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Hypothesis: The post-war growth in America was largely driven by cheap and abundant domestic oil. 1971 was the wake up call - we hit the peak in domestic oil pr

Hypothesis: The post-war growth in America was largely driven by cheap and abundant domestic oil. 1971 was the wake up call - we hit the peak in domestic oil production (we surpassed it again only after 2015) leading to a realization that energy was not free (shocking!) and that continued growth was dependent on foreign imports. The oil crises of 1973 and beyond were the proximate result. But our economy as a whole never really recovered; those diverging lines are the story of how we dealt with the relative scarcity - by systematically squeezing the middle class and increasing inequality rather than sacrificing growth.

eli_gottlieb 3y ago
Yeah, the Energy Theory of Everything has been my running hypothesis for what actually happened to shift from the postwar consensus to neoliberalism.
- mikhailfranco 3y ago
  Depends what you mean by neoliberalism. Usually it is just a blanket pejorative, but if you mean decoupling of debt from reality, then you are correct. The 1980s of Reagan & Thatcher saw important strides in handing back the economy to market forces, but at the same time, derisking (undervaluing) credit to fund the investment necessary to backfill for government negligence. (Re)enabling market forces was good, unrestricted credit was bad.
deleted 3y ago
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dredmorbius 3y ago
In Daniel Yergin's The Prize (and the PBS series made from it), there's a chilling sequence in which the increasing challenges of transacting oil trade in gold. In the television series, this is communicated in an interview with Gwin Follis, former chairman of Standard Oil of California, filmed in what appears to be a palace. "We made an agreement with Ibn Saud that we would give him gold. For every ton of oil we took out of his country we would give him gold. And we did at first. Then we got to be producing more and more and more, and we would try to find more gold shillings to meet the requirements so we could ship another ton. And we had to tell him we couldn't find any more gold. There wasn't that much gold. We had now such an enormous business that we cleaned the world of gold shillings." From The Prize, Part 5- Crude Diplomat at 31:24. <https://yewtu.be/watch?v=k7g5UMxDZIg&list=PLYkO4hiKyrSRjZLQunIjgCsz4GrpDGPfN&index=4?t=31m24s https://yewtu.be/watch?v=k7g5UMxDZIg&list=PLYkO4hiKyrSRjZLQu...> This illustrates a number of elements: the enormous scale of the oil business, the challenges of a gold-backed monetary system, and the challenges of an exceptionally one-sided trade. Going off the gold standard and dollarising oil sales solved several problems: - The US had an unlimited supply of dollars. - Saudi Arabia (and other oil exporters) wouldn't see their own currencies appreciating due to an unbalanced inflow of payments. - Global demand for dollars in trade meant that dollarised petroleum sales wouldn't lead to either appreciation or depreciation of that currency. - Basing international trade on a managed rather than specie / gold-backed currency meant that monetary policy could be used to adjust money supply to economic conditions. On TFA, the precipitous decline of US gold reserves beginning in 1950, the year in which the US became a net importer of oil, is illuminating.

eli_gottlieb 3y ago

Yeah, the Energy Theory of Everything has been my running hypothesis for what actually happened to shift from the postwar consensus to neoliberalism.

mikhailfranco 3y ago
Depends what you mean by neoliberalism. Usually it is just a blanket pejorative, but if you mean decoupling of debt from reality, then you are correct. The 1980s of Reagan & Thatcher saw important strides in handing back the economy to market forces, but at the same time, derisking (undervaluing) credit to fund the investment necessary to backfill for government negligence. (Re)enabling market forces was good, unrestricted credit was bad.

deleted 3y ago

[deleted]

dredmorbius 3y ago

In Daniel Yergin's The Prize (and the PBS series made from it), there's a chilling sequence in which the increasing challenges of transacting oil trade in gold. In the television series, this is communicated in an interview with Gwin Follis, former chairman of Standard Oil of California, filmed in what appears to be a palace. "We made an agreement with Ibn Saud that we would give him gold. For every ton of oil we took out of his country we would give him gold. And we did at first. Then we got to be producing more and more and more, and we would try to find more gold shillings to meet the requirements so we could ship another ton. And we had to tell him we couldn't find any more gold. There wasn't that much gold. We had now such an enormous business that we cleaned the world of gold shillings." From The Prize, Part 5- Crude Diplomat at 31:24. <https://yewtu.be/watch?v=k7g5UMxDZIg&list=PLYkO4hiKyrSRjZLQunIjgCsz4GrpDGPfN&index=4?t=31m24s https://yewtu.be/watch?v=k7g5UMxDZIg&list=PLYkO4hiKyrSRjZLQu...> This illustrates a number of elements: the enormous scale of the oil business, the challenges of a gold-backed monetary system, and the challenges of an exceptionally one-sided trade. Going off the gold standard and dollarising oil sales solved several problems: - The US had an unlimited supply of dollars. - Saudi Arabia (and other oil exporters) wouldn't see their own currencies appreciating due to an unbalanced inflow of payments. - Global demand for dollars in trade meant that dollarised petroleum sales wouldn't lead to either appreciation or depreciation of that currency. - Basing international trade on a managed rather than specie / gold-backed currency meant that monetary policy could be used to adjust money supply to economic conditions. On TFA, the precipitous decline of US gold reserves beginning in 1950, the year in which the US became a net importer of oil, is illuminating.