Tag: Russian Economy

War With Russia? Over What?

The Daily Escape:

Bailey’s Island, ME – January 7, 2022 photo by Eric Storm Photo

Russia has decided the time is right to challenge the balance of power in Europe. The talks between Moscow and the US, and between the EU, NATO and Russia were motivated by two reasons. First, Russia’s long time concerns about NATO encroaching on their Western border. Second, the view in the West that Russia, after massing troops on the Ukraine border, is going to invade Ukraine and absorb it.

Putin told Biden in early December that he was looking for European security guarantees. They were later presented by Moscow in the form of two draft treaties, one a Russian-US security treaty, the other a security agreement between Russia and NATO. That led to the recent talks that seemingly went nowhere.

The pawn in this diplomatic game is Ukraine. The basic options for Ukraine are the same as were discussed in 2014: Alignment with Russia, alignment with the EU/NATO or balancing between the two.

But to Moscow, Ukraine isn’t the problem. Putin thinks it’s Washington.

We should remember that Putin laid out his position to not accept any further eastward expansion of NATO in his speech to the Munich Security Conference in February, 2007. He hasn’t changed his thinking.

Both sides know that Ukraine is an impoverished, de-industrialized, divided, and corrupt mess. Ukraine ranks 117 out of 180 countries on Transparency International’s corruption index. Why would either side want to take over responsibility for Ukraine?

Also, Russia understands that the NATO expansion hadn’t been on the table for years until Putin brought it up. Suddenly, he has the West debating an issue that wasn’t an issue for a long time. Ukraine hardly qualifies as a potential NATO member – it doesn’t have the resources to defend itself. There’s no way it could really contribute to defending other countries in Europe, even though they did send a few troops to Iraq and Afghanistan.

So why would Russia attack Ukraine? Moscow is fully aware that while its troops would be welcomed in Eastern parts of Ukraine they wouldn’t be in others. Yet, we learned yesterday that Russia withdrew its diplomats and their families from Kyiv:

“According to one senior Ukrainian security official, 18 people — mostly the children and wives of Russian diplomats boarded buses from Kyiv back to Moscow. About 30 more Russians left within the ensuing days, from the Kyiv embassy and a Russian consulate in Lviv. The Ukrainian security official said Diplomats at two other Russian consulates have been told to prepare to leave Ukraine.”

Anatol Lieven, writing in Responsible Statecraft, wonders what the US, NATO and the Europeans are thinking. They’ve rejected Russia’s conditions for an agreement since they were not willing to rule out expansion to Ukraine, Georgia, and other former Soviet republics: (emphasis by Wrongo)

“…NATO has no real intention of admitting Ukraine, nor of fighting Russia in Ukraine. Both Washington and Brussels have openly ruled this out. Indeed, NATO could not do so even if it wanted to. US forces in Europe are wholly inadequate to the purpose, as are what is left of the British and French armies.”

It’s possible that Russia is attempting to split Germany from the rest of Europe. Germany is reliant on Russia’s natural gas to a greater extent than other European countries. Assuming that Lieven is correct about NATO military weakness, it’s also possible that Russia is trying to intimidate NATO. According to Adam Tooze, Russia accounts for about 40% of Europe’s gas imports. And a rupture of relations will result in the complete embargoing of Russian gas and oil to European customers.

While the US, NATO, and the EU have all promised “unprecedented sanctions,” against Russia if they invade Ukraine, sanctions only matter if the other side cares. If Russia decides to rupture relations with the West, it will have calculated that it would survive more economic sanctions. The primary Western threat is to block Russia from using the SWIFT electronic payments system. But it’s possible that Russia could survive being blocked from SWIFT for longer than Europe can survive without Russian energy.

Despite that threat, Western allies are sending dangerously contradictory messages about their willingness to impose anything on Russia beyond a financial slap on the wrist. One variable that sums up Russia’s commanding position in a sanctions environment is Russia’s foreign exchange reserves:

With north of $600 billion in reserves, Russia is just behind China, Japan, and Switzerland. This gives Putin the capacity to withstand sanctions on the rest of the Russian economy.

Putin has a timeline. In 2024 he faces a choice as to whether to continue in power or to begin to prepare for his final exit. At that point, he will be 72. We have to assume that by then, he would like to have drawn a line on Western expansion.

Also, 2024 overlaps with the end of Biden’s first (only?) term as president. So, setting the terms of Russia-US relations on the expansion issue must be a priority for the Kremlin. Biden has clearly signaled that his priority is China and that he is willing to pay a political price for retrenching its strategic position (Afghanistan). Perhaps that opens the door for a Russian deal in Europe.

Lost in this discussion is the possibility that directly confronting Russia could drive them to sign a joint defense treaty with China. That would be a world-changing diplomatic move, assuming it included a mutual defense provision.

It would be a balance of power earthquake, a real-life demonstration Mackinder’s Heartland theory, which states that:

  • Who rules Eastern Europe commands the Heartland
  • Who rules the Heartland commands the World Island
  • Who rules the World Island commands the world

Mackinder thought of the heartland as the core of Eurasia, and he considered all of Europe and Asia as the World Island.  Think of such an alliance controlling much of the world’s natural resources, having global leadership in manufacturing, and the best of STEM education. Imagine their combined military and naval might joined in a military pact.

There is still a chance that US flexibility in two areas may avert a diplomatic meltdown with Russia. The first would be a NATO commitment to deploy no new forces in NATO countries close to Russia’s borders, in return for Russian limits on new deployments and the stand-down of the troops now deployed on Ukraine’s borders.

The second would be genuine US support for the failed Minsk II agreement which focused on autonomy for a demilitarized Donbas region within Ukraine. Donbas autonomy within Ukraine would be a serious barrier both to Ukraine seeking NATO membership and would therefore indirectly meet Russia’s key concerns.

NATO, the US, and the EU need to come to a more modest view of themselves and their role in the world. We should abandon the empty and hypocritical false promise of further NATO expansion and seek a reasonably cooperative relationship with Russia.

Otherwise, we can go on living in our world of make-believe, a world that may easily be shattered by harsh realities.

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Russia and Kavanaugh

The Daily Escape:

Moscow supermarket – October 2018 photo by Wrongo

The two topics in the headline are not related.

Wrongo and Ms. Right are back in the US, jet-lagged, and at home in the Mansion of Wrong. Our Russia trip was an eye-opener. In St. Petersburg and Moscow at least, Russia seems to be a wealthy country by global standards. People seem to be well-informed about their history, and about the current geopolitical climate in the west. They are consummate consumers.

We saw quite a few churches, but the Russians we spoke with didn’t seem to put much emphasis on their faith. Increasing their income and getting ahead in a career sense seemed to be the primary thing that interested them. “Pragmatic” best describes the people we met. They are strivers, and hope that their government won’t screw up what the citizens finally have going for them.

Mostly, we were struck by how similar the Russians we met are to the average American. We had lunch with a couple in Uglich, a poor town of about 30k residents that is about 125 miles north of Moscow. The town hasn’t benefited from the 18-year economic expansion in the Russian Federation, and has unemployment in the 25% range. It also has a declining population, and crumbling infrastructure.

The couple we met had both lost their jobs in the 1985 Perestroika period under Gorbachev. Thirty-three years later, the husband has a part-time government job, the wife is unemployed. They grow most of their food in their Πacre garden. Their refrigerator is covered with pictures of the grandkids, who visit every few weeks.

Their message to us was that people everywhere have the same hopes and dreams, but the politicians always want to demonize the outsiders.

We returned to American just in time to start calling Brett Kavanaugh “Mr. Justice Kavanaugh”.

It’s not worth dwelling on his confirmation process, or repeating stale arguments. It is time to gather ourselves, to register non-voters, and turn out all the votes we can on November 6.

It also isn’t the time to overthink the closing arguments for November, despite polls that show Republicans being energized by the Kavanaugh confirmation. But, it is important to understand GOP messaging for the midterms. From the WaPo’s article, ‘An angry mob’: Republicans work to recast Democratic protests as out-of-control anarchy:

Weeks ahead of the midterm elections, Republicans have cast the Trump resistance movement as “an angry mob,” a term used by many of them to describe a faceless amalgamation of forces that they say threaten the country’s order and, they hope, energize their voters.

Think back to the Tea Party protestors who disrupted town hall meetings in 2009. From today’s GOP viewpoint, they were just good citizens exercising their First Amendment rights. And all those people who chant “Lock her up!” at the encouragement of their dear leader? They really don’t mean anything by that, they’re also exercising their right to free speech.

But when a few liberals pound on the doors of the Supreme Court, that’s mob behavior, and it can’t be tolerated. In Trump World, crowds of marching alt-right men with tiki torches = some very fine people.

And crowds of protesting women in Washington = angry mob.

We should remember that the American Revolution wasn’t a polite discussion; it involved mobs making a point, too.

Democrats are on the edge of winning the House. Before Kavanaugh, they had a long-shot chance at taking the Senate. Right now, Dems need to be smart. Richard Nixon won because he scared Middle America with pictures of immoral hippies who were demonstrating against the Vietnam War.

Let’s assume that those of us who are already energized to vote can work to figure out how to reach those who are only half paying attention, or who plan to stay on the fence all the way until Election Day.

It is clear that accusations of the type made by Dr. Ford don’t resonate with GOP voters. Roy Moore’s near-pedophilia didn’t seem to change any Republican minds in Georgia. Whenever a Republican is under attack by the liberals, it’s always the time for the rest of them to circle the wagons.

There is no single, lock-step message that Dems should use to take both Houses in November. The best antidote for those “Energized by Kavanaugh” Republicans is for the rest of us to get, or stay, more energized.

There is zero to be complacent about. The Dems could remain in the minority in both Houses after the mid-terms if they fail to turn out their voters in November.

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Letter From Russia – Part IV

The Daily Escape:

Moscow’s International Business Center

We have all sorts of prejudices about foreign countries, most of which we learn from our media and history texts. An example is our views of Mikhail Gorbachev, who was president of Soviet Union from 1985 – 1991, and Vladimir Putin, the current president of the Russian Federation.

Americans like Gorbachev, and Russians detest him.

We like him because he won the Nobel Peace Prize, and negotiated a nuclear weapons reduction with Ronald Reagan. We remember his policy of Glasnost, or openness, which moved the Russian state toward becoming a freer society, in part by allowing criticism of Stalin, and other Russian leaders.

We also remember Perestroika, Gorbachev’s policy of political and economic reforms meant to kick start the Soviet Union into a market economy.

Russians detest Gorbachev because Perestroika was catastrophic, both economically and socially. Many lost jobs at state-owned companies. Gorbachev closed the heavy industrial firms that had been an engine of Russian economic growth and employed millions, in favor of light manufacturing of consumer goods. But the light industries failed, in part because jobless people couldn’t afford new consumer goods. He closed the collective farms that Stalin had instituted, but the state-owned food stores remained. Without a source, food shortages appeared immediately, and WWII-style rationing returned. There was little product in the state shops, but lots of product in private shops that few could afford.

The budget deficit grew. Foreign debt grew, and the death rate exceeded the birth rate, a grim statistic that only recently has returned to equilibrium. Nearly 700,000 children were abandoned by their parents who couldn’t afford to take care of them. The average lifespan of men dropped to 59 years.

The terrible economy nearly broke the back of Russian society. It didn’t help that oil prices fell from about $60/bbl. when Gorbachev took office, to about $30/bbl. when he was succeeded by Yeltsin in 1991. At the time, oil accounted for about 65% of exports.

Fast forward to today: Americans hate Vladimir Putin, while Russians love Putin.

Americans hate Putin because he annexed Crimea in 2014. The US and Europe responded with economic sanctions. And many believe that Russia hacked the US presidential election in 2016, gifting the presidency to Donald Trump.

So, Americans have reasons to dislike Putin.

People in Russia love Putin. He was just reelected with more than 70% of the vote. The primary reason is a steadily improving economy. Russian GDP has averaged 3.01% from 1996 until 2018, but it took until 2008 for GDP to return to its pre-Gorbachev levels.

Putin increased tax revenues by implementing a 13% flat tax, a value-added tax on purchases, and a 6% corporate tax on gross revenues. Real estate taxes on the average person’s apartment are negligible.

Today, Moscow looks like any major western European city. There are high rise apartment buildings everywhere, the population is 15 million, and there are 5 million cars. Again, a key success factor in Putin’s economic record was rising oil prices. When Putin took over, oil was $25/bbl. Today, the price for Russian oil is about $82/bbl. Here is the famous GUM department store decorated for fall:

2018 iPhone photo by Wrongo

Americans believe that Putin’s annexing of Crimea was illegal. But the Russians draw a distinction between what’s legal, and what’s justified. It may have been illegal to annex Crimea, but Russians think that when Khrushchev gave Crimea to Ukraine in 1954, he shouldn’t have. And nobody asked the people of Crimea.

So, when Russia annexed Crimea, Russians saw it as a justified return of lands that were rightly theirs. When the people of Crimea soon overwhelmingly voted to approve returning to Russia, it gave a veneer of legality to a perceived act of justice.

Americans also differentiate between what’s legal and what’s just, as the Brett Kavanaugh appointment shows. Those who support Dr. Ford feel deeply that justice must be done in order to right a wrong that had occurred years ago.

Those who support Kavanaugh say that there is no evidence that supports her claim of attempted rape, so he should be appointed. They’ve always been strict constructionists of the law.

The age-old conflict between people who narrowly read what is legal, and those who broadly interpret what justice requires, again divides us.

But actions have consequences, regardless of which side you are on. No one knows what the political outcome of this emotional moment in American life will be. Deep fissures have been opened, and they may take a long time to heal.

Are we at a tipping point? Everyone thinks one is coming, but no one knows which way we’ll tip.

The Senate is showing that they believe half of Americans are second-class citizens.

It’s likely that those second-class citizens think justice matters.

And it’s likely that they won’t forget.

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Letter From Russia, Part III

The Daily Escape:

The Assumption Cathedral, Yaroslavl, RU. Originally built in 1210, it was  blown up by the Soviets in 1937 as part of their anti-religion policy. This new cathedral was constructed in 2010 on the same spot. In front is an eternal flame memorializing the soldiers and the workers of WWII.

Wrongo and Ms. Right spent the day in Yaroslavl, Russia. It’s a mid-sized town of about 600k residents, and an important port on the Volga River. The Volga is more than 2,000 miles long, tying the western Russian cities together. Yaroslavl is an ancient city, founded in 1010.

In Yaroslavl, we learned two interesting facts about Russian towns. Any town of size has a fortress that includes a church. In Russia, that space is called a “Kremlin”. Second, despite the collapse of the the Soviet Union, statues of the heroes of the revolution were not taken down. The idea is that young people should understand their history, both the good and the bad. Major streets have kept their revolutionary names as well.

Maybe there is a lesson in that for America.

In visiting both tiny towns and large cities, it quickly becomes evident that the peoples of Russia have suffered immensely over the centuries. They endured long periods of starvation, and their losses in blood and treasure at the hands of both their enemies and their rulers were truly extraordinary:

  • As many as 17 million died under Stalin in the Gulags. At their high point, there were thousands of Gulags across the Soviet Union.
  • In WWII, during the war with Germany, Russia lost 27 million people.
  • During the 400 years of serfdom, millions of serfs died during forced labor. They built the palaces, roads and waterways that remain in use today between Moscow and St. Petersburg.

If history teaches us just one thing about Russia, it is that its people know suffering. They have survived, and in Wrongo’s brief visit, appear to have thrived. Stores are full of product, markets are busy with the purchase of fresh vegetables, meats and fish. New cars are on the streets, theaters are open, and everything looks very clean.

How have a people who have endured so much suffering, succeeded in the modern world? How were they not irretrievably damaged by their multiple tragedies?

How are they so resilient?

Perhaps their legendary winters forge a determination to do whatever is necessary to survive a long, hard fight with limited resources. Perhaps Russia’s long history of invasion and occupation by hostile powers has played a role: Russians have been invaded by the Mongols, the Turks, the Poles, the Swedes, the Germans and the French. Their story is ultimately one of resilience despite tremendous loss of life, repeated destruction of infrastructure, and against long odds.

Another thing is that the people seem to have a profound and deep feeling for their homeland, Mother Russia. That seems to be true, regardless of who is in control in the Kremlin, or which Tsar was in charge at the time.

So they fought and died for the motherland, regardless of who was leading them.

Compare that with America’s resilience. How resilient are we, in the 21st Century? We have never faced invasion, but we have faced attack. On our homeland, we fought a seven-year revolution, and a bloody civil war. We’ve faced natural disasters.

After 9/11, we overreacted to the threat of Islamic extremists by weakening our First Amendment rights with the Patriot Act. We launched wars in Afghanistan and Iraq. But, we didn’t come together as a nation. In fact, 9/11 threw gasoline on the fire of America’s already factionalized politics.

When Japan attacked us at Pearl Harbor in 1941, we came together as a people. There were a few who said we shouldn’t go to war, but the vast majority of our people got behind a global war against fascism. We sent our fathers, brothers and husbands off to war. Women worked in the factories for the war effort. Some were on the front lines with the troops. We rationed butter and sugar.

Our people knew hardship, and pulled together in common cause.

The question is: Will today’s America still pull together in common cause? Do we have the strength of character, the grit, to fight for something larger than ourselves? Could we again sacrifice for what we believe to be the right thing?

Our response to the Great Recession of 2008 showed us that in an American financial crisis, it’s every person for themselves, unless that citizen happens to be a financial institution.

When you think about it, do you still love Lady Liberty enough to fight for her?

To send your kids to fight for her?

And, do you think that we love her as much as Russians seem to love Mother Russia?

 

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Monday Wake Up – December 1, 2014

Today’s Wake Up is for entrenched power in America.

Inequality and political polarization has progressed to the point that the “The Hunger Games” trilogy is being taken seriously as literature with an important message for our time.

Its symbols are appearing in protests around the world and have made it into opinion columns:

Some protesters in Ferguson, Missouri, have adopted Katniss’s revolutionary slogan, “If we burn, you burn with us.” In Thailand, students flashing District 12’s three-fingered salute — a symbol of protest in the film — have recently been arrested. (The salute has apparently been outlawed since spring.) In a few short years, “The Hunger Games” and its symbology have become a part of the cultural commons.

America’s upper middle class thinks that inequality is an issue because it means low GDP growth, solely because people can’t buy enough consumer products to create good jobs. However, there could be an inflection point ahead when having more consumer goods ceases to be the goal of the middle class, or the people in poverty.

Look back at the French and Russian monarchies for a lesson about what that transition might look like, and how fast it can come about.

Today’s wake up music isn’t designed to get you dancing. It is the political anthem, “We Can’t Make It Here” by James McMurtry. McMurtry is the son of the novelist Larry McMurtry. The song won the 2005 Americana Music Award for song of the year. Music critic Robert Christgau has ranked “We Can’t Make It Here” as the best song of the 2000s. Bob Lefsetz said that “We Can’t Make It Here” has stood the test of time because of its unmitigated truth. Listen, while thinking that this was written in 2005, not this year:

Sample lyrics:
Will I work for food, will I die for oil,
Will kill for power and to us the spoils,
The billionaires get to pay less tax,
The working poor get to fall through the cracks

Monday’s Links:

Millennials are having to choose between affordable housing and jobs. It has always been true that there are fewer jobs where housing is affordable, but today, those two halves of the American Dream are living farther apart. Jobs with high wages are in unaffordable cities. The affordable homes cluster in the cities with lower wages and less upwardly mobile families.

Governor Christie (R-NJ) gives early sign that he is running for President. Christie vetoed a bill that would have banned crating pigs. New Jersey has few pig farms, but they are widespread in Iowa.

You can unknowingly lease a dog in San Diego CA. People who thought they purchased a dog using time payments actually leased the pet. After 27 months of payments, they could pay a $93.52 fee to end the lease, or $187.04 to purchase the pet. Why not just get a rescue animal? Read the paperwork, people! This is probably the next Wall Street securitization scheme.

Pope raises eyebrows by saying:

When we read about Creation in Genesis, we run the risk of imagining God was a magician, with a magic wand able to do everything — but that is not so…

His point was that Catholics should believe in evolution and the big bang theory. Next, Kansas and Texas will probably try to excommunicate him. Clearly, he’s been confused by those science-y people.

News from Russia:

Are the sanctions working? Russian firms that are under sanctions by the West must refinance $20 billion by April-sanctions are making that difficult.

There is a serious nuclear waste problem in the Arctic, brought to you by Russia. According to a joint Russian-Norwegian report issued in 2012, there are 17,000 containers of nuclear waste, 19 rusting Soviet nuclear ships and 14 nuclear reactors cut out of atomic vessels sitting on the bottom of the Kara Sea. The worst case scenario is described as “an Arctic underwater Chernobyl, played out in slow motion.” Oh, great, and I was worried about Crimea.

Water thievery is growing in California along with the drought. Thieves are cutting pipes and taking water from fire hydrants, storage tanks, creeks and rivers to get their hands on the precious commodity.

Thought for the week:

I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong. –Katharine Graham (Owner of the Washington Post)

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