Price wars How the commodities markets made our chaotic world

Rupert Russell

Book - 2022

"A shattering account of the destabilizing power of price, and a powerful critique of the free market philosophy that leaves the most vulnerable at the mercy of the commodities markets"--

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Subjects
Published
New York : Doubleday [2022]
Language
English
Main Author
Rupert Russell (author)
Edition
First American edition
Physical Description
viii, 276 pages : illustrations ; 25 cm
Bibliography
Includes bibliographical references and index.
ISBN
9780385545853
  • Introduction: Monsters and Mazes
  • Part 1. Prices
  • 1. Chaos: Why Societies Boil at 210
  • 2. Magic: Fairy Tales, Financial Alchemy and the Business of Cargo Cults
  • Part II. Wars
  • 3. Perception: Pricing ISIS in Iraq
  • 4. Contagion: Typhoons, Trump, Brexit, Brazil, Belt and Road
  • 5. Boom: Putin's Chestiness Engulfs Ukraine
  • 6. Bust: Venezuela's Fractal Apocalypse
  • Part III. Climate
  • 7. Multiply: Climate Chaos in Kenya from Mad Max to War Games
  • 8. Arbitrage: Al-Shabaab, the Terrorist Hedge Fund
  • 9. Short: Coffee, Coyotes, Kids in Cages
  • Part IV. Imaginings
  • 10. Covid-19: The Climate-Finance Doomsday Device Detonates
  • Conclusion: Markets and Madness
  • Acknowledgements
  • Notes
  • Index
Review by Publisher's Weekly Review

Documentary filmmaker and sociologist Russell debuts with a harrowing look at the disastrous consequences of financial speculation. Contending that recent political and social turmoil in Iraq, Ukraine, Venezuela, and other countries has been triggered by irrational price shocks that don't correspond to actual issues of supply and demand, Russell details how small market movements are amplified and manipulated by hedge fund managers and commodities traders seeking to deliver consistent profits regardless of real-world conditions. Among a plethora of disturbing case studies, Russell describes how oil wealth generated by market speculation fueled corruption and then caused ruinous hyperinflation in Venezuela; explains how artificially low coffee prices, climate change, and agricultural debt led to a surge in migration from Guatemala toward the U.S.; notes that the terrorist organization al-Shabaab drove down cattle prices in Somalia during a 2010--2011 drought in order to compel desperate farmers to join their ranks; and contends that Western governments suspending "the rules of the game" to prop up their economies during the Covid-19 pandemic only underscores how much arbitrary control markets and prices have over the global economy. Deeply reported and thoroughly accessible, this investigation into the far-reaching consequences of economic speculation deserves a wide readership. (Feb.)

(c) Copyright PWxyz, LLC. All rights reserved
Review by Kirkus Book Review

A skillfully conducted tour of the role of price, once unmoored from reality, in adding chaos to an already chaotic world. According to the efficient-market hypothesis, "the taken-for-granted orthodoxy of the economics profession," the market will sort things out when it comes to setting prices, thanks to the ebb and flow of supply and demand, and prices themselves represent a gathering of bits of information "that create a spontaneous order all around us." Yet, writes sociologist Russell, even as we live in a world governed by prices, this spontaneous order often dissolves into disorder. Part of the problem lies in the workings of modern "global finance capitalism," in which prices are a function of the futures market--and those futures are now functions of derivatives, which dissolve the link between prices and real goods and instead trade in intangibles. The author begins with the example of bread, the price of which can be closely indexed to social chaos in places like 18th-century France--"in the eighty years before the Revolution, twenty-one were rocked by bread riots"--and the modern Middle East, with Egypt being both a leading importer of wheat and a polity unnaturally susceptible to spikes in bread prices and resulting social problems. Russell goes on to closely examine the dangers of speculation. Consider this curious case: Thanks to overly sensitive algorithms, with any news concerning the actress Anne Hathaway, the trading firm Berkshire Hathaway enjoys gains or suffers losses. Countries that are resource-rich are similarly blessed or cursed. "Oil-exporting countries are twice as likely to have outbreaks of civil war," Russell writes, and when you peg the entire economy on the price of a barrel of oil, when prices fall, you get disasters such as Venezuela, "an allegedly socialist state that has its people living as pure market beings." A fresh look at some of the mostly deeply held dogmas of economics, exploding many along the way. Copyright (c) Kirkus Reviews, used with permission.

Copyright (c) Kirkus Reviews, used with permission.

1 Chaos: Why Societies Boil at 210 As the dust settled and the "I Survived 2016" T‑shirts sold out, I realised that the populist explosion was far bigger than Donald Trump and Nigel Farage. They were just the English-speaking insurrectionists of a reactionary revolution that had already swept across Europe. Starting in 2015, populist parties racked up double-digit gains throughout the continent, came in close seconds in France and Austria, and won power in Poland and Italy. Something had rocked the Western world all at once. It had transcended language barriers, political peculiarities and currency unions. But what was it? Some blamed the economic collapse in 2008, but the Financial Crisis was nearly a decade old. It seemed to me that there must be a more immediate reason why voters from Rome to Raleigh to Rzeszów pushed the button marked "detonate." "For me, the problem is the thousands of illegal immigrants stealing, raping and dealing drugs," said Matteo Salvini, the leader of Italy's Northern League, at a rally in Rome. It was 2015, in the midst of the global refugee crisis that saw over a million migrants come to Europe. Right-wing populists declared it an invasion of "barbaric, Muslim, rapist hordes of men" (AfD, Germany), "young barbarians" (Golden Dawn, Greece), "criminals, terrorists and idlers!" (National Alliance, Latvia), and "masses of young men in their twenties, with beards singing 'Allahu Akbar' " (Party of Freedom, Holland). On the campaign trail, Trump promised to extend his wall with Mexico to the Middle East, with "a total and complete shutdown of Muslims entering the United States." The Vote Leave campaign distributed leaflets showing Iraq, Syria and Turkey joining the EU, with a threatening arrow indicating their impending migrant invasion of Britain. In case the message wasn't clear enough, Nigel Farage personally launched a poster campaign depicting thousands of brown-skinned people with the all-caps warning: "BREAKING POINT." The barbarians were no longer at the gates, they had broken through. "Give us back France, damn it!" Marine Le Pen demanded. "We drink wine whenever we want!" I'm sitting in the heart of this "barbarian invasion." Nearly half of the refugees who travelled to Europe since 2015 have passed through the Moria camp and slept in tents just like the one I'm in now. These Iraqi teenagers are the "rapist hordes" incarnate, the monsters of the populist imagination. But they aren't singing "Allahu Akbar." They don't have beards. They have hip, undercut haircuts. They're smoking, drinking wine and bragging about their secret girlfriends. What could be more French than that? I wonder. Scenes like this didn't make it into The Feed. Instead, images of migrants--packed in boats, dead on beaches, camped in tent cities--dominated. The accompanying headlines framed migrants as a "security threat," lending false credibility to the populists' alleged "invasion." It is why the right-wing firebrands, many of whom had decades-long careers at the margins of politics, were suddenly propelled towards power. Their xenophobic message finally resonated with just enough voters to shake the foundations of the Western liberal order. I step outside. I walk through the "jungle," the hastily constructed overflow camp housing 6,000 refugees. I walk up a hill that was once an olive grove. UN-branded tents are scattered haphazardly among piles of plastic bottles, torn clothes and used nappies. Kids leap over the garbage and hide behind tents, firing bows and arrows made from olive-tree branches. Three women have cleared out a space between piles of garbage to light a makeshift fire to boil rice. A man leans over a bucket of water as another shaves off his hair. They say there's a scalp fungus going around. Behind them I see the main camp they would be in, if it wasn't already over-capacity. Built to house 3,000, it is a fortress of watchtowers and barbed-wire fences. Greek soldiers patrol the perimeter. This camp may well be what the populists fear, but it's also a mirror image of themselves. It's a kind of authoritarian disorder, a militarised messiness. Trump deployed the army at the US-Mexico border, but the migration crisis surged. Johnson wants to "take back control" from the EU, but he's losing his grip on Northern Ireland and Scotland, on secure food and medical supplies. Salvini closed down refugee camps in Italy, only to create an epidemic of homelessness as migrants were forced onto the streets. Their attempts to impose order created a new kind of chaos. Perhaps this is because they never dealt with the cause of the migrant crisis, the very crisis that had propelled them to power. Indeed, why did the number of refugees surge so suddenly in 2015 and 2016 after two decades of declining? Another tent. One young man sits cross-legged on his stretcher-bed fiddling with his phone. He's got a striking, John Lennon look: narrow face, circular glasses and long, curly hair. He turns the screen to me and shows me pictures of his home in Raqqa, Syria. He shows me the street, the houses, the cars--it's all ordinary. He tells me life was peaceful growing up. But then, when he was nine years old, protests started. Assad responded with force. Protestors were shot and killed. Militias sprang up. A civil war erupted. ISIS took over his hometown. Then the Kurdish Peshmerga forces came. He shows me another photograph. The street is barely recognisable. He points to one pile of bricks: "That was my home." The Peshmerga forced him out of the city, he says. He fled Syria, travelled through Turkey, crossed the Mediterranean to this Greek island. For him, chaos was a seven-year journey. It started with those protests in March 2011. It started with the Arab Spring. But he doesn't want to talk about what happened afterwards. He's worried about discussing ISIS or the Peshmerga. He's got family still in Syria. He's worried about other people in the camp, whom they might be connected to, and what they might do. I hop from tent to tent. I meet young men from Iraq, Syria and Yemen. Each of them is fleeing a civil war, each started in the aftermath of the Arab Spring. The protests in Yemen began a revolution which, in 2014, escalated into a civil war. Syria's civil war spread into Iraq in 2014 when ISIS captured Mosul. But most were too young to remember the protests. Nor were they interested. They didn't want to talk about the chaos nearly a decade ago. They want to talk about the chaos they're living in now. Hakar is an Iraqi Kurd. He was imprisoned by ISIS when they took Mosul. "Every day, we were in pain, we were tortured," he says as he shows me scars on his arms and legs. He was there for nine months until the Peshmerga captured the prison and freed him. He visited his old home for the first time with a friend. When they got there, something exploded. Perhaps it was a booby trap, perhaps they triggered a dormant bomb buried in the rubble. His friend died instantly. "My face was destroyed," he says. He parts his hair and shows me where the doctors inserted bolts to keep his skull altogether. When the hospital discharged him, he knew he had to leave Iraq. Maybe he could get a second--or third--shot at life somewhere else. He says we have to find a different tent to film his interview. Someone here is making him feel uneasy. Mohammed's tent seemed friendly, so I take Hakar there. Mohammed is sitting on his bed sipping a plastic cup of coffee. He offers us a sip. Hakar gestures no thank you. "Where are you from?" Mohammed asks him. "Kurdi," Hakar replies. Silence. It dawns on me that maybe this wasn't such a great idea. Mohammed had been exiled by the Kurdish army. Hakar had been imprisoned by ISIS, a Sunni Muslim group. He probably suspected that Mohammed was a Sunni Muslim too, and could have been a member of ISIS or supported them. We make a quick exit. After an hour of searching, we find an empty tent. The camera is finally rolling and Hakar wants to talk about what just happened. "Fights happen here, because of food, religion, anything," he says. For him the conflict isn't something old or faraway. The very people they were fleeing from were right here in the camp, sometimes in the same tent. Like a cruel psychology experiment from the 1950s, it was as if the camp administrators were trying to see what happened if you mixed together Sunni and Shia, Christian and Muslim, Syrian and Iraqi, Arab and Kurd. Hakar shows me the results on his phone. I see faces erupt with blood as masked men beat them with metal bars. Hakar says the victims were Kurdish and their crime was not fasting during Ramadan. That first flap of the butterfly's wings may have been nearly seven years earlier and thousands of miles away, but the chaos continued to spread, to upend lives and end them. Hakar says that an online community of Kurds have been trying to identify the masked men. They've managed to match the faces in the videos with Facebook profiles. The men are dressed up in jihadi garb, brandishing automatic weapons, with ISIS-style "Abu" prefixes to their names. Hakar believes the attackers are ISIS. "There is not any difference between here and an ISIS jail. I can't go outside because I see them with their beards and moustaches. I'm afraid, really. I'm terrified." He went to one of the camp guards. He hoped the attackers would be arrested or at least he'd be moved to another part of the camp. "I showed him the pictures. I told him that ISIS was in the camp." "What did the guard say?" I ask. "He said he'd give me twenty euros for a blow job." A chain of events was coming into view: the Arab Spring revolutions, the outbreak of civil wars, the rise of ISIS, the global refugee crisis and the populist explosion. This all seemed like a butterfly effect. But when I looked into the science behind this famous metaphor, I discovered that it is far more than the mere linking of disparate events. It's a powerful mathematical theory that describes not just their connection, but their explosiveness too. The theory began on a routine winter day in 1961 at the Massachusetts Institute of Technology (MIT). A climatology professor named Edward Lorenz stood by his Royal McBee as the 113 vacuum tubes inside whirred and rattled. Enormous, slow and noisy, it was one of the first factory-made computers and Lorenz had programmed one of the first climate simulations. He watched a mechanical typewriter print line after line of numbers. Each line predicted how the elements--pressure, temperature, rain, etc.--would combine to produce the weather. Looking at the printout, he wondered what would happen a few more months into the future. But rather than start the program over from the beginning, he entered numbers from a line in the middle of the printout. He set the Royal McBee to work and left it to get himself a fresh cup of coffee. When he returned an hour later, he thought the computer had malfunctioned. The results didn't make any sense. "The numbers being printed were nothing like the old ones," he later wrote. "I immediately suspected a weak vacuum tube or some other computer trouble." The Royal McBee wasn't broken. The vacuum tubes were working just fine. Lorenz found there was a tiny difference in how each one started. When he restarted the simulation, he had rounded the original number 0.506127 down to 0.506. "The initial round-off errors were the culprits," he discovered. "They were steadily amplifying until they dominated the solution." A thousandth of a degree Celsius should have had no impact. Satellites couldn't even measure a difference that small. Ever since Isaac Newton, physicists had assumed that cause and effect were proportional. Small forces had small effects. Measurements only needed to be approximate. But Lorenz's printouts suggested something different. Small forces could have big effects. But how? There was something unusual about the equations that Lorenz was using. He was trying to capture how the weather today could impact the weather tomorrow, and how tomorrow's weather would impact the day after tomorrow's weather, and so forth. His equations had to capture this feedback. He had to use a "non-linear" function to do so. Before computers, non-linear functions were hard to calculate. Each new day would require a new set of calculations that would have to be done by hand. It was cumbersome and impractical. So the world of feedback was largely ignored, and its scientific importance dismissed. Computers made this world of feedback suddenly accessible. And almost as soon as the first computers began processing these non-linear equations, discoveries were made. Lorenz's was one of the first. He found that systems filled with feedback are highly sensitive. Small changes in temperature or pressure could be amplified over time. A gust of wind could become turbulence, the turbulence could gather into a storm and a storm could grow into a hurricane. Feedback amplifies, it turns something small into something big. Lorenz called the power of these small starting points the "sensitivity to initial conditions." He described it with a metaphor: a seagull flapping its wings in Brazil causing a tornado in Texas. In 1972, he was ready to present his big idea to an academic conference in Washington, D.C. But before giving the talk, he received a suggestion from the conference organiser, Philip Merilees. Why not swap the seagull for a butterfly? Lorenz doesn't know why Merilees made this suggestion. He thought he might have been inspired by Ray Bradbury's short story "A Sound of Thunder," where the death of a prehistoric butterfly sets in motion a series of events that alters the result of a presidential election. But Merilees said he'd never heard of it. "[T]he butterfly, with its seeming frailty and lack of power," Lorenz later reasoned, "is a natural choice for a symbol of the small that can produce the great." His talk, "Does the Flap of a Butterfly's Wings in Brazil Set Off a Tornado in Texas?," sparked a revolution that spread through meteorology, mathematics, the natural sciences and even philosophy and popular culture. The chance change to the title of his talk--swapping out a seagull for a butterfly--was a testament to the power of sensitivity that he had discovered. Without it the revolution may never have occurred. The popular telling of the butterfly effect emphasises the importance of chance encounters in sparking a chain reaction. But Lorenz's point was quite different. Sensitivity is not a universal feature of the world with its own causal power. It is instead a feature of a system, a system that at its heart is an amplifying engine: something which grows small things into big things. Excerpted from Price Wars: How the Commodities Markets Made Our Chaotic World by Rupert Russell All rights reserved by the original copyright owners. Excerpts are provided for display purposes only and may not be reproduced, reprinted or distributed without the written permission of the publisher.