The Ukraine war and Europe’s deepening march of folly

By Thomas Palley

In her book The March of Folly: From Troy to Vietnam, the historian Barbara Tuchman explores the perplexing question of why countries sometimes pursue policies that are fundamentally contrary to their own interests. That question has acquired renewed relevance as Europe has now enlisted in a deepening march of folly over Ukraine.

Failure to reject the march of folly will have grave consequences for Europe, but doing so is a huge political challenge. It requires explaining how Europe has been harmed by its Ukraine policy; how Europe stands to be further harmed by doubling-down on that policy; how the march of folly has been sold politically; and why the political establishment persists therewith.

Read rest here.

The Gift of Sanctions

Jamie Galbraith presented, at the EPS session at the ASSA Meetings in San Antonio, the paper published by INET. As he said there: "Despite the shock and the costs, the sanctions imposed on the Russian economy were in the nature of a gift." A type of invisible hand effect, by which the unintended effect of the policy that should supposedly benefit US allies (Ukraine) has the unintended effect of helping its alleged enemies (Russia).

From the abstract:

This essay analyzes a few prominent Western assessments, both official and private, of the effect of sanctions on the Russian economy and war effort. It seeks to understand the main goals of sanctions, alongside bases of fact and causal inference that underpin the consensus view that sanctions have been highly effective so far. Such understanding may then help to clarify the relationship between claims made by economist-observers outside Russia and those emerging from sources inside Russia – notably from economists associated with the Russian Academy of Sciences (RAS) – which draw sharply different inferences from the same facts. We conclude that when applied to a large, resource-rich, technically proficient economy, after a period of shock and adjustments, sanctions are isomorphic to a strict policy of trade protection, industrial policy, and capital controls. These are policies that the Russian government could not plausibly have implemented, even in 2022, on its own initiative.

Download paper here.

 

Tom Palley on the Causes and Consequences of the War in Ukraine

 By Thomas Palley

(1) The origins of the Ukraine conflict lie in the ambitions of US Neocons. Those ambitions threatened Russian national security by fuelling eastward expansion of NATO and anti-Russian regime change in the Republics of the former Soviet Union.

(2) The Ukraine conflict is now a proxy war. The US is using Ukraine to attack and weaken Russia.

(3) Russia will eventually prevail. We may already be approaching “game over” because Ukraine’s forces have been eviscerated. Ukraine is now press-ganging military conscripts in Kiev and Lviv.

(4) Once Russia imposes its will, the US will be forced to step back but it will have achieved its strategic goal of weakening Russia and separating Western Europe (especially Germany) from Russia.

(5) Ukraine will be effectively destroyed. It will be half-occupied by Russia; hundreds of thousands of Ukrainians will have died; millions will have fled; and the Ukrainian Nazis will be in charge of what is left.

(6) We have all been played by the Biden administration and the US Neocons.

The biggest losers are the ordinary people of Ukraine. They were cheated by the US Neocons of the possibility of a peaceful accord with Russia.

But we have all lost, especially Western Europe. Higher inflation and energy prices today; lost future economic opportunities; a worsened outlook for climate change; a dangerously deteriorated global security outlook that includes risk of nuclear war; and renewed militarism that will disfigure our societies for decades to come.

(7) Western Europe’s political elites are deeply culpable for their venal capitulation to US Neocon pressures.

(8) The US is guilty of provoking the war. But it will never be charged because this is a proxy war and it tacitly controls the International Court in The Hague.

Published originally here.

Ukraine: what will be done and what should be done?

 By Thomas Palley

While rightly condemning Russia for its invasion, the mainstream media continues to selectively report the history behind these events. In my view, its omissions are intentional and contribute to the tragedy. They inflame public understanding, render a diplomatic resolution more difficult, and lock us into a worse trajectory.

Let me make further clear my argument: (1) President Putin is head of the Russian state which is under slow-motion implacable attack by US-led NATO. (2) After failing to secure a satisfactory diplomatic resolution, he has taken action to head off that attack.

If you accept those two propositions, the Ukraine story is massively more complicated than simply claiming Putin is an aggressor and we (the US) are good. There will be no lasting peace until that complexity is fully engaged.

Read rest here.

The New Old IMF

The 'new' IMF still demands devaluation and fiscal adjustment. Like the old. From their new agreement with Ukraine, according to the New York Times:

"The agreement, announced in Kiev, the Ukrainian capital, will hinge on the country taking steps to let the value of its currency float downward, to cut corruption and red tape, and, crucially, to reduce huge state subsidies for the consumption of natural gas."

This is consistent with what the IMF says in last in one of the last World Economic Outlook reports. The IMF suggests that the current risks for the global economy fall into five categories, namely (IMF, 2013a, p. 14): “(1) very low growth or stagnation in the euro area; (2) fiscal trouble in the United States or Japan; (3) less slack than expected in the advanced economies or a sudden burst of inflation; (4) risks related to unconventional monetary policy; and (5) lower potential output in key emerging market economies.” Note that even though it is suggested that stagnation in Europe is a problem, it is argued that (Ibid. p. 19): “fiscal plans for 2013 are broadly appropriate in the euro area.”

The concern with fiscal policy in the United States and Japan is that these countries (Ibid, p. 19): “need strong medium-term plans to arrest and reverse the increase in their public debt ratios,” and the Fund suggests the reform of entitlement programs as the way forward for fiscal adjustment, which would burden the old, the young and the poor more than any other social groups. The last three risks are all associated with the notion that there is a danger of rapid adjustment to full capacity and inflationary pressures resurging earlier than expected.

Moreover, there is a clear gap between the somewhat mixed message of the WEO reports in terms of what policy space allows in terms of fiscal policy and what the actual practice of the IMF has imposed on countries under agreements. Article IV consultations and Letters of Intent for the recent advanced countries that have Extended Fund Facility Arrangements with the IMF (e.g. Greece) demonstrate specific long-term structural changes that are terms of the loan. The Staff Report for the 2013 Article VI consultation for Greece suggests that (IMF, 2013b, p. 1): “Progress on fiscal adjustment has been exceptional by any standard, with the cyclically-adjusted primary balance having improved cumulatively by about 15 percent of GDP during 2010–12. Labor market reforms are helping to realign nominal wages and productivity; this internal devaluation has reduced the competitiveness gap by about half since 2010.” Fiscal adjustment and price and wage reductions are the basis of the solution, very much as in the past. If there is any change in the IMF policy advice it is difficult to find in its policies.

Resource Curse - Natural Gas is What Detonated the Ukraine Crisis

Very few, if none at all, in the West are willing to address what really triggered the latest geopolitical ‘crisis’ in the Ukraine.

From Global Research Canada

Defending Moscow’s December 18, 2013 agreement to provide Ukraine with an aid package estimated at about $15 billion, and cheaper natural gas through discounts and “gas debt forgiveness” estimated as able to save Ukraine $7 bn in one year, Vladimir Putin said the decision to invest $15 bn in ‘brotherly slavic’ Ukraine, and grant the gas discount was “pragmatic and based on economic facts”. At the time, the “investment” in Ukraine was already conditional – not only on the political issue of Ukrainian loyalty to Moscow – but on Ukraine complying with previous longstanding, often revoked, modified or extended commitments to repay gas debts dating from as far back as the early 1990s.  In December, Russia’s Finance minister Anton Siluanov said payment of the “aid or investment” funds to Ukraine, in tranches of about $2 bn each, would need Ukraine making a serious response to end-2013 estimates, by Russia, of the minimum “monetized gas debt” Ukraine has to pay. Siluanov’s ministry said this was about $2.7 bn, itself a large downward revision on other published figures from Russian sources, extending well above $5 bn. His ministry also published statements suggesting that Ukraine’s non-payment of gas taken and consumed by the country, since 2010, ran at a yearly average as high as $2 – $2.25 bn. To be sure, events starting in February as the “Maidan movement” drew massive public support in the capital and western Ukraine to overthrowing the government-in-place. This was a repeat of Egypt’s anti-Morsi flash mob street revolution, followed by the Saudi-financed military coup against elected president Morsi. In Ukraine, however, the street magic stopped in the east, and especially in Crimea where 75%-85% of votes cast in the 2010 election were for Viktor Yanukovych. To be sure, this blood-colored version of the Orange Revolution aimed at aligning Ukraine with the European Union may have scarpered further bail out payments by Moscow. Any upping of the ante, as enacted and supplied by NATO and John Kerry, could lead to Russia also making a total shutdown of gas supply to Ukraine – Kiev’s Independence Square flash mob could hope that Global Warming will shorten the winter, ease heating needs, and give Ukraine a head start for becoming a debt wracked European Union associated country – but this is far from a sure thing. The national gas debt will surely feature in the round of proposals for “Ukraine bailout” being developed by the IMF, European Commission, EU member states on a bilateral basis, the US and potentially other actors, including the ECB and the UN ECE (the UN’s European economic agency), as well as private banks and energy companies. One thing is sure and certain, much higher gas prices for Ukraine are inevitable, under any scenario.

Read rest here.