Matt –
Consider the trans-Pacific trade that underlies the “market state” so-called between China and the US.
That runs on cheap oil. With Oil too expensive, even the most efficient cargo ships won’t be running. Those $150 dollar retail Nikes will instead be made in the US, and the market will only bear $20 for them.
Cheap transport costs is the fundamental underlying economic requirement for lots of trade in goods.
As for oil prices, Iran, Russia, Venezuela, the Gulf states, have nothing but oil. They can only survive with high oil prices because all other attempts to diversify have failed. Mostly due to the demands of their thug networks that in one form or another (Wahabbist religious police in Saudi, Putin’s thugs in Russia) prop up their regimes and demand constant flows of cash to pay off.
Bully boys don’t come cheap.
Eventually we can and will explore our own oil resources, particularly as trade breaks down. As it will with high oil prices. However, each oil producing nation in the Gulf, and Russia, has huge incentives to jack up the price, OPEC is disorganized and leader-less, and Iran is well positioned to threaten to close the Gulf with Russian assistance.
Rest assured that neither Iran nor Russia can long survive cheap oil, and will take steps to make it dear. Given inelastic demand (people can’t just walk to work if it’s 50 miles away, most of Western Europe and America is built on cheap oil enabling people to live safely away from crime-ridden minorities) it could be decades before cheap(er) oil makes an appearance.
Or consider all these cheap call centers in the Philippines and India. Leveraging cheap labor and telecom costs. What if satellites are routinely knocked out, including commercial com satellites, by Russia or China seeking monopoly rents on satellite com? It doesn’t take much after all to cut cable, and it takes a lot to repair it.
Heck, even IRAN will eventually (within 10 years) have the ability to shoot down comm satellites. Imagine the protection racket that would give them! All you need is a ballistic missile and cheap computers. Both are on the verge of being commodities now.
The fallacy of the Market State fantasy is that the intellectuals never figure on people gaming the system. Cheating. Violence is the proven way to cheat and win. just look at Russia OR Iran.
