But the citizens of the oil exporting countries would love to consume…if given a chance.

Sir Martin Wolf says in “How to manage the world economy through two crises” June 25 that the ongoing transfer of wealth from oil-importing countries to oil-exporting countries… from those who spend to those inclined to save… will curb the rise of global demand” and he is right, but it should not have to be that way. The reason for him being right is that the wealth transfers goes into sovereign funds or other government pockets and not to the citizens of the oil-exporting countries who would also gladly step up their consumption.

Today, in Venezuela, I am publishing a fictitious letter from Arnold Schwarzenegger in which he offers to buy on a rolling five years average price 2 million of oil barrels per day to satisfy the needs of his constituency and take the worst volatility out of the market. To stimulate Venezuela entering into such a country he is offering to pay an equal share of the proceeds, to each one of the 26 million citizens of Venezuela, in the currency and in the individual account each one of them would like.

http://opinion.eluniversal.com/2008/06/26/opi_769_art_de-arnold-para-venez_26A1723279.shtml

Our first turning point has to be in the how we manage the world’s economy.

When I was an Executive Director at the World Bank 2002-2004 I am on the record complaining that there were no significant mention of energy plans in the country assistance strategies presented to us, when in light of the tremendous energy intensive growth occurring in places like China and India, we could very well be facing 100 dollar per barrel of oil in a short time. And I do not yet understand how the International Energy Agency was not capable of mustering sufficient strength to warn the world of the upcoming imbalances with the supply and demand of oil.

For more than a decade I have been also been voicing, sometimes quite noisily, that in fact we do not have a workable regulatory framework for our financial systems, since it should be clear to anyone that our real objectives for it must reach much further than the current limited and almost silly objective that Basel has in mind, that of just avoiding defaults.

Also, from the very first moment I heard about officially empowering the credit rating agencies to do the risk measurements that determined the capital requirements of banks, I have repeatedly stated that this would just lead some participants to let down their guard and end with many investors following, sooner or later, the credit rating agencies over a precipice.

I mention these three aspects, though there are many more, like the “scandalously wasteful biofuels programmes”, in response to Martin Wolf’s “A turning point in managing the world’s economy”, April 23, in order to emphasize that the first turning point we really need to make has to do with the how we manage the world’s economy. Obviously we must break lose from the habit of blindfolding and ossifying our institutions. Perhaps we need to impose term limits on the bureaucrats too, especially since their first rule for survival seems to be…do not ask questions and do not answer what you have not been questioned.

Energetic inflation possibilities

Sir, On June 28, Martin Wolfs ends his “Why the energy revolution will continue to power ahead” with an “anybody who thinks it will be easy to reduce energy consumption is simply dreaming”. He is wrong, as an economist he should know that it is a question of prices. Next to his there is an article by Francesco Giavazzi and Charles Wyplosz titled “When facts change so should central bank intentions” that verses on the oxymoronish issue of the transparency of central banks and comes in quite handy as a reminder that changed facts are most often not too transparently discussed.

As Wolf reminds us about, the average US consumer uses ten times more primary energy than an average Chinese, which set against a large economic growth rate in China and a limited increase in energy supplies should put extraordinary pressure on energy prices, as simple as that! In these circumstances, the US Fed, and the American leaders at large, should be speaking out to their fellow citizens telling them that if they do not reign in their consumption of oil, inflation will take off, they will have to raise interest rates, and then they will have to see jobs and property values all go, as simple as that! But Wolf might still be right, since expecting a central banker to acknowledge that other forces are more powerful than his and his buddies, or a leader to lead and not follow polls, well that could really be dreaming.

Francesco Giavazzi
Charles Wyplosz

Go for an oil consumers' co-operative group

Published in FT, April 26, 2006

Sir, James Pinkerton suggests that “The world should get ready for a Nato-style oil alliance” (April 20), and although he makes it implicit that the Organization of the Petroleum Exporting Countries is the “enemy, he does not really explain what the alliance should be up to. Let me make three suggestions. First, forget about the NATO simile - too militaristic - and go for a simple Oil Consumer Co-operative. Second, the OCC should then start some serious introspection so as to realize that its biggest enemy, unchecked oil demand, is thriving behind their own lines. Finally it should look seriously into the alternative of offering the oil producing nations long-term supply and purchases agreements based on prices that are reasonable for both sides.

LEFT OUT:

For instance if the price offered on a 50 years arrangement was 40 dollars per barrel, with adjustment for inflation, plus or minus 50% of the difference with the spot market, this would provide the producers with a floor of 30 when the spot hits 10 dollars, and conversely “only” charge consumers 70 when the spot rises to 100 dollars. Such an arrangement would not only stimulate new oil investments but also keep the hawks (those who love the NATO part) from trying their solutions, as wars mostly tend to erupt while fighting over bargains, like oil priced at its marginal extraction cost.