The G7’s 100 Million Barrel Announcement Changes Nothing | The Professor Is In

Justin Wolfers (0:00)

I just want you to promise not to do the dumbest thing in the world.

Augusta Chapman (0:02)

I solemnly promise I will not make fart noises in this video.

Justin Wolfers (0:06)

Now that's all I want to do.

Augusta Chapman (0:08)

I know.

On Friday, the G7 announced that it's going to release 100 million barrels of oil and fuel products from its emergency stockpiles. President Trump is calling this a major concession from Europe that will bring down diesel prices and help American consumers. Justin, you made a piece recently explaining why this story is really just a rehashing of previous deals and that it doesn't address the underlying causes of shortage in oil markets. Today, I'm going to go through and bring you some audience questions. I'm Augusta. I'm a producer here at Platypus Economics.

Justin Wolfers (0:46)

I'm Justin Wolfers. I'm an economics professor, and you should think about this as office hours where Augusta brings me your questions.

Augusta, come on into my office. What's on your mind?

Augusta Chapman (0:59)

Okay. Well, this is maybe too big of a question, but in a case like this, what would actually help? Is there anything that governments can do to help at this scale or is it all down to ending the war and the high prices doing the rationing?

Justin Wolfers (1:14)

Right. Okay. So I'm going to not avoid the most obvious thing. The most obvious thing is so obvious that you might think it's boring to lead with it, but it's actually the most important, so we're going to lead with it. Not invading countries is a really good way of insuring peace and a really good way of preventing new economic strife from occurring. Once you've invaded them, figuring out what you want and then pursuing it, is a really good way to make sure you don't spend too much time putting young American men and women at risk, putting families in the Middle East at risk and creating economic mayhem. And I think if the administration was able to articulate what it wanted and have a realistic understanding of what continued war is likely to bring.

Look, here's the economic theory of war, by the way.

You and me, maybe it's you and me, Augusta, are going to have a fight.

And we yell at each other and we say terrible, terrible things at each other and we destroy our friendship. And at the end, something's going to happen. Mike, I'll say, you're right, I was wrong last Tuesday, Augusta, I'm sorry. Do you know what would be better? I forecast that's what's going to happen, that I'm going to have to apologize for whatever I did last Tuesday. And I just jumped there. I say, Augusta, let's not beat each other up and say terrible things about each other. I'm sorry for what I did last Tuesday. That same story goes for war. At this point now, given the relative might and willingness to bear pain of both the Americans and the Iranians, it's a reasonable guess to where we'll end up when this thing ends. These things might end in a year, a decade, a century. I don't know what. And along the way, we'll kill lots of people on both sides and create economic mayhem. So why don't we figure out what that end point is going to be and just jump there.

Augusta Chapman (3:06)

So the economic theory of war is that peace is better?

Justin Wolfers (3:09)

Yeah, it's don't do it.

Augusta Chapman (3:11)

I mean, I'm with that.

Justin Wolfers (3:13)

No, it is don't do it. It's, look, I'm going to use a fancy word to prove that I went to graduate school, which is, this is the theory of efficient bargaining.

Look Augusta, if you and I are going to have a big fight, a big Donnybrook, and we're going to end up with me apologizing, why don't we just end up with me apologizing efficiently? The whole point of the fight is for you to show how much, how much you're willing to bring to the fight and how much I'm willing to bring to the fight. But if you can just communicate that in a way that I understand, you're going to show me how many tanks you have and I'll show you how many swear words and bombs I have, then we know what our relative positions are. We know where we're going to end up. Let's just go there. So yeah, absolutely. Well, you just made economics seem romantic and beautiful. The economic theory of conflict is don't have it. By the way, this applies in many other cases. It's that's the economic theory of war. It's the economic theory of strikes, by the way. Right. So if workers are going to go on strike, and therefore go without pay for a few weeks, and bosses are going to force them to go on strike, give them the pay rise, and therefore the factory doesn't produce anything for a few weeks, at the end of all of that, one or both will make some set of concessions. Both workers and bosses are going to be better off if the bosses say, you know what, I realize you have the capacity to go on strike and do a lot of damage to me. And the workers go, well, I realize if I'm not working, I'm going to do without a lot of money and that's really going to hurt me.