Economy Size Geek

I have been working on a larger post about oil, but it isn’t coming together the way I want it to. So in the interim, I figured I’d share a little piece of history I learned last week.

I was listening to a Russian scholar on NPR. He was asked if Reagan deserved all the credit he has gotten for defeating the Soviets. The scholar said absolutely! The surprising part was how he explained that.

I’m a child of the cold war, I lived in Russia, and spent a lot of time studying its history (though like all history it tended to ignore the most recent stuff). So I assumed that what he meant was - Reagan built up an amazing army and stock pile of weapons. The Soviets were forced to do the same to keep themselves “safe”. The process of spending all that money on guns with little left over for butter (economics reference for 2 points) was the main reason for their down fall - right?

Well this guy had a different answer. He said that Reagan sent top people to Saudi Arabia. This was shortly after the Soviets invaded Afghanistan. The Americans knew that the Saudis were unhappy about the invasion, so the Americans suggested a course of action to the Saudis.

Basically, the way the Soviet government was able to buy stuff from other countries was all funded by natural resources. Russia is flush with them - it is the advantage of being such an unbelievable land mass. The big funding source was - you already know where this is going right - oil. So the Americans convinced the Saudis to pump out a lot more oil. This would depress the price and cut the Soviets off from being able to fund anything let alone a war that wasn’t going well. Sure the US would benefit in the process from the cheap oil, but that was just a side effect/bonus.

That is apparently exactly what they did. The scholar said that documents have recently come to light showing where Gorbachev was telling the Politburo - “The treasury is empty”.

First of all - this is just an interesting story in and of itself - but here is the question:

If the Soviets, who were flush with oil, were destroyed by cheap oil - Will the US economy, which doesn’t have any where enough oil, be destroyed by expensive oil?