Tag Archives: political economy

No War is Painless for Either Side

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But the war Russia is waging against Ukraine, and against Western values generally (against little things like the right of the citizens of a sovereign nation to govern themselves, the right of the people of a sovereign nation to run their economy their own way, the right of the citizens of a sovereign nation to hold their own, fair votes) can only hurt Russia in any serious way, if only Western leaders can find the courage to stand with Ukraine in a more meaningful and direct fashion than merely sitting courtside cheering the Ukrainians and clucking their tongues at the Russians.

There’s little to do, militarily, in the near term, but there are a number of devastating economic things that can be done, and these things will have their effect immediately and in the near and middle term (there’s unlikely to be a need for far term effects, but those would remain from the steps that can be taken now).  Such steps include

Treasury and State departments can much more aggressively target Russian banks and trading firms for their alleged involvement in such areas as arming Syrian President Bashar al-Assad or developing Iran’s nuclear program.  [To which I add Treasury and State can much more aggressively target the Russian banking system for its involvement in a nation committing this naked aggression against a sovereign country.  No special reasons are needed.  Full stop.]

Additional steps also can be taken, as I and others have outlined already.

Western leaders are fearful, though, and looking for bloodless solutions to an affair that’s bloody by its nature:

The US and other leading Western powers are focusing on individual, targeted sanctions because broader economic sanctions could directly harm Western businesses and lead Moscow to make good on its threats to retaliate against businesses from the countries pushing sanctions, according to current and former officials.

What these Nervous Nellies are ignoring, though, is that while Russian retaliatory sanctions will, indeed, hurt those Western businesses, Russian sanctions “would inevitably hit [Russia] like a boomerang.”  Russia, quite literally, has no economy beyond its oil and gas exports without those Western businesses and Western investments in Russia.  On top of that, as Western (read: US and Canada) oil and gas production and export increase, with special attention initially to exporting to Europe and Ukraine, and as prices drop from those increases, Russia would lose that remaining vestige of its economy.

And be unable to sustain its forces in Ukraine.  At that point, a suitable treaty would have Russia formally renouncing all claim on any territory outside the borders of the Russian Federation, canceling its lease on the naval base in Sevastopol and withdrawing all of its military units from Crimea, and removing all of its military and quasi-military units away from the Federation’s European borders by a distance of at least 200 miles.

More Governance by Diktat

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Rule by law, not rule of law.  Here‘s the latest Obama installment.

The president plans to make the announcement [ordering Labor to expand overtime pay requirements to include millions more workers] on Thursday at the White House, a senior administration official confirmed to Fox News. Though the administration has claimed previous executive actions had bipartisan support, officials are acknowledging that this particular move [does not.]

These aren’t blue-collar jobs covered by “collective bargaining” agreements—union contracts—either.  Now, managers and executive officers of companies will be…covered: fast-food restaurant managers, loan officers, computer technicians, and more.

There’s not even a pretense of union-management mutually agreed compensation structure in this latest government move—the Federal government is dictating to businesses how they must conduct their businesses, the Federal government is dictating to businesses how they must structure their internal costs.

No market forces allowed.  And if the law doesn’t let the Federal government do what it wants to do to us, the Feds (not us) will change the law, and the Feds will change it with, or without, our permission.

What’s next?  It’s a truism, that if something becomes—or is made—more expensive to have, buyers will buy less of it.  If labor—blue- or white-collar—is made more expensive, businesses will retain/hire less of it.  Look for slowed hiring and outright management staff reductions, either in people retained or in salaries paid to make room for the mandated overtime increases.

Then, look for this administration to change/write its own law to mandate that salaries and wages can never be reduced, and that once hired, an employee can never be terminated.  Businesses, after all, are jobs welfare programs in the Progressive mind.

Jobs

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Here’s where we are, five years into the Obama “recovery” from the Panic of 2008:

  • 4.1 million fewer full-time workers today than in November 2007
  • 81% of workers are full-time now vs. 83% prerecession—and that per centage is of a smaller labor force than extant in 2007
  • per CBO, employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its prerecession level…”if the participation rate had risen to the level it would have attained without the current cyclical weakness”

Real wages have gone nowhere in this recovery:

And this graph of the performance of the Obama “recovery:”

This recovery is some 10 per centage points below the recoveries of the three prior…recessions.

If this sounds like a broken record, it’s because this “recovery” is a broken record.

Federal Transfer Payments to States

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Federal transfer payments to state and local governments totaled some $444 billion in 2013; these included payments of $282 billion for Medicaid, $3.4 billion for LIHEAP, $80 billion for SNAP, and some $78 billion for other transfers to the states.

The payments often are synergistic, not at all fixed, too.  For instance, LIHEAP payments are used by the states to magnify SNAP payments, since SNAP contains an energy allowance, a “standard utility allowance.”

Governor Dannel Malloy [D] last week announced that Connecticut would “expend $1.4 million in available federal energy assistance funding” to raise minimum LIHEAP payments for 50,000 beneficiaries, or about a quarter of its food-stamp rolls.  The increase…will “preserve approximately $66.6 million” a year in food-stamp benefits.  So Connecticut will leverage $1 in additional federal LIHEAP funds to reap $48 more from Washington for food stamps.

Mr Malloy’s neighbor Andrew Cuomo jumped for the free lunch the next day by declaring that New York would “dedicate approximately $6 million in additional federal” heating assistance to maintain $457 million in food-stamp payments.

Of course, this is done with taxpayer money, so the money transferred to, say Connecticut, comes in part from nearly bankrupt California, in part from bankrupt Illinois, in part from nearly bankrupt New York, etc.

It would help if the synergies were done away with.  It would help even more, and more permanently if the transfers were done away with, and the States required to see to their own responsibilities without freeloading off other States’ citizens.

Sanctions and Competition

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Hungary, Poland, Slovakia, and Czech Republic have directly appealed to our Congressional leadership to expedite turning on the export spigot for our natural gas.  These four nations see the directness and immediacy of the advantage of buying natural gas from us rather than from the Russians.

There’s another effect, though, from our increasing our gas, and oil, exports as quickly and as far as we can.  That’s the effect on oil and gas pricing in the global markets.  Such a large and easy increase in supply will depress those prices, which will have a competition-based double whammy on Russia: it will deprive Russia of billions of dollars in income from its own oil and gas exports by lowering the price, sharply, that Russia can demand, through depriving Russia of its energy monopoly.  Keep in mind, also, that the Russian economy almost exclusively is built on oil and gas exports—it has nothing else other than cheap, second tier military equipment, and while that remains a strong Russian industry, it’s not strong enough to carry the Russian economy, much less provide the funding necessary for Russian…adventurism.

The other whammy also is in those sharply lower oil and gas prices.  That decrease will make it easier for erstwhile Russian “clients,” including Hungary, Poland, Slovakia, Czech Republic, Ukraine, the EU (Germany, France, and Great Britain especially) to get their energy from somewhere more reliable than Russia, and at a cheaper price.

That cheaper price for these others produces a separate whammy for them: cheaper energy can be only to the good for their economies as they struggle to break out of the doldrums remaining from the global Panic of 2008.

But that’s what competition does—it lowers prices and sets economies free to generate prosperity.  An attempt to boycott Russian oil and gas is unnecessary.