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milk and honey, hold the oil

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legal warning: The information here should not be understood legally as financial advice. If you believe anything on this site is in error, please contact me. I am always open to corrections, new ideas, and new opinions...

Golda Meir is famously credited for saying, “Moses dragged us for 40 years through the desert to bring us to the one place in the Middle East where there was no oil.”  Her statement, although made in jest, hits on an important note for those who believe in the sanctity of the land and see it as a blessing from God.  Most of my life, I was taught in Yeshiva that God wants the Jewish people to work and pray for their food; so easy money could not be an option.  But in the field of economics, there is a different answer.  A country’s richness in oil is not a blessing; it is a curse, a resource curse.

A resource curse is a natural resource that, while bringing in money, tends to cause the country to have less economic growth and worse development than if it were to be without the resource.  Looking at Israel’s oil rich neighbors, this theory can shed light on the blessing of milk and honey, but not oil.

Countries with a resource curse become disconnected from their people and are prone to tremendous corruption.  Governments quickly become small clans who fight and cause regional conflict in order to secure the primary asset of wealth and then guard the treasure to make sure it does not leave their jurisdiction.  Pretty soon national money, which should be spent on the country’s citizens, is instead spent on bribing the right people for the right favors in order to ensure that leaders stay in power.  The government no longer sees a need in investing in education; after all, it isn’t the people who bring money to the country, it’s the oil.  In the end, this deadly combination of a selfish government based entirely on withholding from the people and massive amounts of money eventually erupts into massive civil rights violations, ending in disaster and death.

Furthermore, financial dependence on natural resources can cause many economic problems.  The Dutch curse, named for what happened in the Netherlands after finding massive amount of natural gas in 1959, occurs when the natural resource drives people to invest so much in the country that the currency rises tremendously, allowing those selling off the resource to make a lot more, but forcing everyone else working in exports to suffer tremendously (Israel’s strengthening shekel is bringing Israel a similar problem now, which through public policy, is affecting the housing market.)  Finally, reliance on a single source of income tends to cause a country’s income to be extremely volatile with all of its eggs in one basket.

Does this mean that every natural resource is a curse?  Of course not.  In fact, most of the countries with an oil curse were totalitarian beforehand, and there are many oil rich countries without totalitarian regimes.  But when the threat of totalitarianism rises, oil becomes a weapon and a means of subjugation.  Were it not for the power that oil has given our dictatorial friends, much of the Middle East riots going on now would have occurred decades ago and would have been less bloody.  Without oil, Gaddafi would not be able to hire mercenaries to kill his own people and the Kind of Saudia Arabia would not be able to bribe his people temporarily until the regional anger subsides and he returns to the height of his power.

Without oil, Mapai was unable to maintain a grip on Israel and permanently enforce a  socialist ideology on its citizens.  Without oil, Israel learned to develop its human capital and turn into a service economy and high-tech powerhouse.   Without oil, Israeli businesses learned to diversify their investments, so that while Israel was hurt in the recent depression, it was not nearly as damaged as the United States or Europe.

As for Leviathan, stay tuned…

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