Cancer in the Republican party

Does Rep. Marjorie Taylor Greene really believe that “a plane did not hit the Pentagon on 9/11, the Clintons crashed JFK Jr’s plane and that the 2018 California wildfires were started by a space laser controlled by Jews”? “Karl Rove blasts GOP rep Marjorie Taylor Greene”  Senate minority leader Mitch McConnell, stated Monday (belatedly) that her “loony lies and conspiracy theories are cancer for the Republican Party.” “Has Mitch McConnell been struck by Jewish space laser”

An even more disturbing question is why do so many people believe her and other obviously (to most people) false claims? QAnon is sadly not the only group espousing claims that even my grandmother (or maybe especially my grandmother) would find transparently laughable. QAnon “followers believe that a cabal of Satan-worshipping Democrats, Hollywood celebrities and billionaires runs the world while engaging in pedophilia, human trafficking and the harvesting of a supposedly life-extending chemical from the blood of abused children.”  “QAnon conspiracy theory explained” 

We live in a time in which sorting fact from fiction has become more challenging than usual. As a young man I had Walter Cronkite, who I could check against Huntley and Brinkley. If they reported it, we believed it. If they got it wrong (rarely) they corrected it the next day. The pronouncements of QAnon are so ridiculous that most of us don’t need a fact checker to reject them. Common sense is enough. But when the previous President of the United States lied to us more or less every time he tweeted, and claims to this day that his reelection was stolen without producing any credible evidence, sorting fact from fiction becomes more challenging.

Sometimes we are lucky enough to encounter contrary evidence directly, in which case we discard the lie and downgrade our trust in its source. This seems to be happening to some QAnon supporters–but unfortunately not to Congresswoman Greene. But this also raises the question of why those inventing and perpetrating lies do so. The specific example of Rep. Greene’s claim that 9/11 was a hoax and that no plane crashed into the Pentagon presents an interesting case.

Of course, the conspiracy theorists do not claim that planes didn’t crash into the World Trade towers, too many of us saw it in real time on TV (I watched in horror from my hotel room in Bratislava, Slovakia). They claim that the U.S. Government was complicit and that the buildings were brought down by planted explosives, etc. In short, they developed clever, even plausible but highly improbable arguments for not believing what the press reported.  https://www.serendipity.li/wot/911_a_hoax.htm

Some years ago, probably sometime in 2002 or 3, one of my children sent me a video claiming that the 9/11 crash into the Pentagon was a hoax. I no longer remember the details of the lengthy arguments it made to convince us that American Airlines flight 77 never crashed into the Pentagon that day and did not kill the 184 people the press reported, but it was well done and convincing. If I had not had directly contradictory information, I might have wondered whether these claims of hoaxes might be true.

First of all, I knew from an acquaintance (Lawyer Ted Olson) that his wife Barbara had died in that crash. Secondly, at the time, I lived next to the Pentagon in Crystal City and could view firsthand the crash site after returning home from Slovakia (the hole in the west side of the building and the plane wreckage laid out in the Pentagon parking lot). The impressive and potentially convincing story in the video was totally made up. But why? The video was expensive to make. Perhaps psychologists can shed light on why gullible people fall for these lies, but what motivates those who put up the money to propagate what they know full well are lies?

Who has an incentive to undermine the American public’s confidence in its government and institutions? Who has an incentive to weaken the United States via a distrusting public turning on itself? The devil himself, of course, but who else? Q? Followers of QAnon “believe that “Q” is a high-ranking government insider, presumably with a military or intelligence background, committed to exposing the hidden truth of what they see as an international bureaucracy scheming against Mr. Trump and his supporters.” “What is QAnon-what we know about the conspiracy theory” Russia? Russia has been playing both sides against the middle in the U.S. for years.

And what about Rep Greene, herself? Is she one of the gullible followers or knowing perpetrators?  In a private meeting of Republicans in the Capital Wednesday evening she apparently expressed “contrition for some of her most outrageous comments made on social media — including questioning the 9/11 attacks, blaming a space ray directed by a Jewish cabal for a deadly wildfire and doubting school shootings. She also, according to Republicans in the room, apologized for putting her colleagues in a difficult spot.” But she has not repudiated any of her outrageous claims publicly.  “’I won’t back down. I’ll never apologize. And I’ll always keep fighting for the people,’ she tweeted Saturday.” “Amid GOP paralysis democrats vow to force vote on rep Greene’s extremism”

“While McCarthy on Wednesday condemned Greene’s comments questioning the veracity of school shootings, encouraging political violence and promulgating anti-Semitic falsehoods, he said he would not bow to demands that she be removed from her committees.” [op. cit.] I have sympathy for McCarthy’s position but a tent big enough to include people like Greene is not one I am willing to reenter. Vladimir Putin must be smiling.

We will never be able to prevent the devil in one guise or another from manufacturing lies in efforts to keep us divided and at each other’s throats. But we can and should better educate our public to critically assess wild claims and more carefully choose more reliable sources of information.

My Travels in the Former Soviet Union

FSU: Building Market Economy Monetary Systems–My Travels in the Former Soviet Union

By Warren L Coats (2020)  Kindle and paperback versions available at: https://www.amazon.com/FSU-Building-Economy-Monetary-Systems-ebook/dp/B08K3WNQK2/ref=sr_1_2?dchild=1&keywords=warren+Coats&qid=1601491694&s=books&sr=1-2

By the end of 1991 the pressures for the Union of Soviet Socialist Republics (USSR) to break up into 15 separate countries climaxed. On December 25, Mikhail Gorbachev resigned as the President of the USSR and the next day the Supreme Soviet voted to end its existence. The demise of the Soviet Union was precipitated by the failure of its system of central planning to deliver an acceptable standard of living for its unfortunate citizens. Thus, Russian and the other now Formerly Soviet Republics wanted to transition into market economies as quickly as possible. They wanted to become what they called “normal” countries and to join the rest of the world.

Of direct relevance to me, my employer, the International Monetary Fund (IMF), suddenly faced the prospect of fifteen new members, each of which wished to convert its branch of Gosbank, the central bank for the USSR, into its own independent central bank overseeing the monetary and financial systems of market economies.

Four months after the USSR was formally dissolved, I was on a charter flight from Geneva, Switzerland, to Alma Ata, Kazakhstan, with eleven other economists to provide technical assistance to the National Bank of Kazakhstan. We knew almost nothing about the people we were to meet, the living conditions we would find, the social customs that we might be expected to understand, and the condition of the former branch of the Gosbank of the USSR that we were to help become a normal central bank. It was a challenging but very exciting undertaking.

In this book, I attempt to share some of the more interesting social, primarily non-economic, encounters of my work in Kazakhstan, Kyrgyzstan and Moldova from 1992 to 1995.

Previous Books

One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina by Warren Coats (2007)   Hard cover: One Currency for Bosnia

Afghanistan: Rebuilding the Central Bank after 9/11 — My Travels to Kabul By Warren Coats (2020)  Kindle and paperback versions available at:  “Afghanistan-Rebuilding the Central Bank after 9/11”

Zimbabwe: Challenges and Policy Options after Hyperinflation by Warren L. Coats (Author), Geneviève Verdier (Author)  Format: Kindle Edition Zimbabwe-Challenges and Policy Options after Hyperinflation-ebook

Money and Monetary Policy in Less Developed Countries: A Survey of Issues and Evidence by Warren L. Coats (Author, Editor), Deena R. Khatkhate (Author, Editor)  Format: Kindle Edition Money and Monetary Policy in LDCs-ebook

General Michael Flynn

We all deserve to know whether Donald Trump colluded or cooperated with Putin and Russia in any way to illegally help his presidential campaign. I have full confidence that special counsel Robert Mueller’s investigation will provide us with the truth of that question one-way or the other.

I also strongly support former President Obama’s (Russian restart) and President Trump’s desires to build the closest and most cooperative relationship possible with Mr. Putin’s Russia that is consistent with American interests and values. This means that conversations—many conversations—between the Trump administration and Russian officials are not only proper, but also highly desirable.

The revelations that such conversations occurred tell us nothing about whether the Trump administration has been doing anything improper. Then enter General Michael Flynn.

Sunday’s Washington Post contains an article with the headline “Inside the day that set in motion Michael Flynn’s guilty plea”. The day in question was Dec 29, 2016, well after Trump’s election and four weeks before his inauguration. The day before President Obama had “imposed sanctions against Russia for its alleged interference in the election.” Flynn called Russian Ambassador Sergey Kislyak, “urging Moscow not to retaliate — and Russia later surprisingly agreed.”

On the face of it this is neither appropriate nor inappropriate. We would need additional information to come to such a conclusion. However, Flynn lied to the FBI about having such a conversation, which raises the suspicion that it was inappropriate. Unrelated to his work with the Trump administration, General Flynn failed to get clearance before doing work with foreign governments, nor did he register as their agent, as required by law. Generally Flynn seems to have a habit of lying. Later Flynn pleaded guilty to perjury as part of a deal to fully cooperate with Mueller’s investigation in exchange for not being charged with these other crimes.

So if Flynn was not making improper deals with Russia, why did he lie about it? Hopefully we will know in the course of time, but it could be because he belatedly learned that his “conversations with Kislyak violated the Logan Act, a 1799 law that prohibits private citizens from conducting U.S. foreign affairs without the permission of the government.”

No one has every been convicted of violating the Logan Act and a strong argument could be made that such acts by a President elect and his team are not covered.

I want to know the truth. Trump lies so regularly that he has no trust from anyone who really cares about the truth. But to be fair, Flynn’s conversations with Kislyak is not evidence of anything inappropriate. Let’s not jump to conclusions until we have enough information to do so with some confidence that they are correct.

Trump’s approach to government corruption

PEOTUS Trump is giving conflicting signals on his policy toward government corruption. He seems to recognize clearly the conflicts of interest in the “military industrial complex,” when he criticized the F-35 fighter plane and the revolving door between the defense department and the defense industry. “On Monday, Trump also took a shot at Lockheed Martin’s $400 billion F-35 Joint Strike Fighter program, the most expensive in the history of the Pentagon, saying the “cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th….Trump said there should be a “lifetime restriction” of top defense officials going to work for defense contractors ” “Trump-takes-aim-at-pentagons-revolving-door-and-lockheed-martins-400-billion-f-35-program”

This is commendable. But it is only one example of conflicts of interest that can arise in government. We await with interest to see how Rex Tillerson, Trump’s choice to head the State Department, will handle his conflicts of interest arising from the extensive business deals between Exxon-Mobile, the company he currently heads, and Russia and his friendship with Russian President Putin.

But we particularly await Trump’s clarification of how he will handle his own conflicts of interest. As a private citizen, Trump did not hesitate to use the power of government to force private citizens and companies to bend to his will. “And-so-here-we-are.” While Trump apparently has no direct businesses in Russia he has plenty of indirect business relationships. “Donald-Trump-ties-to-Russia” He has delayed until January his promised Dec 20 clarification of how he will handle this. “Trump-corruption-conflict-of-interest.” He still has not disclosed his personal and business tax returns that would clarify some of the potential conflicts. Given his strong position on the Pentagon’s revolving door, perhaps we can be hopeful that he will take equally strong measures with regard to potential conflicts of interest of his own and of his cabinet’s.

Economic Sanctions

Economic sanctions can be a political tool to punish and hopefully stop or deter bad behavior by another country, group, firm, or individual. However, sanctions are rarely effective, often hurting the wrong people. Robert Pape’s examination of past sanctions on countries found that only 4% were clearly effective. Their virtue is that they tangibly register disapproval of bad behavior without going to war. An important policy question is when to use them. In my opinion sanctions should be used very rarely against countries when there is a broad global consensus that the behavior of the country is significantly and unacceptably at variance with established international norms. This is both because they are rarely effective, in part because they often hurt the general public rather than the leaders responsible for the bad behavior, and because it should generally not be the business of our government to dictate how other governments behave unless that behavior is directly against us. What that means, for example, is that sanctions should not generally be used against countries whose human rights behavior we disapprove of.

Under what circumstances might the use of economic sanctions be justified and effective? The effectiveness of economic sanctions varies greatly with their nature and the circumstances in which they are applied. In what follows I very briefly illustrate the range of experience and possibilities.

Cuba

Clearly the sanctions of one country against another, such as outlawing trade in certain products or outlawing trade and financial transactions of any sort, are of very limited effectiveness as the sanctioned country can simply trade with others instead. Cuba illustrates this point. First imposed over 50 years ago by President John F. Kennedy and now enforced through six different statutes, the United States forbids most trade with Cuba by its citizens or companies. President Bill Clinton extended and stretched the reach of this embargo to apply to the foreign subsidiaries of American companies as well. The purpose of this embargo as stated in the Cuban Democracy Act of 1992 is to encourage the Cuban government to move toward “democratization and greater respect for human rights”.

Though the U.S. has put a lot of pressure on other countries to restrict their own trade with and travel to Cuba, it has been largely ignored. The U.S. pretty much stands alone. The cost of the embargo has fallen more on the U.S. than on Cuba. The U.S. Chamber of Commerce estimates the cost to the U.S. economy at $1.2 billion per year in lost sales and exports. More over it has not improved governance in Cuba nor led to regime change. In 2009, Daniel Griswold, director of the Cato Institute’s Center for Trade Policy Studies, criticized the embargo by stating:

“The embargo has been a failure by every measure. It has not changed the course or nature of the Cuban government. It has not liberated a single Cuban citizen. In fact, the embargo has made the Cuban people a bit more impoverished, without making them one bit more free. At the same time, it has deprived Americans of their freedom to travel and has cost US farmers and other producers billions of dollars of potential exports.” Former Secretary of State George P Schultz called the embargo “insane.”

Cuba is a mess not because of U.S. sanctions but because of the highly repressive Marxist regime in control for the last 52 years. The American embargo has given the Castro government an escape goat for its own failures—and the Castro government still rules. President Obama recently reestablished diplomatic relations with Cuba but the embargoes will remain until Congress amends or removes them. The President has been criticized for not getting enough in return for reestablishing relations and its link with Cuba’s freeing of American spy Alan P. Gross is certainly unfortunate, but the U.S.’s diplomatic recognition of a country should have nothing to do with whether we approve of its government and its approach to governing. The 50 plus year-old embargo has totally failed in its objectives as well, which were not justified in any event. It should finally be lifted and we, and our government, should continue to criticize the Cuban government’s oppressive and destructive policies.

Iran

Economic and financial sanctions against Iran have been more successful. Though the U.S. initially imposed limited sanctions following the Iranian revolution in 1979, international sanctions were imposed by the U.N. Security Council in 2006 and later by the EU in response to Iran’s refusal to suspend its uranium enrichment program. These sanctions banned supplying Iran with nuclear-related materials and technology, and froze the assets of key individuals and companies related to the program. In the following years these sanctions were expanded to include an arms embargo and broader freezes on assets held abroad and monitoring the activities of Iranian banks, and inspecting Iranian ships and aircraft.

These sanctions have reduced Iran’s export (largely oil) revenue and sharply restricted its imports of materials needed for its uranium enrichment program. The international arms embargo has negatively impacted Iran’s military capacity as it is now reliant on Russian and Chinese military assistance. The U.S./EU embargo on oil shipments was made more effective when the EU extended its embargo to ship insurance resulting in most supertankers refusing to load Iranian oil. Excluding Iran from international payments via SWIFT has significantly complicated such payments. The value of Iranian rial plunged by 80% and the standard of living is suffering.

While smuggling has allowed wide spread evasion of many restrictions, they significantly raise the cost of, and thus reduce the gains from, trade. In the list of unintended consequences, Fareed Zakaria argues that sanctions have strengthened the state relative to civil society because in Iran the market for imports is dominated by state enterprises and state-friendly enterprises, thus smuggling requires strong connections with the government.

While it is difficult to assess the impact of sanctions on public attitudes, they seem to be succeeding in increasing pressure on the government to reach an agreement with the U.S. and EU to reign in its uranium enrichment program. This qualified success reflects the broadly accepted purpose for the sanctions (thwarting Iran’s nuclear weapons potential), and hence broad (but not universal) enforcement of such sanctions.

Islamic State — Da’ish

Da’ish is not a recognized state but is so widely seen as an evil pariah that it constitutes an entity and cause for which sanctions should have their maximum impact. Moreover it is being resisted and attacked militarily as well. While direct U.S. military engagement would be counterproductive in the long run (it is their region and interest, not ours), logistical and weapons support to the government of Iraq and close coordination with Iraq’s neighbors has been and will be helpful. Blocking every possible source of income, payments, and weapons procurement by Da’ish will gradually degrade its ability to fight and to hold on to the territory it needs to fulfill its Islamic caliphate objective.

When virtually the whole world is behind sanctions, we have many tools and capability to make them effective. But even in this most obvious and potentially effective case, there are challenges. While strongly and rightly defending the right of anyone to offend the Prophet or anyone else we can hardly forbid public statements in support of Da’ish. The British “human rights group” CAGE, for example, is under attack for calling Jihadist John “a beautiful young man.” The group, led by former Guantanamo Bay inmate Moazzam Begg, is being attacked by both public and private groups in the UK for its jihadist sympathies. Similar issues exist in the U.S. Read more: http://www.dailymail.co.uk/news/article-2972757/Fury-charities-fund-ISIS-Jihadi-John-apologists.html and http://www.bbc.com/news/uk-31657333

But what about financial support to terrorist groups from their sympathizers? Striking the right balance between fighting terrorists and freedom of expression will require care. Who of my generation can forget the controversies raised in the 1970s and 80s over the financial contributions of Irish Americans and their charities to the Irish Republican Army (officially a terrorist group)?

Russia

In general, the modern world is blessed with many positive incentives for people and countries to behave well. The broadly embraced values of the Enlightenment, and classical liberalism’s respect for each individual and his and her rights has established a presumption against force and coercion and hence against war. It is far more profitable (for both sides) to buy what we want than to try to take it (trade vs war). But unfortunately this has not always been enough to deter bad behavior necessitating consideration of deterrents. Russia’s President Vladimir Putin, whose behavior I can only understand as that of a self enriching gangster who is happy to exploit the fears and paranoia of the average Russian to enhance his power and control, but who cares little for the future well being of his country, is grossly violating post Westphalian principals of sovereignty. Our interest in Ukraine is marginal and Putin’s is intense for reasons of Russian history and its emotional value for Russian support of its new autocrat. U.S. intervention of any sort in Ukraine would likely precipitate intensified interference by Russia. Where and when would the escalation on each side end? Would Russia’s bankruptcy end the fighting before reaching the nuclear level? We should not try to find out. Whether we should provide the pro west Ukraine government with defensive arms is a more difficult question, but would risk ill-advised escalation by Ukraine, a risk we should not take. This leaves us with economic sanctions as the most appropriate deterrent of Russia’s bad behavior.

Interestingly and frustratingly the vary interdependencies that develop with trade also create weapons that can be used by either side to promote a country’s aims. Da’ish is not in a position to deprive us of anything in retaliation to sanctions we impose on it. Even shutting down all exports of oil in the territories it controls or is likely to control would be barely noticed. On the other hand, Russian threats to shut off the flow of oil and gas to Europe and especially Germany, which receives 40% of its oil from Russia, must be taken very seriously. All of the natural gas consumed in Estonia, Finland, Latvia, Lithuania, and Macedonia comes from Russia as does over 50% in Bulgaria, Czech Republic, Greece, Hungary, Montenegro, Serbia, Slovenia, Turkey, and Ukraine. A Russian cut off of gas and to a lesser extent of oil would be devastating to Europe. On the other hand, the loss of that revenue would be devastating to Russia. This is the two-sided nature of trade. It introduces caution into measures to harm trading partners.

Russia’s recent deal to supply oil and gas to China will reduce its reliance on its European market and hopefully Europe will also take steps to reduce its reliance on Russia. However, the U.S. has moved slowly if at all to increase its capacity to ship gas and oil to Europe, which is currently heavily dependent on existing pipelines from Russia. Russia has spent billions of dollars in Europe through environmental groups and others to discourage the development of Europe’s oil shale potential and to encourage the reduction of its use of nuclear energy. http://www.thenewamerican.com/world-news/europe/item/18546-nato-head-russia-is-funding-anti-fracking-movement http://www.washingtontimes.com/news/2015/feb/2/richard-rahn-vladimir-putin-funding-opposition-to-/

Sanctions so far have been carefully (and wisely) targeted to a few specific individuals and companies. It is difficult to determine whether they are having any effect on Putin’s behavior. If they are increased, the risk of Russian retaliation will increase as well, the burden of which would fall on Europe, not the U.S. Russia has cut off the flow of its gas and oil to Europe before for relatively short periods but has resisted doing so for the last few years. Putin is now threatening it again: http://www.washingtonpost.com/world/europe/putin-threatens-to-cut-gas-to-ukraine-as-showdowns-shift-to-economy/2015/02/25/b0d709de-bcf6-11e4-9dfb-03366e719af8_story.html.

Putin’s behavior justifies increasing sanctions but they should remain well targeted. A total blockade of Russia, which would be extremely difficult for Europe, would lead to a collapse of the Russian economy with unpredictable political consequences. The collapse of the Soviet Union in 1991 following the end of the cold war in December 8, 1987, with the signing of the Intermediate Nuclear Forces (INF) Treaty launched the transition (for a while) to a more liberal regime. It was the most dramatic and totally peaceful regime change the world has ever seen, but it took 70 years of patience to achieve. In a letter to this week’s Economist former British Ambassador to Russia Sir Tony Brenton said: “The solution to the Russia problem is not to sanction and isolate, but to hug close and thus, eventually, subvert.” We have a strong interest in an orderly political transition in nuclear-armed Russia.

Israel

Ironically the opposite side of the page of the Washington Post story on Russia linked above reported on the very disturbing use of economic sanctions by Israel against the Palestinians living in the West Bank. Israel refused to turn on the promised water to a new upscale city (residences, shopping mall, theater complex, sports club, school, etc.) being built on a West Bank mountaintop. “Before granting water access to the planned city of Rawabi, Israel — which controls the area that the water pipe would run through — wants Palestinian Authority officials to return to an Israeli-Palestinian Joint Water Committee. The Palestinians abandoned the group in 2010 because they don’t want to approve water projects to Jewish settlements in the occupied West Bank, which are built on land that Palestinians want for a future state — and which still get plenty of water.” http://www.washingtonpost.com/world/middle_east/new-palestinian-city-has-condos-a-mall-and-a-sports-club–but-no-water/2015/02/24/d5a28dcc-b92e-11e4-a200-c008a01a6692_story.html

After driving Palestinians from their homes in the war of 1948 that established the Jewish state of Israel, the new state of Israel and the international community accepted boundaries between Israel and the rest of Palestine that were somewhat enlarged from the UN approved partition of Palestine into Israel and the West Bank and Gaza Strip. The right of the 700,000 displaced Palestinians to return to their homes remain one of the unresolved issues in the Israeli-Palestinian dispute. The Jewish settlements referred to above are in the West Bank and have been ruled illegal in a number of UN resolutions and U.S. State Department opinions. http://works.bepress.com/warren_coats/26/

On several occasions Israel has also withheld the import tariffs that it collects on behalf of the WBG government (the Palestinian Authority) in order to pressure the PA not to challenge the construction of additional illegal settlements in the West Bank. “To protest the Palestinian Authority’s move this year to join the International Criminal Court in The Hague, Israel has also withheld for three months the transfer of $381 million in custom duties Israel collects on Palestinians’ behalf.” http://www.washingtonpost.com/world/middle_east/israel-to-let-water-flow-to-west-bank-development-at-center-of-political-feud/2015/02/27/d1b598de-be84-11e4-bdfa-b8e8f594e6ee_story.html

These are examples of a country’s use of “sanctions” to achieve its own, not widely shared, political ends. In the New York Times Nicholas Kristof said: “The reason to oppose settlements is not just that they are bad for Israel and America, but also that this nibbling of Arab land is just plain wrong. It’s a land grab.” http://www.nytimes.com/2015/02/26/opinion/nicholas-kristof-the-human-stain.html?_r=0 The same can be said of Russia’s land grab in Ukraine.

Fortunately in the case of Israel, Prime Minister Netanyahu intervened on February 27 and approved turning on the water before traveling to the U.S., presumably worried about bad press from Israel’s behavior, something President Putin unfortunately but predictably doesn’t seem to care about.

Should the U.S. help finance Ukrainian weapons?

Ukraine is much more important to Russia than to the U.S. It borders Russia, was part of the Soviet Union, and much of what is now Ukraine, including Kiev, has been part of Russia from time to time for as long as the United States has existed. Ukraine’s importance to the U. S. is, however, more academic. It is reasonable to assume that as long as it is economically able Russia will counter any increase in Ukraine’s military capacity and activity in eastern Ukraine (the part bordering Russia) with equal or greater military force. If we increase our support and Ukraine elevates its military activities in the east, so will Russia. The Russian economy is suffering from years of exploitation by Putin and his friends as well as inadequate investment and is now suffering from the sharp fall in the prices of its primary exports– oil and gas. Russia will presumably only stop matching escalations from the West when it is no longer economically able to do so. Do we have a national security interest in escalating that far?

Our interest in Ukraine is humanitarian– not military out of a concern for our own security. We would like to see the people of every country enjoy the freedom and prosperity that we have. Moreover, most of us have long believed that healthy, prosperous, well-governed countries make better neighbors and a more peaceful and prosperous world. So it serves that interest and our humanitarian natures to encourage and financially support the new Ukrainian government’s efforts to reduce the corruption their country has long suffered from. Military aid is an entirely different matter.

Both we and Ukraine’s government in Kiev must accept and come to reasonable terms with Russia’s dominance in the area and its determination to remain in Eastern Ukraine as it has in South Ossetia and Abkhazia. The alternative, which would likely follow the injection of western arms into the conflict, would be a continued escalation of fighting with unknown consequences and an unknown end point. We don’t like to give in, and wouldn’t and shouldn’t whenever our national security is truly at stake, but this is not our war. What, after all, did our “victory” in Iraq (one of the most insane and ill-advised wars we have ever launched) gain us? ISIS!!

Let’s help Ukraine financially, which it desperately needs, as long as its government continues to seriously fight the corruption that has characterized it for so long (easier said than done). Ukrainian offensives in “rebel”/Russian dominated areas of the East are futile and we should not encourage them by providing the weapons that make them possible. Freeze the status quo until Russia comes to its senses (which we should encourage in every possible way) or collapses economically (which we should not hope for).

President Putin’s welcome to Crimea

Anyone interested in current events in Ukraine should read Russian President Putin’s address to the Russian people on March 18, 2014 welcoming Crimea back into Russia: “Putin’s speech on Crimea”. It is very clever in playing to the insecurities of the Russian people while also speaking to the international community. Putin says many things we can hardly disagree with along with (and often packed in) some amazing lies and some embarrassing truths.

Here is one example of the former: “I would like to reiterate that I understand those who came out on Maidan with peaceful slogans against corruption, inefficient state management and poverty. The right to peaceful protest, democratic procedures and elections exist for the sole purpose of replacing the authorities that do not satisfy the people. However, those who stood behind the latest events in Ukraine had a different agenda: they were preparing yet another government takeover; they wanted to seize power and would stop short of nothing. They resorted to terror, murder and riots. Nationalists, neo-Nazis, Russophobes and anti-Semites executed this coup. They continue to set the tone in Ukraine to this day.” Perhaps Putin’s virtual shut down of a free press in Russia has kept the Russian people from knowing of his suppression of political opposition there. Or perhaps he thought that the recent release from prison of Mikhail Khodorkovsky (after over ten years of political incarceration) and Pussy Riot demonstrated that the “right to peaceful protest” was alive and well in Putin’s Russia. His statement that the murder of over 100 Maidan demonstrators was at their own hand is just a bald faced lie.

Examples of embarrassing truths include President Obama’s pledge not to bomb Libya. Quoting Stephen Cohen, a professor emeritus at New York University and Princeton University, on the Charlie Rose show:  “The United States said to Russia, support of the United Nations’ [authorization of] a no-fly zone over Libya so that Gaddafi can’t take his planes up and attack the insurgents.  Russia said, so it’s just a no-fly zone?  You’re not going to bomb Gaddafi?  [But] we did and it led to his assassination. From that moment on, Putin never trusted anything that came out of the White House.”

I had intended to start the previous paragraph with the often repeated claim that, to quote former U.S. defense secretary Robert McNamara, ‘‘the United States pledged never to expand NATO eastward if Moscow would agree to the unification of Germany.’’ According to this view, ‘‘the Clinton administration reneged on that commitment when it decided to expand NATO to Eastern Europe.’’ Quoted in Mark Kramer: TWQ article on Germany and NATO. Recently available documentary evidence cited by Kramer clearly refutes this “myth.”

I want to share an account of a famous meeting I attended in Tashkent on May 20-21, 1992. The account was written by me many years ago but never shared until now. It presents the truth of another mini lie in Putin’s speech contained in the following passage:

“The USSR fell apart. Things developed so swiftly that few people realized how truly dramatic those events and their consequences would be. Many people both in Russia and in Ukraine, as well as in other republics hoped that the Commonwealth of Independent States that was created at the time would become the new common form of statehood. They were told that there would be a single currency, a single economic space, joint armed forces; however, all this remained empty promises, while the big country was gone.” The following account reveals just how committed Russia was to “a single currency” for the newly independent Former Soviet Republics.

Tashkent, May 20 1992

A.   Background: Monetary Babylon

The sudden formation of 15 central banks out of Gosbank in the Former Soviet Union created a strange and ultimately unsustainable situation. One monetary system suddenly had 15 suppliers of “rubles.” The ruble banknotes supplied by the new Central Bank of Russia (they were initially the USSR ruble notes that had already been printed by the Central Bank of the USSR) were issued in their respective areas by each of the 15 FSU central banks. In addition, ruble deposits with banks where used in payments throughout the entire FSU region using the settlement accounts each bank maintained with its newly independent central bank. When payment orders from FSU republics outside Russia began piling up at the Central Bank of Russia in Moscow, we were forced to start sorting out what was wrong with the “system.”

Initially the payment system continued to function as it had previously under Gosbank. The system was decentralized. All that was needed under that system was to verify that the sender (payer) had sufficient funds in its account with its bank. As there was only one bank in the Soviet system, Gosbank, there was no issue of the sender’s bank having enough money in its “settlement” account. All deposit transfer payments were in effect “on us” (i.e., intrabank transfers). Thus a valid payment order could be and was safely accepted at which ever branch or office of Gosbank it was delivered to (the one closest to the recipient of the payment). However, with the introduction of a two tiered banking system several years earlier, the adequacy of a depositor’s bank’s settlement account with the central bank potentially became important.

In early 1992 we were confused by the system being described to us. It was very difficult for us to understand how it really worked. Our counterparts who were explaining the system to us, either didn’t really understand the system either or understood it in terms of its functioning in monobank days. On top of this, the system we were trying to understand was being described to us in Russian and then being translated into English for us by interpreters with no real knowledge of the subject they were interpreting.

Under the old, inherited system, a payment order was sent directly from the central bank branch office used by the sender to the central bank branch office used by the receiver. We were concerned with the potential for credit creation by overdrafts that seemed to be automatically generated when payment orders were accepted wherever they landed without being able to verify the sending bank’s settlement balance with its respective central bank. Bruce Summers of the Federal Reserve Bank of Richmond, complained that each of the fifteen central banks created out of Gosbank needed to centralize the information on account balances if they were to avoid accepting payment orders that might result in overdrafts. Furthermore, something was needed to ensure that net payments among the fifteen central banks did not result in unauthorized overdrafts.

In a series of quick steps, the Central Bank of Russia centralized all incoming payment orders from FSU payers outside of Russia in its Regional Branches and ultimately in Moscow. Furthermore, payment orders that had earlier been sent directly from the Gosbank office servicing the payer to the Gosbank office serving the payee, were now redirected to the new central bank of the republic of the payer, which forwarded it to Moscow (if the payee was somewhere in Russia). Quite aside from whether the bank of the payer had sufficient settlement funds, the sheer volume of payment orders now directed to Moscow overwhelmed the CBR staff there. The time for processing cross border ruble payments was measured in months.

In addition, no one seemed to know the terms under which the CBR supplied its ruble bank notes to the new FSU central banks. Under the inherited system, banknotes were shipped from the mints to the regional branches and offices of Gosbank as needed. They were issued to enterprises against debits to the enterprises’ account balances with the central bank or as credits to the enterprises. The rest was just internal bookkeeping. This arrangement continued for a while until the new FSU central banks began to realize that they were no longer part of the new central Central Bank of Russia and would need to pay for the banknotes of the CBR.

I remember being told by bewildered staff of the National Bank of Kazakhstan and National Bank of Kyrgyzstan that of course the CBR would continue sending banknotes when needed because they always had. And why should they “charge” for them as they had never charged for them before. And indeed, the CBR did continue to send their banknotes for a while and no one knew what the terms for providing them was or might be. This was new territory for everyone and no one seemed to understand exactly where the system was going or how it should work.

As almost all of the new republics had a balance of payments deficit with Russia, the settlement accounts of their new central banks with the CBR in Moscow were always over drawn. The CBR periodically extended credits to these FSU central banks in order to put the overdraft credits on a more explicit basis. But in fact, as the whole process was not really understood and the CBR’s policy not yet really established, the terms of these credits were often unspecified for many months after the fact. Russia seemed to use the undefined terms for political leverage. More politically cooperative Republics negotiated better terms than others.

Resolving the settlement problem was further complicated by the fact that the system was not designed to produce up-to-date account balances. I remember when our accounting expert, Alan Vedren Lacohm from the Bank of France, reported to me that the central bank did not seem to know the current balances of the deposits banks held with it. As hard as it was for him to believe or understand, the central bank seemed to maintain separate debit and credit accounts that were only compared and balanced once a year. An enterprise could issue payment orders against its account on the basis of a central plan authorization. It didn’t matter if it had enough money in its combined debit and credit accounts, and in fact no one really knew whether it had a positive balance or not. This astounding fact mystified us because we were seeing it from the prospective of the systems familiar to us designed for market economies. When we came to understand that the Soviet system, obviously designed to serve a centrally planned economy, was really a budget tracking tool, we suddenly understood its logic. None-the-less, it would not work for a market economy. (Alan later married my assistant after they met on my second mission to Kazakhstan and Kyrgyzstan)

When a bank did not have sufficient balances in its settlement account at the central bank, the central bank could extend it credit to permit payment settlement to proceed. However, such credit did not help when “rubles” were being transferred from Kazakhstan (for example) to Russia. The National Bank of Kazakhstan could not extend credit to its own account with the CBR. The system was designed to work with one central bank and it continued to operate throughout the ruble area as if it still had one central bank when it in fact had 15. The fact that the CBR more or less automatically extended credit to the other FSU central banks and supplied them with what ever ruble bank notes they needed (a very soft budget—balance of payments—constraint), encouraged the FSU central banks to create ruble credit at an ever increasing rate.

B.   A Blue print for monetary union

The emerging system was not viable. The USSR had been one economic and monetary space. With its break up, the ruble continued to circulate and to be used for payment through out the entire area. In the case of bank notes, a ruble was a ruble (until new versions were introduced later in the year and in 1993). But in the case of deposit rubles, 15 central banks now issued them. And they continued to be transferred from one account to another as if they were one currency in one system. As we more fully appreciated later, the ruble area of 1992 consisted of one cash ruble and 15 different non cash rubles. Each central bank was issuing its own ruble credits. A ruble claim on the National Bank of Kazakhstan was not the same as a ruble claim on the CBR even though they had the same name.

If an FSU central bank was going to create credit as it saw fit, it would need to introduce its own currency (bank notes as well as central bank account money). If an FSU republic wished to continue using the “traditional” ruble, it’s monetary policy would need to be subordinated to or coordinated with that of the CBR and any other central banks that remained a part of the ruble system. We developed a set of rules for central bank cooperation within a ruble area that we thought would be needed to make the system coherent and stable and invited the governors of all 15 FSU central banks to a meeting to discuss them. The meeting took place in Tashkent on May 20 and 21 following a heads of state meeting there as part of the Russian effort to organize the Commonwealth of Independent States (CIS).

This meeting was preceded by building tensions between the CBR and most of the other FSU central banks as they raced to out do one another in creating ruble credit and as payment orders piled up in Moscow. The situation was further complicated by conflicting signals from Moscow. Depending on who was speaking on any given day, Russia seemed to support the introduction by the FSU republics of their own currencies (thus leaving the ruble area) or the surrender of monetary autonomy to the CBR. Either of these Russian positions was coherent. Our own proposal was meant to provide coherence and central, but collective, control of monetary policy (along the lines of the subsequent ECB), without full surrender to the CBR (These can be found in IMF [Occasional Paper 51]). The Russian terms for staying in the ruble area were cleaner, but because they required complete subservience to the CBR, we felt they would drive out (into their own currencies) even those countries that wanted to stay in a ruble area.

After helping to develop the guidelines to be discussed, I attended the meeting. Other IMF staff attending where Malcomb Knight (later the Sr. Deputy Governor of the Bank of Canada and the General Manager and CEO of the BIS), John Oling-Smee (head of the IMF’s newly established European II Department consisting of the FSU countries), Ernesto Hernadus Catan and Ishan Kapur (both from the IMF’s European I Department). Most of us met in Geneva in order to take a charter flight on May 19. We stopped in Moscow on the way to pick up Ernesto. May 19, 1992 happened to be my 50th birthday. We celebrated on the plane with a bottle of Dom Perignon. It was a memorable birthday.

We were met at the airport in Tashkent by the Deputy Prime Minister. A caravan of three Chaikas and several police cars took us to the compound in which we would stay and our meeting would be held. It was 10:00 pm when we arrived and a formal welcoming dinner had regrettably been planned that required our attendance.

Following the dinner, sometime after midnight, I slept moderately well, despite my excitement, because I was so tired. We had no idea what the current Russian position on use of the Russian ruble would be. It had been changing back and forth in the work up to these meetings almost daily. Clearly views within the Russian hierarchy were divided. Relations between Russian and most of the FSU republics had grown increasingly tense. No one trusted anyone. I had found trying to understand the existing monetary arrangements and working out principles that could make it work intellectually very challenging and interesting. I was filled with excitement and anticipation to hear the reactions of the delegates.

The meeting on the 20th was opened by the Prime Minister, Abdulhashim Mutalov, and the Governor of the State Bank of Uzbekistan. The substantive part of the meeting, which was attended by the Governors of most of the FSU central banks and the Deputy Governors of the rest, was led by John [Odling-Smee]. After a general introduction of the purpose of the guidelines, we proceeded through the sixteen points one after the other. Questions were raised by one chair or another to clarify some of the points. The general suspicion that the IMF would take the Russian position gradually melted (this was helped by the fact that we had fielded technical assistance missions to all of the FSU central banks by then and established the beginnings of relationships of trust). Very few political statements were made and everyone kept glancing at the Russian chair trying to read their position. The Russian Chair, headed by Governor Georgy Matyukhin, said nothing at all that day. It seemed that Russia was not going to challenge our proposal, which was enthusiastically supported by all of the other central banks. At the conclusion of the day it was agreed that a communiqué signed by each of the fifteen governments would be prepared that would set out the sixteen points.

Following the long day’s meetings, we were taken in a long police escorted motorcade to a lake on the outskirts of Tashkent for a celebratory banquet. Our banquet tables were on a large wooden pontoon floating at the edge of the lake. By that time I knew the routine (toasts from each governor, lots of food and lots of vodka). Between the 15 central bank representatives, Uzbek/Tashkent government representatives, and our group, there were a guaranteed minimum of 18 toasts. And indeed, we exceed the minimum. My routine of minimal sips was again subverted by yet another Russian woman sitting across the table. Nothing but “bottoms up” was acceptable. The spirit of the group was exuberant. Each toast became more friendly and gushier than the one before it. Governor’s who were barely willing to speak to each other in the morning had become the best of friends—brothers (“comrades” was no longer a forbidden term).

We arrived back at our compound around midnight. Galinda, our translator from Washington went to work translating the draft communiqué into Russian. John had asked me to be ready to respond the next morning to any questions about inter-enterprise arrears. I started down the hall to my room to brush up on my potential presentation and the First Deputy Governor of the State Bank of Kazakhstan (Mr. Tadjeokof) grabbed me and insisted that I join him in his room for another drink. I had met him two months earlier in Alma Ata (now called Almaty) during my first mission to Kazakhstan. He wished, it seemed, to thank me for our technical assistance and to explain how much they needed lots more. Mr. Tadjiokof did not speak English and I do not speak Russian (or Kazakh), but we proceeded to speak to each other and to lift our glasses of Vodka and toast whatever warm words had been said.

I had assumed that Mr. Tadjiokof had wanted company for another drink, but he persisted in efforts to communicate. It was only possible to go on as if we understood each other for a limited time. I was soon forced to seek help from one of our interpreters. Galinda agreed to suspend her translations of the draft communiqué to interpret for us. Several toasts late, I had second thoughts about the seriousness of Mr. Tajiokof’s communications, which remained focused on his gratitude for our assistance. Galinda was complaining that she needed to return to her work on the communiqué. I was beginning to lose patience and focus. As Galinda left, I spotted Ernesto in the hall. He had been taking Russian lessons and agreed to practice on Mr. Tadjiokof. It was 3:00 am and I stagger off to my bed.

I awoke a few hours later still fully dressed where I had fallen on the bed. I had one of the worst hangovers I can remember. I had serious doubts that I could clearly explain the interrelationships between inter-enterprise arrears and monetary policy. I wanted to sleep for a few more days. But the meeting resumed. No one raised the issue of inter-enterprise arrears thank God. The Russians remained silent. The text of the communiqué was agreed on and the Uzbek hosts agreed to obtain the signatures of the fifteen FSU republics.

The communiqué was never issued nor heard of again. The Russian’s had quietly killed it. In the end, Russia required each FSU republic to choose subordination to the CBT or to introduce their own currency. All but Tajikistan chose the latter. Within several months the Baltic states introduced their own currency and one year later Kyrgyzstan became the first FSU country beyond the Baltics to introduce its own currency. Most of the rest followed before the end of 1993 and the ruble crisis came to an end. Inflation in 1992 is thought to have been several thousand percent dropping to 875% in 1993 and 307% in 1994.

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The quiet disappearance of the central bank cooperation communiqué is reminiscent of the mysterious disappearance of President Yanukovych on February 22, 2014, one day after signing an EU brokered truce with opposition leaders following two days of the worst violence between demonstrators and police in 70 years in which almost 100 were killed. According to witnesses in the room, Yanukovych only agreed to sign the agreement after being instructed to do so by President Putin in a phone call during the meeting. The agreement has not been heard of since. Though Yanukovych was removed from office by an overwhelming vote of the Ukrainian Parliament on February 22, Putin and Yanukovych called it a coup.

The Future of Ukraine

Bordering Moldova, Romania, Hungary, Slovakia, and Poland to the west, and Russia and Belarus to the East, Ukraine should be well placed to benefit from the trade opportunities in both directions. Although the 47 million population of modern (post WWII) Ukraine is overwhelmingly ethnically Ukrainian (about 78%) followed by 17% Russian (concentrated in the industrial eastern and southern areas), Ukraine’s educated citizens are almost universally bilingual in Ukrainian and Russian. Ukraine’s western half naturally leans toward Europe while its eastern half leans toward Russia. The country’s presidency has shifted between favoring one then the other. The tensions between the two are real but can easily be exaggerated.

Many of us wonder why President Putin seems to want yet another unproductive, loss-making territory added to Russia’s care, something it increasingly cannot afford. As with Transnistria, the inefficient, loss-making, industrial, secessionist, eastern part of Moldova (now largely a gangster haven), the eastern part of Ukraine is saddled with former Soviet, industrial, white elephants, which sooner or later must be dismantled. Why is Putin flirting with isolation from the world community with ultimately devastating economic costs to Russia to take over more industrial dinosaurs? Why, in short, is Russia giving up joining the “civilized” world it seemed to once aspire to?  The only tangible benefit for Putin seems to be great popularity at home. Having almost totally snuffed out significant political opposition and a free press in Russia, and then convinced the vast majority of Russians that he is defending Russia from its many enemies, his moves against Ukraine have sent his popularity soaring at home.( “Putin wins in Russia only by escalating his war rhetoric” Washington Post /2014/03/14/ )

Just as President Victor Yanukovych’s brutal repression of the Ukrainian protesters following his switch from signing the Association and Free Trade Agreements with the EU to signing a trade and financing agreement with Russia backfired, resulting in his removal from office by an overwhelming vote of the Ukrainian Parliament, Putin’s thuggish maneuvers against Ukraine seem to have backfired as well. By all accounts (except those broadcast by Russian media) almost all Ukrainians, ethnically Russian as well as Ukrainian, are uniting in their opposition to a Russian take over. Just because many Ukrainians in the eastern parts of the country are native Russians doesn’t mean they want to be annexed by Russia. It reminds me of the large number of Mexicans now living in southern California. No one would imagine that they would vote in a referendum to become part of Mexico (again). “Putin’s interference is strengthening Ukraine” Washington Post /2014/03/13/, “Russia supporters in eastern Ukraine pose challenges to pro western government” Washington Post/2014/03/14/.

I found it interesting that the Ukrainian Minister of Economy, Pavlo Sheremeta, switched from English to Russian during the “Emergency Economic Summit For Ukraine” in which I participated in Kyiv on March 12, for the benefit of the two Russian panelists to whom he was speaking. The Russians, Andrei Illarionov, former Economic Advisor to President Putin, and Kakha Bendukidze, fomer Minister of Economy of Georgia, both speak English as flawlessly as does Minister Sheremeta. The real point was to show affinity with Russia and Russian Ukrainians, while criticizing President Putin’s bullying.

Ukraine has much to do to clean up its government and to liberate the entrepreneurial energies of its economy. But such reform efforts could be interrupted if Putin moves Russian troops into Ukraine beyond the Crimea. It is certainly desirable to dissuade them from doing so if possible. The question for the U.S. and Europe is what measures should they be willing to take against Russia for violating Ukraine’s sovereign territory. The West’s objective should be to deter further Russian aggression if possible or to diminish its ability to continue to misbehave in the future if it persists in violating or threatening to violate the sovereignty of its neighbors.

Putin’s justification for its invasion of the Crimea and potentially more of Ukraine, the need to protect ethnically Russian citizens of Ukraine, is reminiscent of Hitler’s take over of the Sudetenland (the largely German-speaking western areas of Czechoslovakia). “Putin-the mask comes off but will anybody care” American Interest 2014/03/15/3.  Particularly egregious is Russia’s disregard of its commitments made on December 5, 1994 in Budapest, Hungary Budapest Memorandum on Security Assurances (also signed by the U.K. and the U.S.). In exchange for Ukraine’s giving up its nuclear weapons stockpile (then the third largest in the world) Russia and the U.S. provided assurances against the use of force against the territorial integrity or political independence of Ukraine.

Henry Kissinger has set out reasonable terms of an agreement with Russia (on the assumption that Putin is pursuing genuine Russian interests in the area) but offered no suggestions for how to encourage Russia to accept them. “To settle the Ukraine crisis start at the end” Washington Post /2014/03/05/.  The West’s strategy should be explicit and transparent and should escalate with continued Russian aggression. It should begin with measures that will command the most attention in Russia at the least cost and risk to the West. We should not make threats that we are not willing to carry out. No Obama red lines that are later ignored.

President Obama has already ordered the freezing of U.S. assets and a ban on travel into the United States of those involved in threatening the sovereignty and territorial integrity of Ukraine. No individuals have been named yet. It is a tool that can easily be expanded to a larger number of people if and when Russian intrusion expands. These measures are aimed at those in Russia with the greatest influence with Putin and would diminish the joys of their ill-gotten wealth (extravagant vacations in London, etc.). But unless the EU joins the U.S. in applying such sanctions, they will obviously be far less effective.

If Putin is unwilling to reverse course or at least stop advancing even in the face of targeted sanctions, the West’s strategy should be to reduce or limit Russia’s financial capacity to reestablish its former empire. Putin’s hold on power rests on the wealth he has directed to his friends, and wage and pension promises to the general public. About one half of Russia’s federal budget financing comes from its exports of oil and gas. The price of oil needed for Russian fiscal balance is in the neighborhood of $120 per barrel. This so-called breakeven price increases with expenditures by the Russian government and with the cost of producing its oil and gas. Brent crude is currently trading for around $108 per barrel. Russian exports and government revenue have become overly dependent on oil and gas and its supply of cheap oil is running out. It has not kept up with the investment in newer technologies and while its output can be sustained for some time its cost of production is rising.  Acquiring the Crimea or eastern Ukraine would add to Russia’s budgetary costs.  “Crimea as consolation prize-Russia faces some big costs over Ukrainian region” Washington Post /2014/03/15/

Europe is more cautious than the U.S. about trade sections in part because of its heavy reliance on Russian gas delivered though pipelines running through Ukraine and large investments by some of its companies in Russia. One of the interesting and beneficial things about increasing trade interdependence is that it cuts both ways and thus tempers the behavior of all sides. Russia is reluctant to shut off its gas sales to Europe as it did in 2006 and 2009 because it needs the money. Europe is less dependent on Russian gas than it was then and could replace it all together if it got over its aversion to the use of fracking technology. The U.S. should be doing everything possible to bring oil prices down in any event. Obama’s long delay in approving the Keystone Pipeline project to deliver Canadian oil to and through the U.S. is more than embarrassing. And all U.S. restrictions on shipping natural gas to Europe or elsewhere should be removed. In addition, oil supplies globally are expected to improve as the embargo on Iranian oil is lifted and production in Iraq, Libya, and South Sudan increases. Liberalization in Mexico promise increases in its oil production. Russia can’t afford to expand its empire of inefficient industries.

If we went all out, Russians and Russian companies could be locked out of the use of the U.S. dollar, a tool that has brought increasing pain to Iran. It is an effective tool because of the dominance of the dollar and dollar financial instruments in international commerce.  But like Russia’s shutting its gas pipelines to Europe, every use of such tools reduces its future effectiveness as those affected take measures to reduce their dependence on the products involved (Russian oil, or the U.S. dollar and financial system).

If in the hopes of preventing a Russian attack, the United States threatens to respond militarily in any way, it had better be prepared to do so. But should it? Clearly the American defense umbrella over our NATO allies should not be questioned and deploying additional aircraft and military capacity to Europe (especially the Baltic members) makes sense. Ukraine is not a member of NATO and I agree with Henry Kissinger that they should not be. If Russia grows up and behaves like a responsible adult we should not unnecessarily provoke insecurity on its part.

But if Russia, despite all, invades mainland Ukraine, should we militarily assist Ukraine and if so in what ways? Or should we prepare for a new cold war of containment, isolation and the eventual economic collapse of the new Russian empire? This, as they say, is above my pay grade. However, an invasion of Ukraine would be quite different from the invasions of Iraq and Afghanistan because we wouldn’t be the invaders. It would be different from the situations in Syria, or Libya because we would not be joining one group or another in a civil war.

The new interim government in Ukraine is promising but unproven. The distraction from the reforms needed that would result from a Russian invasion of Ukraine would be a tragedy for Ukraine as well as Russia. Excessive external aid (financial and/or military) from the West would likely prolong Ukraine’s history of corruption and deepen ethnic tensions. The external financial assistance now planned would largely address external debt service and would allow a more gradual reduction in government spending than would be required by a debt default. This would allow Ukraine itself to strengthen its governance and economy, but would not guarantee such a result. The West can encourage the adoptions of helpful reforms but cannot impose them on an unwilling or unready Ukraine. Russia is in a position to destroy or undermine these efforts, if that is Russia’s role in history that Putin wants.

Syria and the Red Line

On August 21, 2013, a chemical weapons attack killed 1,429 men, women and children on the outskirts of Damascus. President Obama and Secretary of State John Kerry attribute the horrifying attack to the Assad government. The Geneva Protocol of 1925, the Biological Weapons Convention of 1972, and the Chemical Weapons Convention of 1993 forbid the use of chemical weapons. The use of force to punish violators of the ban may be authorized by the UN Security Council. The United States is not unilaterally authorized under international law to do so.

President Obama continues to surprise me. Despite over a 100,000 casualties in Syria’s two-year plus civil war, he has wisely resisted direct involvement in a conflict that the U.S. has no obvious self-interest in. We have no real control over the unfolding events and outcome of the struggle underway there. Unfortunately, there is no plausible outcome that serves our interest in peace and democracy in the region much less in having a friendly regime. There is no obvious successor to Assad’s regime, though radical Islamism (al Qaeda) forces seem to currently dominate the anti-government forces. Edward Luttwak argues in a NY Times op-ed that a stalemate is the least bad of bad options. “In-Syria America Loses if Either Side Wins”

Obama then foolishly drew a red line against the Assad regime’s use of chemical weapons. It now seems very likely that Assad has crossed it in a big way. If the U.S. does not act decisively it will lose credibility and its red lines will become meaningless. If it acts, as Obama has suggested, in a limited, “surgical” manner that does not tip the balance of Syria’s civil war, will it have “taught” Assad a lesson that will detour him from using chemical weapons in the future? More likely it will affirm U.S. powerlessness in the area. And what about the inevitable collateral damage even if our rockets hit their intended targets and Syria’s unpredictable countermeasures? In a statement released September 1, the International Crisis Group stated that: “To precisely gauge in advance the impact of a U.S. military attack, regardless of its scope and of efforts to carefully calibrate it, by definition is a fool’s errand…. Consequences almost certainly will be unpredictable.” “Syria Statement”

In a letter to the Senate Armed Services Committee last month, Gen. Martin Dempsey, chairman of the Joint Chiefs of Staff, stated that: “As we weigh our options, we should be able to conclude with some confidence that use of force will move us toward the intended outcome. Once we take action, we should be prepared for what comes next. Deeper involvement is hard to avoid.” More recently he added that: “Simply the application of force rarely produces and, in fact, maybe never produce the outcome we seek.” According to Daniel Byman of Brookings Institute “A limited bombing campaign against Syria’s chemical weapons infrastructure is likely to produce the worst of all worlds: raising expectations and further involving the United States in the Syrian civil war without significantly altering the balance of forces on the ground.” “Syria Crisis-Military Action”

Syria’s use of chemical weapons without consequences could render their prohibition toothless. However, not only is the US not legally authorized to police world agreements, it can’t afford to go into another war and still remain economically and militarily strong. Given Russian and Chinese opposition, the UN Security Council will not authorize the use of force. A U.S. attack on Syria would violate international law every bit as much as Syria’s apparent use of chemical weapons has. That does not mean that nothing can be done within the framework of the law in reaction to the use of chemical weapons. If we continue to disregard international law, why would we expect others to abide by it? Globalization, which has dramatically reduced poverty around the world, would suffer. We would be left to police the world by military force (and how has that been working for us?) until we burned ourselves out.

In his rose garden address to the nation Saturday the President said that: “I have decided that the United States should take military action against Syrian regime targets….  And I’m prepared to give that order.” His surprise, however, was his promise to seek Congress’s authorization, something he had not considered necessary for Libya. “But having made my decision as Commander-in-Chief based on what I am convinced is our national security interests,… I will seek authorization for the use of force from the American people’s representatives in Congress.” Regrettably he did not seem to seek this authorization as a legal requirement of the constitution but rather as a pragmatic way to build public support. What ever his reason the step is welcomed.

Harvard Law Professor Jack Goldsmith reviewed the legal arguments over the President’s war powers in a recent New York Times article: “What Happened to the Rule of Law?”  The Obama administration has pushed Presidential authority further than any previous administration. A return to the rule of law, domestically and internationally, is America’s best chance of survival in a dramatically changing world.

Congress should say no to Obama’s request for an illegal and unpromising attack on Syria. But we can thank him for asking.