Tag Archives: global politics

The Only Way To Save the EU Is For The UK To Leave It

Brexit-4My Comments: Forget the UK and Europe. There’s a message here that applies to us in the United States and the anger among so many that gives rise to a choice between Donald Trump and Hillary Clinton.

It echoes the comments I’ve made here for years that “It’s economics, stupid!”. A primary driver of deteriorating race relations, of attacks on immigrants, on law enforcement, on the LGBT community, on gun owners, etc., is the fear that many of us are no longer in control of our own destiny. There is a pervasive appeal to try and turn back the clock, to reinvent the past and the conditions that led to a growing middle class in this country.

To the extent that those at the lower end of the economic spectrum, whether white, black or brown, cannot find a way to improve their quality of life, there is going to be stress. And that stress manifests itself as protests in the streets that appear to be focused on racial issues, on law enforcement issues, on immigrants who ‘take away our jobs’, and any number of other real and imagined grievances.

When you’re working 40 plus hours a week and making enough money to adequately feed, clothe and house your family, those grievances become irrelevant. Or at least manageable. They only surface and become a societal nightmare when enough people feel abandoned and disrespected and forgotten. And economics is a fundamental cause behind this drift toward chaos.

I’m not sure Hillary can fix this and I’m quite sure Trump can’t fix this. But I’m going to vote for whomever I think is most likely to force a discussion about the economic realities in this country. This is a long read but if you believe that income inequality is a problem, you need to read all of it.

by Gwynn Guilford on July 15, 2016

Xenophobic. Racist. Jingoistic. Nativist. Parochial. The 52% of British voters who hit the EU eject button might be all of those things. But they were also backing the right horse.

The vote repudiates a vision of Europe that rewards companies at workers’ expense. It’s a rebuke of a government that invests authority in a professional elite insulated from the economic realities of ordinary Europeans. The free flow of goods, services, capital, and people within the EU was supposed to spread prosperity. It hasn’t. Eventually, something big had to break.

While Brexit is certainly big, the fissure beneath it is bigger than Britain, or even Europe. The imbalances of trade, capital, labor, and—above all—savings that lie at the heart of Europe’s current turmoil warp the entire global financial system. Nearly everywhere you look, growth is sputtering because there’s simply too little demand—and far too much debt—to go around. And that’s thanks in no small part to the EU’s wooly-headed policies. However painful it might make the next few months or years, Brexit might ultimately be the wake-up call that prevents the EU from unleashing another global financial crisis, and condemning the world to decades of feeble growth.

To understand why things have gotten to this point, we have to examine the fundamental flaws in the EU’s design that are largely responsible for these distortions.

CONTINUE-READING

The Governing Cancer of Our Time

babel 2My Comments: Like most everyone else, I’m alarmed by the negativity and frantic rhetoric that is pervasive these days. I’ve tried to get used to it, but am not sure I should get used to it. I know that whatever is in the past is forever in the past and I can only observe the present and attempt to influence the future. Arguing in favor of what existed in the past is simply tilting at windmills or commanding the tides to stop their up and down movements.

Regardless of the outcome, we all have to encourage people to first register, and then to vote this coming fall. If you don’t vote, you forfeit your right to bitch and moan if the outcome is not what you wanted.

by David Brooks, FEB. 26, 2016

We live in a big, diverse society. There are essentially two ways to maintain order and get things done in such a society — politics or some form of dictatorship. Either through compromise or brute force. Our founding fathers chose politics.

Politics is an activity in which you recognize the simultaneous existence of different groups, interests and opinions. You try to find some way to balance or reconcile or compromise those interests, or at least a majority of them. You follow a set of rules, enshrined in a constitution or in custom, to help you reach these compromises in a way everybody considers legitimate.

The downside of politics is that people never really get everything they want. It’s messy, limited and no issue is ever really settled. Politics is a muddled activity in which people have to recognize restraints and settle for less than they want. Disappointment is normal.

But that’s sort of the beauty of politics, too. It involves an endless conversation in which we learn about other people and see things from their vantage point and try to balance their needs against our own. Plus, it’s better than the alternative: rule by some authoritarian tyrant who tries to govern by clobbering everyone in his way.

As Bernard Crick wrote in his book, “In Defence of Politics,” “Politics is a way of ruling divided societies without undue violence.”

Over the past generation we have seen the rise of a group of people who are against politics. These groups — best exemplified by the Tea Party but not exclusive to the right — want to elect people who have no political experience. They want “outsiders.” They delegitimize compromise and deal-making. They’re willing to trample the customs and rules that give legitimacy to legislative decision-making if it helps them gain power.

Ultimately, they don’t recognize other people. They suffer from a form of political narcissism, in which they don’t accept the legitimacy of other interests and opinions. They don’t recognize restraints. They want total victories for themselves and their doctrine.

This antipolitics tendency has had a wretched effect on our democracy. It has led to a series of overlapping downward spirals:
The antipolitics people elect legislators who have no political skills or experience. That incompetence leads to dysfunctional government, which leads to more disgust with government, which leads to a demand for even more outsiders.

The antipolitics people don’t accept that politics is a limited activity. They make soaring promises and raise ridiculous expectations. When those expectations are not met, voters grow cynical and, disgusted, turn even further in the direction of antipolitics.

The antipolitics people refuse compromise and so block the legislative process. The absence of accomplishment destroys public trust. The decline in trust makes deal-making harder.

We’re now at a point where the Senate says it won’t even hold hearings on a presidential Supreme Court nominee, in clear defiance of custom and the Constitution. We’re now at a point in which politicians live in fear if they try to compromise and legislate. We’re now at a point in which normal political conversation has broken down. People feel unheard, which makes them shout even louder, which further destroys conversation.

And in walks Donald Trump. People say that Trump is an unconventional candidate and that he represents a break from politics as usual. That’s not true. Trump is the culmination of the trends we have been seeing for the last 30 years: the desire for outsiders; the bashing style of rhetoric that makes conversation impossible; the decline of coherent political parties; the declining importance of policy; the tendency to fight cultural battles and identity wars through political means.

Trump represents the path the founders rejected. There is a hint of violence undergirding his campaign. There is always a whiff, and sometimes more than a whiff, of “I’d like to punch him in the face.”

I printed out a Times list of the insults Trump has hurled on Twitter. The list took up 33 pages. Trump’s style is bashing and pummeling. Everyone who opposes or disagrees with him is an idiot, a moron or a loser. The implied promise of his campaign is that he will come to Washington and bully his way through.

Trump’s supporters aren’t looking for a political process to address their needs. They are looking for a superhero. As the political scientist Matthew MacWilliams found, the one trait that best predicts whether you’re a Trump supporter is how high you score on tests that measure authoritarianism.

This isn’t just an American phenomenon. Politics is in retreat and authoritarianism is on the rise worldwide. The answer to Trump is politics. It’s acknowledging other people exist. It’s taking pleasure in that difference and hammering out workable arrangements. As Harold Laski put it, “We shall make the basis of our state consent to disagreement. Therein shall we ensure its deepest harmony.”

Brexit: Why Most Commentaries Miss The Point

Brexit-4My Comments: I found this a couple of days ago and it really helped me understand what happened in Great Britain the other day. If Brexit concerns you, this might help. It appeared in a news feed I follow written by a Tom Dispatch, if I have his name correct.

06/26/2016

Economist Robert Kuttner has a particularly judicious summary of and analysis of the Brexit decision, what lay behind it, and what it means. I’ve reproduced the whole essay below and recommend it for everyone puzzled by what just happened and what to make of it. Tom

What was the narrow British vote to leave the European Union really about? In recent days, you have read commentaries with variations on the following themes, ad nauseam. All of them contain pieces of the truth, but all miss the basic point:

Irrational Racism. This vote was a mostly racist reaction on the part of Brits who resented dark skinned foreigners in their midst, and mistakenly blamed the E.U. Britain actually has more control over its borders than most E.U. members, since London never signed the 1985 Schengen Agreement, which got rid of border controls for travelers throughout most of the Union. Before entering Britain, Europeans must still go through passport control, just like Syrians or Americans.

Scapegoating the E.U. for Economic Frustrations. Britain actually has a better deal than most E.U. nations. For starters, it retained its own currency, and controls its own monetary and fiscal policy. But as a member of the E.U., Britain does get to send tariff-free exports to the continent and London operates as a major European financial center. All of this now at risk.

The E.U. Had It Coming. Brussels is a remote, unaccountable bureaucracy, imposing regulations beyond democratic control. The vote, rightly or wrongly, was a yearning for lost national sovereignty.

Rejecting Liberal Internationalism. Britain has grown at a good clip since joining the E.U. in 1973. Globalization is here to stay. The people who voted for Brexit, are badly informed flat-earth types, failed to understand that they were shooting themselves in the foot.

What’s wrong with these commentaries? All fail to grasp that there is more than one brand of liberal internationalism. The kind represented by the E.U. since the 1990s (and Thatcherism since the late 1970s) has been operated largely by and for financial elites.

When the original institutions that later became the E.U. were created in the 1940s and 1950s, the international system was designed on the ashes of depression and war to rebuild an economy of full employment and broad based prosperity. The system worked remarkably well.

In the 1980s, as a backlash against the dislocations of the 1970s, Margaret Thatcher came to power in Britain (and Ronald Reagan in the US). Their policies returned to a dog-eat-dog brand of capitalism that benefited elites and hurt ordinary people. By the 1990s, when the European Economic Community became a more tightly knit European Union, it too became an agent of neo-liberalism.

Policies of deregulation ended in the financial collapse of 2008. The austerity cure, enforced the gnomes of Brussels and Frankfurt and Berlin, is in many ways worse than the disease.

Rising mass discontent has failed to dethrone the elites responsible for these policies, but it has resulted in loss of faith in institutions. The one percent won the policies but lost the people.

So, yes, the Brits who voted for Brexit got a lot of facts and details wrong. And Britain will probably be worse off as a result. But they did grasp that the larger economic system is serving elites and is not serving them.

The tragedy is that we are further away from a reformed EU than ever. A progressive EU, more in the spirit of 1944, is not on the menu. The exit of Britain will give even more power to Angela Merkel’s Germany, architect and enforcer of austerity.

The rest of Europe will become more like Greece economically and more like the British rightwing politically. there will be more far-right populist movements for other nations to quit the EU. This has already begun in France and the Netherlands, two of the founding nations of the European Community — and ones that also benefit, on balance, from the EU.

What about race? Didn’t race play a big role in this vote. Is surely did — and not just a backlash against just recent influx of refugees and economic migrants. Since the 1950s, when Britain rebranded its empire as the Commonwealth, Britain has had a relatively liberal immigration policy for its former colonies—one part carrot to promote allegiance, one part guilty conscience.

In the 1960s, the rightwing Tory Enoch Powell was already campaigning against immigrants and slogans appeared, “If you want a Ni—-r for a neighbour, Vote Labour.” By 2001, fifteen years ago, Britain was already 8 percent nonwhite. As traditional industry declined and living standards crashed, non-white populations increased, creating resentments against both economic misfortune and racial change. But the history of rightwing populism is invariably a mix of economic factors and nativist ones. In the 1960s, when Europe had full employment, there was little backlash against foreign “guest-workers.” Anti-Semitism was never far below the surface in Europe, but it took the German economic collapse of the 1920s and early 1930s to produce Hitler.

Rightwing revolts are always substantially irrational, as was the vote for Brexit. But when downwardly mobile Brits grasp that the EU and the larger model of neo-liberalism aren’t exactly on their side, they are grasping a truth.

What makes this vote so tragic is the absence of enlightened leadership, either in Britain or on the continent, to propose something better. Prime Minister David Cameron, who proposed the reckless gamble of a referendum as a tactical feint to paper over an intra-party schism, may now be responsible for the dissolution of two unions — not just the EU, but the UK, as Scotland secedes. He will be remembered as the worst British prime minister ever, a near-tie with Neville Chamberlain. The Labour leader, Jeremy Corbyn, who said he opposed Brexit but refused to actively campaign against it, was not much better.

Britain’s two major parties are now both in disarray. I can think of one possible silver lining. The referendum was not legally binding, and Article 50 of the Lisbon Treaty — withdrawal — still needs to be voted by the House of Commons. And a majority of British M.P.’s oppose Brexit.

Now that the implications of Brexit are clearer, including the likely breakup of the United Kingdom itself, it’s possible that the Commons could refuse to approve Article 50. Rather, Britain could have an early election, and maybe even a partisan realignment, with one party pledged to keep Britain in the EU but to modernize the EU to better serve regular Brits, and the other party standing for narrow nationalism. My bet is that the modernizers would win.

Absent this sort of recasting of politics and political choices, we are in for a grim era in which ultra nationalists and neo-fascists keep gaining ground.

Robert Kuttner is co-editor of The American Prospect and professor at Brandeis University’s Heller School. His latest book is Debtors’ Prison: The Politics of Austerity Versus Possibility.

The Death of NeoLiberalism

retirement_roadMy Comments: The more things change, the more they stay the same. You’ve heard that before. Is it also true that the more things stay the same, the more things change?

It’s said that the world you live in as a teenager largely determines who you will be throughout your life. And since the world 65 years ago was vastly different from the world in which we live today, my values are perhaps out of date.

It’s also true the world that existed during the first ten years of my professional life was also very different from today. It has occurred to me that the orthodoxy I follow when advising my clients today might also be out of date. So I am making an effort to once again be relevant.

The article I want you to read below is not easy to read but I see a parallel between the discomfort many of us have about the changes happening in the political world and the changes happening in the financial and economic worlds. I welcome your thoughts about this and how I might evolve to provide better financial insights for my clients.

by Aditya Chakrabortty May 31, 2016

What does it look like when an ideology dies? As with most things, fiction can be the best guide. In Red Plenty, his magnificent novel-cum-history of the Soviet Union, Francis Spufford charts how the communist dream of building a better, fairer society fell apart.

Even while they censored their citizens’ very thoughts, the communists dreamed big. Spufford’s hero is Leonid Kantorovich, the only Soviet ever to win a Nobel prize for economics. Rattling along on the Moscow metro, he fantasises about what plenty will bring to his impoverished fellow commuters: “The women’s clothes all turning to quilted silk, the military uniforms melting into tailored grey and silver: and faces, faces the length of the car, relaxing, losing the worry lines and the hungry looks and all the assorted toothmarks of necessity.”

But reality makes swift work of such sandcastles. The numbers are increasingly disobedient. The beautiful plans can only be realised through cheating, and the draughtsmen know it better than any dissidents. This is one of Spufford’s crucial insights: that long before any public protests, the insiders led the way in murmuring their disquiet. Whisper by whisper, memo by memo, the regime is steadily undermined from within. Its final toppling lies decades beyond the novel’s close, yet can already be spotted.

When Red Plenty was published in 2010, it was clear the ideology underpinning contemporary capitalism was failing, but not that it was dying. Yet a similar process as that described in the novel appears to be happening now, in our crisis-hit capitalism. And it is the very technocrats in charge of the system who are slowly, reluctantly admitting that it is bust.

You hear it when the Bank of England’s Mark Carney sounds the alarm about “a low-growth, low-inflation, low-interest-rate equilibrium”. Or when the Bank of International Settlements, the central bank’s central bank, warns that “the global economy seems unable to return to sustainable and balanced growth”. And you saw it most clearly last Thursday from the IMF.

What makes the fund’s intervention so remarkable is not what is being said – but who is saying it and just how bluntly. In the IMF’s flagship publication, three of its top economists have written an essay titled “Neoliberalism: Oversold?”.

The very headline delivers a jolt. For so long mainstream economists and policymakers have denied the very existence of such a thing as neoliberalism, dismissing it as an insult invented by gap-toothed malcontents who understand neither economics nor capitalism. Now here comes the IMF, describing how a “neoliberal agenda” has spread across the globe in the past 30 years. What they mean is that more and more states have remade their social and political institutions into pale copies of the market. Two British examples, suggests Will Davies – author of the Limits of Neoliberalism – would be the NHS and universities “where classrooms are being transformed into supermarkets”. In this way, the public sector is replaced by private companies, and democracy is supplanted by mere competition.

The results, the IMF researchers concede, have been terrible. Neoliberalism hasn’t delivered economic growth – it has only made a few people a lot better off. It causes epic crashes that leave behind human wreckage and cost billions to clean up, a finding with which most residents of food bank Britain would agree. And while George Osborne might justify austerity as “fixing the roof while the sun is shining”, the fund team defines it as “curbing the size of the state … another aspect of the neoliberal agenda”. And, they say, its costs “could be large – much larger than the benefit”.

Two things need to be borne in mind here. First, this study comes from the IMF’s research division – not from those staffers who fly into bankrupt countries, haggle over loan terms with cash-strapped governments and administer the fiscal waterboarding. Since 2008, a big gap has opened up between what the IMF thinks and what it does. Second, while the researchers go much further than fund watchers might have believed, they leave in some all-important get-out clauses. The authors even defend privatisation as leading to “more efficient provision of services” and less government spending – to which the only response must be to offer them a train ride across to Hinkley Point C.

Even so, this is a remarkable breach of the neoliberal consensus by the IMF. Inequality and the uselessness of much modern finance: such topics have become regular chew toys for economists and politicians, who prefer to treat them as aberrations from the norm. At last a major institution is going after not only the symptoms but the cause – and it is naming that cause as political. No wonder the study’s lead author says that this research wouldn’t even have been published by the fund five years ago.

From the 1980s the policymaking elite has waved away the notion that they were acting ideologically – merely doing “what works”. But you can only get away with that claim if what you’re doing is actually working. Since the crash, central bankers, politicians and TV correspondents have tried to reassure the public that this wheeze or those billions would do the trick and put the economy right again. They have riffled through every page in the textbook and beyond – bank bailouts, spending cuts, wage freezes, pumping billions into financial markets – and still growth remains anaemic.

And the longer the slump goes on, the more the public tumbles to the fact that not only has growth been feebler, but ordinary workers have enjoyed much less of its benefits. Last year the rich countries’ thinktank, the OECD, made a remarkable concession. It acknowledged that the share of UK economic growth enjoyed by workers is now at its lowest since the second world war. Even more remarkably, it said the same or worse applied to workers across the capitalist west.

Red Plenty ends with Nikita Khrushchev pacing outside his dacha, to where he has been forcibly retired. “Paradise,” he exclaims, “is a place where people want to end up, not a place they run from. What kind of socialism is that? What kind of shit is that, when you have to keep people in chains? What kind of social order? What kind of paradise?”

Economists don’t talk like novelists, more’s the pity, but what you’re witnessing amid all the graphs and technical language is the start of the long death of an ideology.

The Fury Of American Voters Is In Its Infancy

voteMy Comments: Writing about personal finance matters is something I enjoy. Given my limited vocabulary, however, I resort to finding stuff written by others that resonate with me and then sharing with others. Sometimes it works and sometimes it doesn’t.

Mix this up with the current political climate and there is an added resonance for me. I’ve argued for years now that a growing disconnect between the ‘haves’ and the ‘have nots’ in this country will lead to rioting in the streets if it’s not addressed. The fascinating thing is an increasing hubbub in the background that this disconnect is being recognized. And that’s a good thing.

I pray that enough young voters show up at the election sites to make their voices heard.

Roger Altman, April 4, 2016

There is a deep anger in the American electorate that explains the rise of two candidates whose presidential campaigns would, in previous election years, have been killed off well before now. It explains why voters are prepared to overlook the relentless insults of Donald Trump, the Republican frontrunner, and the avowed socialism of Bernie Sanders, the main rival to Hillary Clinton for the Democrats, while embracing their unorthodox stances on trade, healthcare and much else. And it explains why two-thirds of Americans say the country is on the wrong track.

At its heart, this anger is economic. Ever more Americans are having trouble making ends meet. Many of the jobs created since the financial crisis are low-wage. And voters do not expect better incomes in the future. For a nation accustomed to believing that each generation would live better than its predecessor, this is a bitter pill.

This economic pressure is not temporary either, because the trends undermining incomes — technology and globalisation — are in their early stages and still accelerating. All the talk from Mr Trump and Mr Sanders about building border walls and killing trade agreements misses the point. Such steps would have no discernible impact on these powerful trends. What is needed are bolder income support policies to cushion workers against them.

How weak are incomes? Today’s real median household income is $53,600, down nearly 7.5 per cent from the peak seen 20 years ago. And real median wages per hour have fallen 4 per cent since the financial crisis. Further, while 14m net new jobs have been created since the crisis, nearly half of these are in the low-wage sector, as defined by the Bureau of Labor Statistics. Of the new jobs that will be created between now and 2025, according to the BLS, more than 90 per cent will pay $36,000 or less annually. In 2013, 22 per cent of children, at some point that year, did not have enough to eat. This cannot be the America we want.

There are two reasons for the downward pressure on income. One is technology. In earlier periods, technology created as many decently paid jobs as it destroyed. That is no longer the case. Just look at total private-sector employment: it has returned to pre-recession levels; but the proportion of decently paid jobs in manufacturing, construction and information services are below the levels of 10 years ago.

Sales of US-made vehicles, for example, are at record levels today in America but automation has sharply reduced employment in the industry. Digital processes, still in their infancy, are reducing innumerable categories of white-collar employment, such as customer service.

Then there is globalisation. Even a generation ago, the US was the biggest market in the world for many products. No longer. Whether it is toothpaste, cars or consulting services, rising living standards across the world have generated a much bigger market for many of America’s products. In response, businesses have created more jobs — with lower pay — overseas than in the US. Africa, the largest emerging global market, is just coming into focus.

On this basis, American incomes will remain weak. Which is why we need to provide a more effective education system. If one-tenth of working-age men who do not have a university degree were to earn one, the 35-year decline in median wages would disappear. So we must make a greater effort to help students complete their degrees.

We also need to provide greater income support for middle and low-wage workers. There are two possible approaches. First, double the impact of the earned income tax credit (EITC) by raising both eligibility levels and payment limits. Second, combine this with a higher minimum wage linked to inflation. Such moves would boost take home pay for tens of millions of working Americans.

Yes, doubling the EITC would cost taxpayers another $60bn annually. But this is not a big sum by federal budget standards and could readily be financed by phasing in higher taxes on dividends and capital gains. Many forget that tax rates on income from capital are not high by historical standards.

In the longer term, it is possible that more advanced technologies will permanently reduce the demand for human labour. If this ensues, we may eventually consider a universal guaranteed income for working age adults.

The point is that the income pressures we see today are going to continue. If we ignore them, voter anger will intensify. It could make Mr Trump’s brand of authoritarianism look moderate.

The writer is founder and executive chairman of Evercore and was deputy US Treasury secretary under President Bill Clinton

Britain Is Sleepwalking Into A New Recession

My Comments: Never mind for the moment whether Britain decides to leave the European Union or not. They are now a key player in the world economy and a critical player in the world’s efforts to push back against terrorism.

Removing themselves from the EU “…because we had it better before…” is similar to the old king standing on the beach telling the tide to recede. There’s a parallel in this country by folks wanting to ‘take back America”. Not going to happen, if for no other reason than they cannot answer the simple question “from whom”.

There’s more to this article that I’ve put here in this post so if you are still interested, go to the link at the end and see the rest of the reasons behind this argument.

Jim Edwards Mar. 12, 2016

There are two types of people in Britain right now. People who are asleep, and people who are awake.

The sleepers think that the economy has never been better. Jobs are up. Unemployment is down. Things are good. Most people, including you, are asleep.

And then there are the people who are awake. We call these people economists. They spend their time looking into the future, and mostly they see an economic slump coming. They are alarmed by it. That’s why the ECB reduced interest rates to zero last week.

But weirdly, it feels like we’ve never had it so good. Here is our current situation according to a great set of charts from Barclays:

Technically, we’re at full employment. Self-employment rates are high. The current employment rate is the highest since records began in the mid 1970s.

But economists don’t care much about the present. They want to know what’s going to happen next. And what they’re seeing is scary. The economy is slowing down, and many of the key indicators are in decline.

We’re sleepwalking into the next recession.

Scroll on for a scary look at the future …

Wages are up and hours worked are down. That’s a good thing for workers. It may even be holding back growth overall — ideally, you want everyone to be as productive as possible. But the fact that workers can reduce their hours while pay stays high in a low-inflation environment means this is as sunny as it gets for workers.

Job creation in the UK is fantastic right now — the bulk of new jobs are high-skilled, the kind that carry high wages, and high productivity. There are fewer low-skilled jobs being created. But that is pretty much the end of the good news because …

CONTINUE-READING

Oil Wars; Saudi Arabia May Have Screwed The Pooch

oil productionMy Comments: If you are concerned about how fracking is an environmental threat, this might interest you. Much of our collective angst is driven by the runup to next November’s presidential election. All the while, however, there are forces at work beyond our control that will greatly influence how our lives play out over the next 20 years, much less the next four.

This article, from the New York Times, describes events in the Middle-East that impact the oil dependency of the United States, how Russia and other influential countries around the world react to each other, and, by extension, effect our economy and how we define what is in our best interest for the next generation of Americans.

By ANDREW SCOTT COOPER MARCH 12, 2016

FOR the past half-century, the world economy has been held hostage by just one country: the Kingdom of Saudi Arabia. Vast petroleum reserves and untapped production allowed the kingdom to play an outsize role as swing producer, filling or draining the global system at will.

The 1973-74 oil embargo was the first demonstration that the House of Saud was willing to weaponize the oil markets. In October 1973, a coalition of Arab states led by Saudi Arabia abruptly halted oil shipments in retaliation for America’s support of Israel during the Yom Kippur War. The price of a barrel of oil quickly quadrupled; the resulting shock to the oil-dependent economies of the West led to a sharp rise in the cost of living, mass unemployment and growing social discontent.

“If I was the president,” Secretary of State Henry Kissinger fumed to his deputy Brent Scowcroft, “I would tell the Arabs to shove their oil.” But the president, Richard M. Nixon, was in no position to dictate to the Saudis.

In the West, we have largely forgotten the lessons of 1974, partly because our economies have changed and are less vulnerable, but mainly because we are not the Saudis’ principal target. Predictions that global oil production would eventually peak, ensuring prices stayed permanently high, never materialized. Today’s oil crises are determined less by the floating price of crude than by crude regional politics. The oil wars of the 21st century are underway.

In recent years, the Saudis have made clear that they regard the oil markets as a critical front line in the Sunni Muslim-majority kingdom’s battle against its Shiite-dominated rival, Iran. Their favored tactic of “flooding,” pumping surplus crude into a soft market, is tantamount to war by economic means: the oil trade’s equivalent of dropping the bomb on a rival.

In 2006, Nawaf Obaid, a Saudi security adviser, warned that Riyadh was prepared to force prices down to “strangle” Iran’s economy. Two years later, the Saudis did just that, with the aim of hampering Tehran’s ability to support Shiite militia groups in Iraq, Lebanon and elsewhere.

Then, in 2011, Prince Turki al-Faisal, the former chief of Saudi intelligence, told NATO officials that Riyadh was prepared to flood the market to stir unrest inside Iran. Three years later, the Saudis struck again, turning on the spigot.

But this time, they overplayed their hand.

When Saudi officials made their move in the fall of 2014, taking advantage of an already glutted market, they no doubt hoped that lower prices would undercut the American shale industry, which was challenging the kingdom’s market dominance. But their main purpose was to make life difficult for Tehran: “Iran will come under unprecedented economic and financial pressure as it tries to sustain an economy already battered by international sanctions,” argued Mr. Obaid.

Oil-producing countries, especially ones like Russia, with relatively undiversified economies, base their budgets on oil prices not falling below a certain threshold. If prices plunge below that level, fiscal meltdown looms. The Saudis expected a sharp reduction in oil prices not just to hurt the American fracking industry, but also to hammer the economies of Iran and Russia. That in turn would weaken their ability to support allies and proxies, particularly in Iraq and Syria.

The tactic had been brutally effective in the past. This was the grim scenario that confronted the shah in 1977 when the Saudis flooded the oil market to rein in Iran’s influence. The 1977 flood was not the sole cause of the Iranian revolution, but it certainly was a factor: The shah’s rule was destabilized just as Ayatollah Ruhollah Khomeini mounted his offensive to replace a pro-Western monarchy with a theocratic state. In that sense, the oil markets fueled the rise of political Islam.
The price of oil also helped end the Cold War. Then, like Russia today, the Communist superpower was a global energy producer heavily reliant on revenues from oil and gas. In 1985-86, the Saudis’ decision to flood the market — which some believe was encouraged by the Reagan administration — led to a collapse in prices that sent the Soviet economy into a tailspin.

“The timeline of the collapse of the Soviet Union can be traced to Sept. 13, 1985,” wrote the Russian economist Yegor Gaidar. “On this date Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically.”

Today, in Russia, fully half of government revenue comes from oil and gas. Even if oil returns to $40 a barrel — it twice fell below $30 earlier this year — that depressed price still creates “a dangerous scenario,” according to Mikhail Dmitriev, a former Russian deputy economic minister. Inflation in Russia hit double digits last year; its sovereign wealth fund, which bails out struggling Russian companies, is depleted; and factory closings are fueling labor unrest.

Unhappily for President Vladimir V. Putin, Russia’s fiscal crisis has coincided with his military interventions in eastern Ukraine and Syria. If Russia’s economy worsens and Mr. Putin feels cornered, he may look for ways to distract the Russian people with more rally-round-the-flag provocations, as well as induce panic in the oil markets about supplies and gin prices back up.

Future shock has already arrived for oil producers like Venezuela, whose economy has been gutted by lost revenues from oil, which makes up 95 percent of its export earnings. With inflation predicted by the International Monetary Fund to reach 720 percent this year, Venezuela has become a financial zombie state — a harsh reminder of what can happen to countries that rely so heavily on a single unstable commodity price. President Nicolás Maduro is at the mercy of the markets that, every day, nudge his tottering regime nearer the abyss.

Another oil producer, Nigeria, is running out of money, hobbling President Muhammadu Buhari’s campaign against the Islamist Boko Haram insurgents in the northeast. The plunge in oil prices has also shaken Central Asia, where Azerbaijan and Kazakhstan have expressed interest in emergency bailouts from the I.M.F. and other lenders.

In the Middle East, reduced oil revenues have restricted Iraq’s ability to wage war against the Islamic State. Persian Gulf oil producers like Qatar and the United Arab Emirates estimate collective losses of $360 billion in export earnings in the past year. Such a big budgetary hole poses problems with maintaining order at home while fighting wars in Syria and Yemen, and propping up cash-strapped allies like Egypt.

And then there is Saudi Arabia itself.

All the evidence suggests that Saudi officials never expected oil prices to fall below $60 a barrel. But then they never expected to lose their sway as the swing producer within the Organization of the Petroleum Exporting Countries, or OPEC. Despite wishful statements from Saudi ministers, the kingdom’s efforts last month to make a deal with Russia, Venezuela and Qatar to restrict supply and push up prices collapsed.

The I.M.F. has warned that if government spending is not reined in, the Saudis will be bankrupt by 2020. Suddenly, the world’s reserve bank of black gold is looking to borrow billions of dollars from foreign lenders. King Salman’s response has been to promise austerity, higher taxes and subsidy cuts to a people who have grown used to state largess and handouts. That raises questions about the kingdom’s internal cohesion — even as the king decided to shoulder the burden of regional security in the Middle East, fighting wars on two fronts. Has there ever been an oil state as overleveraged at home and overextended abroad?

Meanwhile, by concluding the historic nuclear agreement, Iran is getting out from under the burden of economic sanctions. It will not be lost on Riyadh that this adds another oil producer to the world market that it can no longer control.

The instability and economic misery for smaller oil-producing states like Nigeria and Azerbaijan look set to continue. But that’s collateral damage. The real story is how the Saudis have been hurt by their own weapon.

Andrew Scott Cooper is the author of “The Oil Kings: How the United States, Iran and Saudi Arabia Changed the Balance of Power in the Middle East” and the forthcoming “The Fall of Heaven: The Pahlavis and the Final Days of Imperial Iran.”