17.2.03

I HOPE HIS CLASSES ARE MORE COHERENT. University of Colorado professor Ira Chernus does not want war. "The Pentagon plans to win a lightning fast war in Iraq by raining Cruise missiles down on Baghdad, about 15 every hour, for 48 hours." Only fifteen? Without some additional work by the Stealth fighters? I seem to recall more ordnance deployed in the first few days of Desert Storm. But I digress. Let's grant the professor's pacifist bona fides and get to the money grafs.

Literally. "One piece of the puzzle, which may be crucial, has been largely overlooked. The OPEC countries sell their oil for dollars, as do most other countries. The oil trade is crucial for keeping up the value of the dollar. In November 2000, Iraq began selling its oil for euros, not dollars. As the value of the euro has climbed against the dollar, Iraq has reaped a substantial profit from its wise decision. Iran and North Korea, the other links in the so-called 'axis of evil,' are also moving toward trading in euros rather than dollars." You mean Iran, Iraq, and North Korea are buying goods from the United States, or have short positions in the dollar? I was under the impression that Iraq was buying goods priced in euros, from inter alia France and Germany, the so-called 'axis of weasels.' The appreciation of the euro against the dollar is not going to have any effect on the prices of goods priced in euros.

"But the Bush administration’s real fear, according to one theory, is that OPEC will switch to euros. Oil importing countries would have to dump dollars and acquire euros. That could dramatically raise the euro’s value against the dollar." Or not. Read and understand this: "Unemployment in the euro area remained stubbornly high, declining from 10.6 percent in December 1998 to 9.6 percent at the end of 1999. Evidence strengthened that trend productivity growth was accelerating in the United States, but there were few signs that much-needed structural reforms were being undertaken in Europe." At that time, the currency traders missed some much-needed structural reforms in the United States. I hope the professor didn't buy any dot.com stocks at 300 times earnings in the hopes that someone would pay 400 times earnings for it next year. You'll find a similar point here. Moreover, there is something called an exchange rate. That, professor, is how many euros your dollar will buy. There is a reciprocal. It matters not to the price of a barrel of oil whether a seller wants euros or dollars for it. That's a portfolio decision. But if the dollar price of a barrel of oil is lower than the euro price of a barrel of oil, either the seller accepting euros sells fewer barrels, or the exchange rate changes, or some combination of the both. You really ought not leave $100 (or E98) on the sidewalk for me to pick up.

The professor's dissertation advisors at Temple clearly did not teach him the distinction between theory and speculation, as we now see. "This theory sees the Bush administration making war to acquire Iraq’s oil fields, but not simply to give U.S. corporations more oil revenues. The main goal is to pump oil like crazy out of Iraq, flooding the world market. That would drive prices down, which might hurt corporate revenues in the short run. In the long run, though, it would break the power of OPEC, which depends on a tightly controlled oil flow to keep prices up." Where to begin? First, if the demand for oil is sufficiently elastic, a lower price for oil would increase the revenues of the oil companies. There is reason to believe the demand is that elastic: just envision all those wood stoves in Indonesia and steam locomotives in China for openers. Such interfuel substitutions likely would help to reduce the Asian Brown Cloud. Second, a lower price for oil is a lower cost for oil users. Ceteris paribus that benefits other kinds of corporate revenues. There is a great deal of economic research into the effects of the 1973 and 1979 oil price shocks on economic growth. Do you miss the end of the Carter administration that much, Professor Chernus? Third, there are easier ways than war to lower the price of oil. Consider ending the sanctions against Iraq, or developing the oil reserves off Florida, in Alaska, and under the Great Lakes. The latter options would put paid to what remains of OPEC without a shot fired.

"With the U.S. firmly in charge of the world oil economy, we could rest assured that the dollar would be the standard currency for the global oil trade. That would save the dollar from U.S. capitalism’s worst fear: the euro replacing the dollar as the world’s pre-eminent and most desirable currency." No. Put the mid-1970s U.S. monetary policy in place and John D. Rockefeller himself would not want to accept dollars for oil. Or fast-rewind to the Weimar Republic's central bank and imagine oil priced in hyperinflating euros. Sorry.

"How many Iraqis must die to save the dollar?" How many Iraqis will die because the Tikriti thugs continue to treat the country as their private seraglio?

Now we somehow wind up here: "But the story in the Times that explained it best seemed to have nothing to do with war at all. Arkansas wants to execute a convicted murderer, but he has become insane." That escapes being a non-sequitur at the expense of giving free association a bad name. Why am I even bothering to comment on it? Because further down we get, "Don’t we all live in the same depersonalized, dehumanized, corporatized, sanitized, mediatized, computerized world? The only difference is that some of us have been lucky enough to realize it. Occasionally, we remember that we are here to change it." Same old same old. We're benighted, he's anointed. Nope. I recognize vanguardism, or fascism, or a man on horseback, or horse-hockey, when I see it.

Professor Chernus is director of graduate studies and a program director. I hope his admission and qualification decisions are better thought-out.

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