Much of the world is looking on in horror as Russia invades Ukraine to try to turn it into a puppet state.  We don’t yet know if Russia will get away with this aggression or how long, and to what extent, the brave Ukrainians are able to resist.  Some claim that even a Ukrainian victory is likely to be temporary because there is no such thing as international order.

Here is a more optimistic view by Joshua Muravchik in the Wall Street Journal:

• The idea of a peaceful world resting on just rules as a practical program for statecraft began in 1914 with Woodrow Wilson’s Fourteen Points.  Wilson’s approach was unprecedented.  Never in history has so much potential power whetted so little imperial appetite.  But Wilson’s League of Nations failed disastrously and the second world war followed.
• The United Nations, unlike its predecessor organization, has endured. But America’s newfound internationalism and dominant power are what have really created the first traces of global order.  America’s exertions were rewarded with victory in the Cold War, against Saddam Hussein in Kuwait, and against Slobodan Milosevic in Croatia and Bosnia.
• Presidents Obama, Trump, and Biden have all appeared weak on the world stage. On February 4, 2022, Russia and China issued a manifesto hailing the “redistribution of power in the world” and the “transformation of the global governance architecture and world order.”
• Then Russia invaded Ukraine, hoping to absorb it into a reconstituted world empire. Its success would clearly tempt China to make good on its longstanding threat to invade Taiwan.
• But two things may be thwarting their plan. First, much of the world responded as if the rules-based order is real.  Germany is raising defense spending and beginning to wean itself from Russian energy.  Other NATO members have rushed arms to Ukraine.  Japan and Switzerland joined economic sanctions.  Second, the Ukrainians have defended their country gallantly and with an effectiveness confounding the experts.
• The century-old American-created vision of world order now hangs in the balance. The outcome of the Ukrainian conflict will help determine the fate of world order.  If Russia is clearly defeated the vision of world order will become more real than ever.

Conclusion.  Right now the outcome of the Russian-Ukrainian struggle is unknown.  Is world order merely a pipe dream that too few others took seriously or is it real and still offering much hope for the future?  Only time will tell!

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The free world is looking on aghast as Russia invades Ukraine to try to turn it into a puppet state.  But Ukraine wants to be free and independent and is fighting back hard.  Russia is a corrupt state dominated by Vladimir Putin and his oligarchic friends.  For the sake of world peace, Russia now needs to be reined in to deter more aggression.

According to Walter Russell Mead, writing in the Wall Street Journal:

• The failure of Russia’s initial military campaign has put Putin “on the political and military defensive. The U.S. must do everything possible to exploit this unexpected opportunity for a decisive victory against a dangerous opponent.”
• As Zbigniew Brzezinski put it back as 1992, “it cannot be stressed enough that without Ukraine, Russia ceases to be an empire but with Ukraine suborned and then subordinated, Russia automatically becomes an empire.”
• “Xi Jinping has also miscalculated by putting his full prestige behind the Russian alliance just as Mr. Putin stepped into the abyss. Thanks to that misstep, any setbacks Mr. Putin encounters in Ukraine are setbacks for Mr. Xi as well.
• “Nothing matters more right now to the peace of the world and the security of the U.S. than crippling Mr. Putin’s drive to rebuild an aggressive and despotic empire by waging a criminal war.”
• To accomplish this three more things must be done. First, we must go all out to support Ukraine’s ability to fight.
• “Second, the sanctions on Russia, especially the energy sanctions, need to become more effective.
• “Finally, the administration must, for now, make opposition to Mr. Putin the core of its global foreign policy. . . . Team Biden must look creatively and act boldly to hit Russian interests all over the world.

Conclusion.  “As (Ukrainian President Volodymyr) Zalensky put it to the President, in a respectful but personal challenge: “You are the leader of the nation, of your great nation.  I wish you to be the leader of the world.”  Mr. Biden wanted to be FDR but the world needs him to be Harry Truman at the dawn of the Cold War.”

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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 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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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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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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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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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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