails to appreciate is that it's the meek who are the problem.” But as Brian becomes the savior-designate, his revolutionary brothers coalesce around him. He becomes their leader. “Morning, Saviour,” is how Reg greets Brian.

Martyrdom gets some air too. The supremely useless “Judean People's Front Crack suicide squad” kills itself; “That showed 'em, huh” says its leader. Then come the People's Front of Judea to offer “sincere fraternal and sisterly greetings to you, Brian, on this, the occasion of your martyrdom.” Brian replies “You sanctimonious bastards!”

More than anything Life of Brian shows the ambivalence of the revolutionary. This is partly revolution for revolution's sake. When Stan wants to become Loretta to have babies, Judith and Francis stand up for Stan's right to have babies. “What's the point?” says Reg. Francis replies, “It is symbolic of our struggle against oppression.” “Symbolic of his struggle against reality,” says Reg.

The revolutionary cause is unclear. Reg complains of the Romans, “They've bled us white, the bastards. They've taken everything we had, and not just from us, from our fathers, and from our fathers' fathers... And what have they ever given us in return?!” Many answers. Frustrated, Reg tries to put an end to all this, “All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, a fresh water system, and public health, what have the Romans ever done for us?”

Life of Brian caricatures rebellion and anti-imperialism better than it does religion. It is a satire of the 1960s and 1970s and its message carries through. It is a glimpse of that peculiar beast, the revolutionary, and what carries him forward. It is a satire of the first order.

15 July 2009

America in Numbers: Sex

Do not ask why but I just received and started reading my copy of the Statistical Abstract of the United States (2009), a 1,000-page tome with over 1,300 tables on every aspect of these united states. Before I scare you, or enrage you, or perhaps even bore you with teen pregnancy, abortion, infant mortality, unemployment, poverty, murder, and the like, I thought it best to grab your attention with an easy one: sex. Here you go, then, a brief summary of sex in the US.

The survey in the book looks at males and females 15 to 44 years old in 2002. Of the total, 90% have had sex with a partner of the opposite sex. The rate among teenagers (15-19 years) is lower obviously, but still around 61.6% for males and 62.2% for females. As you move towards older groups, the rate of people who have had sex increases, but there is still a 9% of both males and females with no sexual contact by age 24, and there is also a 1%-2% with no sex by the time they reach 35.

The median number of sexual partners is 5.4 for men and 3.3 for women, which is not surprising (as a fact as well as a result of bragging by men or understating by women). The distribution of sexual partners is skewed: only 12.8% of men report having had sex with only one woman versus 22.5% of females; similarly, 22.5% of males report having had 15 or more sexual partners, including 2.5% of teenage males and 1.9% of teenage females (high school and freshman year must have been crazy). By contrast, only 9.2% of females report having had more than 15 partners. In the middle range (2-14 partners), males and females are similar; they differ mainly on the extremes.

From a racial point of view, the median number of partners for blacks is reported at 8.3, versus 5.2 for non-Hispanic whites and 4.5 for those with Hispanic or Latino origin. For females, the mean is similar for whiles and blacks (3.6 versus 4.1) but much lower for Hispanics (1.7). Blacks are also reported to have a lower proportion of just one sexual partner (5.8%) and higher proportion of 15 and above (33.8% versus 22.3% for non-Hispanic whites). For females, 34.6% of Hispanics or Latinos report just one partner versus 21% of non-Hispanic whites and 12.4% of blacks. On the other extreme, 10.2% of non-Hispanic white women report 15 or more partners versus 8.8% of blacks and 4.6% of Hispanics.

In terms of same-sex contact, the rate for females is 11.2% versus 6% for males, which I think will satisfy a perennial male fantasy. The data on same-sex contact is more sparse but it is also worth noting that 3.4% of males currently married reported having had some same-sex experience; the number for married females was 7.2%.

The final statistic is sexual activity in the last twelve months: about 14.8% of males and 13.9% of females reported no sexual activity the past year. About 62.2% of males and 66.8% of females reported sex with only one person of the opposite sex, while 1% of males and 3.1% of females reported sexual contact with both the same and the opposite sex in the last twelve months. When it comes to teenagers, the spread is bigger with 0.9% of males reporting sex with both male and female in the last twelve months, a number that was 5.8% for females.

References: US Census Bureau, Statistical Abstract of the US 2009, Tables 92-93

25 November 2008

From crisis to crisis

Crisis begets crisis. In the 1970s, high oil prices helped create stagflation, and the cure for stagflation – the Fed raising interest rates – sent Latin America into default. Then with widening US current account and budget deficits, the Plaza Accord helped to devalue the dollar, but the near-term result –monetary easing in other countries – created a stock market bubble in Japan, whose burst triggered an economic crisis.

Now is no different. From the Asian financial crisis, developing countries learned it is better to hoard reserves in good times than to beg the IMF in bad ones. And to deal with the prickled dotcom bubble, the Fed let money loose, and while it celebrated the “great moderation” of low inflation, a housing bubble grew, one snubbed by the Fed since asset bubbles, it claimed, were not for the monetarist to deflate.

There were other problems too: high oil prices transferred wealth from those who had it to those that were not sure what to do with it; China thought it easier to lend money to Americans to buy Chinese goods than to help its own people to buy them; there were American wars and tax cuts to finance as savings were low and household debt up; and Wall Street went into a another collective daydream thinking that if you package assets broadly enough and sell them widely enough, risk will go away. What could go wrong?

It is actually a wonder that this crisis took so long to come. For the past four years it has been “imminent.” The US current account has been unsustainable and the dollar has been about to collapse; housing prices have been about to fall all over the OECD; high oil and commodity prices have been about to create inflation; and the “twin engine” global economy running on US and China has been about to “run out of steam” unless aided by sickly Europe and Japan.

Much as Wall Street is to blame, this was an economic crisis before it was a financial crisis. Now it is a political crisis. How a crisis is solved is as important as solving it. The short-term task is to restore confidence in banking, restore demand, and manage the inevitable downward adjustment of housing prices. And there are absurdities to prevent such as writing trillions in bilaterally traded credit default swaps that appear nowhere in balance sheets, or packaging assets and liabilities in a way that no one understands what is the underlying risk or value.

The longer term challenge, however, is to find a way to arrest the crisis beforehand. For years, the world knew it was on an unsustainable economic path. Save a meagre revaluation of the Yuan, little was done to change course. That reveals a great deal about the growing gap between the reality of the global economy and the adequacy of the institutions to manage it. Without those institutions this crisis will soon beget another.


03 August 2008

George Orwell, Restating the obvious

George Orwell, Essays. Everyman’s Library, 2002. 1,369 pages. $35

I knew George Orwell the way most people know him: through 1984 and Animal Farm, and from some of his better known essays, “Shooting an Elephant,” “Politics and the English Language,” “Why I write” and a few others. This collection reveals another Orwell, adding much depth to the man, while also showing certain sides of him which most of us are less familiar with.

What struck first me in this book was how widely read Orwell was. We usually think of him as a master writer, and he comes across as a having thought deeply about language. But his grasp of the literary work of the nineteenth and twentieth centuries is much greater than I imagined. Not only is he familiar with the major authors, but also with “lesser” works: “good bad books” as he calls them (“the kind of book that has no literary pretentions but which remains readable when more serious productions have perished.”). When told by a publisher that he will re-issue “minor and partly-forgotten novels,” Orwell admits that, “I rather envy the person whose job it will be to scout round the three-penny boxes, hunting down copies of his boyhood favorites.” Even for better known writers, he likes to think of them holistically, often focusing on their lesser known works. Tolstoy, for instance, appears more for a pamphlet he wrote against Shakespeare than for any work. And rarely will Orwell write about an author without putting one piece of work in the context of the author’s total work, good and bad, widely known and obscure.

Originality was Orwell’s chief rhetorical devise. In fact, it is remarkable that there is so little repetition in a book of over 1,300 pages. The essays were written over a twenty-year period (1928-1950), and yet barely a handful can be thought of as repetitive and most manage to surprise even if after you have read much of his work. Think about this sentence: “If one were obliged to write a history of the world, would it be better to record the true facts, so far as one could discover them, or would it be better simply to make the whole thing up? The answer is not so self-evident as it appears.” What rests at the center of his originality is a comfort with contradiction. This passage from “Shooting an Elephant” about his feelings while serving with the imperial police in Burma is most telling: “With one part of my mind I thought of the British Raj as an unbreakable tyranny, as something clamped down, in saecula saeculorum, upon the will of prostrate peoples; with another part I thought that the greatest joy in the world would be to drive a bayonet into a Buddhist priest’s guts.”

The contradiction was firstly personal: his experience in Burma and later in the Spanish Civil War taught him internal conflict and ambiguity, and that attitude guided his work. “If there are certain pages of Mr. Bertrand Russell’s book, Power,” he wrote, “which seem rather empty, that is merely to say that we have now sunk to a depth at which the restatement of the obvious is the first duty of intelligent men.” The restatement of the obvious became a main preoccupation and, with time, the signature of his writing. In an essay on Rudyard Kipling, he blames T.S. Eliot for not explaining Kipling’s appeal despite having so many detractors. Orwell immediately concedes that “It is no use pretending that Kipling’s view of life, as a whole, can be accepted or even forgiven by any civilised person.” Then, Orwell can more easily consider Kipling’s literary work and appeal.

What allowed him to do that was a belief that art can be aesthetically tasteful even if politically wrong. In a twenty-page essay on Jonathan Swift, he spends the first fifteen condemning Swift’s pessimistic view of human nature; then, he admits that “curiously enough he [Swift] is one of the writers I admire with least reserve, and Gulliver’s Travels, in particular, is a book which it seems to impossible for me to grow tired of.” His most detailed treatment of that subject comes in reviewing Salvador Dali’s autobiography: “It is a book that stinks. If it were possible for a book to give a physical stink off its pages, this one would – a thought that might please Dali, who before wooing his future wife for the first time rubbed himself all over with an ointment made of goat’s dung boiled up in fish glue. But against this has to be set the fact that Dali is a draughtsman of very exceptional gifts.” And then more plainly, “If you say that Dali, though a brilliant draughtsman, is a dirty little scoundrel, you are looked upon as a savage.” That balance, honesty, and aesthetic separation from politics marked his literary analysis.

Politically, Orwell’s chief target was totalitarianism: “Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it.” In a roundabout way his opposition to totalitarianism comes from his desire for truth and fairness. His “starting point is always a feeling of partisanship, a sense of injustice. When I sit down to write a book, I do not say to myself, ‘I am going to produce a work of art’. I write it because there is some lie that I want to expose, some fact to which I want to draw attention, and my initial concern is to get a hearing.”

What connected that passion for the truth with distaste for totalitarianism was the Spanish Civil War and Orwell’s need to convey the truth as he saw it on the ground and to de-romanticize the contemporary admiration for the Soviet Union. What horrified him about totalitarianism is its ability to manufacture the truth: “From the totalitarian point of view history is something to be created rather than learned. A totalitarian state is in effect a theocracy, and its ruling caste, in order to keep its position, has to be thought of as infallible. But since, in practice, no one is infallible, it is frequently necessary to rearrange past events in order to show that this or that mistake was not made, or that this or that imaginary triumph actually happened.” It is against this fear that 1984 was written.

His answer was socialism. What attracted him to socialism was equality. He had grown and lived much of his life at subsistence or even poverty, and he spoke ill of his time at St Cyprian’s, a school for wealthy kids, which promoted a contradictory moral code: “On the one side were low-church Bible Christianity, sex Puritanism, insistence on hard work, respect for academic distinction, disapproval of self-indulgence: on the other, contempt for ‘braininess’ and worship of games, contempt for foreigners and the working class, an almost neurotic dread of poverty and, above all, the assumption that money and privilege are the things that matter, but that it is better to inherit them than to have to work for them. Broadly, you were bidden to be at once a Christian and a social success, which is impossible.” It is not hard to read some admiration for the shortages produced by the war, nor would he mind wartime rationing in peacetime.

Despite his obsession with socialism, Orwell was not a particularly deep economic thinker. Obviously he writes about economics but from a political or social standpoint. I cannot think of another writer that is more aware of how much things cost and how the prices of little things change with time, at least not one who is not an economist. But Orwell does not consider the economic system as a mechanism that works on supply and demand, or on incentives, nor does he conceive of economic liberty either as a subset of liberty more generally or as a means to political liberty. He read F.A. Hayek’s “Road to Serfdom” which linked socialism to totalitarianism, but Orwell was hardly able to see capitalism as anything more than exploitation: “Hayek’s able defence of capitalism, for instance, is wasted labour, since hardly anyone wishes for the return of old-style capitalism. Faced with the choice between serfdom and economic insecurity the masses everywhere would probably choose outright serfdom, at least if it were called by some other name.”

Of course, Orwell was conscious that socialism was not easy to achieve, and he was even more aware how problematic revolutions can be, a view that has must owe something to his reading of Gustave Flaubert’s Salammbô and Arthur Koestler’s novels: “Revolutions always go wrong – that is the main theme” writes Orwell in a section that contrasts Koestler’s Gladiators with Salammbô. Later in the same essay, he notes that “Revolution, Koestler seems to say, is a corrupting process … it is not merely that ‘power corrupts’: so also do the ways of attaining power.” This essay comes shortly after Orwell completed Animal Farm, and the thematic linkage between the two is unmistakable.

World War II confronted Orwell with a tough choice: he would have preferred a socialist war, and it was clear that neither side if victorious would implement Orwell’s agenda. His position was much a reaction to the thinking of the day, and especially of the intellectuals in England. He summarily dismissed pacifism, as a doctrine which “can only appeal to people in very sheltered positions,” and he sympathized with Kipling’s view that it was “making mock of uniforms that guard you while you sleep.” He grew increasingly patriotic though he had dreaded and opposed the war before it started. His patriotism, in the end, was more than just a preference for truth and fairness – it reflected his own upbringing and instructs. “Most of the English middle class,” he writes, “are trained for war from the cradle onwards, not technically but morally.” He saw in a dream ”that the long drilling patriotism which the middle classes go through had done its work, and that once England was in a serious jam it would be impossible for me to sabotage.”

In a review of a book by Malcolm Muggeridge you see even better that Orwell’s patriotism was emotional more than rational: “I know very well what underlies these closing chapters. It is the emotion of the middle-class man, brought up in the military tradition, who finds in the moment of crisis that he is a patriot after all. It is all very well to be ‘advanced’ and ‘enlightened,’ to snigger at Colonel Blimp and proclaim your emancipation from all traditional loyalties, but a time comes when the sand of the desert is sodden red and what have I done for three, England, my England? As I was brought up in this tradition myself I can recognize it under strange disguises, and also sympathize with it, for even at its stupidest and most sentimental it is a comelier thing than the shallow self-righteousness of the leftwing intelligentsia.”

It is that courage in writing, the willingness to confront and admit personal contradictions, the honesty in admitting when passion overrules reason that we treasure and miss in Orwell, and the chief reason that this collection of essays will be forever my companion.

10 February 2008

First, say what’s on your mind

A friend was sitting at the school cafeteria, looking aimlessly at her iMac, waiting for inspiration to come. She wrote a few words, took a sip of coffee, and then erased them. By the time I sat next to her, her coffee cup was half empty, and the screen was fully so. It was writer’s block at its worst: an email that needs to be sent quickly or not at all (and an email where the writer puts too much thought into details that the reader won’t notice or care about anyway).

“What are you trying to say?” I asked. “Well, I met this man yesterday. We had a good chat but I didn’t have my business card on me. I want to email him and tell him it was nice to meet him and to give him my contact info.” Why not write that, I asked. She paused. She was skeptical. I explained, “Just write: ‘It was nice to meet you yesterday. I didn’t have my business cards on me, so I am writing to send you my contact info’.” She thought for a second. It made sense. She was relieved.

This wasn’t the first time I had offered such advice. In fact, most times I volunteer to help friends with their writer’s block, it is the same story: I ask them what they want to say, and then all I do is write it down while they dictate. It is surprising how grateful they are for such service. It is probably because there is something about writing that scares people into inaction – they freeze at the daunting task of putting their thoughts, simple as they may be, onto paper. The supposition is that writing must be formal and so the usual rules (“just say what you want to say”) shouldn’t apply – or at least that is how most people approach writing.


There are three kinds of writing: there is bad writing, made up of convoluted sentences and unintelligible ideas; there is good writing, which conveys a point pithily and clearly; and there is great writing, which moves, excites, entertains or even inspires. Bad writing is value-subtracting, as economists would say – the sentence adds to less than its parts. Good writing is value-neutral. Great writing is value adding – the sentence is more than the sum of its parts as words come together to create new images or emotions or a rhythm that adds to the story or argument.

Bad writing is often the result of people aiming for great writing instead of good writing. Hence the hesitation when starting to write - it has to “sound good.” In reality, bad writing is good writing trying to be great and failing. The rules for good writing are best summarized by George Orwell: write simply, succinctly, and get your point across (he had six rules, but in his spirit, I distilled them into three). My own advice would be “say what’s on your mind; then go back and edit ruthlessly.”

Not all bad writing has such noble roots, of course. A more common reason for bad writing is laziness, the unwillingness to re-read and edit one’s work. This is bad writing as a self-fulfilling prophecy. The logic is simple: I am a bad writer so there is no reason to spend much time trying to improve my writing which will be bad anyway – and indeed unedited or careless writing is inevitably bad writing. This “writing defeatism” feeds on the illusion that good writing comes to good writers effortlessly, a literary deus ex machina, if you will – which is far from the truth, as any self-respecting writer will admit.

An even bigger source of bad writing is bad thinking. Although the author blames writer’s block, it is really the ideas that are poor, not the writing aptitude. Many people make up their minds or refine arguments as they write (I do much of that myself), but it is rare for good writing to save a bad or uninteresting idea. The challenge is how to create a logical and coherent argument, link propositions with facts, and establish hypotheses that can be tested against evidence. The problem of writing is very often the problem of thinking.


Aristotle tells us that rhetoric should combine ethos, pathos and logos. Ethos means consistency. If you are a crook campaigning against corruption, your rhetoric is hollow and your speech unpersuasive. Logicians will say that ad hominem arguments are bad – the rebuttal should not be addressed to the speaker’s credibility but to the argument’s logic and evidence. They are right, but as any lawyer will attest, this rarely happens – we care about whether the politician who preaches freedom is autocratic, whether the broker of peace is a murderer, the self-professed philanthropist miserly. Who speaks matters as much as what is said – or at least the character of the speaker makes a difference for the argument.

Pathos is emotion, the ability to excite or energize a crowd. Listen to Neville Chamberlain declare war on Germany in 1939 and you will see what the absence of pathos means: “This morning the British Ambassador in Berlin handed the German Government a final note stating that, unless we heard from them by 11 o'clock that they were prepared at once to withdraw their troops from Poland, a state of war would exist between us. I have to tell you now that no such undertaking has been received, and that consequently this country is at war with Germany.”

Contrast that with Roosevelt’s “Day of Infamy” speech: “Hostilities exist. There is no blinking at the fact that our people, our territory, and our interests are in grave danger. With confidence in our armed forces -- with the unbounded determination of our people -- we will gain the inevitable triumph -- so help us God. I ask that the Congress declare that since the unprovoked and dastardly attack by Japan on Sunday, December seventh, a state of war has existed between the United States and the Japanese Empire.” Granted, Chamberlain and Roosevelt were declaring very different wars and Churchill’s more memorable phrases came at times more threatening to Britain than the fall of 1939. But a country yawning its way into a war will never win.

Logos is logic, the ability to take the reader from the common and acceptable to the unfamiliar and provocative through steps that even the skeptic can follow. I learned the most about logos from two teachers. The first was a historian I did not particularly like and whose class I eventually dropped. Yet he taught me a valuable lesson. He was challenging the conventional wisdom that Napoleon spearheaded nationalism in Europe. I remember him listing his various counter-points (whose details, needless to say, I no longer recall). But then, with a characteristic scorn that befitted a man of his age, education and intellect (and I say this with affection), he concluded: “All you need for good analysis is a solid grasp of fact and a great deal of common sense.” What a thought! Good analysis, apparently, is for everyone – who will admit that common sense and understanding facts are beyond them?

The second teacher was an economist. He pushed us to think about robustness in a way only an economist could – “what if you change this assumption, or this number, what happens to the result?” He would always ask us to examine the weakest link in our thought; what was essential and what not for our argument. Did it all depend on one fact which, if proven wrong, would destroy the whole point? More fundamentally, however, he liked to deflate false authority: “How does he know?” he would say when confronted with a simple and confident answer to a very complex question. Or, more amusingly: “if he’s so smart, why isn’t he rich?” If anything, he taught me that tension, ambiguity, and uncertainty are the basis for logical thought. Honest minds are conflicted minds.


My academic training is in international relations and economics, yet it is my study of statistics which guides my thinking on logic and argument. What distinguishes statisticians from other logical creatures is that they quantify questions such as, “how much evidence do we need to reach a conclusion” or “how sure are we of the conclusion we just reached.” There is a five-step process I learned in an introductory statistics class that I apply: state the hypothesis; articulate the methodology in testing the hypothesis; specify a threshold that your evidence will need to reach in order for you to accept the hypothesis; check the data; reach a conclusion.

I often puzzle friends by telling them I think of a problem as a multivariate regression. A multivariate regression has six elements (pardon the bullet-point exposition again, but that what mathematical thinking is about): the first is the dependent variable, or more simply, the observations which vary from subject to subject (salary, for example). Then come the independent variables which might explain the variation (intelligence, education, experience, etc.). Then, we look at four questions: is the relationship between variables significant (does your salary in fact depend on whether you are more intelligent, educated or experienced); is the relationship positive or negative (do you make more or less with each level of education, more experience, etc.); is it weak or strong (how much more, how much less); and how much of the variation in salary can you explain through changes in the other variables?

True, I do not spell out each problem as a multivariate regression, but I still wonder whether the variation I observe can be explained by the causes I have identified in my hypothesis: what I can explain and what not; what evidence supports and what contradicts my hypothesis; what should my conclusion be in light of the data I have uncovered. Obvious questions, but fundamental too.


The ancient Persians had a custom which is relayed to us by Herodotus; “If an important decision is to be made, they [Persians] discuss the question when they are drunk, and the following day the master of the house where the discussion was held submits their decision for reconsideration when they are sober. If they still approve it, it is adopted; if not, it is abandoned. Conversely, any decision they make when they are sober, is reconsidered afterwards when they are drunk.”

Deflating an idea through drunkenness can be a cleansing exercise. A good idea should withstand the perspective and ridicule that comes with alcohol. As JM Keynes put it, “It is astonishing what foolish things one can temporarily believe if one thinks too long alone.” (Those who have seen A Beautiful Mind or Pi will recognize how perspective can lead to breakthroughs.) Logos is about thinking while sober; pathos is looking at an idea while drunk (ethos, by contrast, is avoiding public speaking when too drunk, jeopardizing credibility once and forever). This is not exactly Aristotle’s trio, but he would recognize the duality of argument in soberness and drunkenness, reason and emotion.

I want to end with some advice I got from another professor, who led me to think about how to balance impulse with reason and to have the courage to pursue new ideas. It was a graduate-level class on public finance which, as an eager second-year student, I was taking. We had read a paper arguing that the Magna Carta could be understood by using economic theory. Its method and approach had intrigued me. I wanted to do something similar for my term paper, using economics to analyze the signing of the Treaty of Westphalia. My teacher was obviously uneasy about the choice. He thought it too risky. But then, he wrote this in an email: “Hey, this is only a term paper. One can be a little adventurous.”

It was quite a radical thought, especially for a college sophomore with an ambivalent attitude towards term papers. (I followed his advice but the research yielded nothing.) He was the first teacher to ever tell me to have the courage to “go for it” and see what happens. And that’s the advice that comes to mind whenever I stare at a blank computer screen - just write.

07 July 2007

A Buck for Chuck

In my darker and more cynical moments, I imagine making a campaign contribution to Chuck Schumer, the democratic senator from New York. The amount I would give him would cover the cost of an economics course in a local school because a man obsessed with legislating on economic policy should not be illiterate in economics.

My first encounter with Mr. Schumer was a few years back when he wrote an op-ed in the New York Times challenging comparative advantage (January 6, 2004). According to Mr. Schumer, the theory is outdated because David Ricardo, the theory’s exponent, had assumed factors of production to be immobile. As Mr. Schumer wrote, “Comparative advantage is undermined if the factors of production can relocate to wherever they are most productive: in today's case, to a relatively few countries with abundant cheap labor.”

Comparative advantage leaves much to be desired. It does not explain, for example, what causes countries to differ in their productivities, hence taking as a given a variable that should be explained. And developing countries often specialize in the production of primary goods, thus losing out on the dynamic gains from trade. But Ricardo’s central insight remains: a country benefits from trade even if it is less productive than its trade partners. Factor mobility does not invalidate that point. In fact, trade in goods acts similarly as trade in factors of production. And anyway, factors of production are nowhere nearly as mobile as Mr. Schumer claims.

Now Mr. Schumer is back again. For years he has been musing, along with Senator Graham, about imposing a 27.5% tariff on Chinese goods if China does not revalue its currency. This campaign has been abandoned in favor of implementing trade measures against countries that manipulate their currencies. Mr. Schumer claims the plan is not directed at China (in an article co-authored with three other senators): “our bipartisan legislation is not to punish any one country but to encourage all countries to follow international rules.” But China is the bill’s more immediate and likely target.

Mr. Schumer is an economic looney toon, not to be taken really seriously. But his legislation has drawn support from both Senators Barack Obama and Hillary Clinton, two democratic frontrunners for the presidency. And the legislation is seen as responding to growing anxiety in the United States about free trade. If nothing else, it reveals just how fragile free trade remains to politicians who are keen to exploit voter anxiety (although actual legislation, thankfully, often lags behind).

The most obvious drawback with this legislation is that determining exchange rate manipulation is extremely difficult. Anyone working with exchange rates will admit that predicting exchange rate movements is nearly impossible; economic theories are no better than guessing in being able to forecast exchange rates. Hence, judging what a “fair” value for a currency should be is nearly impossible.

It is equally unclear how much exchange rate movements affect trade flows. According to economic theory, an appreciating currency makes imports cheaper and exports more expensive. If the Chinese Yuan were to appreciate, China’s imports would increase and its exports would shrink. Reality is different, however. The obvious statistic to cite is from the Yuan itself: since allowed to “float,” it has gone from 8.28 ¥/$ to 7.59 ¥/$, but China’s trade surplus with the United States has grown from $162bn in 2004 to $233bn in 2006.

The same is true about the US trade deficit with the Euro area, where the dollar has depreciated more dramatically. After 2003, when the $/€ rate was in parity, the US bilateral trade deficit in goods went from $78bn to $93bn in 2006, despite a drop of nearly a third in $/€ rate. (The deficit stabilized somewhat in 2006). Prices respond slowly and imperfectly to exchange rate changes, making deficits less correlated with exchange rates. An appreciating Yuan, in other words, would bring uncertain changes to the US-China bilateral trade deficit. (Those interested to read more on this issue can look at the IMF’s World Economic Outlook, April 2006, p. 114-115).

Nor is China alone is to blame for the US trade deficit. In 2006, the bilateral US deficit with China was $233 billion, while the overall trade deficit was $838 billion - China accounted for just a quarter of the total. More importantly, US trade with Asia has remained constant over time, with 25% of US exports going to Asia and 36% of US imports coming from Asia in the past five years. The trade with China reflects a shift in production processes – trade that used to be with other Asian countries is now channeled through China.

The truth is that America’s trade deficit reflects underlying economic realities, especially low savings and high spending in the United States, and high savings and low spending in China. The flow of money from China to the United States would be expected to persist as long as these economic fundamentals remained.

The question is whether legislation is the optimum way to address these imbalances. (A more fundamental question is whether imbalances need to be addressed in the first place, but I will stay away from that question for now.) The senators note that, “A little pressure can go a long way to encouraging the right policies.” This is surely naïve: legislation is much more likely to encourage either reciprocal retaliation or, at the very least, a stubborn Chinese reaction.

It is really discouraging to see how much economic debates are detached from economic reality, though this is to be expected, more so in an election period. Trade raises important policy questions, but dealing with them is made no easier by politicians who ignore basic tenets of economic theory and fact. These misconceptions are numerous and above I have just touched on a few. More to come in later posts.

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01 March 2007

Temporary relocation

For a few months, I will be writing for my school’s blog http://blogs.sais-jhu.edu/saisgeist/

17 January 2007

Who will stand up for the market?

You have to sympathize with Neelie Kroes, the European Commissioner on competition. For years now she has been screaming loudly that the internal market on gas and electricity, supposedly liberalized and supposedly competitive, is dysfunctional, and that this is no small part because big European utilities are acting anti-competitively. A week ago, her Directorate released a comprehensive inquiry into the gas and power sector in Europe.

The report is enough to make any free marketer cringe. Big companies (“incumbents” as the Commission calls them) are stifling competition. They are able to do that because they have national governments on their side. Either socialist by inclination, or socialist because energy is a “strategic” sector not to be trusted on markets, or socialist because energy insecurity warrants new powers to be granted to government, states are engaged in an alliance with businesses at the expense of the consumer, who is sold the idea, unconvincing at best and ludicrous at worst, that it is really his interests that are being defended.

To be fair, there are certain problems that are fundamentally intractable. Long-term contracts, for example, are often necessary to finance big projects like cross-border pipelines, but they erect barriers to entry and “freeze” market conditions for years as well as adding illiquidity to a market since gas committed to one place cannot flow to another. Infrastructure is supposed to operate on open-access principles (capacity allocated by bidding rather than who owns an asset), but being guaranteed access to a pipeline is often needed before a company can sign deals abroad or commit the money to build expensive projects.

There are other problems too, problems that lie at the core of “Europe.” What is the appropriate level for regulation: at the state or at the European level? How should Europe balance a general commitment to the market (which the EC is meant to defend) with a commitment to democracy (which means states ought to make their own rules)?

What Europe faces, therefore, either than powerful incumbents, is an incomplete consensus on how to deregulate energy, made harder by the fact that each European country has its own view on how to do things and is willing to defend its sovereign right to act differently. Yet it is disheartened to think how all this is playing out. If the European Commission cannot succeed in infusing competition, what are we to think of its powers as the defender of the EU’s laws, and what are we to think of its commitment to the free market?

As I think of this, I am torn between two visions of Europe: one is a persistent, and to me indefensible, tendency to glorify cooperation and uniformity; the other is a Europe that helps member states do the things they are supposed to do by making the politics a bit easier. I have always liked Europe for the latter and criticized it for the former. What the European Commission is doing today on energy I approve and believe in; but it is not succeeding yet, and that makes me sad, both for what this means today and what it spells for the future.


11 December 2006

Oil producers and the dollar

The Financial Times reported on Monday that, “Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.” Although this move has obvious implications for the value of the dollar, there is little doubt that we will soon hear from analysts how vulnerable the American economy remains to unstable regimes that can impose huge costs on the United States if they choose to do so; and the argument will soon convert either into a case for energy independence or a case against China who, it is assumed, holds equal leverage over the United States because it holds so much of American debt.

I thought it best to avoid both of these arguments and just append the relevant graph from the Quarterly Review of the Bank for International Settlements (look at the graph in the far right). The point that should stick out is that while the dollar holdings of oil producers have come down, they have done so from very high levels, and the dollar remains, by far, the most sought after currency for oil producers. While this does not negate the obvious implications for the dollar (which will fall as relative demand for it declines), it should put the discussion in context before jumping onto any grand geopolitical conclusions.

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21 November 2006


10 November 2006

One dog?

From Al-Jazeera.Net: “Beijing families were first restricted to one child, and now the Chinese authorities have set the limit on pets too with its one dog policy. China's capital will institute a "one dog" policy for each household in nine areas, the official Xinhua News Agency reported on Wednesday." (link)

08 October 2006

Lessons from OPEC

The latest news suggests that OPEC has agreed to cut its quota by 1 mbd, bringing its target output down from 28 mbd to 27 mbd (in August, OPEC produced 30.04 mbd, which included 2 mbd from Iraq, which is excluded from quotas). But reaching consensus was not easy: first came production cuts from Nigeria and Venezuela totaling about 200 kbd. Saudi Arabia protested the move to voluntary cuts, though its own production was coming down too. It took a while before others agreed to reduce quotas as well.

From this picture emerge two interesting points. The first is about OPEC’s cohesion, which fluctuates wildly, though the organization usually comes together more easily when tasked to defend rapidly falling prices (rather than, say, cut production to hike prices). This should serve as a reminder to those who have hasten to notice an “axis of oil” emerging to threaten Western interests. Even OPEC, the most concrete manifestation of the axis, finds it hard reach consensus on oil production. It is hard to see how so varied a group can hold together any other meaningful political alliance for a considerable period of time.

The second point is about asymmetrical power. The common assumption these days is that oil producers have all the power. But the drop in oil prices has seriously jeopardized their fiscal plans. Granted, they have too much money in the bank for anyone to claim that these regimes are in trouble—a $60/bbl world is still great for them. But given how resilient economies have proven to high oil prices, it is not unreasonable to state the oil exporting countries have more to lose from low oil prices than importing countries from high ones.

These are important lesson amidst our energy hysteria.