What’s
Wrong Today:

It’s May
Day in the US, May Day was celebrated by early European settlers. International Workers’ Day began in the
US as a commemoration of the Haymarket Massacre of 1886 in Chicago. After the
1917 workers’ revolution in Russia, May Day
became a widely celebrated holiday in industrial areas of the US.

So, with
workers on today’s radar, it is appropriate we continue yesterday’s discussion of how low-wage jobs are driving
our recovery from the jobs lost in the Great Recession. Reader Linda S. called
out an article in the Wall
Street Journal about the decline in apprenticeships available from US
corporations. From the WSJ:

Here is a WSJ chart that describes the current apprenticeship
situation:

Most of us
are unaware that there is a National Apprenticeship Act that was passed in 1937, an earlier
poor economic environment. It is administered by the Department
of Labor (DOL), and
establishes minimum standards for apprenticeship programs. The Act was later
amended to permit the DOL to issue regulations protecting the health, safety
and general welfare of apprentices, and to encourage the use of contracts in
the hiring and employment of them. Subsequently, additional regulations banning
racial, ethnic, religious, age and gender discrimination in apprenticeship
programs became part of the Act.

Earlier
this month, President Obama set aside $100 million to go toward apprenticeships
in high-growth industries, and recognized a few new programs in health care,
information technology and supply-chain management. Whilst in the UK people can get cips level 4 apprenticeships, this is at least a start towards diverifying the options over here in the States.

So, with
government assistance and oversight, why are these programs declining in usage?

Perhaps the
biggest obstacle is that two-thirds of
apprenticeship programs in the US are in the construction industry, and
jobs in construction have just not recovered:

Construction
jobs are down by 1.2 million since the start of the Great Recession.

Apprenticeships
involve more industries than the handful of trades that embraced the
earn-and-learn model that began in 1937: Wastewater technicians and
computer-system administrators are among the positions for which apprentices
can now train.

Another damper is a widely held view that young people should
stay in school and then get a job. Advocates of apprenticeships say this
thinking is misguided. The WSJ quotes
Brad Neese, director of Apprenticeship
Carolina, a program of the South Carolina Technical College System:
(brackets by the Wrongologist)

South
Carolina has had great success increasing the number of apprenticeships.  The number of SC businesses offering
apprenticeships has grown from 90 in 2007 to 647 today. Some 4,700 people who
trained in South Carolina’s apprentice program are now fully employed. To get
employers involved, the state offers a $1,000 annual tax credit for each
apprentice on the payroll. More from Mr. Neese:

Apprenticeships
are very much alive in the professions, we just call them something else. What
is a MD’s residency but an apprenticeship? (albeit paid for by Medicare) Accounting and Law work the same
way, you leave school and work like a slave for a few years in exchange for paying
tuition (in the form of longer hours and lower wages) while getting real world skills.

Universal
acceptance of apprenticeships in corporate America is not an easy problem to
resolve. Our current educational system poorly serves the need for skilled
workers. Schools regularly push their students (especially the
“smart” ones) towards college education and many parents, perhaps
unaware of other options, go along with this line of thinking.

The
desire by parents for their kids to have a gradual “socialization” experience by attending college, is likely another contributing factor.
The other side of the problem is that companies are often reluctant to offer
apprenticeship programs because they fear (often with good reason) that the graduates
of such programs will be quickly “poached” by other companies who do
not offer training programs. (See our High Tech Collusion column which describes the
prevalence of “no-poaching” agreements in Silicon Valley.) 

Germany’s success, as the chart above shows, might be a model for US apprenticeships.
Their strategy, apart from producing skilled workers, also provides options for
further education. In that system, a skilled toolmaker can go on to earn a
doctorate in engineering. The political and social structure required by such a
system would probably not be welcomed in the US as it would involve interlocking arrangements between government
industrial policy and corporate strategy, which US conservatives would
label as “excessive interference” in markets or, as “socialist”.

Thirty
years ago, throughout the US, it was quite typical for a company to pick up
tuition costs for part-time attendance at major public or private universities
or at community colleges, provided that the courses were work-related and part
of a technical degree program.

As soon as corporate America sold the
concept of H1B visas to Congress that policy started to evaporate. Many
American companies don’t train their workers (so much) anymore. Most of those
companies treat employees as disposable assets and focus more on short-term profits
than building skill sets and loyalty by their employees.

Our industries would work better if
more schools offered technical courses for interested students. In past years,
students in industrial schools completed their apprenticeship while in high school.
That allowed them to enter the working world as journeymen, able to earn a good
living.

And despite
what corporate America says they want, there’s NO such thing as finding the
“ideal” employee, one that is young, without unreasonable salary demands, but
with a complete skills set.

That is unrealistic,
just like searching for the “ideal boss”.

What’s Wrong Today:

The news today comes in two flavors. Bad and awful. Some of you probably saw Sunday’s New York Times article By Annie Lowrey in which she quotes from a National Employment Law Project (NELP) study. The study showed that in the last recession, the economy lost more higher wage jobs than it has gained since then, and it has created more low wage jobs than it had previously lost.

The study found especially strong growth in restaurants and food services, administrative and waste services and retail trades. Those industries — which often pay wages at the federal minimum — accounted for about 40% of the increase in private sector employment over the past four years.

In essence, America’s economy has replaced good jobs with bad ones:

That’s the merely bad news. The awful news is that this is how we have finally regained all of the jobs lost in the recession that began in 2007.

The next day, the Times published a rebuttal by Justin Wolfers:

Sure. Mr. Wolfers must be a charter member of the Society of Apologists for Plutocrats (SAPs).

Retail employed 15.26 million people (seasonally adjusted) last month. 13.049 million retail jobs were non-management (production and non-supervisory). For those keeping score, that is 85.5% of retail jobs. Those jobs averaged 29.9 hours/week, down a half-hour from a year ago and pay an average of $14.26/hour. That’s a yearly income of less than $22,000. Most jobs in retail are not in management. And most of those working in retail are going to earn less than the poverty level for a family of 4 in the US.

The larger point is that, using the NELP study, 22.4% of the jobs lost in the 2007 recession were in the lower-wage category, but 43.9% of those created since then are lower wage. This trend must be seen not just against the backdrop of the deteriorating quality of American jobs but the country’s growing inequality.

It is clear that hard work and integrity are no longer guarantees of upward mobility in America. We could easily see a corrosive class envy coming to a boil. Here is an illustration of the point:

It’s clear that the top 10%–the class of finance guys, hedge fund managers, technocrats, professionals, and entrepreneurs, have managed to increase their wealth in the past 20 years, while the 90% have just been treading water. A household income of $150,000 a year qualifies as a top 10% income.

Breaking out of the bottom 90% has become only a dream for the average person.

If recent college grads can only find jobs in retail, hospitality and food service, or underpaid/unpaid internships just to cling on to their “dream career”, how can we expect them to get married, purchase a home, purchase a car, purchase the goods and services that will sustain our economy’s fragile recovery?

We are in the late stages of the recovery from the Great Recession. There is a good ch
ance that that the “job creators” will do nothing that brings about any change to the current crapification of our economy.

There has been no blogging since Sunday, as the Wrongologist has been upgrading his computer system. Restoration of data is now complete, and aside from the occasional misplaced file, we are able to begin blogging tomorrow.

We are unlikely to mention LA’s Donald Sterling, but you already know what you think about that hot, steaming pile of wrong.

“All you need in this life is ignorance and confidence, and then success is sure” – Mark Twain

“I never listen to debates. They are dreadful things indeed. The plain truth is that I am not a fair man, and don’t want to hear both sides. On all known subjects, ranging from aviation to xylophone-playing, I have fixed and invariable ideas. They have not changed since I was four or five” – HL Mencken

These quotes apply to two people in the news this week who look ignorant even if they are not. Chief Justice John Roberts is clearly a follower of Mencken. The Chief says” “The way to stop discrimination on the basis of race is to stop discriminating on the basis of race”:

Here is what Justice Sotomayor said in her dissent:

“The way to stop discrimination on the basis of race is to speak openly and candidly on the subject of race, and to apply the Constitution with eyes open to the unfortunate effects of centuries of racial discrimination. As members of the judiciary tasked with intervening to carry out the guarantee of equal protection, we ought not sit back and wish away, rather than confront, the racial inequality that exists in our society.”

Then we have Cliven Bundy, who demonstrates Twain’s quote perfectly. He justifies his 20-year refusal to pay the Bureau of Land Management for grazing rights on the public land where he runs his cattle by claiming his ancestors gained livestock water rights in the 1870s:

Not true. KLAS, the Las Vegas CBS affiliate checked out the Bundy family’s history with that land. Although Bundy says water rights were handed down to him, records show that Bundy’s ranch was not purchased by his family in 1948. In 1998, a federal judge ruled that whatever inherited rights Bundy claimed were specious since the Bundys did not even begin grazing on the (then) public lands until 1954. The judge said Bundy should be barred from grazing his cattle on federal range land until he paid his fees to the BLM, just like everybody else.

Bundy sees things differently. He believes he has some special inherited right that cannot be proven in court. Therefore, he does not accept that the US government has any legal authority over Nevada.

And in other news, more followers of HL Mencken showed their colors, starting with the FCC:

The FCC’s idea of a level playing field:

News about Obamacare not good for Republicans:

Plutocrats say there is a ladder of opportunity for everyone:

 

What’s Wrong Today:

The principle that all Internet content should be treated equally as it flows through cables and pipes to consumers (called net neutrality) looks all but dead. From the NYT:

These proposed changes end net neutrality — the idea that no providers of legal Internet content should face discrimination in providing offerings to consumers, and that users should have equal access to see any legal content they choose.

Today consumers can pay Internet service providers for a higher-speed Internet connection, but at whatever speed they choose, under the new FCC rules, they might get some content faster, depending on how much the content provider has paid the service provider.

Tim Wu at the New Yorker offered some insight: (emphasis by the Wrongologist)

The new rule gives broadband providers what they’ve wanted for about a decade: the right to speed up some traffic at the expense of others. The motivation is not complicated. The broadband carriers want to make more money for doing what they already do. Never mind that American carriers already charge some of the world’s highest prices for a service that costs less than $5/month to provide. To get cheap broadband that actually delivers, you could take a look at HTTPS://WWW.EATEL.COM/ for some of the best plans on the market.

It is troubling that the FCC is caving in only three months after a federal appeals court struck down agency rules intended to guarantee a free and open Internet. After all, it was in January, in response to the court decision that Tom Wheeler, FCC Chair, said: (emphasis by the Wrongologist)

So, Mr. Wheeler changed his mind. Why? Jan Brodkin of Ars Technica speculates that the revolving door at the FCC may help explain it:

He also outlines the career of Meredith Baker: (brackets by the Wrongologist)

Here is a graphic illustration of the revolving door at the FCC:

The history of regulation is that large firms in an industry buy politicians and use them to extract rents, raise barriers to entry, erect tariff barriers, and do other things to pad their bottom lines. Most of the time, the sales window is open and everyone just looks the other way. Who got bought? The man who appointed Mr. Wheeler in 2013 will never again run for reelection.

Big business groups like to say that they are against regulation because of free market, big government, economic efficiency, consumer choice, blah, blah, blah.

The need to pay access fees for faster service will make it harder for new entrants on the content and services side; in the long run, paying these fees will be good for Netflix, since it won’t have to worry as much about competition. The ultimate result will be to lock in the current set of incumbents that control the Internet, ushering in the era of big, fat, incompetent monopolies.

This is another case where the regulators support the regulated, the corporatists and the pl
utocrats.

In case you haven’t noticed, there is a war going on. Small businesses and individuals with less than multimillion dollar bank accounts are in the cross-hairs. The average American must pay for and account for every little thing we do, while the mega corporations are able to make what are for them, small payments to big lawyers and accountants to limit access for the rest of us.

All while avoiding paying their fair share of taxes.

The whole money-politics-power crowd has deployed a well-oiled model of how political corruption actually works.

What’s
Wrong Today:

From Ben
Casselman at 538:
(brackets by the Wrongologist)

Among all
16- to 24-year-olds, college enrollment experienced its biggest decline in at
least two decades. The report echoes other evidence that college enrollment has declined after
surging during the recession:

Enrollment was on a
general upward trend, but peaked in 2012 and has since dropped in each of the
last two years. The fact that this is a two-year drop suggests that it isn’t
just a one-time fluke in a volatile series. The drop in college attendance by recent high
school graduates is concentrated among groups most likely to be
deciding between going to school and joining the labor force: Part-time and
community college enrollments saw the sharpest decline. Meanwhile, the
enrollment rate increased for four-year colleges, where costs have been rising
the fastest. For-profit colleges, which have been subject to mounting criticism over their high costs and
inconsistent educational value, have also seen enrollment decline.

Many
analysts have attributed the slowdown in college attendance to the rapidly
rising cost of a higher education. That may be true, but the decline in
enrollments may have as much to do with obverse, the perceived value of the degree. Charles
Hugh Smith has looked at the rapid growth in student loans vs. the growth
in median income for people with bachelor’s degrees:

Higher education is busy turning students into debt-serfs via student
loans, while our economy provides a diminishing return on the investment.

Despite
the recent downtick, college enrollment remains above pre-recession levels. In
1982, 26.6% of 18- to 24-year-olds were enrolled in college; in 2012, that
figure stood at 41%. In some ways, America’s higher education model reflects
supply and demand: The more demand for a degree, the higher its cost. The
greater the supply of degreed graduates, the lower is the market value of the
degree.

According
to Heidi Shierholz of EPI:

According
to Ben Casselman, the recent decline
was concentrated among women. Women still attend college at a higher
rate than men, as they have for decades. But the gap is narrowing: In 2013,
68.4% of female high school graduates enrolled in college, versus 63.5% of male
grads. In the class of 2009, by contrast, 73.8% of women attended college,
versus 66% of men.

Less than
60% of African-American and Hispanic members of the class of 2013 were enrolled
in college last fall, compared to 67% of white graduates. The numbers are
volatile from year to year, but neither gap has narrowed meaningfully over the
past 20 years. Moreover, young black and Hispanic Americans also have a higher
unemployment rate than whites, suggesting they aren’t choosing to skip college
because of strong job prospects.

Choosing
not to go to college can have long-term consequences. The unemployment rate for
16- to 24-year-old high school graduates with no college education was 18.9% in
2013, versus 8.3% for college graduates.

And those
who do manage to find jobs earn less than their college-educated peers: Among
25 to 34-year-olds employed full-time, year-round, college graduates earn 50%
more than those with a high school diploma.

Despite
the lifetime earnings argument, increasing costs and decreasing benefits of a
college degree pose a barrier for many kids from families with lower incomes,
who are going to college in lower numbers than those in the higher income
distributions.  

What’s
Wrong Today:

One outcome
of the political struggle between Democrats and Republicans is the parties’
continuing efforts to game our voting rules. Nothing makes voters more cynical
than seeing political leaders seemingly supporting or opposing election laws
based solely on their partisan impact — from redistricting reform
to fights over whether to allow early voting. ­

New York
this week became the 10th state (plus DC) to join the National Popular
Vote Interstate Compact, (NPV). The compact is a clever workaround to the
Electoral College. The Compact seeks to guarantee election of the presidential
candidate who wins the most popular votes in all 50 states and the District of
Columbia. The states that have approved NPV so far come in all sizes. Four are
small (Rhode Island, Vermont, and Hawaii, plus the District of Columbia), three
are medium-sized (Maryland, Washington, and Massachusetts), and four are large
(New Jersey, Illinois, California, and now New York).

By signing
on to the Compact, states agree they will award their electoral votes to the
winner of the national popular vote. However, the measure will only be
triggered once states accounting for a majority of electoral votes have joined.
Right now, the states that support
the Compact total 165 of the 270 electoral votes necessary to activate the
national popular vote. There are 538 electoral votes, so a majority is 270.

If states
with an additional 105 electoral votes pass it, the US will hold a presidential
election in which, for the first time in US history, every vote in every state would count equally. The candidate who
receives the most votes will win.

We don’t
need a constitutional amendment to achieve this goal. The Constitution gives
each state power over how to allocate its electoral votes and the ability to
enter into binding interstate compacts. As
Hendrick Hertzberg said in the New
Yorker:

And it
does this without changing a word of the Constitution. Can it happen? As Nate
Silver’s
chart below indicates, the relationship between whether a state has joined the
Compact and how it voted in the 2012 presidential election is nearly a 1-to-1
relationship:  

The 7 states where
President Obama won by the widest margins, along with DC, have joined. So have
three others — New Jersey, Illinois and Washington — where Obama won by at
least 15 percentage points. But none below that threshold have done so.

The Compact may be able to add Delaware, Connecticut
and Maine, where Obama also won by 15 percentage points or more. But they
account for only 14 total electoral votes (and Maine already has a unique way of apportioning electoral votes).

Oregon and
New Mexico also re-elected Obama by double-digit margins — and those two states
have become increasingly off-limits to Republican presidential candidates — but
have just 12 electoral votes between them.

After
that, you get to states like Michigan and Minnesota, which are blue-leaning but
that are competitive for both parties.

Their
votes might not be quite as influential in the Electoral College as the campaigns
presume — a Democrat who lost Minnesota would probably be in too much trouble
elsewhere to cobble together a 270-vote majority. And what about the swing
states, such as Ohio, New Hampshire and Colorado? Those states, along with
Florida, Virginia, Nevada, Iowa, Wisconsin and Pennsylvania, collectively had a
98.6% chance of determining the Electoral College winner in 2012, according to Silver’s
538 blog. In other words, these nine states are 70 times
more powerful than the other 41 (which collectively had a 1.4% chance of
determining the winner) combined.

That’s part
of the reason that many Americans object to the Electoral College. But states whose voters
have a disproportionate amount of influence may be in no mood to give it up. In
theory, recent history shows that states that want a Republican in the White
House might have an incentive to join the Compact. That’s because in the 2008
and 2012 elections, the Electoral College helped Democrats.

That means
that even if Mr. Obama had lost the national popular vote, he could have still
won in the Electoral College. The Electoral College has the potential to elect
a non-winner in the popular vote, something that is contrary to basic
democratic principles. It can render a major state like New York, California or
Texas irrelevant to presidential decision — without adding a corresponding
benefit.

As
Hertzberg says, it’s instructive that all 50 states have an independent
executive and 49 states have also chosen to copy the bicameralism of Congress, but
none has copied the electoral college. And no other liberal democracy uses it
either.

Under
the National Popular Vote, every voter would be politically relevant and equal
in every presidential election. Every vote would be included in the state
counts and national count.

Today,
there is no meaningful competition
in more than two-thirds of states and in even more congressional districts. As
soon as a state has an underlying preference of more than eight or nine
percentage points for one party — no amount of money or voter mobilization can
influence that state’s presidential outcome in a nationally competitive year.

For the
last few presidential cycles, more
than 98% of general election campaign spending and campaign events took
place in only 12 states. Meanwhile, at least
35 states — small and large, Eastern and Western, Democratic and Republican
— received less than one-hundredth of a percent of the attention they would
likely receive under a national popular vote for president.

This makes
a mockery of the idea that in presidential elections all states and all voters
matter. Our all-consuming focus on swing states makes their voters’ concerns
infinitely more important to presidential campaigns than the concerns of the
other two-thirds of Americans.

What’s
Wrong Today:

“The struggle of man against
power is the struggle of memory against forgetting” – Milan Kundera

Yesterday was the 100th anniversary of the Ludlow Massacre. The Massacre was the result of a strike against the Colorado Fuel & Iron Company (CF&I),
owned by John
D. Rockefeller, Jr., the Rocky Mountain Fuel Company (RMF), and
the Victor-American Fuel Company (VAF).

The strike
resulted in the violent deaths of at least 19 people; reported death tolls vary,
but included two women and eleven children, asphyxiated and burned to death in a
tent that passed for a home. The deaths occurred after a day-long fight between striking
workers and a private militia hired by Rockefeller. The face-off raged on for
14 hours, during which the miners’ tent colony came under machine gun fire. The
tents were ultimately torched by the militia.

According
to the Lawyersgunsandmoney
blog:

Rockefeller
was widely blamed by the public for the deaths. The strike was organized by the
United Mine Workers of America
(UMWA) against coal mining companies in Colorado.

In
retaliation for Ludlow, armed miners attacked dozens of mines over the next ten
days, engaging in several skirmishes with the Colorado National Guard. Estimates
vary, but the entire conflict cost between 69 and 199 lives. It has been
described as the deadliest strike in the history of the US.

The Ludlow
Massacre was a watershed moment in American labor relations. Howard Zinn
in The
Politics of History described the Ludlow Massacre as:

The Ludlow
Massacre quickly evolved into a national rallying cry for labor unions and
eventually helped lead to New Deal labor reforms. But over the years, the
tragedy in Ludlow Colorado has been largely forgotten.

It may seem like ancient history, but in 1913, workers were not
paid for traveling into the mines, shoring up the mine ceilings, or fixing
tools. Many died in mine cave-ins or from disease. Workers lived in
company towns. Moreover, company housing meant that CF&I agents could enter
your home at any time, you had to shop at the company store using company
scrip, and company thugs ruled the camp, firing anyone associated with
unionism.

The United
Mine Workers of America had organized the workers in southern Colorado
throughout the early 1910s, despite significant efforts at repression. The workforce
was comprised of large numbers of Greeks, Mexicans, and Italians, a practice which discouraged communication that might lead to organization.

In 1913,
the union presented their demands to CF&I for basic working and human
rights, including an 8-hour day, the right to choose their own homes and
doctors, a pay raise, and enforcement of mine safety laws to CF&I. The
company rejected them out of hand, and the miners went on strike, and the
Massacre was the result.

The Ludlow Massacre
occurred at the end of the Gilded
Age, a period spanning the final three decades of the nineteenth
century; from the 1870s to 1900. The term comes from a book by Mark Twain, The Gilded Age: A Tale of Today,
satirizing what he believed to be an
era of serious social problems disguised by a thin gilding of gold.

Consider what John
D. Rockefeller Jr. said
to his Colorado miners in 1915 after the anger over the Massacre had died down: (emphasis
by the Wrongologist)

There
you have it, another shining example of capitalist benevolence in action.
Despite the paternalism, every worker right and benefit we have was
literally bought with the blood of union men and women fighting tooth and nail
against overwhelming odds to win them and often dying in the process.

And you
know when private companies stopped killing the strikers? When FEDERAL
GOVERNMENT troops (ordered by President Wilson) stepped in. In the libertarian wet dream world of
Rand Paul and the Koch Brothers, we would be back to 12 hour days, 6 days a
week.

We
could argue whether or not a different approach in the 1870s would have been
better, but in today’s world, the massing of capital that has occurred among multinational
corporations can only be balanced by strong government power, provided that
politicians are willing to use that power. Shrinking government can only be in
the interest of the average citizen if the power of massed capital is reduced to
a point that it is less than the power of government to control it.

In March, the Wrongologist alerted
readers to Thomas Piketty’s book Capitalism
in the 21st Century. Paul Krugman, in his review of Piketty’s book for the NY
Review of Books said:  

A
rising level of capital to total wealth concentrates power, because ownership of capital is always
much more unequally distributed than labor income.

We
have come full circle, entering another “Gilded Age”. The plutocrats, corporatists
and corporations argue for the primacy of capital over people, and many, many of our politicians
support that call.

If politics is about power, then the
powerful will have the advantage. We will see an endless loop of the more
powerful crushing the less powerful, with any
change in the power balance just a random fluke, like what happened after Ludlow catalyzed
real change.

If politics can be about policy,
then truth has an advantage, and progress can happen.

“The greatest power of the mass media
is the power to ignore. The worst thing about this power is that you may not
even know it’s being used” – Sam
Smith

It
is 13 years since 9/11. Since then, our political leaders empowered a national
security state, which brought the loss of much of our personal liberties. Few
Americans noticed the dark consequences of these changes to the law of the land.

And there
was little call for debate in
the main stream media regarding the growing power of the security state. What limited
attention there was did not lead to follow-up by the major networks, or by old-school
print media. That is, until Edward Snowden met with Glenn Greenwald and Laura
Poitras and the story was picked up and followed closely by the Guardian and the Washington Post.

The
newspapers revealed the NSA’s involvement in a dragnet collection of the
phone records of millions of Americans, the creation of software “backdoors”
that allow intelligence agencies to access data held by Facebook and Google.
They reported on the cracking of Internet encryption that is essential to
safeguarding the security of Web users.

Because of the
commitment by both news outlets, the question of the legality of the NSA’s
activities is a front-burner issue around the world.

Congratulations
to both newspapers.

Big Brother apparently can’t watch everything:

That rancher in Nevada isn’t the only deadbeat grazer:

Our dark past reappeared in Kansas:

Republicans put their Easter eggs in one basket:

Not all necessary repairs in Capitol building will be made:

What’s
Wrong Today:

The US and
Europe banked on a successful regime-change in Kiev. But Kiev
has a very weak hand, and may not gain control of the dissident cities in
Eastern Ukraine. In fact, it could devolve into civil war.

This sets up a dilemma for President
Obama. He has made it clear that military
force against Russia’s past and possible future actions in Ukraine are not an
option. But he has also made it clear that the US will stand up for Ukraine.
This has led him to implement some sanctions
that have had impact, while threatening more if Russia continues its Ukraine
land grab.

It is also a
dilemma for President Putin.
Since the time of Catherine
the Great, Russia has looked to be a part of the West. Putin is acting like
Russia is willing to move away from the West and to pursue a very different
course. He seems unconcerned by Russia’s ejection
from the G-8. Moving away from the West toward the third world may be a risky substitute for an ambitious leader bent on making a legacy. 

His
takeover of Crimea and the earlier annexation of South Ossetia from Georgia
show that Putin is willing to remain estranged from the West in order to keep
the “Novy
Russia” dream alive. That may have worked well in the last century, but it is
unlikely to work as effectively today. Here’s why:

In the UK
Telegraph, Ambrose Bierce reports that The US has powerful financial tools
that were developed after 9/11. They are financial sanctions that we have yet
to fully implement against Russia. The strategy relies on the US dollar as the
world’s reserve currency, which gives it control over huge portions of the
global banking system. He quotes Juan Zarate, a US Treasury and White House
official who helped spearhead the development of this policy after 9/11:  

Bierce quotes
Mr. Zarate as saying that the US can go it alone with sanctions if necessary,
so that it may not matter whether the EU continues to drag its feet over Russian
sanctions.

The
stealth weapon is a “scarlet letter”, devised under Section 311 of
the US Patriot Act.
Once a bank is accused of money-laundering or supporting terrorist activities, it
becomes radioactive. This can be a death sentence, even if the bank has no
operations in the US, since most global banks will not knowingly defy US
regulators. They are more likely to sever dealings with the target bank.

This
arsenal was first deployed against Ukraine (of all places) in December, 2002.
Its banks were accused of laundering funds from Russia’s organized crime rings.
Kiev capitulated. Burma, North Cyprus, Belarus and Latvia were all forced to
comply with US requirements. The biggest test was Iran. Then-president Mahmoud
Ahmadinejad said of the US sanctions:

We know
that the sanctions regime brought Iran to the bargaining table, and the
framework for an agreement to stop development of their nuclear weapons program
emerged.  

Russia has
experience with the sanctions program. They saw what was possible when the two
countries were “partners” in the fight against Jihadist terrorism. The
Chinese gained experience in 2005, when the US hit Banco Delta Asia (BDA) in
Macao for serving as a conduit for North Korean commercial piracy. China pulled
the plug. BDA collapsed within two weeks. That experience also caused China to tip off
Washington when Mr. Putin proposed a joint Sino-Russian attack
on Fannie Mae and Freddie Mac bonds in 2008, aiming to precipitate a dollar
crash.

However, Russia
is a formidable enemy. It is the world’s biggest producer of energy with a
$2 trillion economy. It is also tightly linked to the German and East European
economies. New sanctions could start as part of a calibrated escalation,
issuing scarlet letters to the Russian banks that are helping Syria.

This could
graduate to sanctions on Russian defense firms, mineral exports and energy,
culminating in a squeeze on Gazprom should all else fail. From Robert
Kahn at the Council on Foreign Relations:

Russia has
$470 billion of foreign reserves, but they have fallen by at least $35 billion
since the Ukraine crisis began. Moscow cannot easily deploy its reserves in an
economic slump without causing its money supply to shrink, deepening a
recession that as the NY
Times reported yesterday, is almost certainly currently under way. Really harsh sanctions could cause an economic dilemma for Mr. Putin.

Compared
to the EU, the US does relatively little business with Russia. Trade between
the US and Russia amounted to just $40 billion last year, or about 1% of total
US trade. If Russian oil, gas, fertilizer,
plastics, chemicals and related trade shrinks, the US will feel
relatively little pain.

However, Bloomberg/Business
Week reports that if the US targets Russia, it could cause collateral damage for a handful of large US corporations. Boeing relies on titanium from Siberia and has invested
$7 billion in Russia since the early 1990s; the company plans to buy $18
billion of Russian titanium over the coming decades. Exxon Mobil also has
a deep partnership with Rosneft, Russia’s state-owned oil giant. So,
there could be some political fall-out ahead for the Obama administration.

Although
the Obama administration had success
with its sanctions levied against Iran, Russia a different animal. Iran was isolated,
and the crushing sanctions that went into effect in 2012 were a combination of
presidential executive orders, UN resolutions, and acts of Congress. Russia,
however, is the 8th largest economy in the world, and Europe is
dragging its feet on sanctions.

So,
dilemmas abound for both Mr. Putin and Mr. Obama.

Americans who
suggest that we have a duty to help Ukraine should think about our over-zealous
promises to other countries, and how they have undermined our duty to American
citizens. Through our lack of foresight, planning and accountability, we have
wasted our blood and treasure.

The
Chinese and Russians aren’t spilling their soldiers’ blood or wasting money
irresponsibly. So let’s not send our money and kids on what looks like another fool’s
errand, this time in Ukraine.

Hit ’em
with sanctions. Hit ‘em hard.