The Importance of Helping Ukraine Defend Itself III. Vladimir Putin Must be Stopped

My last two posts, here and here, have discussed the Russian invasion of Ukraine and the large threat it creates for world peace.  Ukraine wants to be free and independent and Russia wants to keep it as a buffer against encroachment from the West.  Who will prevail?

According to Richard Fontaine, writing in the Wall Street Journal, “Before the invasion, Western countries widely viewed Russia as a resentful, revisionist power, led by a president who was unhappy with his country’s global position but pragmatic and opportunistic.  Moscow’s unprovoked war of aggression changed this perception overnight.  American and European leaders now see Russia as a clear and present danger, not just to Ukraine but potentially to other neighbors and even to NATO territory.”

“Neutrality is waning.  Non-NATO member Finland and Neutral Sweden have now both firmly aligned with the West against Russia.” Putin’s war “could ultimately leave NATO larger, more unified, better armed, and with military deployment placed closer to Russia. . . . Geopolitical reverberations extend to other regions as well.  Japan has joined the sweeping sanctions on Russia.”  It wants to make sure that China’s desire to control Taiwan is not increased by what is happening in Ukraine.

“World order – those institutions and rules that govern, if not always effectively, the conduct of nations – is very often taken for granted.”  It is easy to dismiss this as “the obsolete manifestations of a Cold War mindset, or the hubris of U.S. leadership. . . . Easy, that is until the foundations of international order shake violently as they have with the invasion of Ukraine.  The alternative to an ordered world  . . . is the law of the jungle where big countries can take territory, impose their rule, and spread chaos at will.  That is Mr. Putin’s world.”

“There is nothing inevitable about the world envisioned by Mr. Putin and Mr. Xi – where the strong do what they want and the weak suffer what they must. . . . Today’s two revisionist powers are formidable but they pale in comparison to the West’s combined might.”

“The world that Mr. Putin launched this war to create is very different from the world that is emerging.  By invading Ukraine, he has weakened Russia, rather than strengthened it.  He has achieved not the absorption of Ukraine into Russia but the enduring enmity of its peoples.  He has initiated not a successful challenge to the West but rather a war that has spurred its members to take action.”

Conclusion.  Mr. Putin’s string of tactical successes (Georgia, Syria, Crimea) has almost surely come to an end.  The West is responding to the invasion of Ukraine, with both military aid for the Ukrainians and severe sanctions on Russia.  Putin will have to either back down or suffer a major defeat.  The free world is responding deliberately and appropriately to this major threat to world order.

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The Importance of Helping Ukraine Defend Itself II. Deterring Further Russian Aggression

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My last post explained why we should help Ukraine defend itself.  It shares the liberal ideals of the U.S. and other democracies.  It wants to be free and independent.  It is clearly willing to defend itself against foreign invasion.

 But there is also another big reason For Western support for Ukraine.  Russia, under Vladimir Putin, is a major threat to world order.  He wants to roll back the major gains which European countries have made since WWII, by joining together in the European Union, and supporting the spread of freedom and democracy into Eastern Europe.  The invasion of Ukraine has caused Europe to wake up and directly confront the Russian threat.

The whole world is now condemning Russia for this ruthless military action, including millions of Russian people themselves.  “Russia has suffered a crushing moral defeat.”

It is likely that Putin has ensured his own downfall.  “His hubris is predicated on a profound misunderstanding of the power of liberal democracies. He sees the West’s contention over key policy issues as weakness and harbors contempt for the democratic process.  He fails to understand that these inefficiencies are the result of a real strength – a political system responsive to the will of the people.”

So what the U.S. and the West need to do, besides providing weapons and other supplies to the Ukrainian military forces, is to keep up the pressure on the Russian economy:

  • The U.S. should stop buying Russian oil and gas, relying instead on other foreign sources as well as its own substantial domestic production. Also encourage Germany to stand by its exit from the Nord Stream 2 pipeline coming directly from Russia and develop alternate supplies from other sources.
  • Continue imposing strict financial sanctions on Russian banks. Of course, this will directly hurt the Russian people as well as the Russian government.  But this is what it will take to put strong pressure on Mr. Putin to reverse course.

  • Encourage major multinational companies to exit or at least suspend operations in Russia.

Conclusion.  By trying to restore the strength and dominance of the former Soviet Union, Vladimir Putin is a threat to the peaceful world order which has developed and spread since the end of the Cold War in the 1990s.  He needs to be firmly resisted by the free world and the military invasion of Ukraine is an excellent opportunity to defeat his grandiose ambitions.

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The Importance of Helping Ukraine Defend Itself

The United States is a very strong country, both economically and militarily, and we should be optimistic about the continuation of our leadership role in world affairs.  But we have two strong authoritarian rivals, China and Russia.  China is by far the bigger long-run threat, but we also have to take Russia seriously.

Russian President Vladimir Putin wants to restore the status of the former USSR which was dissolved in 1991.  He is doing this by trying to keep neighboring countries such as Belarus, Ukraine, Georgia and Kyrgyzstan within the Russian orbit.  But Ukraine wants to be free and independent.  Already in 2013 Ukrainians were rallying to express support for joining the European Union.  It is thus no surprise that Ukrainians are now prepared to fight for their freedom from Russia.

The struggle between the United States and Russia is not one of moral equivalence between strong countries.  The U.S. represents and leads the side of freedom and democracy.  Russia is a freedom denying autocracy.  We and our western allies need to do whatever we reasonably can to deter the Russian invasion of Ukraine.

For example:

  • The West needs to arm the likely fierce Ukrainian resistance if a Russian invasion topples the Kyiv government.

  • Eastern European partners such as Poland, Romania, and the Baltic states need significant upgrades in military hardware and western military forces.
  • NATO membership for Finland and Sweden should become high priority items.
  • Construction of the Nord Stream 2 gas pipeline directly from Russia to Germany should be permanently stopped and alternative supplies for Europe urgently developed.
  • Strict financial sanctions should be imposed including removing Russian banks from the Swift system and seizing all Russian oligarch assets worldwide.

Conclusion.  “The long-term effect of this conflict will hinge on the democratic world’s response. If the U.S. and its allies exact a devastating economic toll on Russia, help Ukraine impose high costs on the invaders, strengthen their military capabilities in Eastern Europe and beyond, and improve the overall cohesion of the democratic community, then this crisis could actually fortify the existing order by showing that efforts to break it will not pay.”

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Can Inflation be Tamed without a Major Recession?

As of January 2022 inflation is increasing at an annual rate of 7.5%.  The immediate cause is blowout Congressional spending on the pandemic for two years in a row.    Two $3 trillion annual deficits back-to-back was excessive stimulation, even in a pandemic.

The Federal Reserve is now poised to respond by raising interest rates.  There are estimates that short term interest rates will need to rise to between  3% and 4%, from .25% today, to get inflation back to the previous 2% target range.

This will force interest rates up all across the economy, from business borrowing to home mortgage rates.  It will create a huge recessionary force which will slow down economic growth.  But, in addition, the Federal Reserve has now built up, through quantitative easing, bond holdings of close to $9 trillion.  As these bonds mature, and are turned over, their interest rates will increase.  This will dramatically raise interest expenses for the bond owners, making recessionary forces even larger.

Last, but not least, our rapidly growing national debt is financed largely by low-interest treasury bonds, as well as equivalent bonds from other countries like China and Japan.  Of course, interest rates will also begin to rise on these debt bonds, which means that interest payments on our debt will begin to rise by hundreds of billions of dollars per year.

Here is my prognosis for inflation, interest rates and debt in the coming months.  The Fed will presumably begin raising interest rates in March and continue doing so until inflation is “tamed.”  If it takes more than just a few months to do this (likely), then a recession will almost surely be kicked off.  The longer the recession lasts, and interest rates continue to rise, the more likely it becomes that a new financial crisis will develop.

Conclusion.  Our close to $30 trillion, and rapidly increasing, national debt is not sustainable indefinitely.  National leaders, including Congress and the President, must get serious about controlling it.  It will require some economic pain for this to happen.  Perhaps the current buildup in inflation will lead to a resolution of this sequence of events: inflation, interest rates, and reduction of the ratio of debt to GDP in the near future.  If so, we will be much better off in the long run.  Hold on to your hats and your wallets!

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Predicting America’s Political Future

It is easy to predict, with some confidence, a red wave coming in November.   It’s a historical trend, of course.   In addition, the Biden Presidency is struggling and, moreover, inflation will likely still be high in the fall, even if it starts to moderate before then.

But after 2022, things become much murkier.  Who will the Democratic presidential candidate be in 2024?  Will Trump run again?  Lots of things can happen between now and then.

Even though I am an optimist in general about the future of our country, I don’t have any particular insight about how things are going to play out over the coming years.  To have such an insight, in a credible manner, it is necessary to have a framework to base it on.  Here are two individuals who have constructed such frameworks.

  • One of them is Ray Dalio, the successful manager of the hedge fund, Bridgewater Associates.  He predicts that we are likely headed into a new civil war, based on his extensive study of world history.  I am skeptical of this prediction even though it is based on a comprehensive theory that he has constructed. (https://www.wsj.com/articles/principles-for-dealing-with-the-changing-world-order-book-review-ray-dalio-trouble-ahead-as-usual-11637335545)

  • A more compelling framework has been constructed by George Friedman.  He has developed a cyclic theory of American history.  He describes both 80-year institutional cycles and 50-year socio-economic cycles, both of which are coming to a head, i.e. renewing, in the mid to late 2020s. The clashing of these two different cycles, which have renewed separately in the past, is what could cause a storm to occur before the resulting calm.   Of course, things may not happen the way a theory predicts, but still, it’s such an interesting theory that it may have some predictive value.  Mr. Friedman also has a website with frequent postings about ongoing events.

  • My own view. I put value on underlying historical theories in order to construct a framework for predicting the future.  This is why I pay attention to theories like the two I have just outlined above.  But my own prediction is much narrower than theirs.  I think the resolution to our currently divisive and polarized politics will turn out to be more pluralism and decentralization in our political institutions.  In other words, let the blue states and the red states do things their own way (state’s rights) rather than trying to enforce too much national uniformity.  This is already starting to happen.  The red states want to tighten up voting procedures and restrict abortion rights.  Blue states and cities have bigger crime problems and want more restrictions on gun rights.  We should give them more leeway to do as they see fit as long as they are not violating basic constitutional rights.

Conclusion.  The United States has a long and prosperous future to look forward to, but how are broad trends going to play out?  Of course, nobody knows but it still makes sense to try to imagine reasonable courses of action and, then, to do what one can to push things in that direction.

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Why America Is Such a Great Country to Live In

We hear so much negativity about America from the mainstream media these days, it is always heartening to hear from more balanced sources.  Do you know, for example, that “only” 1/4 of Americans are either (in total) committed progressives or committed conservatives, while 2/3 of us are “realists” who are spread out on the left, right, and center.  These are the people you can have a sensible conversation with about politics and public policy.

I have recently started meeting weekly, here in Omaha, with a like-minded group of people to study online public policy courses made available by Hillsdale College, a small liberal arts institution in Michigan.  I highly recommend checking out this curriculum and, in particular, subscribing to their free newsletter, Imprimis.

Being connected in this way to Hillsdale College gives me much hope for America’s future.  Here are just a few of the ways:

  • We are incredibly fortunate to live in a free country with a strong democratic tradition founded by the ratification of our Constitution in 1788, 234 years ago.
  • We are the third-largest country in the world, behind only China and India, with huge natural resources, highly developed by our skilled and hardworking countrymen.
  • Our economy is second to none.
  • Minorities are making great progress in both economic and social standing.
  • The autocratic states, China and Russia, are strong enough to challenge us militarily, but we have lots of democratic allies to help us defend freedom in this struggle.
  • Problems such as global warming, as well as inflation and debt are very serious,  but solvable although it may take a major crisis to occur first so that enough people are paying attention.

Conclusion.  Americans are incredibly fortunate to live in such a strong, prosperous and free country.  I believe that most of us understand our privileged position in the world and support policies to both protect our way of life and share our good fortune with other countries who are willing to work with us for the common good.

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The Outlook for President Joe Biden

I am a non-ideological (registered independent) fiscal conservative and social moderate.   I believe that our biggest domestic problem (by far) is out-of-control national debt.   Our biggest international problem is the rise of China, now our greatest autocratic rival.

Here is how I evaluate the Biden Presidency after a year in office:

  • His plunging poll ratings reflect his inability to deal effectively with either the coronavirus pandemic or rapidly rising inflation.  There’s not much he can do about Covid-19.   The red states are handling it better than the blue states that have relied too heavily on lockdowns and mask mandates.   However, it is Congressional blow-out spending, strongly encouraged by Biden, which has tripped off inflation.
  • The Federal Reserve is prepared to address inflation by both raising interest rates and reducing its eight trillion dollars in bond holdings (see chart). This will necessarily slow down economic growth and perhaps even cause a recession.   So Biden is faced with a combination of rising inflation and likely economic slowdown.   His favorability ratings could get even worse in the coming months if stagflation (inflation plus recession) takes hold of the economy.

  • For this reason, it is likely that a red wave will sweep the country in November 2022.   The Republicans will almost surely take the House of Representatives.   If they also take the Senate, then Congress will be able to exercise badly needed fiscal responsibility and significantly shrink federal deficit spending for the following two years.
  • GOP Congressional control starting in 2023 still leaves President Biden in charge of the Executive Branch of government until after the presidential election in 2024.  It is very important that he do a good job with foreign policy until then.  His main goals should be clear: dissuade China from trying to capture Taiwan, protect Ukraine from Russian domination, and prevent Iran from acquiring nuclear weapons.   The success of democracy worldwide requires American leadership against our autocratic rivals.   This requires a strongly bipartisan foreign policy, implemented intelligently by a capable chief executive.   We should all hope for President Biden to succeed in this way.

Conclusion.   President Biden is floundering in domestic policy because of too many errors and is unlikely to recover sufficiently in the next few months to avoid a political red wave next November.   But he is still President until 2025 and therefore in charge of foreign policy.   So far his policies towards our biggest competitors: China, Russia, and Iran, are on the right track.  Hopefully,  bipartisan support will continue to prevail on these issues.

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Calm Down, America!

When I was growing up in the 1950s and my brother, sister, and I were getting too wound up, my father would say “Calm down!” in a loud voice.  He was the authority figure and so it worked.

I am not an authority figure but I would like to say the same thing to America:  Calm down!  Things aren’t really that bad and, by becoming too excited, we risk making things worse.

Consider:

  • The pandemic. The Omicron variant of the coronavirus, infectious but with mild symptoms, should be viewed as the transition from the pandemic state to an endemic state.  The pandemic is turning into a routine flu illness for which we may have to get vaccinated every year, as many of us do already.  You don’t need to get tested unless or until you have flu-like symptoms.
  • January 6. The Capitol riot was disgraceful but hardly an insurrection.  Two simple steps can assure that it will never happen again.  Strengthen the Capitol Police Force, which is already being done, and either repeal or modify the ceremonial Electoral Count Act which Vice President Pence was implementing on January 6, 2021.  Hopefully, in the near future, the progressive left will lower the volume of its rhetoric in complaining about this one-off event.
  • Civil War. Too much dwelling on insurrection and violence has now led to predictions that the U.S. may be headed into a new Civil War.  This is frankly, ridiculous, with the very strong civil institutions we have in this country.  Fortunately, there are many other voices who are poo-pooing such talk.

  • Is President Biden a uniter or a divider? Elected President in 2020 along with the thinnest of Congressional support, Joe Biden started out saying that he wanted to unite the whole country.  But in his recent Georgia speech about voting rights, he declared that “the (Senate) filibuster has been weaponized and abused” by the Republicans.  Senators will now “declare where they stand, not just for the moment, but for the ages.”  All this for new Georgia voting procedures which are less restrictive than those in Delaware and New York State!

Conclusion.  Democracy is thriving in the United States.  Yes, we are highly polarized but our 234-year-old Constitution (ratified in 1788) is performing brilliantly.  We are the strongest and most prosperous country in the world with huge political and economic influence.  We will likely continue to play our strong worldwide leadership role for many years to come.

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The Real Cause of Higher Inflation: Blowout spending by Congress

Inflation is now increasing at an annual rate of 6.8% as of November 2021.  The Federal Reserve is getting serious about not only ending new bond purchases (quantitative easing) but also about beginning to raise interest rates as soon as March 2022.  Raising interest rates is, of course, the main tool the Fed has for combatting inflation.

President Biden blames inflation on price gouging by businesses such as meat- packers.  But businesses have to respond to market forces.

The real cause of inflation is that consumer demand is growing faster than usual while supplies are less than normal.  Why is this happening?  It is largely because of actions taken by Congress during the past two years of the pandemic.  In fiscal years 2020 and 2021, deficit spending totaled about $3 trillion each year (see chart).  Much of this spending went to individuals in the form of direct payments into their bank accounts.  Unemployed workers also received an extra federal unemployment stipend of $300 per week which served as an additional disincentive to return to work.  Furthermore, a more generous child allowance also created a disincentive to work.

These cash payments to tens of millions of individuals plus the additional disincentives to return to work helped create the imbalance between (increased) demand and (reduced) supply, exacerbated by too few workers.

There is still a 3.6 million worker gap between February 2020, right before the pandemic started, and the present, December 2021 (see chart). This worker shortage will be harder to make up because the unemployment rate (as of December 2021) has shrunk to 3.9%.  In other words, there aren’t a whole lot of workers now looking for jobs.

The demise (if it holds) of the Administration’s Build Back Better social spending plan will help to get sidelined workers back into the labor market.  The current level of almost 11 million job openings is also a big contributor to the supply chain breakdown.

Conclusion.  Inflation is harmful to the economy for many reasons.  It is a tax on the poor as well as making our national debt problem much more serious.  It has now been kicked off by blowout Congressional spending.  The Federal Reserve will have to intervene forcefully to stop inflation, risking a severe recession in the process.

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Outlook 2022: Light at the End of the Tunnel

Although I am mostly an optimist about the future of the United States, I do recognize that there are immediate serious problems that need to be addressed.  For example:

  • The Omicron variant of the coronavirus. Right now the Omicron variant is surging in the U.S. and around the world.  It is highly infectious but also has quite mild symptoms especially for those who are vaccinated, as are 80% of U.S. adults.  Moral: get vaccinated, go about your business, exercise reasonable precautions, and stop worrying about catching Covid-19.
  • Global warming is a serious problem, but we need to respond to it in a realistic manner. Although carbon emissions are decreasing in the U.S. and Western Europe, they are increasing worldwide.  Developing countries are the biggest culprits (especially China) because of their massive use of coal in order to industrialize.  In short, the world needs to de-carbonize, not de-fossilize.  This means emphasizing nuclear energy as well as carbon capture and storage.  We won’t start making (worldwide) progress on global warming until we adopt such a realistic strategy to do so.
  • Inflation and debt. Right now the annual inflation rate in the U.S. is 6.8% (in November 2021).  If it continues much longer at this rate or higher, the Federal Reserve will be forced to raise interest rates.  The higher they go, the more likely it is that our rapidly increasing national debt (now about $28 trillion) will trip off a new fiscal crisis.  Until annual deficit spending (which is what creates debt in the first place) is greatly reduced, such a new fiscal crisis will loom on the near-term horizon.  This problem, of course, can be solved if only there is a national will to do so.
  • Political polarization. Besides inflation, this is our country’s biggest political problem at the present time. The red states and blue states take very different approaches on many major issues such as abortion and gun control.  The solution is to stop expecting national consensus on our most divisive issues such as these and to let the states go their own way, as long as they act in ways that are consistent with the U.S. Constitution.

Conclusion.  The reason I am optimistic about our country’s future is that our most serious problems, as described above, are not only solvable in theory, but are likely to be resolved by our very strong and firmly established democratic traditions and procedures.
Americans are incredibly lucky to live in such a strong and prosperous country with such widely accepted democratic norms.  We are more than capable of resolving our current serious problems.  I believe that America has a long and glorious future to look forward to.
Much more later on the particulars of how all of this is likely to unfold!

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