Oil price spike: blame greedy speculators or peak oil? (book review)
Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America
By Matt Taibbi
Spiegel & Grau, 272 pp, $24
If you care about peak oil, it's natural to connect resource depletion to economic crisis.
And if you're growing increasingly impatient about the failure of government and the mainstream media to accept peak oil as a major challenge or even acknowledge the issue at all, then you may also be open to the idea that the American ruling class is wholly corrupt and self-serving.
Griftopia's relentless focus on the power of Wall Street scams, con-jobs, bubbles and shell games to destroy a perfectly good economy makes it difficult to hold both of these ideas in the same mind. And if we have to chose, Matt Taibbi wants us to forget about physical limits to growth or consumption. Instead, he wants to blame economic ills primarily on rot at the top.
AAA rated toilet paper
Taibbi does make an excellent case for rot at the top. His discussion of the sub-prime mortgage mess is particularly illuminating. He does readers a great service by unraveling all the complexities of how shady mortgage companies re-classified risky loans as top-rated securities that could be sold to institutional investors like pension funds that are only allowed to invest in AAA paper.
The book's discussion of healthcare reform is compelling. Taibbi clearly shows how insurance companies hijacked the issue and lubricated Obama and the Democrats with enough campaign cash to secure the infamous mandate for consumers to buy health coverage. The result is heathcare reform that will be worse for American families than no bill at all.
And Taibbi admirably explains how the Tea Party, though also hijacked by the rich to serve their own interests, responds to genuine grievances. Because state and local governments are constantly dinging consumers and small businesses for various taxes and fees, it was an easy, if incorrect, jump in logic for fed-up citizens to come out against high taxes and "big government."
The problem is that the Tea Party spends more effort attacking poor people who receive social services than the rich grifters who have really fleeced the middle class and should be the target of any authentic populist movement.
Taibbi, who usually deploys his Keith Olbermann-esque wit at Rolling Stone, makes up for this omission in spades and aims the full force of his prose at the criminal rich. He dubs Tea Party instigator and CNBC commentator Rick Santelli a "douchewad," guesses that Obama adviser Robert Rubin was "born in a four-thousand dollar suit" and ranks former Fed chairman Alan Greenspan as "the Biggest Asshole in the Universe."
After doing an in-depth investigation on the role of Goldman Sachs in the 2008 Wall Street bailout, Taibbi became convinced that all the economic crises suffered in America since the seventies were just Wall Street hustles given cover by Washington financial regulators:
A system in which mergers and bankruptcies were brokered not by the market, but by government officials like Paulson and Geithner and Bernanke, and prices of assets were determined not by what investors were willing to pay, but by the level of political influence of the company's leaders.
For Taibbi, by preaching Ayn Randian self-reliance for the little guy but demanding taxpayer-funded bailouts when their own risky investments fail, America's hypocritical ruling class has reduced the world's greatest power to "a thieves' paradise -- a Griftopia."
Plenty of oil, but too many scoundrels
Fair enough. But Taibbi ventures onto shaky ground when he implies that America's financial problems are merely political and cultural because the physical fundamentals of the economy are just fine.
And though Griftopia is long on exposé but short on solutions, Taibbi implies that if the voters could only be pulled away from distractions like illegal immigrants and their anchor babies long enough to understand the perfidy of Wall Street, the public would demand real regulation of the insurance, banking and finance industries and America would be back in the saddle again.
Taibbi's chapter on the oil shock of 2008, "Blowout: the commodities bubble," is disappointing. Even as I reminded myself that most journalists are not yet aware of peak oil, it was a bummer to see that Taibbi's obsession with investment-banking baddies apparently blinded him to the obvious conclusion that oil prices spiked because cheap oil may be running out.
When it comes to energy, Taibbi's skepticism about anything Goldman becomes embarrassing. An analyst's call for drivers to dump SUVs for more fuel-efficient cars Taibbi dismisses as "a theme Goldman has shamelessly pimped for years, that high [gas] prices were the fault of the piggish American consumer."
Taibbi seems to think that if Goldman says something about any topic, then it means the exact opposite must be true. Maybe that's why he checks his skepticism at the door when concluding that "the price increases had nothing to do with supply or demand."
In April 2008 the secretary-general of OPEC, a Libyan named Abdalla El-Badri, said flatly that "oil supply to the market is enough and high oil prices are not due to a shortage of crude." The US Energy Information Administration (EIA) agreed.
Well, if you think Goldman CEO Lloyd Blankfein is crying wolf about oil, then surely you can trust the good folks over at OPEC for an honest assessment of world petroleum supplies.
Of course, OPEC is the same outfit whose members magically doubled their reported reserves in the 1980s, despite reporting no significant new oil finds. But if their figures agree with the EIA, which has shown time and time again that they're not afraid to take oil producers' optimistic claims at face value in order to offer false reassurance to world markets, then that's good enough for Taibbi.
Thus Griftopia's thesis of the long-con gallops along. We learn that the oil spike was really just a bubble blown by commodities speculators to drive up the price of crude even though plenty of the stuff was just about to start flowing from fantastic new finds in Saudi Arabia and Brazil. In the words of another authority that Taibbi seems to trust implicitly, Oppenheimer oil analyst Fadel Gheit, "Everything that Goldman cooked up or predicted, by hook or by crook, it happened...[Goldman and Morgan Stanley] pushed these prices up."
How to make money in commodities
Taibbi's basic naiveté about oil, his willingness to trust energy authorities despite their own history of lies and deceptions and his failure to connect the dots between the 2008 financial crisis and oil depletion, when taken together, raise questions about Taibbi's judgment and risk throwing Griftopia's whole argument into question.
Taibbi clearly doesn't understand other commodities any better than he understands oil, and he can't imagine any legitimate reason to invest in commodities outside of a conspiracy by speculators to artificially drive up the price:
If you think about it logically, there are few reasons why anyone would want to invest in a rise in commodity prices over time. With better technology, the cost of harvesting and transporting commodities like wheat and corn is probably going to go down over time, or at the very least is going to hover near inflation or below it. There are not many good reasons why prices in valued commodities would rise -- and certainly very few reasons to expect that the prices of twenty-four different commodities would rise all over and above the rate of inflation over a certain period of time.
What Taibbi is missing of course, is that all commodities are held together by the world's super-commodity, crude oil. Oil allows farmers to grow wheat and corn; butchers to produce porkbellies; miners to extract and process copper and platinum; and ships, trains, trucks and planes to transport all commodities. When oil rises in price, it usually takes other commodities along for the ride.
Since all products and services begin with raw materials, it's only natural that commodities would rise in price first and then all the stuff that uses those commodities would rise after that. So, first oil goes up. Then rises the price of plastic. Finally, toys and contact lenses become more expensive. No conspiracy of speculators is required -- it's just a simple ripple effect.
Greedhead conspiracy vs. limits to growth
While I'm willing to accept that the world of finance has become Taibbi's griftopia, I'm not convinced that financial scams were the primary cause of America's current economic crisis.
It seems much more plausible that half a century of American corporations shipping jobs offshore has hollowed out our ability to create real value, allowing finance and services to become the driver of the US economy. This globalization would not have been possible without oil that made it cheaper to make stuff in Guangzhou and ship it to Ohio than just to make it in Cleveland in the first place.
Of course scammers played their part in the home mortgage crisis, but it would be a mistake to blame them entirely, or even primarily, for the Great Recession. I find more convincing Jeff Rubin's analysis that today's crisis, just as every economic downturn since the seventies, was caused by inflation driven by oil price spikes, which in turn was caused by genuine supply shortages and local or global resource depletion.
There have always been criminals in high places. And I'm sure Taibbi is right that today's Wall Street wizards have added new innovations to the classic white-collar con. But no amount of financial shenanigans can overshadow the fact that the industrial world has overshot all ecological limits to growth.
Taibbi makes a good case for financial reform. But we should not stop there, nor should we be satisfied blaming the Wall Street douchewads, assholes and dickheads whose portraits Taibbi has so lovingly painted for us. It's satisfying to finger villains, but scapegoating is a distraction from the real problem.
Because the industrial world is running out of cheap oil as well as cheap places to dump our pollution, we may soon also run low on all those commodities that Taibbi seems to think should just keep getting cheaper as technology improves.
What we really need is a series of reforms much more fundamental: a transition from a growth-oriented consumerism run on fossil fuels to an economy that respects its physical limits and meets human needs, reinvigorating local economies in a way that creates real value.
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