For decades, Western Politicians have stoked grievances about missing out. The reality: the fallout from the Oil Crash of 2014 has been an unrecognized economic catastrophe for Canada.
On the "sovereign wealth funds" --- I will need to read your whole article more closely, but in case you do not mention it, this idea of a sovereign wealth fund is ridiculous. Norway has "saved" scorepoints (accounting records) from oil revenue. They have no need for saving scorepoints. There is no need for a superannuation fund or any such like for CND, AUS, NZ, USA, UK, JP,... for any nation outside the EMU. These savings mentality policies are holdovers from fixed exchange rate times/Bretton Woods, which are no longer applicable frameworks. Such savings does nothing to cool off inflation, and does not improve the amount of stuff for sale for today retirees, nor does it increase what could be for sale for tomorrow's retirees, in fact such policy reduces what pensioners can buy tomorrow. So much lost real output that will never be recovered. it is an epic crime of negligence.
All those revenues not immediately handed back to the workers who drilled up the oil, or to anyone else in poverty for that matter, is a massive potential loss of real output, so a drain on the *real* economy. There is simply no need for a monopoly fiat currency issuer to save it's own scorepoints. It is in fact an inapplicable concept (saving your own IOU). Even more wildly to normies: there is no reason for a government to save foreign reserves either. Not if they could cash them in to get imports for employing in domestic public purpose.
I think that you are making the same mistake that neoclassical economists are, which is thinking that money doesn't matter, and that there is no such thing as uncertainty or risk-taking, both of which are inescapable aspects of all economic transactions.
Neoclassical economists think money doesn't matter because it's just facilitating an exchange of goods or services, whereas a certain branch of MMT thinks money doesn't matter because it is symbolic, or it can be printed on demand.
Money is a token of control, in a social structure with laws, regulations and markets.
For your arguments about oil, you are making an argument based on the labour theory of value. There are two issues here with the idea that the workers should be able to keep it all - one is that the workers didn't pay for the capital machinery, in a highly capital intensive industry. In the case of Norway, the government did - it already is a communal investment. The value of the oil is not just determined by the costs of creation, or by the workers - the price is global, so global prices and profits can soar even when there is no change in production costs for the industry.
The existence of savings - a surplus buffer - provides stability, reduces uncertainty and increases confidence because people know that they are dealing with someone or some entity who can pay their bills. That is true at every level of transaction, from individual to nation-state.
You make some worthy points, but I assure you I am not neoclassical in mindset. Steve Keen also levels that accusation at me sometimes (a friend) but he is misunderstanding things too. MMT has a completely different view on why money matters (which Steve does understand I trust, same as his understanding of why money matters). I'd never say the scorepoints do not matter, they are control and power, as you say.
It is true and obvious that savings for households and firms is important, while a savings fund for a sovereign government that issues currency by fiat is completely ridiculous. The concept of a buffer of scorepoints is inapplicable. What I think you are using is an outdated fixed exchange rate mentality. (I am just inferring, I do not really know what goes in in your head or a neoclassicals head).
But suppose you are using a fixed exchange rate mindset (governments/CBs need a scorepoint buffer for their own IOU, because they are promising a fixed exchange rate) and the Norwegians have this all wrong. A sovereign Fund is important if the government promises to redeem for gold or a foreign currency. If Norway does promise to redeem for say USD, then they'll need a savings fund in USD. But there is no need for them to redeem for anything except their own kroner.
To deflate my contention, I am talking about what is possible with an understanding of the monetary system, not what is actually done. If Norway thinks they need to keep a hoard of their own scorepoints for whatever reason, then they will do so! I am saying they do not need to do so, and it shows they have no clue what MMT is all about. They do have an MMT system. Having an MMT system does not mean government policy looks anything like what MMT experts would advise, in fact it hardly is every the case, except slightly maybe with Japan (to a slight extent --- they still have the tax story backwards I believe).
I am absolutely not referring to a fixed exchange rate. I live in Canada, which in its 150+ year history was only on the gold standard for about 18 months. Norway has its own currency.
Norway's sovereign wealth fund is the single largest stock owner in the world. They buy other companies, and stock in private companies around the world. They own shares in multinationals. This means they can protect themselves against volatility in those other markets. If they keep all of that money in their own economy, they risk destabilizing it, because they do not have enough things to invest in, so they will just drive up the cost of existing assets, like housing.
Can I again protest a little, as a friend. What "oil crash"? The world was not running out of oil in 2014, nor in 1973, nor in 1980. It was a monopolist setting price. Or in 2021-23 a case of blocked supply/transport. This actually squares well with your previous commentary on conflict theories of inflation (which partially answered the question 'why would a monopolist raise the price?'). But it is incumbent on people who are given political power to understand the policy responses available, morally incumbent. It is a case of dueling monopolies/price setters. However, when the Saudis raise prices, our choices include, for example:
1. Allow the relative price of oil and products that contain oil to rise accordingly, while all other prices remain the same. This would be a reduction in your real terms of trade and diminish your real wealth
accordingly, and the reverse for the Saudis. And it's what they would prefer --- get more for their oil in real terms.
2. Allow your entire price level to shift up accordingly such that real terms of trade remain as before. There would be no shift in real wealth.
Same policy options are available for the USA, Canada, NZ,... whoever is a state currency monopolist. They (running the show) just do not know this is a policy option. I am not saying it is politically easy to overcome false psychology, but I am saying that this is at the core of the class battle, to overcome the false psychology.
The crash is an oil price crash. There were massive restrictions in oil supplies that drove prices up. That results in people investing - with debt - in oil.
When the oil price crashes again, the capacity to service the debt evaporates, but the debt remains. That is why debt deflation is crushing.
In Canada, when the price of oil goes up, so does the Canadian dollar. The oil producers make billions while everyone else faces increased domestic prices and lower costs for imports. We share a border with the U.S., and this has an immediate impact.
I am going to deal with this in my next article, which is about oil and finance as warfare.
Very well thought out paper, Dougald!
On the "sovereign wealth funds" --- I will need to read your whole article more closely, but in case you do not mention it, this idea of a sovereign wealth fund is ridiculous. Norway has "saved" scorepoints (accounting records) from oil revenue. They have no need for saving scorepoints. There is no need for a superannuation fund or any such like for CND, AUS, NZ, USA, UK, JP,... for any nation outside the EMU. These savings mentality policies are holdovers from fixed exchange rate times/Bretton Woods, which are no longer applicable frameworks. Such savings does nothing to cool off inflation, and does not improve the amount of stuff for sale for today retirees, nor does it increase what could be for sale for tomorrow's retirees, in fact such policy reduces what pensioners can buy tomorrow. So much lost real output that will never be recovered. it is an epic crime of negligence.
All those revenues not immediately handed back to the workers who drilled up the oil, or to anyone else in poverty for that matter, is a massive potential loss of real output, so a drain on the *real* economy. There is simply no need for a monopoly fiat currency issuer to save it's own scorepoints. It is in fact an inapplicable concept (saving your own IOU). Even more wildly to normies: there is no reason for a government to save foreign reserves either. Not if they could cash them in to get imports for employing in domestic public purpose.
I think that you are making the same mistake that neoclassical economists are, which is thinking that money doesn't matter, and that there is no such thing as uncertainty or risk-taking, both of which are inescapable aspects of all economic transactions.
Neoclassical economists think money doesn't matter because it's just facilitating an exchange of goods or services, whereas a certain branch of MMT thinks money doesn't matter because it is symbolic, or it can be printed on demand.
Money is a token of control, in a social structure with laws, regulations and markets.
For your arguments about oil, you are making an argument based on the labour theory of value. There are two issues here with the idea that the workers should be able to keep it all - one is that the workers didn't pay for the capital machinery, in a highly capital intensive industry. In the case of Norway, the government did - it already is a communal investment. The value of the oil is not just determined by the costs of creation, or by the workers - the price is global, so global prices and profits can soar even when there is no change in production costs for the industry.
The existence of savings - a surplus buffer - provides stability, reduces uncertainty and increases confidence because people know that they are dealing with someone or some entity who can pay their bills. That is true at every level of transaction, from individual to nation-state.
You make some worthy points, but I assure you I am not neoclassical in mindset. Steve Keen also levels that accusation at me sometimes (a friend) but he is misunderstanding things too. MMT has a completely different view on why money matters (which Steve does understand I trust, same as his understanding of why money matters). I'd never say the scorepoints do not matter, they are control and power, as you say.
It is true and obvious that savings for households and firms is important, while a savings fund for a sovereign government that issues currency by fiat is completely ridiculous. The concept of a buffer of scorepoints is inapplicable. What I think you are using is an outdated fixed exchange rate mentality. (I am just inferring, I do not really know what goes in in your head or a neoclassicals head).
But suppose you are using a fixed exchange rate mindset (governments/CBs need a scorepoint buffer for their own IOU, because they are promising a fixed exchange rate) and the Norwegians have this all wrong. A sovereign Fund is important if the government promises to redeem for gold or a foreign currency. If Norway does promise to redeem for say USD, then they'll need a savings fund in USD. But there is no need for them to redeem for anything except their own kroner.
To deflate my contention, I am talking about what is possible with an understanding of the monetary system, not what is actually done. If Norway thinks they need to keep a hoard of their own scorepoints for whatever reason, then they will do so! I am saying they do not need to do so, and it shows they have no clue what MMT is all about. They do have an MMT system. Having an MMT system does not mean government policy looks anything like what MMT experts would advise, in fact it hardly is every the case, except slightly maybe with Japan (to a slight extent --- they still have the tax story backwards I believe).
I am absolutely not referring to a fixed exchange rate. I live in Canada, which in its 150+ year history was only on the gold standard for about 18 months. Norway has its own currency.
Norway's sovereign wealth fund is the single largest stock owner in the world. They buy other companies, and stock in private companies around the world. They own shares in multinationals. This means they can protect themselves against volatility in those other markets. If they keep all of that money in their own economy, they risk destabilizing it, because they do not have enough things to invest in, so they will just drive up the cost of existing assets, like housing.
Can I again protest a little, as a friend. What "oil crash"? The world was not running out of oil in 2014, nor in 1973, nor in 1980. It was a monopolist setting price. Or in 2021-23 a case of blocked supply/transport. This actually squares well with your previous commentary on conflict theories of inflation (which partially answered the question 'why would a monopolist raise the price?'). But it is incumbent on people who are given political power to understand the policy responses available, morally incumbent. It is a case of dueling monopolies/price setters. However, when the Saudis raise prices, our choices include, for example:
1. Allow the relative price of oil and products that contain oil to rise accordingly, while all other prices remain the same. This would be a reduction in your real terms of trade and diminish your real wealth
accordingly, and the reverse for the Saudis. And it's what they would prefer --- get more for their oil in real terms.
2. Allow your entire price level to shift up accordingly such that real terms of trade remain as before. There would be no shift in real wealth.
Same policy options are available for the USA, Canada, NZ,... whoever is a state currency monopolist. They (running the show) just do not know this is a policy option. I am not saying it is politically easy to overcome false psychology, but I am saying that this is at the core of the class battle, to overcome the false psychology.
The crash is an oil price crash. There were massive restrictions in oil supplies that drove prices up. That results in people investing - with debt - in oil.
When the oil price crashes again, the capacity to service the debt evaporates, but the debt remains. That is why debt deflation is crushing.
In Canada, when the price of oil goes up, so does the Canadian dollar. The oil producers make billions while everyone else faces increased domestic prices and lower costs for imports. We share a border with the U.S., and this has an immediate impact.
I am going to deal with this in my next article, which is about oil and finance as warfare.