What's Russia really up to?

With ISIS and the Syrian refugee crisis on the news so often, it’s hard for some Americans to relate to the comments of General Joseph Dunford, the new Chair of the Joint Chiefs of Staff.  Testifying before the U.S. Senate during his confirmation hearing in July, he identified Russia – not Iran, North Korea, China or ISIS – as the greatest threat to US national security.

Many analysts and journalists have speculated on the motives of Russian President Vladimir Putin.  Following the Russian incursion into Ukraine, the Los Angeles Times ran an op-ed piece titled ‘Is Vladimir Putin Insane?’  In it, German Chancellor Angela Merkel is quoted as saying that Putin lives in “another world’.  Other pieces have described him as a tyrant and compared him to Hitler.   Meanwhile, General Lloyd Austin, Commander of U.S. forces in the Middle East admitted to Congress that he was completely flummoxed by Russia’s military actions in Syria. 

Yet, I have seen very little said or written about Russia’s compelling national security interests as a key driver of their behavior.  As I see it, there are two geographic factors driving Putin’s and Russia’s behavior. 

Russia is a vast plain that is easy to attack from every angle, except the sea.  So, they have been attacked throughout their history from both the East and West.  Their compelling interest is to create buffers between themselves and potential attackers.

 That said, Putin knows he doesn’t possess the military strength stand up the US.  So, he exploits the vacuum we created in the Middle East to his advantage by becoming the enabler of Iran’s compelling interest.  The consolidation of Shia power from Iran through Iraq to Syria serves them as well as it does Russia, which gains a buffer zone to its south.  It also threatens both Turkey (a NATO member) and Saudi Arabia, an American ally and, like Saddam’s Iraq, an Arab nation ruled by a Sunni minority.  

As for Ukraine, Russia’s actions — from annexing Crimea to carving out a swath of land that gives them access to it — are driven by another compelling interest, access to the sea.  Like all nations, access to sea routes is essential to commerce.  Securing Crimea provides them with access to the Mediterranean.  

There was a bit of coverage about the Arctic Ocean when President Obama visited Alaska a few months ago.  Our Coast Guard has only one icebreaker to Russia’s 27 securing their access to the sea routes that open up as the ice floes melt.  

Americans tend to take our security for granted.  We are geographically too far from Europe and Asia to have suffered from the ravages of war in the last century.  Very few are aware that the US Navy has secured 100% of the world’s waterways since WW II.  We ensure peaceful commercial sea traffic for every nation in the world.

Now, we are reducing our military presence throughout the world and downsizing our navy.  Is it any wonder that Russia sees an advantage and takes it?  Their incursion into Ukraine tests NATO’s resolve while their support of Syria’s Assad advances a refugee crisis that tests the EU’s economic resilience. 

The Obama administration has been criticized in the press for lacking a cohesive foreign policy. Yet, there may be long-term benefit to the U.S. letting the Middle East and Russia be Europe’s problem.  Our so-called ‘pivot to Asia’ will have greater economic benefit through stronger trading and security relationships that challenge China.  Our Asian allies seem to care about that.  

Does Europe care?  Will they stand up for themselves?  They are already sounding like Chamberlain. 

WHO WILL LEAD?

It's a Vegetable!

The blogosphere loves catchy headlines. Since publishing a blog titled Greed is Still Good and two follow-ups that continued the theme, the Google statistics for this blog show readership quadrupling.


Among the many responses I received, one stood out as unique and piqued my interest. A Belgian reader advocated that technocrats do a better job than democratically elected politicians and the free market at ensuring prosperity for the public. Here’s what he said, in part:

“When dealing with corporate matters, look for the best CEOs. When dealing with agricultural matters, look for the most successful farmers. When dealing with exact science, look in academe for the most respected scientists. When dealing with matters of justice, look for the most respected judges.

“Basically, you look for experts wherever they can be found. Competent technocrats are most likely to be found among those who get the best results or achieve most respect in their respective fields of expertise.”

I challenged him to provide examples of where this works. He responded that it does so in the democracies of northern and western Europe.

This exchange took place a few days before the prime ministers of both Greece and Italy were replaced by technocrats.

When I hear the word, technocrat, I think of a bureaucrat – a government employee whose dogged adherence to some arcane set of rules yields an unreasoned result. But, technocrats don’t comply with policies. They are the experts who make policies.

The argument in favor of technocrats – and, indeed, the European example – is that well-crafted technocracies overcome the inequalities of opportunity that result from unbridled capitalism. Europe has embraced technocracy, perhaps because of its history of class-ridden societies. As a result, Western Europe has better childhood health results and better public education systems than the United States. A recently published study by the Organization for Economic Cooperation and Development (OECD) observed that economic mobility from the bottom is more difficult in the US than most countries of Western Europe.

Naturally, programs that produce these results come with a price tag. Sweden, for example, has the second highest tax revenue as a percent of GDP in Europe at around 48% (more than double the US percentage). They balance their budget, provide extensive health and welfare benefits and run a capitalist economy. Their high tax rates are part of the social contract that the citizens have made with their government.

Many pundits in this country have suggested that the Euro debt crisis demonstrates the failure of European social democracies. That model of governing is unsustainable, they say. But, the Euro crisis is not the result of social democracies. It’s the result of debt. Unsustainable debt is the result of long term, structural budget deficits. Some western European countries – France, Belgium, Italy, Spain – run large deficits and are facing difficult choices. Others, like Sweden, do not.

Americans shouldn’t be casting dispersions on Europe simply because they seem to have hit the wall a few years before we are projected to. Indeed, running a balanced budget is a statement of national character. National character that we apparently lack.

But, neither is the Swedish example proof of the superiority of technocracies. Wasn’t it a group of technocrats who dreamed up the Euro in the first place. The concept of a currency not backed up by a central bank is flawed by definition.

The American model is driven by economic freedom. Property rights, free trade, minimal government regulation, low taxes and freedom to fail are central to our superior economic growth over the last two centuries. The success of that model is best exemplified by the 1990’s when low taxes and a balanced budget were at the root of our economic success.

Clearly, not everyone in this country embraces these principles of economic freedom. There are some obvious flaws to a system that rewards Lady Gaga more than it rewards its teachers. But our nation was founded on the right to pursue happiness. And, Americans do not believe it is the responsibility of government to ensure it. If asked, Americans would express admiration for the Swedish model; but, they would not sacrifice their standard of living – their second car, their McMansions -- to achieve it.

The US has its technocracies. We have technocrats at the helm of the FCC, the FTC, the FEC and, of course, the most important technocracy of all, the Federal Reserve Board. But, on a larger scale, Americans reject the idea. Remember when healthcare reform was to include a panel of experts to examine the high cost of care during the last year of life? “DEATH PANELS!” screamed the opposition.

On the other hand, I would like to meet the technocrat who pointed out that, calorie for calorie, tomato paste has the same nutritional value as an apple. Under one proposal, the National School Lunch Program could credit a serving of pizza as a vegetable. Now, that’s my kind of technocrat.

VIVA ITALIA !!

I owe Suzanne a trip to Italy. We were supposed to go for our 25th wedding anniversary but never made it. We have planned it two or three times since but cancelled each time for some cockamamie reason – business, family, whatever.

Our 30th anniversary is coming up this November so I better make good – and soon.

We’ll probably wait till spring which should be a good time to go for lots of reasons. Of course, the weather will be better. Italy can be quite rainy and cold in November. But also it will be cheaper. After all, Europe can’t keep putting off the inevitable.

It may seem counterintuitive to think that the Euro will lose value in the next year. Especially after recent events. First, we had a crisis manufactured by the Tea Party. Once the dust settled, Wall Street realized that while we were watching the melodrama within the beltway, the economy was going in the crapper. I can’t imagine why they were surprised. All the wags have been saying that the Keynesian stimulus provided by the Democrats wouldn’t work. So, why act so startled when it doesn’t?

I can’t wait to get to Florence. It’s a city that changes the molecular structure of your body. It is among my favorite places in the world. It’s also the birthplace of Michelangelo and the home of some of his most famous works including the statue of David, housed at the Accademia di Florence. It costs €21 to get in. That’s about $31.

While the U.S. and the financial markets were in chaos, Italy was getting its act together. Silvio Berlusconi, who hangs out with hookers when he’s not running the country, announced on Friday a new austerity program that was part of a deal to get the European Central Bank (ECB) to buy Italy’s bonds, essentially guaranteeing their liquidity. Sounds like they are on the right track, doesn’t it?

The Amalfi Coast

Suzanne and I are debating whether to go north from Rome or south. I love northern Italy but our families are from the south. Mine from Sicily and hers from Calabria, the toe of the boot. Maybe we’ll stay in Amalfi on the way down. We could stay at the Hotel Santa Catarina. The standard room is €360 per night. That’s over 500 bucks!

Of course, Standard & Poor’s hasn't helped by downgrading the U.S. Treasury’s issues of bills and bonds. This comes from the same folks who rated all of those mortgage backed securities AAA. Something I learned when I worked on Wall Street: you can’t fool the bond market. So, while everything has been melting down  – large cap stocks, small cap stocks, commodities  – the U.S. Bond was rallying. The 10 year is approaching 2% as I write this, down from a high of over 3.7% about early in 2011. Take that, S&P!

Fiat Seicento

Maybe we should rent a car and take the northern route. Gas costs about €1 per liter. Let’s see – a liter is .22 gallons… I think that’s about 6 bucks a gallon. Good thing those European cars are so tiny! Hmmm… Maybe we should take the train.

Venice could be nice but it would eliminate the trip to the south on a two week vacation. I have never been there. Friends who have, tell me it’s a two day stay before you want to move on. Maybe Suzanne is right. We should go south. The average daytime high in Calabria in May is 21. That’s Celsius. Fahrenheit is 69. Sounds delightful.

Italy’s fiscal soundness is at the mercy of the Germans. The European Union (EU) was their creation. It provided them with something Adolf Hitler couldn’t: domination of the European continent.

Of course, this fact is lost on the average German voter. The country’s Prime Minister, Angela Merkel, is trying to balance the need to hold the union together with the taxpayers’ outrage at having to bail out the fiscally irresponsible, Ireland, Greece, et al. Of course, they seem to have forgotten that their last decade of prosperity resulted from the creation of the EU. Their export-driven economy is booming because the creation of a single currency eliminated currency fluctuations that would have made their manufactured products too expensive for the Greeks, Spaniard and, yes, the Italians to buy.

Of course, the citizens of those countries had to borrow to buy. And, their banks had to buy government bonds to keep the whole Ponzi scheme going. Sound familiar?

Well, it’s all coming home to roost. And PM Merkel will have to walk a fine line to both survive politically and provide enough capital to the ECB and its new bailout fund, the European Financial Stability Facility (EFSF). Publicly, she seems to be unaware that they haven’t printed enough Euros yet. But they will. Just like the Fed did on this side of the Atlantic. So, the Euro will weaken just as the dollar has.

And, Suzanne and I will be able to stay on the Amalfi coast for a mere 300 bucks a night. Wait a minute; that’s still pretty expensive. Maybe we should go north…..

What do you think?