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The Hidden Hand of American Hegemony: Petrodollar Recycling and International Markets
Between 1973 and 1980, the cost of crude oil rose suddenly and dramatically, precipitating convulsions in international politics. Conventional wisdom holds that international capital markets adjusted automatically and remarkably well: enormous amounts of money flowed into oil-rich states, and efficient markets then placed that new money in cash-poor Third World economies. David Spiro has followed the money trail, and the story he tells contradicts the accepted beliefs. Most of the sudden flush of new oil wealth didn't go to poor oil-importing countries around the globe. Instead, the United States made a deal with Saudi Arabia to sell it U.S. securities in secret, a deal resulting in a substantial portion of Saudi assets being held by the U.S. government. With this arrangement, the U.S. government violated its agreements with allies in the developed world. Spiro argues that American policymakers took this action to prop up otherwise intolerable levels of U.S. public debt. In effect, recycled OPEC wealth subsidized the debt-happy policies of the U.S. government as well as the debt-happy consumption of its citizenry.
200 pages, Hardcover
First published September 1, 1999
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Displaying 1 - 2 of 2 reviews
September 29, 2014
The illusion of automatic market adjustments
[Through my ratings, reviews and edits I'm providing intellectual property and labor to Amazon.com Inc., listed on Nasdaq, which fully owns Goodreads.com and in 2013 posted revenues for $74 billion and $274 million profits. Intellectual property and labor require compensation. Amazon.com Inc. is also requested to provide assurance that its employees and contractors' work conditions meet the highest health and safety standards at all the company's sites].
The question raised, and tentatively answered, by this difficult book is not the one I expected. It has nothing to do with energy politics or economics, but belongs to the space of international relations and more broadly to the study of causality in political economy: "Is it true that capital markets were able to recycle petrodollars in the aftermath of the oil shock, thus supplanting the workings of Bretton Woods rules and institutions (which had been just abandoned)?". This question foreshadowes a debate I'm not much into around the role that cooperation among states plays in international relations as opposed to unilateralism. From our post-crisis perspective, the issue that the study of this very specific case illuminates is whether capital markets can per se bring about equilibria, or planning on the part of political actors is always needed to cause the effects that in theory should be the result of market forces.
The book shows in a very engaging way how shrewdly petrodollar recycling was planned for by a number of competing political actors, who drove capital flows in directions not supported by market incentives. It also exposes the total lack of cooperation displayed by political actors that were officially advocating for it. And equates hegemony with unilateralism.
From a contemporary perspective, the solution to the problem of petrodollar recycling - totally politically negotiated - confirms the impotence of 'markets' with respect to reallocation and re-balancing tasks that need a counter-cyclical action. If the situation is deteriorating, the 'markets' will make it worse, and to turn it around political will needs to step in.
Not sure about the international relations implications of all of this, but from an economic perspective the fragilty of any 'modelling' gets magnified, as 'modelling' implies automatic if-then responses that are not what real life provides.
[Through my ratings, reviews and edits I'm providing intellectual property and labor to Amazon.com Inc., listed on Nasdaq, which fully owns Goodreads.com and in 2013 posted revenues for $74 billion and $274 million profits. Intellectual property and labor require compensation. Amazon.com Inc. is also requested to provide assurance that its employees and contractors' work conditions meet the highest health and safety standards at all the company's sites].
The question raised, and tentatively answered, by this difficult book is not the one I expected. It has nothing to do with energy politics or economics, but belongs to the space of international relations and more broadly to the study of causality in political economy: "Is it true that capital markets were able to recycle petrodollars in the aftermath of the oil shock, thus supplanting the workings of Bretton Woods rules and institutions (which had been just abandoned)?". This question foreshadowes a debate I'm not much into around the role that cooperation among states plays in international relations as opposed to unilateralism. From our post-crisis perspective, the issue that the study of this very specific case illuminates is whether capital markets can per se bring about equilibria, or planning on the part of political actors is always needed to cause the effects that in theory should be the result of market forces.
The book shows in a very engaging way how shrewdly petrodollar recycling was planned for by a number of competing political actors, who drove capital flows in directions not supported by market incentives. It also exposes the total lack of cooperation displayed by political actors that were officially advocating for it. And equates hegemony with unilateralism.
From a contemporary perspective, the solution to the problem of petrodollar recycling - totally politically negotiated - confirms the impotence of 'markets' with respect to reallocation and re-balancing tasks that need a counter-cyclical action. If the situation is deteriorating, the 'markets' will make it worse, and to turn it around political will needs to step in.
Not sure about the international relations implications of all of this, but from an economic perspective the fragilty of any 'modelling' gets magnified, as 'modelling' implies automatic if-then responses that are not what real life provides.
October 11, 2022
This was a short but dense read. It took me about three months to get through it because a lot of the economic models are over my head as a non-economist. But I powered through and I got the gist: The U.S. brokered advantages with Saudi Arabia for petrodollar recycling, which allowed them to print money for global trade and gave them a global hegemony that is teetering on the brink. I'm afraid his predictions about this being an unsustainable power are ringing true. We really do live in a reality that is perverted by money and power. These are not true market forces at work. These models prove that.
Displaying 1 - 2 of 2 reviews