PARIS (ResourceInvestor.com) - We pointed out last week that this column does not put any faith in the current system of economics loosely known as neo-liberalism or "free markets". We have noted that despite its ideologically rigid application around the world for the last 25 years, it has done nothing to create a supply cushion in oil markets. Instead what it has done is pass giant profits to the most powerful organisations within the industry, privatising the profits and socialising the costs.
One great example at the moment is biofuels. The developed world, especially the United States, wants liquid fuel for transport. So a tax has been placed on the entire world population as the transport-dependent U.S. and EU suck out available spare capacity in the agricultural market by converting corn to ethanol.
Basically land has been converted to growing corn in order to provide fuels for the states most dependent on car travel. This has boosted food prices all around the globe, even for people who do not posses cars or have ever even travelled in one.
What is more amazing is that this event is not some kind of economic neo-liberal happening. Like much of free market thinking, it is in fact a myth. Fifty percent of the revenues that U.S. farmers receive from growing corn for ethanol in fact do not come from anything as neo-liberal as sales and marketing. No, 50% of the revenues come from subsidies, from the taxpayer, via the government.
If you are a major industrial landowner, it is a godsend. The idea of investment to "create wealth" (another wacky neo-liberal idea - we can see you printing the money supply, we are not blind) is thrown away as every taxpayer in the U.S. subsidises major industrial concerns.
Secondly comes the idea that war and global "full-spectrum dominance" can safeguard the United States. It is true that war provides liquidity for economies as - once again - taxpayer subsidies in the form of war budgets send wealth flooding up the chain to the most powerful organisations and concerns on the planet.
There is now little doubt that the United States, for example, has spent around $1 trillion on the invasion and destruction of Iraq. Although we can argue over how much importance the region has in terms of invasion-to-oil-and-gas-reserves, there is little doubt that securing the region for U.S. and EU "interests" was a prime motivator - maybe not all of it but certainly a very important one.
But if an economy was truly democratic - unlike any on the planet - then the U.S. could have spent that money far more wisely. One trillion dollars would buy 11.77 billion barrels of oil at $85 per barrel. Of course it could also have been spent on second generation biofuels - the ones ExxonMobil [NYSE:XOM] and Total [NYSE:TOT] are so keen on - or wind farms or solar power or insulation for American homes. Instead the money has been part of the trickle-up, the process whereby money is passed from the weakest to the richest, the real underlying motivation for neo-liberalism class war.
As there are no democracies on the planet, only differing forms of oligarchy, it is no surprise to see the Chinese state capitalists or the Russian state capitalists doing roughly similar versions of the same thing. Chinese per capita consumption of oil is the same as that of the U.S. in 1904, yet we hear so often that - basically - it is the "fault" of China to create a demand-led, geo-political peak oil.
What this signals is that economies need democratising, not placing in the hands of either private or state oligarchies. But in the developed world instead what we do have is a moment where modern economies - neo-liberal ones - are exposed as failures.
Investment signals and market economics, such as they are, cannot satisfy what is needed, a rise in demand led by the force feeding of capitalism-for-the-rich around the world for the last 50 years. The only possible respite for this is to have a recession - where prices drop, where the weakest are hurt the most and where, once again, the richest and most powerful benefit by cherry picking assets from the disparate, profligate and downright unlucky. When peak oil bounces the world into recession, as many in the oil industry believe it will, remember who told you first.
