Quico says: So you want to know how a minimally responsible petrostate elite might manage the oil industry’s boom-and-bust cycle?
Go ask the Norwegians.
Facing a worldwide slump that has seen energy prices tumble dramatically, the government has just announced a big boost in public spending. And how will they pay for it, you ask? Are they going zillions of kroners into debt to finance it all? Not a chance. They’re spending just a fraction of the billions upon billions they saved up during the oil boom.
If it’s macroeconomic coordination you want, they got that too. Their Central Bank is aggressively cutting interest rates to boost aggregate demand and head off a slump. And, guess what? They can do that without worrying too much because they face an inflation rate under 3%. Why? Because they were careful not to overheat the economy by overspending when oil prices were high. And how did they manage that? By saving up a bunch of the excedent . . . you know, the part they’re spending now, when they actually need it.
Which, to be fair, doesn’t mean Norway will manage to avoid a recession altogether…just that the recession they’re having will be incomparably shorter, shallower and less traumatic for Norwegian families than the one they would’ve had if they hadn’t taken all those precautions.
None of this is rocket science, people. It really isn’t.