Sunday, April 25, 2010

Semi-Appreciation: El-Gamal and Jaffe on Oil

El-Gamal and Jaffe's Oil, Dollars, Debt, and Crises must be the third best book on (as their subtitle calls it) "The Global Curse of Black Gold." The first best is, no doubt about it, Daniel Yergin's The Prize, surely one of the prodigies of journo-history in any field. The second best is--ah, now there you have me. The second best is the book that E&J promised but never quite brought off. Leaving aside Yergin, I can't say I know of a better book than E&J on the subject at hand; I just wish it were better still.

I found E&J used on the shelf at Powell's Portland last week. My thought after the first 20 pages was "how come nobody told me about this one before?" My thought after the next 50 pages was "I guess I know why nobody told me about this one before." But I pressed on to the end and I can't say it was time wasted. As an aide-memoire on the politics of oil over the last 40 years, it's actually pretty good: assembles a lot of data and, if you lived through all of this, serves as a pretty good reminder of a lot of what you lived through. Still, you've got to wonder about a history of oil without index refs for Nigeria or Libya, or that discusses Middle Eastern politics without an index reference for Israel.

The trouble is it seems to offer so much more. From the intro, you get the impression that they are going to offer a new framework for analysis. Well, no. What they do is to remind us that the oil market is like any other market, is not self-executing mechanism: it's the tool and engine of political issues that have little or nothing to do with oil. They provide a useful reminder of how the 1973 oil shock can't be understood outside the context of Nixon's decision to abandon gold in 1971. They provide a cautionary review of how badly the Middle Eastern countries mismanaged their oil wealth in the 70s and 80s.

They assert, but do not really demonstrate, that all the ups and downs in the oil market are entangled with the cycles of boom and bust in other parts of the economy. They offer up suggestive references to (and a presentable summary of) Hyman Minsky on boom and bust. But in the end they leave the reader pretty well convinced that oil busts aren't really Minsky busts at all, but problems with a trajectory all their own.

Markets are tied up in politics; that is true, but not new: it was Yergin's central premise. Yergin has always been hard to beat, and on the evidence here, he remains the champ. Still, Yergin cuts off around 2008 and it is useful to have a summary, however incomplete, of what has happened since.

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