Some Quick Thoughts About Russia’s Resilience and America’s Malaise

The West now appears to be entering a period of stagflation and potentially even worse outcomes than the 1970s, since the oil shock era didn’t produce hunger and energy scarcity to the degree that is in store for Europe and even the US. Unfortunately, as happened then, these failures are being blamed on recent government spending policies. The fact that (only very nominally) liberals were in charge in the US, also like the 1970s, is giving underserved credence to right wing economic ideas. Russia unfortunately is also taking up a right-wing line, with Putin blaming the West’s mess on “money printing”.

My belief, but it will take more evidence to shore it up, is that the failings of the West were decades in the making, and recent monetary and fiscal policies are not the main drivers. Ironically, Putin’s focus on macro and monetary policies may also be doing Russia a disservice.

I’ll throw out some observations.

First, as Servaas Storm demonstrated in a data-driven but still very accessible recent paper, our current inflation is not driven by excessive demand. There are at least two major contributor that get either no or insufficient mention in orthodox conversations.

One is Covid. It is unquestionable that Covid-induced supply chain breakages are causing shortages that then lead to high prices and even scarcity at wholesale and retail. But the right wing is aggressively promoting the canard that public health policies that put well-being over profits are misguided and thus produce unwarranted restriction on “freedom”. Mind you, we never had policies like that. We has only Covid theater and vaccines. Only zero-Covid China is still holding that line, which is why the West has to bash them. The nominal liberals are also unwilling to admit our Covid policies have failed. Surely it is the fault of the unvaccinated deplorables, not CDC and FDA horrowshows of negligence and lying.

But the US also has undue faith that markets are self-correcting when we’ve made them fragile via long supply chains and just-in-time practices. Recall that the early depiction that the 2021 inflation was temporary was not crazy at the time. The inflation then was the result of very high inflation only in a few, but important sectors hit by Covid: autos due to chip shortages, which then led to a wild increase in used car prices; energy, due to wells being taken out of production when demand crashed during “work from home” and then came back suddenly with vaccinations being touted that everyone could go back to normal, and supply not coming back on line quickly; and food processing/distribution problems due to Covid labor shortages (aka some workers not wanting to take the disease risk in close quarters, plus off and on shortages due to outbreaks at workplaces).

But another factor, which Storm described in his paper, is the extreme measures companies are taking to preserve profits that in recent years have been at astonishingly high proportions of GDP. As Julius Krein explained:

The most intriguing and potentially alarming trends are visible in the oil market. In December 2019, before Covid, global oil consumption was about 100 million barrels per day, and the price of West Texas Intermediate (WTI) crude hovered around $50-$60 per barrel. At that time, the US operating rig count was around 800 (around 2,000 globally), according to Baker Hughes. After the pandemic hit, in 2020, global oil demand fell to about 90 million barrels per day, prices collapsed and briefly went negative, and the US rig count hit a low of around 250. Oil demand recovered about half the lost ground in 2021 and is expected to return to 2019 levels of 100 million barrels per day this year. In December of 2021, WTI spot prices were around $75, rose significantly after the Russian invasion of Ukraine, and currently sit around $110. Yet the US rig count is still around 700 (of 1,600 globally). The last time oil prices were above $100, before the crash of 2014, the rig count was over 1,800 (3,600 globally).

This trajectory is difficult to square with inflation accounts based on excessive demand. Oil demand has still not exceeded pre-pandemic levels; it is supply that has lagged. Meanwhile, far from being “too greedy”, companies seem to not be greedy enough — at least in the conventional sense of maximising profits. Instead of reinvesting their earnings in drilling new wells, even at profitable oil prices, companies have returned cash to shareholders.

Some have argued that oil companies are not drilling because of the Biden administration’s environmental regulations. As a critic of those policies, I am sympathetic, but they cannot account for the larger phenomenon, including international drilling. Others have suggested that ESG investing requirements have prevented the oil and gas industry from accessing capital. While there is no question that ESG as presently constructed is a disaster, this does not explain why companies are not reinvesting their own earnings. There are some time-lag issues — wells cannot be drilled overnight — but prices have now been elevated for months. Oil futures are also over $80 through most of 2024, meaning companies can hedge future production.

The best explanation is, therefore, the simplest one: shareholders prefer that companies return cash rather than invest, a preference widely discussed among industry participants and observers….

Short-termism is hardly new. Yours truly wrote in 2005 how it had hit the point that US companies for the past two years had been net saving, as in liquidating. They were not willing to invest in the business of their business. It was easier to play the game of starving, as in relentlessly cost cutting and offshoring.

But another way the US has eaten its own seed corn, or maybe its tail, is the breakdown of effective fundamental investment. Mariana Mazzucato in The Entrepreneurial State described how the Federal government, major academic centers, and business had long had collaborative relationships. A big reason was that only the government could take the risk of basic research; the payoffs were too uncertain for private industry. Mazzucato make clear that that has withered, and also described how Silicon Valley was so greedy that it was unable to fund production in the US for technologies that the DoD had pushed hard, for employment and potential spinoff reasons, to be here, such as LCD displays.

I have some ideas about Russia that may be off base that if true would be contributing to them holding up much better under the sanctions than anyone expected, including Russians themselves. Forecasters now anticipate that the GDP contraction will be 6.0% to 7.5%, down from initial estimates of 15%. Some are even saying it could be as low as 3.5%. The rate of inflation is falling and some prices are even deflating. Russian inflation is now close to the level of EU inflation.

The US does not do industrial policy except by default, which means via lobbying. So we have support via investment, subsidies, tax breaks, and financing guarantees to sectors that have become both large and inefficient: health care, the military/industrial complex, higher education, real estate. Cheap money has also supported the growth of the asset management industry, which the IMF and others have found slows economic growth, and even worse, leveraged speculation. Because “free markets” are a strong ideology, there’s no where enough interest in whether these subsides work even remotely as intended. Once they become established, they are treated as an entitlement.

By contrast, I have the impression, simply based on reader the minutes of a few recent meetings of Russia’s economic council, that its government intervenes at a lower level of the economy, rather than throwing money around and not asking many questions. This may be a holdover from central planning, or the result of the fact that the government owns major energy companies, and is so not afraid to kick corporate tires, and perhaps also because Russia’s government has been far shrewder in its defense development and procurement than we are.

If this is true, it may also result in Russia relying more on actual industrial policy to promote growth than the West, which more and more has come to default to macroeconomic policy, which over time has been turned into over-reliance on monetary policy, even though monetary expansion is no good at stimulating demand (it does so very inefficiently through the wealth effect). In this sense, Putin is correct when he calls out bad Western economic policies but he hasn’t identified the proper perp.

Specifically, my impression is that due to having had a weak currency until recently, and suffering the tender ministrations of the IMF after its 1998 financial crisis, Russia and particularly Putin have adopted very orthodox views about spending because Mr. Market would tank the rouble if they didn’t. The de facto hard budget constraint therefore may have led to Russia looking to other levers to promote growth.

A second factor that may have helped with Russia resilience is that (I am told) it does not use just in time manufacturing. Recall just in time was developed in Japan due to the lack of factory space (land is expensive in Japan) and then comparatively poor Japanese manufacturers also wanting to minimize inventory costs. Not only is Russia not scarce on space, but Russian winters = good odds of delivery interruptions and hence seeing inventories as an important hedge. I don’t know how much in inventories Russian companies typically hold, but those reserves helped dampen the worst of the supply shock.

Enough spitballing for now. Any input from readers who know more about the Russian economy would be very much appreciated.

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  1. Zod

    In the short term,
    1. China and India oil purchases
    2. No conflicting media narratives.
    3. Effective (not good, but effective) control over dissent.

  2. Colonel Smithers

    Thank you, Yves.

    I worked on the Russia desk at HSBC’s wholesale banking arm from 2003 – 6 and with some of their blue chip companies and oligarchs.

    I reckon one reason for the resilience is that, going back to Putin becoming president and further to an essay by NC’s David, who one hopes feels better, Russia and its firms had a plan.

    TNK-BP, now part of Rosneft and a joint venture between Tyumen Oil and BP, hired western managers like Bob Dudley and sought access to western technology and finance specialists. They had targets to emulate what BP has become and regularly validated progress and shortcomings.

    Russian Railways* engaged its Italian counterpart. Vimpelcom, Rosbank, VTB and Sberbank did similar with western firms, sent staff abroad and hired from the Russian diaspora. *HSBC funded a fleet of aircraft, so RR staff could get around and conduct repairs, feasibility studies etc.

    Their western counterparts were content with engineering of the financial kind.

    We noticed that, with a few and often Americanised exceptions, Russian staff bought into Putin’s vision of restoring Russia. They and many western colleagues seconded there were disgusted by the oligarchs.

    Westerners are deluded if they think that it’s a Putin thing and Russia will agree to become a western vassal when Putin goes.

    1. Lex

      Thanks, Colonel. I try to tell people that Putin is the west’s best friend in Russia. Nobody believes me. They’re sure the only replacement would be a new Yeltsin, yearning for a pat on the head from Washington.

    2. Alan Roxdale

      We noticed that, with a few and often Americanised exceptions, Russian staff bought into Putin’s vision of restoring Russia. They and many western colleagues seconded there were disgusted by the oligarchs.

      Can you elaborate? What caused the disgust, and what enabled the pssibility of even being able to buy into an alternative. In particular, how might this explain Russia’s pullout from the Oligarchical death spiral, verses Ukraine becoming trapped in it.

      1. jsn

        Great question!

        It would be good to know how to think about getting the US out of it’s Oligarch death spiral!

        1. Colonel Smithers

          Thank you, both.

          The corruption and looting at the expense of Mother Russia and its long suffering people and the decadent lifestyle they funded abroad*, especially as the oligarchs don’t seem to have learnt from the Romanovs and do discretion.

          The up and coming managers did not come from these circles and often still had roots in communities struggling. They had not forgotten suffering. They also did not want Russia to be on its knees and beg westerners.

          It felt like a middle class able to think for itself and not identify with increasingly absentee landlords* and grasping the fact that the gangster regime led by Yeltsin would not be good for them.

          It felt like someone with charisma and vision needed to articulate and execute, if patiently, a vision, which includes not invading in 2014, but wait for the west to hollow further and build up resources.

          1. Tom Bradford

            It felt like someone with charisma and vision needed to articulate and execute, if patiently, a vision,

            A species long extinct in the West.

          1. hk

            Following up and just musing wildly, I wonder if this “unseriousness” is the unintended psycho-social consequence of the “gains from trade.” The standard econ textbook model of trade has England producing wool, Portugal producing wine, and both getting more wool and wine than if they were producing both. But the catch is that, firstly, if all wine comes from Portugal, no one in England knows anything about wine, and secondly, for most English consumers, this means that wine comes from the magical hold of ships and not from this mysterious and probably fictitious entity called Portugal. So the idea that something might happen to that supposedly wine producing region that probably doesn’t exist could affect their wine supply becomes preposterous and the problems come to be blamed on the uppity magicians not doing their jobs and delivering up the wine. But one can’t really expect the consumers, who are just passive actors in the process, to take up “wine” more seriously than they do. While a bit silly, this caricature seems to capture a lot of the Western mindset on such things.

            I’d also suggest that the trend towards “democracy” has actually worsened the situation. In pretty much every society, nonserious, casual thinkers far outnumber those who actually need to think about a problem in depth and this becomes more acute as the economic activity becomes more specialized. In the above parody example, the only people in England who’d know anything about wine are the few people who’d import wine from Portugal and they are far outnumbered by the wine consumers–and, as the “magicians” who are being blamed for wine shortages, they aren’t exactly in a position of much credibility addressing the wine problems. In an era when political participation was costly, the unserious were kept out of the political process because they didn’t want to pay the price. But the current trend, in the name of making politics more equitable, has been to lower the costs of participating in politics. As the unserious far outnumber the serious and they can be mobilized more easily in the short term–they don’t have to be given a real concession that they’d actually check the details thereof, only symbolic prizes that feel good for now would suffice–it makes sense for the political elites to mobilize the unserious with nifty slogans with no substance. (This turns the previous arguments about the problems of “democracy” on its head–a long tradition in 20th century political thought, especially in the US, held that the relatively few people with deep interests consistently dominate politics at the expense of the vast majority of people without much interest because the former care enough to pay the costs of being involved in politics). Perhaps this is not necessarily universally true: there are still plenty of issues where vested interests do wield vast political influence, after all. But this can coexist with an environment where certain issues, for the reasons that are mainly psycho-social, wind up becoming salient at a symbolic level, to vast numbers of people and become “uncontestable,” at the risk of being cast out or worse as “heretics.”

            1. David

              I think you could take your example further. In England, let’s say, nobody knows anything about wine production, but people still brew beer and make whisky. But as the years pass, fewer and fewer people actually do these things, and their production moves more and more into factories, many of which are abroad. So while your English-human may still buy wine and beer in the supermarket, in a variety he/she/its ancestors could never have imagined, all consciousness of how grapes and other things eventually turn into a bottle of something appearing in your local supermarket has been completely lost. It might as well be magic, and when it’s not there, there’s a disruption in the force. You can’t drink wine futures, so far as I know.

              In one of Theodore Roszak’s last books, he recounts being in England in, I think, the 1970s, and going with some young children to a butcher’ shop for the first time. He had to explain to horrified small children, who had only ever seen meat in a supermarket that, yes, these were bits of animals, and that they didn’t “give” meat the way that chickens gave eggs.

              1. ChrisPacific

                I think your idea that “there was never the time” is a little off, although I can see what you were trying to say (Russia, after all, had exactly the same amount of time, and did a lot better with it). Other than that I thought it was a great summary of themes you’ve mentioned here before.

      1. harrybothered

        Yes, thank you for this. It’s a very good explanation for the American superiority complex and hubris to me. I posted your link on r/WayoftheBern. Hopefully you’ll get some good readership today.

      2. Boshko

        This is a nice essay and neat narrative.

        I’d argue that the nationalistic grouping employed, however, obscures the one very effective long-term planning performed and implemented from the West: that of capitalists who devised the supranational financial institutions that placed financial capital as the foremost concern and enshrined property rights of financial capital to trump any sovereign state’s demands–other than defending financial capital. This 20th century story is described in great detail in “Globalists” by Quinn Slobodian.

        From David’s essay it’s probably no coincidence, then, that the central planners of financial capital’s global institutions came primarily from the ruined economies and landscapes of Austria and Germany, though with equal support from Anglo-Saxon co-conspirators.

    3. digi_owl

      Makes me wonder if Putin, with an up hill battle thanks to Yeltsin, has actually implemented something similar to what Gorbachev tried to do and China pulled off in their own way.

      I guess north Atlantic public is far too used to seeing the finance tail wagging the government dog, that we confuse a strong government with a dictatorship (and the propaganda arm of finance is trying to keep the confusion going).

      1. Polar Socialist

        It is alleged that in summer 2000, a few months after he was elected as president, he invited all the power wielding oligarchs for a barbecue (“shashlik agreement”) and told them that if they stayed out of the politics and payed their taxes, they would be safe from prosecution. His administration had already used the judicial system to ‘deprivatize’ big media companies of Boris Bereshovsky (his earlier sponsor) and Vladimir Gusinsky, so people took him seriously.

        Whether that meeting actually happened or not is still debated – and what went on there if it did – but we do know that there was little opposition when Putin proposed to reform Russia’s 89 federal regions into 7 effectively asserting much stronger federal rule in place of the local governance completely corrupted by business strongmen.

        In this task it probably helped a lot that both the security establishment and the old industrial elite detested the oligarchs and “reformers”.

      2. deplorado

        Putin could not have implemented what Gorbachev tried to do, because Gorbachev didn’t know what he was doing. Other than selling out 1/2 of the world for a Nobel prize, a lectureship and a villa in Bavaria and marrying off his daughter to a US financier (and dinner auctions like the one won by Hugh Grant, who reportedly impressed Gorby).

    4. Polar Socialist

      Thank you, Colonel! I would even go further and assert that it’s not just Putin’s vision, but the one constant in the whole Russian history. Having never had no natural, defensible borders Russia has had to for the last 500 years be able to centrally allocate resources against external and internal threats, otherwise there would be no Russia.

      Trying to carefully avoid the cliche of Russians preferring strong leaders, I propose that, as a natural consequence of their history, they prefer a slightly stronger state than many other nations.

      And victory condition, for most Russians, is simple: when the dust settles and there’s still Russia, it’s a win. Whether it’s Polish, English, German or Mongol invasion, whether it’s 70 years of socialist experiment or “the sanctions from hell” the same simple rule works – we endure it and then we win.

  3. The Rev Kev

    Pretty obvious that the problems being encountered are actual structural rather than something caused in only the past two or three years but I have a question. Where it says ‘First, as Servaas Storm demonstrated in a data-driven but still very accessible recent paper, our current inflation is not driven by excessive demand.’ is that only terms of domestic demand or also international? I don’t have the financial chops to say whether it is true or not but I have heard that when the Feds pumped all those trillions out to the big corporations and high earners, that a lot of it was used going around the world trying to buy anything not nailed down. If this is true, then it would have caused shortages in those countries in terms of demand that may have had a knock on effect with demand in the US. Again, don’t know how true this is or not.

  4. WhoaMolly

    Thanks Yves. Excellent essay. A couple thoughts…

    America’s Malaise…
    The abrupt divergence of between wages and productivey that started in 1971 has to be part of the malaise. Not sure how, but the site WTF Happened in 1971 shows the trend visually. I was working in the defense industry in Santa Clara Valley in 1971, and remember those days clearly. The America of 2020 looks like a 3rd world s***hole by comparison.

    Russia’s Resilience…
    When the sanctions on Russia were imposed, my first thought was “The US just did Russia a favor. We are forcing a nation with plenty of nukes, oil, gold, and genius to ‘onshore’ production, rebuild their industry, break free of the US dollar, and become self-reliant.” I have not seen anything to change my opinion since then.

    1. Hickory

      That “WTF happened in 1971” is a great one-stop webpage. Only thing I noticed missing was a reference to skyrocketing prison populations shortly thereafter. Search for “Us prison population” and do an image search and you’ll see it seems to hit an inflection point in the early 1970s and then skyrockets.

      1. Big River Bandido

        On the rhetorical level, Nixon’s 1968 and 1972 campaigns wrote the template for the Republican “law and order” meme, which is still potent politics. But in terms of real policy, the Rockefeller drug laws (which spawned evil offspring all over the nation) were almost certainly the root cause of the increase. The original proponents of the “lock em up” policy minced no words in their demands.

      2. SinIsNotWhatYouThink

        There is a chart there showing prison population per 100k population over time.

      3. Arron

        The site ‘WTF Happened in 1971’ does have a graph named ‘Incaration rate of inmates under state and federal jurisdiction per 100,000 population 1925 – 2014’ and yes it sky rockets starting in early 1970’s

    2. countrumford

      I agree completely and note that “pay in roubles” allows the russian gov to control capital flight. Oligarckic companies no longer have a western bank account in western currency. I understand there is a new law that allows Oligarckic companies to apply for western currency and is mediated by the west friendly central bank, but still getting your super yacht repainted is now a problem.

      1. digi_owl

        As time goes on, them sanctions are looking like an ever bigger own goal.

        I do wonder if corks went flying in Kremlin when they were announced.

        The sanctions were meant to create another capital flight ala Venezuela. But by cutting Russia off from the banking system, they made said flight impossible.

        1. Richard

          “…corks went flying…” Yes indeed.

          Less waste on western luxuries. Import substitution. Home manufacture.

          AKA Coerced mercantilism, courtesy of the USA. Otherwise hard to do.

          Please don’t throw me in that briar patch.

        2. redleg

          An own goal indeed.
          I suggest that the sanctions, or rather how the strutting peacocks in DC perceive the sanctions will affect Russia, are a mirror.
          Take the peacocks’ targets of the sanctions and the desired effects on Russia and you can pinpoint how things really work in the USA. It’s simply projection. The idiotic narcissists at the helm can’t conceive any other way to acquire and wield power beyond their own direct, corrupt, experience.

    3. spud

      WhoaMolly i said the same exact thing. russia was forced into self sufficiency, and they are quite happy about it.

      as far as Putin goes, he is not the best on economics, but very good at political policy. and i think he is goading the free trade democrats that’s its money printing for the deplorable, not free trade that is driving costs through the ceiling. after all, when your opponent is digging a massive hole, the last thing you want to do is stop it. Putin is just helping the free trading democrats dig the hole faster and deeper.

      i am convinced the only reason why the new deal worked as good as it did, is because of smoot-hawley protectionism.

      without smoot-hawley, FDR would have watched industry pour out of the u.s.a. into italy and germany to take advantage of the “EFFICIENCY” of sweatshop, forced and slave labor. today we jokingly call it a long supply chain.

      its why Truman defeated the free traders after the war, and we did not get stuck with the world trade organization till Bill Clinton came along.

      industrial policy is not enough, otherwise the computer chip, solar panels, lcd screens, cell phones etc., all the results of government subsidies, and it still ended up where its the most “EFFICIENT” to manufacture.

      that is where ever there is sweatshop, forced, slave labor, lax or no environmental regulation, or regulation at all.

      1. Oh

        Our industrial policy is to provide billions of $$$$ to large pharmaceutical, technological, energy, defense and other corporations so that they can produce more copyrighted products to sell to the rest of the world. Our fed govt lets these corps keep the profits for free without any of it going back to the people.

    4. digi_owl

      I think multiple things happened around that same time.

      One thing is that Visa cards became commonplace.

      Another is that corporate raiders got busy.

      And a third seems to be that securitization may have taken its first steps around that time.

  5. gabon 45

    “While there is no question that ESG as presently constructed is a disaster, this does not – explain – why companies are not reinvesting their own earnings.”

    When oil prices hit $42 / Bbl in fall of 79′ and early 80’s – drilling rigs rose to 3,200 – 3,600 operating domestically until 1985 – in pursuit of higher prices and returns with associated better drilling techniques as well in contrast to the minor number of rigs operating today.
    That was cut off at that time by “politics” – The Reagan Administration reached agreements with Sheik Yamani (SA) at that time, also a senior official of OPEC, to flood the market with supply and drive the price down ultimately to $9.60 /Bbl. – June 86′) in order to hobble……..Russian oil sales and ultimately the Country given the uSA objectives to destabilize their cash flow and end in citizens rebelling, which was successful.

    Same movie script in this sequel – from the playbook !

    1. Earthling

      And it trashed our own petroleum industry, which, instead of looking 20 years ahead, simply shut things down, laying off hundreds of thousands and setting aside rigs to rust.

      Later when it was truly time to rev up the rigs again, Wall Street in its wisdom refused to provide capital. It likes to be able to look at sequential quarters of fantastic earnings growth, and when it is not there, as in a cyclical industry, well, tough luck. There were all those AOLs and Compaqs to invest in.

      Now it’s worse because you not only have Wall Street sneering at un-green oil and gas, you have accountants running the oil companies. There is no quick ROI on building a refinery, so they don’t.

      In the industry’s defense, there is no point in plowing millions into each new well, only to shut it in if you can’t get the product to a pipeline and refinery. Aand the boobs in the DNC think you can keep slapping oil’s hands, but still have plenty of cheap fuel to drive your Beemer.

      1. JTMcPhee

        Rahrah for petroleum, which makes the current world go round. Let’’s not forget that all those oil wells produce a (surprise!) huge amount of “unregulated” and obscure amounts of methane, there’s no funds for closing them properly (if that is even possible) when “the Market” tanks, refineries are dirty rotten neighbors with nasty pollution and occasional explosions and fires, and contribute to the dollar pollution of state and local governments.

        I don’t know how and to what extent Russia regulates the petro industry, or if they even do, though a cursory web search produces a lot of reporting and discussion of the topic — I suspect, however, that even though Russia is huge and has space to absorb environmental insults, past experience with central-planned and oligarch-inspired environmental disasters, coupled with a sense of protecting Mother Russia, may lead to a kind of resilience in drilling and transporting and processing petro that is a lot better in the long haul than “let ‘er rip” US “policy” delivered by regulatorily captured Congress and agencies, and of course the Effing Fed.

        Will Russia succumb to the Western disease of oligarchic control and wastrel economics in coming years? The big international players are inarguably poking and prying to insert their disease vectors and viruses into the new successful global leading economies. And at even larger scale, will the huge thing called China also backtrack and succumb? Will Russian and Chinese rulers value long term improvement in Earth as a living planet, suitable and comfortable for human habitation and enjoyment, or will wealth systems suffuse those places with greed-driven short-term-ism too?

      2. barefoot charley

        Frakking isn’t profitable. Never has been. Wall Street learned this years ago; retail investors only figured it out when the press finally reported on financials during the covid slump. By then investors had been fleeced of 40 billion dollars.

        There’s plenty of money to be made hiring roughnecks, laying pipelines and building better boiler rooms, and yes, there may be a splurt of oil after all the fleecing, which usually drops dramatically by the second year. The industry isn’t piling on domestic rigs anymore because there are no more suckers to pay for it. (Whether oil’s at $10 a barrel or 100 doesn’t matter, frakking only pays developers, not investors.)

  6. Stephen

    Thank you, Yves.

    Agree that western weakness has been decades in the making and is not simply a reaction to short term technical issues such as monetary expansion. Our societies have become increasingly corporatist, with capitalism becoming more financially and consultancy driven, whilst the state has become more subservient to the interests of capital rather than the other way round. The role of the predominantly (but not exclusively) US western military industrial complex is simply one case in point. It makes weapons that seem not to work so well in high intensity war, take decades to develop but cost a lot; it funds self serving militarist ideologies such as neo conservatism through think tank sponsorship and directly sponsors politicians. The healthcare industrial complex feels similar in many ways. Not just in the US. Capitalists will always seek to do these things but conditions in the past few decades seem to have been particularly conducive.

    These trends have then made it very difficult for western societies to display the type of flexibility and ability to resolve issues that they once had. “Interests” clog things up. I do not support war with or by Russia in any way but when we compare the way our economies worked in the 1940s with today (newly designed ships could be built in weeks not decades….) there is no comparison with our response. Court cases (even capital ones) were similarly resolved then in weeks not years. Lots of similar examples abound. Not clear that outcomes today are better as a result of any of this.

    To compare with Russia: I am then not an expert in any way but I believe that one of the achievements on President Putin’s watch has been to subordinate capitalism to the needs of the state / society to a greater extent than is the case here. This is a reversal of the oligarch / western dominated period of the 90s. We should not exaggerate this either (all is not sweetness and light of course) but it feels a difference. The military industrial complex exists to serve the state and there is evidence of production ramp ups, hiring and so forth in real time to achieve that.

    Internal alignment may play a role too. A very good video by Jordan Peterson that was posted yesterday adds an extra non economic dimension. He seems to argue that there is a real ideological component to the struggle and that the west is in the midst of a civil war over the woke agenda. A society that is fighting an ideological civil war is not likely to be focused on making the pragmatic decisions that are needed for resilience or success. The way that sanctions have been deployed almost as an ideological message against Russia (irrespective of utility) is a symptom of this ideological (or even mass formation like) mindset that cuts across domestic and foreign policy. On the other hand, the Russian approach feels much more like nineteenth century realpolitik: they aim to do things that will have a practical effect. Not always the right decisions, of course, but the aim is to be pragmatic. At the same time, they do seem to have been able to unite much of the population around a cross religious traditional values based approach. Pictures of Orthodox Cossacks with Chechen Muslims all espousing pride in Russia seems very much part of that. Try as they might, I am not sure that “Liberal World Order” or “LBGT+ values” (as tweeted early on by the Head of MI6) are having quite the same effect, however much some of us may share them. A united people will somehow create their own resilience, as we have seen in countless wars in history. The fact that polls (even independent ones that get quoted) suggest high support for President Putin supports this.

    Hope these thoughts are helpful. I am sure there are better explanations out there amongst readers too. Difficult times and tricky questions.

    1. Colonel Smithers

      Thank you and well said, Stephen.

      As per my comments above, HSBC factored oligarch risk and rated their acceptability to Putin and his agenda. If oligarchs became troublesome, we curtailed business with them.

      A former UK ambassador to Moscow, Rodric Lyne, was hired by the bank to assess these risks and liaise with the British and other governments. He’s at JP Morgan now.

      You are right to highlight the surprising cohesion of Russia. It’s not lost on the population that many of the religious buildings destroyed by the communists, often the German ones like the modern oligarchs, have been rebuilt by Putin.

      1. The Rev Kev

        I don’t think that it impressed most Russians when the EU was seriously considering sanctioning Patriarch Kirill, Head of the Russian Orthodox Church. In a country like Russia, that is a scarlet red line that. Boris did end up sanctioning Kirill but where is Boris these days? Yeah, don’t mess with churches is the lesson here.

        1. Stephen

          Thanks for both these replies. We do seem to have had put in place policies almost intended to create more Russian cohesion, while harming ourselves and failing to impress neutral countries. All at the same time. There is some form of genius at work here!

          1. Keith Newman

            Re Stephen @ 10:28
            Dimitri Orlov has a post from a couple of months ago entitled “Make Russia Great Again” at The Saker blog that touches on many of the points you and others raise here. It outlines how the US+ have helped Russia via sanctions, restrictions on Russians going to the US+, and divisive identity politics

        2. Old Sovietologist

          Talking of Boris. How many UK Prime Minister’s has President Assad seen off now?

          1. The Rev Kev

            Ah, the Assad Curse! I have now heard that some people are starting to talk about the Zelensky Curse. That any government that bolts themself to Zelensky and his regime suffers instability and perhaps even regime change themselves.

    2. Ignacio

      On this reply of mine I would like PK to chime in. Another example in relation with your post would be investment in nuclear plants that was intense in the 50s and 60s but now the costs are now too high to even consider the possibility of such investment. How is it that what could be done in the past cannot be done now? Part of it is almost certainly cheaper renewables but this doesn’t explain why the costs have soared so much.

      1. jsn

        Two forces: rent seeking on the cash flows (more layers of management rather than more meaningful penalties); internalizing environmental and work safety costs externalized previously.

      2. Boshko

        > How is it that what could be done in the past cannot be done now?

        This seems to be the overarching theme in this post, at least as it describes the US.

        I’ve generally believed, much like Yves points out from Mazzucato, that investment at scale with uncertain outcomes (though, in the case of nuclear, the outcomes seemed clear) that only government has a sufficiently low discount rate to invest in things that may benefit societies generations in the future. Modern financial capitalism couldn’t care less about societies, future generations (other than its own princely estates) and hence always discounts the future enormously.

    3. Carolinian

      I also like your version. To some of us it seems the problems are psychological more than anything else. The defenders of capitalism can’t admit that capitalism is failing and so they lash out at imaginary villains rather than concede that they are on a wrong path. “Realists” like Putin on the other hand are capable of a more practical approach and also have a genuine existential threat to “concentrate the mind.” Which is to say the West is simply too rich for its own good and the developing world is standing in the wings ready to replace us. Perhaps we should simply let them and dial back our American life style.

    4. marym

      I can’t speak to the challenges or accomplishments of cultural unity in Russia. In the US a culture war against people who claim rights, freedom, or justice not in tune with an authoritarian, christianist cultural agenda is also a tool of capitalist control.

      I also can’t speak to the specifics of the Jordan Peterson saga, but in general the winning of the US culture war by the so called anti-woke – as in current SC decisions and “red state” legislation – won’t (isn’t intended to) challenge the corporatist, financialized power relationships of the Military-Industrial-Congressional-Intelligence-Media-Academia-Think-Tank complex.

      If a unified people is a requirement for resilience, the anti-woke warriors are at least as detrimental to that end as those they categorize as woke.

      1. JBird4049

        >>>who claim rights, freedom, or justice not in tune with an authoritarian, christianist cultural agenda is also a tool of capitalist control.

        Hopefully, I am not too combative, but I have to say that it is tomayto, tomahto as the supposedly leftist, liberal and conservative sides all use identity, shaming, and authoritarian threats to stomp on the heretics. It is what those in control who are the System’s designated “real” leftists, liberals, and conservatives do to quash people outside the system who are leftists, liberals, and conservatives.

        If the ant-wokeists get too powerful, then the system will allow the wokeists to win. It is mostly, but not all political theater, to distract people from their true problems and enemies.

    5. hk

      I think this is where all the confusion over what exactly “fascism” (popular description of the current Russian government, even if the word is not explicitly used too often) is becomes mixed in with the current situation.

      I don’t think there is such a thing as a “fascist ideology” except in the vaguest sense. Usually, at least in so far as we had seen them, fascist politics emerge from ideologically deadlocked and dysfunctional “democracies,” where, for various reasons, competing ideologies find it far easier to trumpet their purity and refuse cooperation with the unbelievers. The “fascists” are usually those who downplay their “ideology,” at least in terms of whatever was prevailing in conventional politics at the time, coopt messages from all sides, and find an alternate ideology that resonates with whatever was commonly believed but did not shape coalitions in their society at that time (so this is where nationalism/racism/other appeals to national myths come in). Once in power, these guys employ some form of extralegal tactics to advance their agenda.

      But there is a problem with defining “fascism” this way: this is also how successful politicians of all types maneuver around political gridlocks in times of crisis. This certainly applies to Mussolini and Hitler, although in different ways, but also to FDR as well, at least in broad brushstrokes. (Yes, I realize that this might seem extreme, but the point is that where exactly the line of division is is not clear). The trouble with applying the label in modern day contexts (whether to Putin or others) is that they are usually much closer to FDR than to Hitler. These leaders are usually genuinely popular and they are given political imprimatur through more or less fair elections (people might say something about elections in Russia being rather fraudulent, but do they know anything about US electoral politics in 1930s, especially on the Democratic side in the South? Do they invalidate FDR’s election in 1932, 36, 40, and 44?) While they may or may not be using extralegal (how extralegal are they? good lawyers usually find legal pretext to justify the actions that are hard to dispute.) tactics to advance their interests, they usually, if ever, reach the degree of what the “indisputable” Fascist regimes did (and perhaps, not even as bad as the antics of J. Edgar Hoover, while serving under FDR).

      1. Yves Smith Post author

        Yes, if you read the speech Putin just gave a speech to the Duma, and the English translation includes remarks by members fo the Duma. They are explicit that they voted the Executive more powers to deal with the crisis and they made clear they are happy with the action taken. This includes the head of the Communist Party which is the big and vocal opponent of Putin’s party.

      1. Jack Parsons

        The “” site allows you to fetch the subtitles from a YT video as a fairly readable raw text file. Handy for quickly scanning someone’s grand diatribe quickly.

        JP has hooked up with the King of Neocons, Robert Kagan. While he understands that there’s more than meets the eye to the Russian invasion of Ukraine, he can’t quite get there. And he has to throw in the west’s war on proper sexual roles as if this had some bearing on the Russian “Special Operation”.

        1. Stephen

          That’s helpful and yes it is an interesting video.

          My read was that some of the Kaganesque rhetoric was part of JP’s pedagogy: “even if we do believe Putin is the devil then this proxy war still makes no sense….”. Perhaps I am over allowing for that and you are right: he does not quite get there!

          I also do not believe that the western woke revolution caused the special operation. But there is an underlying ideological struggle that is part of this whole conflict and is likely to get talked up as part of maintaining support. Many pro Russian Twitter statements (for example) do make comments about the LBGT+ agenda. Putin is positioning himself and Russia as standing for traditional values that are also deliberately positioned to embrace religious faiths beyond his own Orthodox Christianity. I saw a very interesting photo of him with the Russian Orthodox Patriarch, a senior Islamic holy man and a Jewish rabbi. There may have been another couple of senior religious leaders too. They symbolism is clearly intentional to say that all traditionalists can find common cause.

          This is then opposed to a west / US that seeks to spread the latest incarnation of its own allegedly rational human rights agenda across the rest of the world. That is even if doing so includes the propagation and celebration of activities that were illegal in western countries within many people’s lifetimes. Standing against the roll out of the western agenda within countries plays very much to themes that resonate too with the Chinese Communist party.

          There is a real danger of overdoing the point but a philosopher might see it as Edmund Burke versus Rousseau. Just as the Napoleonic Wars were in one dimension a war about territory and balance of power, they were also about conservatism versus the values of the French Revolution (which Burke saw as totally not in line with the values of the American Revolution). Even the ultimate peace settlement reflected that two pronged issue. JP does not fully make the point but he is going in that direction. There is truth in it, I believe.

  7. Jack

    I think it comes down to a fundamental difference between Russia and the US in two areas. The first is that Russia has a plan (as the Colonel mentioned). The US does not. The US is run by the MICIMATT (Military-Industrial-Congressional-Intelligence-Media-Academia-Think-Tank complex). This is a term coined by Ray McGovern and I think it aptly explains why the powers that be in the US do so much of what they do that is not in the interest of the US citizenry as a whole. They just don’t care, for one, and two I think they have been captured by their paradigm and suffer from tunnel vision. Russia suffered a great deal in the 90’s and they came up with a plan to get out of that mess. The second area is that the US as a whole, both its citizens and the MICIMATT have forgotten what its like to suffer. The US has rested on its belief that as the saviour of the world in WW II we will always be number one. The US hasn’t really suffered large numbers of casualties or destruction since the Civil War. Russia, the former Soviet Union, lost 13.5% of its population in WW II. By comparison, the US only lost .3%. The aftermath of WW II continues to have a major effect on the Russian psyche to present day. One of the reasons that is hardly ever mentioned about why Russia invaded the Ukraine were the exchanges made between Putin and Biden regarding the siting of missiles in Ukraine. Putin and Biden had a meeting in June of 2021 and promised no missiles. Biden did the same thing on December 30. The just six weeks later the US back tracked. This was very alarming to the Russians and Putin got a lot of pressure from the military to do something. Putin traveled to China for the Olympics in February, 2022 and met with Xi. The Chinese Olympics ended on Feb 20 and Russia invaded on Feb 24. Again, Russia had a plan and cleared it with China before proceeding. The US has become a failing empire that only cares about making money even if it is at the expense of its over all economy and national security, where the Russian’s have a plan and they take their national security, both militarily and economically, very seriously.

    1. Yves Smith Post author

      While this is directionally correct, IMHO the Dec 30 reversal was not the key event. I don’t think there was a single “key event”.

      There was a series of developments: Nuland coming to the Kremlin in October and demanding in the most insulting manner possible that Russia pull back from Ukraine so the Donbass could be cleared, as in all the separatists killed.

      Russia was increasing troops on the border BEFORE December 30. That was why Macron proposed a revival of Minsk in December. The US and Russia were negotiating but the US was refusing to provide written responses to Russia’s proposals…..and then the US was lying in the press and saying Russia was refusing to negotiate.

      In February, you also had:

      1. Ukraine moving troops to the Donbass, with Russian intel supposedly showing a plan to attack in mid-March

      2. Per OSCE, increased Ukraine shelling, IIRC starting Feb 15

      3. Feb 15, Zelensky repudiating the effort to revive Minsk

      4. Feb 17, Zelenksy saying Ukraine would like nukes.

      So this was an accumulation of developments, plus the imminent attack on Donbass forcing Russian timing.

      Putin sounded uncharacteristically pissed in his speech of Feb 24, like he was Not Happy to be having to launch the attack.

      As for China, Russia would not “clear” it with China. China has never done joint military operations with China in any important theater for Russia like the Black Sea. After the war started, Russia did do a joint operation with China in the Pacific, with China in the lead, to send the message if China invaded Taiwan, Russia would have China’s back. Putin may have warned Xi that things could escalate in Donbass soon, but Russia would not be seeking China’s consent for dealing with an existential threat.

      1. Stephen T Johnson

        Feb 24 was a big deal – I think Putin felt that his hand was forced. I too remember watching his speech at the time and thinking that he really looked upset for the first time I can remember. Our even insightful media, of course, spun it as “Putin cracking up”

        As anyone who actually pays attention knows, VVP is super-cautious (See, for example, the Syrian intervention). At that point, I believe the calculus ended up being “What can we do, short of a proper war?” and the SMO was born (or, more likely, picked from a list of options prepared by Stavka). The Russians may have escalation dominance, but the escalation all seems to be on the collective West’s side. I guess it’s all fun and games until Lithuania gets its border adjusted, and / or the Poles try their luck in Galicia.

        1. anon y'mouse

          “we” chose the war, he (Putin-Satin) chose the time.

          **Putin-Satin is my small attempt at a joke.

        2. digi_owl

          Yeah, i seem to recall a noticeable shift in tone from him. Even when he first declared the special operation, he was calm and collected. But then when he declared that he had ordered troops to advance into Ukraine he seemed unusually upset.

      2. Steven

        I had a chance to ask Michael McFaul several years ago at the Tucson Festival of Books about the US pledge that NATO’s borders would move “not one inch” East of Germany. His reply was to the effect that unless a promise is in writing it isn’t serious diplomacy, that the Russians were being naive in trusting verbal promises from Western diplomats.

        I think the US and the West, to the degree it has bought into the business model of financial capitalism, do have a plan. It is simply to view any attempt by any country to refuse to exchange more of its wealth for more unpayable US and Western debt as an existential threat to ‘the system’. Wall Street and Washington are partners in crime. They need each other to continue to hang more debt on not just the rest of the world but their own people.

        One would have thought the inability to produce the supplies necessary to combat the Covid pandemic would have demonstrated all that money in Western bank accounts isn’t really wealth when it comes to the ability to combat mortal threats. In the same vein, one would think Americans would get that spending a trillion a year combating the laughable ‘Russians are coming’ threat is no longer a harmless deception to keep ‘the system’ going with the threat from global warming anything but laughable.

        1. RobertC

          unless a promise is in writing

          A decade ago China did the same thing to Assistant Secretary of State Kurt Campbell on simultaneously withdrawing Philippine and Chinese vessels from the Scarborough Shoal with the Chinese FM saying “What written agreement?” after the Philippine ships left.

    2. Charlie Sheldon

      Jack makes a terrific point. “Suffer” memory and ability is key but is only half the story, in my opinion – There still exist millions of Russians today whose grandparents were killed in the Second World War, and parents, too, and the memory of that period is real and vivid. This is a powerful thread and motivator, and something it seems we in the US have nearly entirely lost. When I was a kid in the 1950s and early 1960s the memory of the suffering in the Depression was real and with us still, a time when old people saved all their tin cans, when everyone remembered WW2 rationing. It was a time, despite the euphoria of winning the war, of some humility brought on by the memory of the dark times just before. It was also the time when conscription was national, and every male child in the country could be drafted. Some readers may even remember when Elvis was drafted. We got rid of the draft in the mid 1970s and have since had an all volunteer army, upon whose families the full weight of any war losses has fallen (largely on those young men who did not or could not afford to go to college) while the great rest of the country has had, for two generations, no direct ties to any overseas battles whatsoever. Russia still has the draft, and whatever else one might say about the draft, it did prove to be a great leveler among social classes, i.e. making sure everyone was “all in this”. Right now Russia is “all in this.” The U.S. and NATO are not.
      The second aspect here I think is that Russia has land, fields for agriculture, oil, minerals, a terrific industrial and scientific system and educational base. Of all the great powers, Russia I believe stands head and shoulders above anyone else as regards the ability to become self-sustaining, internal, an autarky, a nation quite able to fend for itself if and when global supply chains break down. In some ways, then, I see Russia as poised to become the leading nation of the 21st Century, even more than China, because China needs Russian oil and China has nearly ten times the mouths to feed.
      Yes, the sanctions imposed will hurt Russia, but they will hurt the West sooner and more. But the Russian ability to “suffer it out” during these months and years, based on their history and still present memory of the war and then the chaos of the 90s, seems to be a factor Biden and Blinken and all the rest simply fail to see, and the consequences I fear will be pretty grim when all is said and done.

      1. anon y'mouse

        “we” have been fomenting the idea since the 1960s that the Olds have nothing to teach us and can only hold us back.

        this has culminated in a fixation on the young being our saviors, and “educating” our way out of our own problems. Greta Thunberg is the apotheosis of this idea.

        it’s not a surprise that no one remembers when the Elites didn’t want us to. well, except for the vague “we kicked arses and saved the world” line, replaying for 30 years on the History Channel.

  8. Thuto

    It’s true that the rumours of loose monetary policy as the main driver of the current malaise may be greatly exaggerated, that said, it’s hard to imagine that the financial press, via its penchant for conflating a surging stock market with general economic well-being didn’t create some form of artificial wealth effect were a bump in demand resulted from folks believing that their fortunes were tied to those of the speculative asset owning class who used cheap money to bid up said assets (when wall to wall media coverage is of the price trajectory of pretty much every asset class moving ceaselessly from bottom left to top right, and the stimulus checks continue to arrive on schedule, one can imagine the propensity to spend among ordinary folk trending upwards, giving demand an uplift in an environment of an ailing supply chain).

    On the larger Russia vs US question, my own sense is that the politics of pragmatism is prevailing over the politics of posturing. Pragmatism prizes being judicious over being impetuous and correcting course when real world events require it, whereas posturing is the opposite, once an ideological position (usually undergirded by bureaucratic hubris) is committed to for maximum posturing effect, the trimming of sails is nigh impossible and holding when one should fold is viewed as a weakness (and “the US doesn’t negotiate with those it considers enemies” we are often told). My further sense is that the shackles of political accountability in the west have been broken, and the public, having been whipped into a lather over Ukraine, are not holding the feet of politicians to the fire and demanding a course correction from the disastrous attack on their living standards through misguided (and clearly failing) attempts to punish Putin and Russia. Then you have the analyst class and the media who continue pandering to their political overlords by trying to jam square analyses into round narratives, doubling down on clear falsehoods about the situation, both on the battlefield in Ukraine and in the economic war with Russia, thus providing even more cover for politicians to continue this “methodless” madness.

    1. Amfortas the hippie

      “…and the public, having been whipped into a lather over Ukraine, are not holding the feet of politicians to the fire ….”

      usual caveat from lately that i dont wander outside of the county…but i know no one in real life who is lathered about ukraine.
      in fact, the only mention i’ve heard in my eavesdropping and/or quick convox in parking lots, is that those dern morons in DC just sent another gob of cash to the ukies…and where’s ourn?!
      ie: ukraine is only even contemplated in the domestic economy sense…and even that, the close to home the better.

      1. BillS

        Hi Amfortas! I have taken to “feedstore” conversations with my neighbors in this small town in the north of Italy. I have yet to meet one that believes the Ukraine adventure is a good idea. One farmer who I spoke to says that he is already sold out of potatoes for this year – even before his harvest has been brought in! It’s as if everyone is padding the larder for a brutal winter. Before I even said anything, he came out with the idea that the war and the whole energy crisis were manufactured in Washington to destroy the export economies of Europe. I was there nodding my head! He went on to say that (what has been said many times here) that our leaders have gone collectively insane. He nodded when I said that this is all part of the plan and /winkwink Something Needs To Be Done.

        He then asked my advice on generators, drip irrigation and water pumps.

      2. Thuto

        Amfortas, going by some of your previous comments on NC, you, much like Bill below, live in a smallish town so I do wonder whether this indifference or ambivalence to Ukraine you see around you is to be found in large metropolitan areas as well? It could be that “compassion fatigue” vis a vis Ukraine is setting in and people’s immediate attention is shifting to the deteriorating economic situation that is threatening to engulf them soon enough (which raises the question then: if the people are wondering why the largesse towards the Ukies continues unabated despite economic problems closer to home continuing to mount, why haven’t they taken to charging DC with their pitchforks to demand an end to the madness I reference in my original comment).

        1. Amfortas the hippie

          ive only got from a couple of months ago, in the medical center part of san antonio.
          and one trip to fredericksberg/kerrville(almost far, far exurbia to san antone)
          so i have no idea.
          we should prolly have periodic anthropological fieldwork threads to collate such things….i mean…y’all all likely go more places than i doi in a given week,lol.
          just open your ears.
          (don’t stare, though)
          in my (limited) experience, it’s easier to do this in the city.
          starbucks, the burger joint, the gas station…people are used to being surrounded by strangers, and don’t watch their tongue like they do out here(where everyone literally knows everyone)
          here, its places like the feedstore,the produce aisle or hardware store(crammed full, lots of nooks for gossip, etc) where people hang out for a time(i doubt any sociology department in this country is aware that feedstores serve this function,lol)

          its habit for me, by this point…i got though junior high by Being Jane Goodall.
          coupled with actual elevator/busstop/etc conversations, ive learned a lot about my fellow humans.

    2. Yves Smith Post author

      Japan has had incredibly loose monetary policy for decades as well as a lot of fiscal spending. It has been in borderline deflation all this time. Even now, with the yen super weak, which means imported energy and food are expensive. Even now, year to year, it was 2.5% in May.

      Monetary experiments in the US and UK in the Reagan/Thatcher era showed that money supply growth is correlated with no, and I mean no, real economy metric.

  9. Raymond Sim

    The Russian language’s tense structure is quite different from that of English, each verb concept having two associated words, one denoting the concept as an ongoing process, the other associated with completion or termination of the process. When speaking in what we would call present tense, a Russian speaks of what is ongoing. The Russian ‘now’ is ongoing change.

    I suspect this has a lot to do with why their Operational Art is such great stuff, and why we tend to have such a hard time wrapping our heads around it.

      1. Paradan

        hes talking about perfect and imperfect past tense, we have it too:

        Yesterday I was mowing the lawn. (imperfect)
        Yesterday I mowed the lawn. (perfect)

        So the fun thing with slavic languages is that they have a different verb for the perfect, and its a totally different word. At least that’s how it seemed to me when I was trying to teach myself Czech.

        (was mowing/mowing/will mow) vs (geblew)*

        *non-sense word for example

        1. NN Cassandra

          Generally, it’s not really different, it’s same word root with added/replaced prefixes or suffixes.

        2. Raymond Sim

          In Russian “I mowing the lawn.” would be the usual present tense. On the other hand the perfectly fine English sentence “I am.” doesn’t carry directly into Russian in a formulaic way.

      2. ilpalazzo

        The most striking difference for me between english and slavics is in english you often stress ownership in the sentence. Have you had *your* breakfast yet? It happens all the time and if you are a marxist – aware it triggers you :)

  10. Troglodyte

    Just-in-time processes in the supply chain get a bad rap these days, but I would argue it’s American management and business school processes that have malformed it – the Japanese coupled just-in-time with keiretsu style managerial and balance sheet interlinking. In effect, Americans lifted the good about the numbers, but left behind the countervailing qualitative and downstream financial results.

    For myself I still believe that today’s inflation in the West is primarily monetary policy driven faux demand creation, but over a much longer historical timescale. The oil and gas industry you’ve mentioned has suffered the effects of cheap capital over the ’10s whereby enormous capital went into unprofitable shale, exhibiting capital deployment dynamics not unsimilar to Silicon Valley.

    Another point to note regarding rig counts is that the terrible times for the industry of the past decade have forced many operators to drive down expenses through hard driven efficiency enhancements in addition to reducing net new investment. The results have been greatly increased digitalization and the incorporation of rigs that cover a large spread of territory, doing the work previously done by multiple rigs. I suspect that bolt-on accretive production is the way of the future in the face of sharp economic dynamics about-facing with no recent precedent.

    In effect, American monetary policy has enhanced the “boom-bust” volatility dynamics of the industry, and we are living with the ripple effects of that – ripple effects which the Russians have with suspiciously good caliber of timing exploit to great effect.

  11. Mikel

    “But the US also has undue faith that markets are self-correcting when we’ve made them fragile via long supply chains and just-in-time practices.”

    “Markets are self-correcting”

    It’s such a mantra that I’m at a loss as to what these extremists define as “correct”. And are they talking about the markets as in securities markets or the broader economy?

    1. Amfortas the hippie

      “Markets”, in my reading of the Catechism, are more akin to the various levels of the Holy Mountain in Dante’s paradisio…including and especially the Gates between said levels.
      inverse to the arrangement of the levels of Hell.

    2. hunkerdown

      “Correct” means the market god and its values are conserved. Neos tend to value the reproductivity of a condition, not general human subjectivity. They’re playing with gods, more or less.

      “Neoliberalism is not a theory of markets. Neoliberalism is a theory of state design.” -Quinn Slobodian

  12. Rod

    Thanks Yves,
    Lotsa insightful comments above trying to get to your question.
    Which is one we need to be figuring out and learning from.
    I lean into David’s above insight about ‘Having a Plan’ to begin with, and as you rightly observe: “The US doesn’t do Industrial Policy except by default; meaning Lobbying.”

    But, I want to bring up Iraq/Afg as a force of deterioration. Those twenty years of spending over a Trillion $ without being able to close on that gas station, and which fostered a real disconnect between the US population and those governing us—and what they were governing—and for whom, and alienated even more worldwide, had to have an effect. I mean we just ran out of that door last year.
    Meanwhile, Putin had an ‘Idea’ 30 years ago, which congealed into a Plan, an enabling Plan, for His Home Country, and he has been in a pretty stable power seat working it since then.
    That’s about as far as I can take it.

  13. johnherbiehancock

    Russia unfortunately is also taking up a right-wing line, with Putin blaming the West’s mess on “money printing”.

    OMG, I imagine he must have a hard time saying that with a straight face. just pouring more high-octane fuel on our idiotic media debates and public discourse.

    Conservatives can’t question their own orthodoxy enough to wonder why Putin might be agreeing with them, and Liberals will dismiss anything he says since they’re now pre-conditioned to hate all things Russian.

  14. chuck roast

    John Helmer recently wrote an illuminating piece about the continuing factional struggle in Russia to control the macroeconomy. There are currently two bills before the Duma proposing that the state take an economic choice between oligaric capitalism or state socialism. The powerful institutionalist party proposes the former course which (if I understand it correctly) would enable nationalization under the existing bureaucratic leadership. The opposition bill from the Commies is more democratic but much more prohibitive regarding foreign ownership and oligarch surplus appropriation. Definitely worth a read if only because such a political discussion is unthinkable where we do the rules based order.

      1. Jim

        I haven’t been able to open Helmer’s website in Firefox for many months. It works just fine in the Brave browser, and in Bing as well. I haven’t tried it in Google.

  15. Dominic

    Could someone please explain to me how the “gas for rubles” or whatever commodity for rubles (there is a lot of chatter about the coming “grain for rubles”) scheme will protect Russia from further foreign reserve freezing?
    I did read a detailed explanation, including all the accounting steps, of how the gas for rubles works in practice (the buyer Ruble and Euro accounts at Gazprombank, the National Clearing Center, the “triangulation” with the Russian Central Bank, etc…).
    At the end of the day, a Russian entity (Gazprombank in this case) holds Euros, and rubles are generated by the Bank of Russia against these Euros.
    What prevent a further freezing of Russian foreign reserves at some point down the road? Just the promise that Gazprombank is not going to get sanctioned? How Russia can trust such reassurance given the precedent?

    Thank You!

    1. Yves Smith Post author

      The foreign reserves that were stolen were held in non-Russian banks.

      The sanctions can’t reach Russian institutions in Russia.

      Gas for roubles was a device for forcing payment to Gazrprom to be made ONLY to a Russian bank (as opposed to a transfer to a Western bank where Gazrpom had an account) and it also prevented the West from sanctioning Gazprom, since they would be unable to buy gas if they did so.

      1. Dominic

        Thank you Yves!

        The foreign reserves of a Russian bank, at the end of the chain, are assets held in a foreign bank or directly in an account at the ECB (in the case of Euros). I believe Gazprombank itself has an ECB account.
        These reserves can still be frozen in the future as some foreign reserves directly held by the Bank of Russia, if I’m not mistaken, were frozen after Feb 24.
        I understand that sanctioning Gazprombank would mean no more gas. However, the point where I need a confirmation of my understanding is that foreign reserves held by Russian entities technically can still be frozen am I correct??

        Thank You Again!

  16. Skippy

    Ugh … after Eisenhower the U.S. just got high on corporatist Bernays brand chroming spray huffing supply advanced by being the first post WWII to get media tech in every house [TV] and now every corner you turn or now via smart phones et al – aka everyone is dialed in and emotions are just keyboard for some to play.

    All acerbated by the U.S. population of not having since the civil war suffer collectively what most of the world has for one reason or another in the last 100 years – too cool for school. I’ve watched here in Oz since 95 going slowly from the WWII experience of over payed, over sexed, and over hear, too ZOMG Oprah Winfrey came down under. Now every down under PMs first port of call is to DC.

    I mean just the idea some about here on NC are backstopping their view with Jordan Peterson, groan, hes the epitome of everything above, dude thinks[????] hes the second coming with income flows from vibrating so hard.

    How many years is it now that the American consumer devoured a planet just so they would feel good about themselves as indoctrinated and if anyone does not like it is trying to steal their liberties and freedoms – no political affiliation aside.

    The show ‘Don’t Look Up’ miffed it … ‘The Boys’ is more realistic IMO …

    1. Oh

      I tried to watch Jordan Peterson’s youtube channel. Couldn’t stomach more than a minute of his trying mollify the neo-libs by dissing Putin.

  17. ewmayer

    From an e-mail exchange I had over the weekend with a log-time European friend, this was in the wake of BoJo’s apparently being ousted as UK PM:

    Yes, there will be regime change – but not in Russia. Boris Johnson, the clown prince of England, was the first victim – not as a direct result of the Ukraine crisis, but the rapidly worsening economic situation in the UK played a clear role. In his case I say “good riddance”, not that his successor from the exclusive incestuous club of the UK elites will be any better – less boorish, surely, but in principle just as blinded from self-importance. First Brexit without any implementational plan, now dogmatic beiief in the sanctions wonder weapon. Earth to the UK elites – yes, London is an important financial center, but you set off the sanctions war against Russia already in 2014, and they seem stronger than ever. In the last 50 years you have offshored your entire productive economy and are now a parasite on the global economy. Countries like Russia and China, which are rich in raw materials and industrial capacity, need you far less than the other way around. Similar holds for the US industrial sector, but at least we are rich in raw materials.

  18. NN Cassandra

    I think the immediate difference is simple consequence of the fact that energies are crucial and when western leaders, in their infinite wisdom, decide to cut them off, the results were instant and big. On the other hand things like stopping production of new cars will take time to affect whole economy, which in turn makes some room for coming up with mitigations.

  19. Brian Westva

    Michael Hudson points out in several of his talks that it is the difference between financial capitalism and industrial capitalism. The decimation of manufacturing industries, cities and whole regions, and people (deaths of despair, prison) has greatly weakened the US. Finance capitalism has ran out of companies to loot. Now there is crypto to pump and then dump. I can’t imagine a more useless and wasteful ponzi scheme.

    Another thing that comes to mind is the underdog phenomenon. Clearly the US is the best, most powerful, and indispensable nation on Earth. Not really but a lot of the elites and many if not most regular people believe that. When the number one team believes they are unbeatable that surely leads to their inevitable downfall. The underdog oftentimes works harder, longer, and develops a can-do attitude without the inflated ego. I think that phenomenon may be at play here.

    Another thing is the amount of natural resources available in the two countries. The US has 5% of world’s population but consumes 25% of its resources. American consumers have an insatiable appetite for stuff. Even if our old stuff is still working, we want new stuff to keep up with the Jones. It is sickening. I don’t know the numbers for Russia or China but I imagine their resource consumption is much lower per capital than ours.

    1. JBird4049

      Much of the reason why I buy too much is that it is cheap or not so cheap junk that doesn’t last that is now made overseas. I have to rebuy overseas junk whether I want to or not. Like clothes.

  20. Anon

    2008 caught many by surprise, and there may have been the expectation Obama would stay on brand (and you would need the hope, because you would get more change than you voted for), but he declined being the first black president to oversee America’s collapse. His last minute campaign donations seem apt in retrospect.

    So what does one do if you now know there is a ruinous financial disaster on the horizon? You could create other epic (but somehow manageable, after all, it’s showbusiness *jazz hands*) disasters, which can be used to justify the precipitous decline in the quality (length?) of life for the vast majority of voters.

    Seen from that perspective, Ukraine eg. is as much about the domestic market embracing austerity, as it is about exhausting Russia.

    One thing about the prototypical American is, the jingoism runs deep. Even the black population, which you might expect to see the world through a lens of political humility, seems to take much pride in American dominance, despite their pivotal role in achieving it… That is to say, Americans won’t go down without a fight; so a fight has been orchestrated to direct their energy where most productive. Better war on the Rhine than the Potomac, if that’s your thing. My sincere apologies to Europe.

  21. Susan the other

    Why isn’t Russia suffering high inflation? I think you said it: Russia hasn’t defaulted its industrial policy for over-reliance on monetary policy. The Ruble wasn’t overvalued and still isn’t. It has a long way to go before it needs some adjusting. Russia has room to maneuver because of this. It is a gigantic country with tons of infra maintenance requirements – so your “Russia intervenes at a lower level of the economy” is spot on. There is continuous need for infra because it supports productivity. Here, not so much and when we do do infra it is held hostage to debt finance – there is a political brick wall preventing direct infra spending. And (imo) this is ostensibly due to the fact that we must support the dollar, maintain a “strong dollar” to attract foreign investment, etc. We have to monetarily support the dollar because our economy isn’t “growing”; hasn’t “grown” for decades. And by some logic I do not understand, if we were to spend directly on infra and social welfare (that doesn’t create economic “productivity”) we would be required to devalue the dollar. Too much money in a system that isn’t “producing” anything? Where debt service and profits can’t be skimmed? So it’s a no-brainer – we’ll just inflate the cost of everything and pretend we haven’t devalued the dollar at all because it still has a high foreign exchange rate. Maybe.

    1. Polar Socialist

      I think Russia has quite high inflation at the moment. It’s is of course relative, but the Russian inflation in June was 16.7%. It was 17.83% in April and some predicted even 25% this year. The head of the Ministry of Economic Development currently predicts the inflation will eventually be under 15% in 2022.

      Central bank has removed pretty much all restrains for currency transfers, so Ruble is working it’s way back to where it was before the Special Military Operation. That also means that “imports are picking up”, as Alexander Shirov, director of the Institute of Economic Forecasting of the Russian Academy of Sciences told to Argumenti I Facti newspaper. Which might explain why prices have been coming slightly down.

      For what it’s worth, Russian’s next year budget is expected to both cut expenses and be in deficit, due to a lot of the income from high energy prices will go to special funds instead of the budget. This is to allow the government a lot of leeway to react and adjust as the inflation, economy and exchange rate situation develop in 2022-24.

      Just recently government announced extra 3710 billion rubles ($1.4 billion or so) for establishing 19 software development centers for working with 50 or so industrial groups for developing software to replace the western stuff. Industry is supposed to give the specs, and by paying 20% of the cost, they get to use the new programs. Or something like that, the point being that they indeed seem to be operating in pretty low level, when and where the need be.

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