Those that never had to compete never will. This is the answer to the rise of Europe’s Fascist right. What should we expect of political economies whose social base remains homogenized during a crisis. Economies and rigid social orders don’t respond well to existential threats. The United States in 2008 is a great example of a dominant political class that punted on any substantial reform. Congress abrogated to the Central Bank, we’re now left picking up an economy that was never allowed to fail.
Enter the Saudi’s. The House of Saudi has no growth. Its social base is weak, homogenized and used to massive subsidies, and cash transfers, neither permit price signals to emerge. A feudal political economy that is currently being asked to reform. A daunting task, because Riyadh’s central bank is running out of foreign exchange reserves. Simply put, the Saudi’s and by extension most of Islamic Civilization isn’t competing. Everything’s been fixed, until now. Even still, Saudi threats are mounting. Not having a functioning economy, having no base from which to expect monetary velocity to fund the fisc, the Saudi’s are in a hurry. The struggle that has unfolded between OPEC members and U.S. shale producers is over. The Saudi’s LOST.
They should have expected that, especially given how their economists are western trained. But Keynesians don’t study Joseph Schumpeter and his magnum opus on changing interior social relations resulting from new innovations. We watch Downton Abbey but we can’t quite seem to formalize how digitization and its inversion of scale yields to atomized beings.
For the Saudi’s and OPEC members, they’ve never had to live or function on $40-$55 a barrel. The U.S. shale revolution has inverted entire petrol economies to operate at low cost structure. The American’s can do this because of something we have that Islamic Civilization doesn’t have: civil society.
What have the Americans done to threaten OPEC membership? We’ve collapsed their budgets, their business models, their way of life. It had to happen, if only because how artificial the social base underwriting these nation states were. When the Americans began pumping 1.4 million barrels A DAY beginning in 2014, we destroyed 60% of Muslim societies superstructure, we continue to so today.
How did OPEC respond?
They sought to raise the price by collapsing their own output. To do that, they needed what OPEC never had, communion. OPEC members had to agree on scheduled reductions of output. They had to agree to willfully lose major market share. They all succeeded, but the market, the ‘extended order‘ comprised of innovative components, kept moving on. When OPEC returned, they discovered a changed playing field to the Americans advantage. The innovative components driving the shale revolution made exploration and production cheaper by 50%. With demand growing and prices falling, OPEC lost again. Having the west recalibrate to the lower bound destroyed OPEC.
Schumpeter knew something OPEC didn’t, we live in an active social environment, they don’t.
Adam Smith called it ‘the invisible hand‘, Hayek termed it ‘the extended order‘, everyone else calls it ‘the market‘.
The west, and by extension, our President has more weaponry to roll back the Islamists than we acknowledge. If we want to take the fight to the sons of Ishmael, let them compete.