The Saudi/Russia Oil Price War: Historic Blunder #1

“Saudi Arabia has repeated the blunder it made in November 2014 by increasing oil production during an oil-price collapse. In 2014, it led to a depression in the oil industry. This time, it may be the tipping point for a global economic depression.”

Every so often a major power commits a strategic error so spectacular that later it is deemed “historic” – and written into our textbooks as an archetype of stupidity, blindness, wrong-headedness. These are misjudgments so obvious (in hindsight), and so consequential, that they become morality tales, tropes of our political discourse, catchphrases, caveats, and weapons in debate. We know their nicknames – e.g., 

“Smoot-Hawley” 

Everyone with a smattering of economic history knows how the Congress of the United States decided in 1930 – as the country was plunging into the Great Depression – to institute a disastrous hike in tariffs on foreign trade. Reed Smoot and Willis Hawley, authors of the bill that bears their name, are “infamous,” described in a recent work as “two deceased members of Congress the world loves to hate.” Over 1000 professional economists signed a petition to President Hoover to veto the measure. Henry Ford pleaded with Hoover not to succumb to “economic stupidity.” The CEO of J.P. Morgan “almost went down on my knees” to beg Hoover for a veto. The President had his own reservations, evidently, calling the bill “vicious, extortionate, and obnoxious.” Still, he signed it. The average tariff rate soared to 60% on 20,000 categories of imported goods. Other nations retaliated. International trade contracted by a third. U.S. exports were crushed, down 67%. Whether the Smoot-Hawley Act “triggered” or merely “exacerbated” the Depression, “Smoot-Hawley” has become a standard political smear wielded against free-trade doubters ever since. 

“Appeasement”

Even better known, more misguided, more inexplicable, was British Prime Minister Neville Chamberlain’s spectacular misreading of Hitler’s intentions re: Czechoslovakia in 1938. Chamberlain’s “peace for our time” pronouncement (just 6 months before Hitler’s full scale takeover of Czechoslovakia and 11 months before the outbreak of World War II) seems a tragic joke. All the nuances of the complex political maneuverings by the future combatants in the period leading up to the War are now distilled into a single word. Look up “appeasement” in any reference work and you really will find a picture of Chamberlain shaking Hitler’s hand. It is the worst slur that can be slung at an opponent in a foreign policy debate.

“Lehman”

In our own century, the sudden bankruptcy of Lehman Brothers in September 2008 is beginning to acquire the same…