Pricey fish and chips sparks musings on world economics

Not so long ago I was driving the outback of Ireland to examine some Stone-Age structures as part of a long-term research project. Despite focusing on the task at hand, it is impossible not to notice the conditions of Irish byways. The main roads are reasonably good, but the lanes are twisting canyons between hedgerows. Most of the latter are unnumbered. Where they are identified, the numbers on signs seldom correspond to what the map says because nearly all roads have at least two numbers.

Distances are shown sometimes in miles and sometimes in kilometres. At a crossroads the same town may be indicated in opposite directions and often the same town boasts two names -- in both English and Irish.

And because the Irish are voting on a referendum Thursday, the roadsides are plastered with advice on how to vote. My favourite: "Tell Mandelson where to stick it. Vote NO to Lisbon."

A more serious surprise is that gasoline is close to $3 a litre and a decent plate of locally caught fish and locally grown chips costs 35 bucks.

In short, the Irish back country is as influenced by the effects of $120-plus oil as anywhere else.

That sets one to thinking.

Economists like to say that demand for oil is inelastic. Accordingly, to run a factory or drive a truck requires oil, which means you pay the going price or shut down the factory and quit driving.

Constant demand, combined with elevated oil and food prices, promises to have significant consequences for the international political system as well as for the Canadian one. Some commentators think that high commodity prices will usher in a new geopolitical era.

By this argument, there have been three such shifts since the end of the Second World War.

First came the Cold War, which structured world politics around the military stand-off between the U.S. and the Soviet Union; between the fall of the Berlin Wall in 1989 and the terrorist attack of Sept. 11, 2001, economic development, especially in China, defined the second period; and third is the post-9/11 era, which has been characterized by the growing complexity of the confrontation between the jihadists and the rest of the world.

Terrorists are still there, but the jihadist problem has become long-term rather than acute. It is still more than a nuisance, but the international system is more or less accommodated to it so that once again the economy drives international politics.

Today, however, direction is set by a very different crew than during the 1990s. Up to now the rise in oil prices was comparatively easy for the industrial economies of the world to absorb, and was generally considered temporary. Neither condition obtains today, which has created a whole new set of winners and losers.

Internationally, oil exporters not only get rich, but by controlling where they send their oil they have gained a new power to coerce. Fortunately many of these countries are sufficiently corrupt that they squander much of the cash this sellers' market delivers.

The losers on the world stage are not just random oil importers, but those countries whose economies are dominated by oil-based manufacturing. Korea and Japan, of course, but the biggest loser is China.

http://www.canada.com/calgaryherald/news/theeditorialpage/story.html

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Pricey fish and chips sparks musings on world economics