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Latest contribution to the US-Russia.org Expert Discussion Panel on the question of which US Presidential candidate is best able to meet the challenges ahead:

When predicting election outcomes, I prefer to listen to those who put their money where their mouths are. As of the time of writing, the Intrade predictions market gives a 66% implied probability of an Obama win. The major betting websites are even more optimistic about Obama’s chances, with most of them giving him implied odds of about 80%. He is even considered more likely than not to win the popular vote, though because of the peculiarities of the US electoral system, it is also quite possible for him to lose the popular vote but still win the Presidency (about a 25% chance of this, according to Intrade). I will now most likely lose the symbolic $10 I placed on a Republican candidate win back in May 2010, when a sharp but unsustainable spike in favor of Obama accruing from Osama bin Laden’s assassination created very good odds for the contrarian gambler. Still, I don’t regret the investment. Always bet against your preferred candidate – that way, you will never be wholly disappointed.

We know that Obama is phlegmatic on the ill-thought out Magnitsky Act, and is likewise lukewarm about missile defense in East-Central Europe – to the extent that he pledged “more flexibility” on this issue to Medvedev in an unfortunate open mic moment that the Republicans later spun for all it was worth. (The Poles seem to have come to terms with this, and are now preparing to spend $4 billion of their own money to modernize their AA systems in the next decade). This is probably driven not so much by a desire to enlist Russia as an ally, as to give the US room to deal with the more pressing issues that will dominate Obama’s second term: The withdrawal from Afghanistan; the military pivot to Asia; a sluggish economy plagued by chronically high budget deficits; the accelerating climate crisis. Another alternative is that Obama’s people take seriously the CIA/Stratfor theory, hinted at by Biden in 2009, that Russia’s “shrinking population base” will nullify it as a Great Power in a couple of decades; hence, it is no longer worth aggressively confronting it as natural trends will doom it to eventual irrelevance anyway. But whatever the true motivations, we can reasonably expect the Reset to survive under a new Obama Presidency.

The GOP position is rather less compromising:

… we urge the leaders of their [Russia] to reconsider the path they have been following: suppression of opposition parties, the press, and institutions of civil society; unprovoked invasion of the Republic of Georgia, alignment with tyrants in the Middle East; and bullying their neighbors while protecting the last Stalinist regime in Belarus. The Russian people deserve better, as we look to their full participation in the ranks of modern democracies.

Needless to say, the only part of “the Russian people” who would look on these urgings with sympathy are the small gaggle of pro-Western liberals like Lilia Shevtsova (who brought this to my attention). They slavishly side with America against their own country on every issue they disagree on, so long as it helps undermine Putin. While she is right that such policies would “send a strong signal of support to Russian liberals that America does care about the values and principles it preaches”, it would also likewise alienate not only the Russian government but ordinary Russians too (41% of whom prefer Obama to 8% for Romney in a recent Levada poll). Coupled with his equally confrontational attitudes to China, and the aggressive neocon foreign policy advisers he has surrounded himself with, Romney would appear to be dead-set on provoking into existence that nightmare of Cold War planners – a Russian-Chinese alliance. This would be first and foremost a disaster for America itself.

Then again, as many have already pointed out, Romney is a flip flopper, and his bellicose rhetoric may well dissipate should he somehow find himself in the White House. Though Romney might describe Russia as America’s “number one geopolitical foe”, that did not prevent his son Matt from recently flying to the evil empire to promote his real-estate company and purportedly assure influential Kremlin advisers that his dad does want good relations between their two countries. If money and the practical exigencies of Presidential office trump his campaign rhetoric, there is good reason to hope that the Reset can survive even under a Romney Presidency.

(Republished from Da Russophile by permission of author or representative)
 
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As I noted in my old post on the false dichotomy between race denial and racism, there is a regrettable degree of overlap between racism and race realism. This shouldn’t however blind us to the real distinctions between the two, which were very succinctly summarized by Half Sigma thus:

The race realist understands The g Factor, The Bell Curve, and other works of scientific research. The racist apparently thinks that because Barack Obama is half black, it’s impossible for him to have a significantly higher g than John McCain.

This applies to comments such as this one joking that only 12 or 13 US Blacks have the cognitive capacity to learn Mandarin, with Obama not among them. This is obviously false. Obama graduated magna cum laude from Harvard Law on the basis of blind grading, which implies elite cognitive cognitive ability. And for that matter, I know two Blacks who speak fluent Mandarin. Are they two of the Elite 13? LOL.

That said, I will not as a general rule be censoring “racist” comments, unless they are couched in the most explicit and offensive language (for that there is Stormfront if you are so inclined). Part of the reason is that the line between racism and race realism is blurry and open to debate. For instance, arguing on the basis of statistics that apartheid wasn’t all that bad for Black South Africans probably isn’t racism. What about calling for its return? I do not know. As I said, blurry lines. I have neither the time nor wish to subject individual comments to such detailed scrutiny.

I do however urge commentators to exercise restraint and good taste. After all, the HBD-sphere is plagued by accusations of racism, and not entirely unfairly either; and this is used to stifle valid and much-needed discussion on racial differences. Let’s not give the PC brigade any more ammo if we can possibly help it.

PS. I am following with interest the discussions in the posts on Indian and Chinese IQ. I cannot participate, as I’m now writing a lengthy piece on Pussy Riot, but rest assured the comments will be read and the more interesting ones examined further.

(Republished from AKarlin.com by permission of author or representative)
 
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Ten months ago I bet a symbolic $10 on a Republican win. According to elections models and the bookies, it’s more likely than not that I’ve lost it.

Not that I’m saddened by this development of course. (That said, if the economy slumps sharply in Q3, then a Romney win becomes entirely possible).

(Republished from AKarlin.com by permission of author or representative)
 
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At least in the context of the US Presidential elections according to this nifty quiz. Here are my detailed results for perusal for anyone interested.

PS. Mitt Romney’s VP pick was a good one. Paulites however are (rightly) not convinced and I for one still favor Obama if with no particular enthusiasm.

PPS. The real Obama-Romney difference is much greater for me than 7 percentage points because of Romney’s extremely hostile attitude to Russia. What can I say? This issue is rather important to me.

(Republished from AKarlin.com by permission of author or representative)
 
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I recently had the dubious pleasure of engaging in an extended Twitter exchange with Peter Savodnik. Peter is a consummately credentialed journalist based in New York. He is also a classical representative of the well-paid prostitute class otherwise known as Independent Western Journalists in polite (i.e. doublethink) society, as well as of that emigre clique which delights in smearing their former homeland at every opportunity (as with Julia Ioffe, Miriam Elder, etc). So nicely does he encapsulate the dinner suit-wearing, respectability-laden double standards, Western chauvinism, ingrained authoritarianism, and deep vein of conspiratorial paranoia that characterizes Western Independent Journalism that I think it useful to lay out our conversation in full.

[tweet https://twitter.com/petersavodnik/status/191952240007843842]

Because protesting sky-high education costs and corporate corruption is so much more morally repugnant than defiling one of a country’s most sacred places.

[tweet https://twitter.com/streetwiseprof/status/191955790771388416]

I noticed Mr. Savodnik’s ranting against Occupy thanks to the approving reply from Streetwise Professor, a Russia blogger. SWP (Craig Pirrong) is a well-known neocon, Russophobe and anti-civil liberties fanatic (who masquerades as a small government classical liberal), who has a rabid gaggle of groupies following his rock-star avatar around on the interwebs (e.g. @LibertyLynx, @catfitz, etc).

The depth of his derangement is demonstrated by his loathing for Wikipedia, which he views as some kind of Communist conspiracy (no kidding, his fan Catherine Fitzpatrick, who apart from her hobby of trolling non-Russophobe blogs also writes blog posts with titles such as What is Technocommunism and the Internet of Things? condemning open-source. Also the reason why she chooses to pay for TypePad, instead of using the free – and much superior – WordPress platform for her blog).

[tweet https://twitter.com/petersavodnik/status/191965291742375937]

So I guess by Savodnik logic given crackdowns in Belarus, the Meetings in Russia also look baseless and absurd? Time to expose that fool, methinks.

[tweet https://twitter.com/AnatolyKarlin/status/192046123320483840]

[tweet https://twitter.com/petersavodnik/status/192108181902737409]

Actually according to my link only 5 of the journalists, or 7% of them, where arrested while “while participating in protests or civil disobedience related to Occupy events.” The rest where arrested while covering them – a perfectly valid journalistic activity. Yasha Levine in particular has a harrowing account (via blog posts) of his experiences in LA country jail – where he picked up a Third World skin disease – and his consequent legal troubles, which demonstrates that the justice system hates independent journalism every bit as much as the police does.

But note, in particular, Savodnik’s diversion of the conversation to Politkovskaya, a journalist murder in Russia SIX YEARS ago. He for one doesn’t seem to have troubles with whataboutism, of the “But in American they lynch Negroes” kind for which non-Russophobes like myself are frequently accused of – including by Sadovnik himself. But the Politkovskaya case has no relevance to the conversation – the issue is Peter Savodnik’s reference to press freedom violations in foreign countries to support repression of his ideological enemies in the West. I do not like hypocrisy, and I call him out on it.

[tweet https://twitter.com/AnatolyKarlin/status/192113326753456128]

[tweet https://twitter.com/petersavodnik/status/192114961227591683]

[tweet https://twitter.com/AnatolyKarlin/status/192118355212242944]

And now the you-work-for-the-KGB canard comes out, reliable as ever coming from liberasts! My eternal response to that – what a pity the paycheck always seems to get stuck in the mail…

[tweet https://twitter.com/petersavodnik/status/192115447397756928]

[tweet https://twitter.com/AnatolyKarlin/status/192135905794990081]

Had this exchange occurred at the Guardian, in its Orwellian-named “Comments are Free” section, at this point I’d have been unpersoned by the plagiarist hack Luke Harding for being a Kremlin troll.

[tweet https://twitter.com/petersavodnik/status/192120397309812736]

[tweet https://twitter.com/AnatolyKarlin/status/192128656489971712]

Now I take his argument to its logical conclusion, i.e. absurdity, now using Brazil (which is actually, when looked at from the POV of concrete statistics as opposed to Russophobic democraticist rhetoric, is far more dangerous for journalists than Russia) to “justify” Obama pressuring Yemen to imprison the critical journalist Abdulelah Hider Shaea. Because that is the kind of mental acrobatics that Savodnik utilizes to wield the Politkovskaya case against Occupy.

[tweet https://twitter.com/AnatolyKarlin/status/192129054546210816]

[tweet https://twitter.com/AnatolyKarlin/status/192129334616657920]

Predictably enough, shattered by the exposure of his true authoritarian leanings and patent double standards on free speech, Peter Savodnik goes off the deep end, ranting about the KGB, FSB, and “agents of an authoritarian regime that kills people.”

[tweet https://twitter.com/petersavodnik/status/192123874656272384]

[tweet https://twitter.com/petersavodnik/status/192131039529934849]

[tweet https://twitter.com/petersavodnik/status/192131393122349056]

Funny he says that, as it is Savodnik himself who has a reactionary hatred for ordinary Russian people and wants to disenfranchise them (see below). Projecting a bit much, Mr. Democratic Journalist?

[tweet https://twitter.com/petersavodnik/status/192131677156409344]

I’m sure that Peter Savodnik is not the worst of the lot. Any number of other, far more mendacious characters come to mind who are outstanding on the issue of their hypocrisy as regards Russia, RT, the US, and Wikileaks – Luke Harding (a Russophobe fanatic who blames Assange for releasing the unedited Wikileaks cables when it was actually HE HIMSELF, with David Hearst, who was responsible for publishing the passwords to them); Konstantin von Eggert; the SWP hive; Miriam Elder; fuck it, virtually the entirety of the Western mainstream media.

But what this conservation with Peter Savodnik is useful for is representing that general mendacity in brief, distilled, easily digestible (and disgusting) form.

Exposes of Luke Harding and Von Eggert to follow.

Addendum. Thanks to Minka in the comments for letting us know that Sadovnik also espouses extreme neoliberal Latynina-like views on the Russian majority of Putin voters (“peasants”), who should not be allowed to vote.

[tweet https://twitter.com/petersavodnik/status/176603211245957120]

[tweet https://twitter.com/petersavodnik/status/176619216445779968]

In fact it’s pretty clear Savodnik loathes the Russian people as a pack of uncultured peasants for not voting like Savodnik would. The gall!

[tweet https://twitter.com/petersavodnik/status/183188645828767744]

[tweet https://twitter.com/petersavodnik/status/183138599733178370]

For our freedom and mine… Right? I think it’s pretty clear that it is Sadovnik who is living in the 19th century, what with his reactionary hatred of ordinary people.

(Republished from Da Russophile by permission of author or representative)
 
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This may be the article I’ve hesitated longest over publishing. Its subject matter has always hovered as a specter over my writings on the close relation between human capital and economic growth; an obvious but studiously ignored presence*. I am talking, of course, about race and IQ. Of racial differences in IQ, to be precise.

Why now? First, it’s a propitious moment to raise the issue, what with the recent publicity surrounding the Trayvon Martin case and the firing of John Derbyshire from The National Review (for writing an article in another magazine whose recommendations most liberals follow in private even as they denounce it as incorrigibly racist in public). But my purpose isn’t to get attention as such. On these matters, it tends to come from unwelcome quarters, either from the PC police (who regard any discussion of race other than to deny it as crimethink), or from the reactionary White nationalist crowd, who think they’ve stumbled on ideological soul-brethren (thanks but no thanks, or to quote Robert Lindsay, “We’re never getting a boarding pass. Never!”). I suspect being a liberal race realist is somewhat akin to being a Jew before anti-Semitism went out of fashion. You get fired on from all sides. Not fun.

The second, more substantive reason, is that the issue matters. If it was an irrelevance, I obviously wouldn’t bother (though tellingly, most people have no problem discussing genetic causes for relatively unimportant things, such as the preponderance of Kenyan marathoners, or East Asians’ lack of alcohol tolerance). But there is a mountain of evidence indicating that IQ levels have a very real and direct influence on the world, from the life earnings potential of individuals to the wealth and poverty of nations.

This is a futurist blog, and it has never shied away from inconvenient but pertinent observations that go against Establishment orthodoxy, e.g. that the world is finite, and industrial growth in its current form is unsustainable. As regards its distribution, my views on the sources of prosperity would discomfit both left and right; contrary to theorists from both camps, it is mainly determined by levels of human capital, both within nations and internationally (the two major outlier groups, countries with resource windfalls or central-planning legacies, are exceptions that prove the rule). A corollary is that if there are genetically rooted differences in IQ between races that go beyond the power of racism or exploitation to explain, then there would be variegated ceilings on the extent to which human capital can be developed in different nations and different societies. It would also mean that major inequalities in global development are here to stay.

But first, a much-needed definition of terms to clarify why Race Realism (or “Human Biodiversity”) is not coterminous with Racism.

Defining Racism, Race Denial, and Race Realism

In the US, liberals flat-out deny racial differences in IQ (“Race is a social construct,” “IQ tests were invented by racists and don’t measure anything”), and indulge in all sorts of mental acrobatics to explain away why a generation of affirmative action has utterly failed to narrow the academic performance or socio-economic chasm between Whites and NAM’s (Non-Asian Minorities). Conservatives just blame it all on Blacks’ supposed moral defects and the “entitlement culture” that supposedly dominates there, i.e. the precise opposite argument to liberals who decry the plight of Blacks who have to contend with the “privileged” position of the white man (the question of why the Man isn’t keeping Asians down is typically skirted over).

However, mainstream pundits from both camps are united on one thing: Innate racial differences do not, cannot have anything to do with it. Anyone who so much as implies otherwise is a Racist Bigot.

To be honest, there is undeniably a great deal of overlap between Racists and Race Realists. I think there are two reasons for that. First, Race Realism is not a socially respectable position to hold (unlike in pre-1970′s America, or for that matter, practically all of East Asia today). Many Americans who adopt it explicitly – as opposed to confessing to it while drunk, which happens quite frequently – tend to be marginalized whites who aren’t interested in truth and only need some sort of explanation for their low status (e.g. blaming the ZOG, “skraelings”, etc). Second, the uniform hostility that any declared Race Realist runs into – e.g., John Derbyshire, who got castigated by the left and cast aside by his former comrades on the right – no doubt has a polarizing effect. As I mentioned above, being fired on from all sides isn’t fun. Or as Lindsay points out, “only in the arena of reactionary thought are views about race realism allowed to flourish.”

But are Race Realists the same thing as Racists? I do not think so. First, because the association smacks of Lysenkoism (the US justifies its high inequalities by the American dream that anyone can, though self-improvement and hard work, earn enough to enjoy la dolce vita; but if, God forbid, it’s true that racial differences make the goal practically unattainable for large swathes of the population, that kind of throws a spanner in the works. Wrecker! Saboteur! Off to the Gulag Guantanamo with him!). Second, and most importantly, Race Realism does not by and in of itself justify overt discrimination, or Racism; tarring both with the same brush is an association fallacy.

Though Race Realism may induce skepticism as regards the efficacy or fairness of certain leveling policies, e.g. affirmative action, that is a very far cry from calling for a return to segregation, or race war, or whatever. I would even argue that Race Realism is far less paternalistic, insulting and harmful to NAM’s in general and Blacks in particular than the typical attitudes of colorblind conservatives, who attack certain negative perceived features of Black culture (e.g. “entitlements culture”, “anti-intellectualism”, “family breakdown”, “gangsta rap”, etc). In doing so they argue that Blacks as a group fail to achieve what Whites or Asians do in terms of salaries, employment, crime etc. due to their own moral defects, as opposed to it being the result of factors they truly have no control over, and as such need a good dose of discipline, “moral direction” and tough love to find their way (i.e. no affirmative action whatsoever, no social welfare, even more insanely hardline drugs policies, etc).

The liberal Race Realist to the contrary acknowledges these divergent outcomes as a regrettable but inevitable consequence of innate group differences (especially in IQ, which largely determines educational attainment and life prospects), but on the other hand appreciates that it’s wrong and illogical to blame a people for their bad luck in life’s genetic lottery, and is willing to meet them halfway in trying to ameliorate their plight by supporting subsidized housing, education, income redistribution, etc. This is in stark contrast to the conservative reactionary, who would throw NAM’s to the dogs of unfettered capitalism, but for some reason it is still the liberal Race Realist who is the racist.

(There are, of course, also many Conservative / Libertarian Race Realists. Functionally, if not on their theoretical foundations, their stances are similar to those of their Race Denier ideological counterparts. More on classifications later.)

Still not convinced? Here are three Q&A’s that I hope will further reveal the Race Denier / Racist binary for the false dichotomy it really is.

Q1) One national leader is a progressive sociologist for his time and denies there are innate differences in cognitive ability between blacks and whites. Another is so progressive that he even bans IQ tests because they show some races getting lower scores than others. The third national leader believes in a hierarchy of races, with his own at the top, and rules his country with a firm fist. Which of these is the racist?

A) The first leader was Hendrik Verwoerd, the architect of South African apartheid. The second leader was Hitler (he banned IQ tests because Germans got lower scores than Jews). The third leader was Lee Kuan Yew, who repressed Chinese nationalism despite his belief in Chinese intellectual and cultural superiority, and transformed Singapore from a Third World slum into a gleaming technopolis.

Q2) One man is a “post-racial” President, while another man is a Presidential candidate who – if recently dredged up kompromat is true – may have associated with racists in the 1970′s. Who is the racist scumbag?

A) Obama also supports the war on drugs that is the single biggest reason why every tenth young Black man is in jail, and launched a war against Libya that ended up with the ethnic cleansing of Blacks from that country and the destabilization of a neighboring Black country. Ron Paul promises an end to the war on drugs and foreign military adventures.

Q3) A racist American schoolboy, reeking of White Privilege, arrogantly claims a prize that should have rightly gone to a black. What a racist, right?!

A) The schoolboy in question was an immigrant from South Africa who applied for a “African-American Student of the Year” at his Nebraska school. Despite being white, he was objectively far more African (by virtue of having lived there) than any of the students there, black or where, who had only lived in the US. The school was not amused and suspended him, proving that when prodded, the Race Deniers – no matter be they liberal or conservative – are in fact very far from colorblind as they claim to be. Who’d’ve thunk?

Towards a new classification

Thus far, I hope I have at least made a halfway persuasive argument that Race Realism and Racism are not coterminous. (The detailed evidence for Human Biodiversity, especially as regards IQ, and its implications for US and global development, will have to await a second post).

In its stead, I suggest another classification, one that takes into account the true range of thought around this subject.

By the numbers:

Race Deniers (PC; diversity police; colorblind; “multiculti” (in racist lingo)): This is the official ideology of the Western Establishment and “respectable” white people take care to at least pay homage to it even if they don’t really believe it (at least when sober). The mainstream punditry, be they liberal or conservative, all aggressively hold to this position – arguably, more so in the US, than in Europe, despite the latter being commonly regarded as more liberal/left-wing. Their slogan is “differences are only skin-deep.”

The failure of NAM’s (Non-Asian Minorities) to integrate and converge to average levels is explained differently on both left (oppression, racism, legacy of colonialism, etc) and right (laziness, shiftlessness, lack of appreciation for capitalism, etc) but ascribing it to genetic or racial factors is a universal taboo. Verboten! You’re safe from prosecution if you do it in a measured way, even in PC Europe, but you certainly run the risk of a good media pillorying and getting fired from your job.

While you may think Race Denial precludes Racism, I do not think that’s the case. Take the case of the South African schoolboy above. Or, arguably – and of infinitely greater import – take Hendrik Verwoerd, who at least in his early sociologist days seems to have denied an innate different in cognitive ability between blacks and whites. That didn’t stop him from setting up a cruel and patently unjust ethnocracy in South Africa.

Race Realism (cognitive elitism, racial particularism, Human Biodiversity, “racists” (to Race Deniers)): The belief that there are innate differences in races on socially meaningful parameters, such as cognitive ability, and based on assessment of the scientific and empirical evidence. Racism does not naturally follow, as that involves calling for overt discrimination based on the aforementioned beliefs (see below).

There are several prominent Race Realist pundits. Robert Lindsay is the foremost Liberal Race Realist (and quite a bit more: He has quite the idiosyncratic portfolio, also including stuff on linguists and pro-Stalinism; make of that what you will). I can’t recommend his fundamental post on the matter, Liberal Race Realism: Clearing Up a Few Things, highly enough, as it jives almost perfectly with my own views.

Here is the conundrum for Left-liberalism:

Just supposing that there are differences between the races that are not caused by oppression, racism, etc. This is painfully obvious to anyone who will look. The Left refuses to look, because the reality of the whole mess is bad for the Left. So we say it doesn’t exist, unscientifically. We wish the reality away. …

Suppose Blacks had the same abilities as Whites, genetically.

All of the problems, including low IQ, were simply due the fact that they are fucking up, often on purpose. If this were true, and strangely enough, this sort of follows from liberal beliefs about genes and environment, I would argue for a harsh response to Blacks. Not necessarily cutting them off altogether, but I would certainly be a bit less likely to help them.

But there’s no evidence that that is true.

If Blacks do have low IQ due to things they cannot control, then, as a socialist, I would argue that there is no reason that the higher IQ group ought to obtain dramatically higher income, wealth, housing, living spaces and health than the lower one.

As much as possible, socialists should try to attempt to more equalize incomes, housing, living spaces and health care access for both groups, the higher IQ and the lower. …

Why should Whites be allowed to become dramatically richer, healthier, better housed, and live in better places than Blacks, simply because of how the genetic dice got rolled?

Answer: They have no such right. If both groups were equal, and Whites got that way by simply trying harder, then we could make the argument that the White position is just.

Why should Blacks be forced to become dramatically poorer, less healthy, worse housed, and live in worse places than Whites, simply because of how they were born, a variable that they had no control over whatsoever?

Answer: This is not right. It is not just. They should not be forced into these outcomes, and that they are is an outrageous injustice.

Steve Sailer is a Race Realist from the conservative side of the spectrum. Half Sigma, from the libertarian. The most significant academic bloggers at the GNXP network. I guess you could classify this blog, AKarlin as a Liberal Race Realist blog from now on. Why should I continue paying lip service to an ideology that I find to be incredible in the literal meaning of the word? It’s simply dishonest.

Satoshi Kanazawa, Richard Lynn, Richard Herrnstein, Charles Murray, Arthur Jensen, Steven Pinker, James Watson are prominent researchers/academics who identify(ied) as Race Realists / HBDers. For that matter, most of the people doing research on population groups, genetic clusters, etc would fit the label.

Closely related (though not coterminous) with Race Realists are “Cognitive Elitists”. These folks believe in the value of a high-IQ society, in that it will have more culture, less crime, more interesting conversations, etc. They are typically high IQ themselves and associate with the “cognitive elite”, i.e. the high-IQ stratum of the population that typically clusters in certain geographical areas (e.g. Shanghai and Beijing in China; Moscow in Russia; Washington, Connecticut/Massachusetts/NY, and the Bay Area in the US). As such, they are strong supporters of comprehensive, well-funded education systems and immigration systems that give priority to skilled workers. Australia and Canada are two good examples of countries that are run by cognitive elitists, even if they don’t identify themselves as such and formally deny IQ and its heritability. Immigration policies give priority to skilled workers, and their public university systems are top notch. I guess one could even call their immigration policies “Deniably Race Realist” because in today’s world, qualified worker typically means East Asian or White anyway.

I would argue the ANC leadership of South Africa has been consistently Race Realist, bizarre as it may sound at first. The blacks had been repressed there by whites for generations (really repressed, not its non-existent form in post-1960′s US). It would have been understandable had they gone down the Robert Mugabe route of confiscations and expulsions. They didn’t. The “price” is that South Africa is now one of the most stratified societies in the world, where the Gini income inequality index is at 70 (higher than under apartheid) and whites and blacks live in separate worlds. The alternative – i.e., Zimbabwe, and its retreat from relative prosperity to complete destitution – would have been much worse for South African blacks themselves.

Lee Kuan Yew was and remains a Race Realist, but gets no flak for it because he isn’t White. I do not think he is a Chinese chauvinist because he cited objective data and scholarly works in support of his views (e.g. IQ scores by race, and Arnold Toynbee’s civilizational history, that argued “hard societies” developed in harsh northern climes where you needed brains to survive), and didn’t refrain from also arguing that Jewish Americans were intellectually superior to the Chinese (citing their disproportionate share of Nobel Prizes). Though immigration policy favored Chinese, on account of their lower birth rates, he also vigorously repressed expressions of Chinese nationalism in Singapore to maintain social unity. Quite clearly he was a Race Realist and Cognitive Elitist, but not a Racist. I can’t say I’m a huge admirer of the Singaporean social model – I’m of the opinion drugs should be legal, not banned under penalty of death (!) – but there is no denying he did a great job for Singapore.

Racism: This starts when one demands overt discrimination based on race. For instance, while Race Realism isn’t Racism per se, it can – admittedly – easily tip over into “Scientific Racism.” Unlike platonic Race Realists, the Scientific Racists are primarily driven by antipathy; indeed, they may have started out as simple Racists, and specifically sought out the science component to serve as an intellectual veneer for their beliefs. As such, they are prone to confirmation bias, and risk degenerating into “Pseudo-Scientific Racism.” Nazi phrenologists and race theorists are classic examples of Pseudo-Scientific Racists. There there are, of course, the simple Racists, who are usually just low-IQ and tend to be unhappy with life. Half-Sigma pegs them perfectly:

What’s the difference between a race realist and a racist? The race realist understands The g Factor, The Bell Curve, and other works of scientific research. The racist apparently thinks that because Barack Obama is half black, it’s impossible for him to have a significantly higher g than John McCain.”

Most of the people at Stormfront are simple racists. There is a lot of pseudo-science and wild conspiracy theorizing there.

Concluding remarks

It would be nice to believe that if only we could raise more aid to the poorest nations, global inequalities could be erased away; and that at the US level, more social welfare and affirmative action for NAM’s (Non-Asian Minorities) could bridge its deep racial chasms in achievement, which have hitherto been stubbornly unyielding. However, the evidence thus far suggests that many of these chasms are substantially rooted in genetics, and as such would be impossible to close under a capitalist system, or indeed, any economic system that offers increasing returns on better human capital (Maoism is the closest one that comes qualifying to that standard, but is probably not the way to go as most would agree). I’d love to be proven wrong but I’m pretty certain it would have to wait for the age of mass genetic engineering or brain-computer interfaces.

As I hope I made clear, none of this means that overt discrimination is justified, or social spending on NAM’s – especially on education – should be reduced (like Race Denying conservative reactionaries would want to). There is ample evidence to support the view that practically everyone benefits from more education, and it’s better than more foreign wars regardless. (Contrary to stereotypes, the US education system actually isn’t doing too bad of a job; though it gets mediocre scores on international student assessments, when broken down by race, its typically near the very forefront). Just don’t expect miracles from social engineering when biology stands in the way.

The next post will take a far more detailed look at the intersections between race, IQ (or g), the effects of environment/culture (which are real but typically overstated), and implications for development.

* Well, ignored by the blog; discussed at length by Lazy Glossophiliac in the comments section.

(Republished from AKarlin.com by permission of author or representative)
 
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Vile, vile election fraudsters...

Did you know that elections in Britain and the US are marred by mass fraud? At least that would be the inescapable conclusion if they were to be subjected to the most popular methods to “prove” that Russian elections are rigged in favor of Putin and United Russia. Below I have a translated a delightful quiz by Mikhail Simkin, where you have to answer just one question: Did this happen in Russia or in a democratic country?

Some of the following weirdness happened in elections in Russia. They contradict the laws of mathematics and basic decency. They cannot be explained by anything other than mass falsifications. Some of the weirdness happened in democratic countries. They can be explained by natural causes. Can you identify which is which?

(1) The distribution of polling stations by the percentage of votes for the winning presidential candidate in their region.

Did this happen in (A) Russia or (B) in a democratic country?

(2) The dependence of the share of the vote for each of two parties on turnout. Each dot represents a region. Each region has a few dozen polling stations, and represents a few tens of thousands of voters. For some reason, the percentage of the vote for Party A grows in lockstep with the turnout whereas the percentage of the vote for Party B doesn’t change.

Did this happen in (A) Russia or (B) in a democratic country?

(3) In one city during the Presidential elections, more than 300,000 people voted. Of them some 97% voted for one candidate, who went on to win nationally (albeit with a score much less impressive than 97%). He got 100% of the vote in more than 15 of the six hundred precincts of the city in question. The biggest of the precincts where he got 100% had 580 voters.

Did this happen in (A) Russia or (B) in a democratic country?

(4) The distribution of polling stations by the percentage of votes for the winning party in their region.

Did this happen in (A) Russia or (B) in a democratic country?

(5) The dependence of the share of the vote for each of two parties on turnout. Each dot represents a region. Each region has a few dozen polling stations, and represents a few tens of thousands of voters. For some reason, the percentage of the vote for Party A grows with turnout, whereas the percentage of the vote for Party B decreases.

Did this happen in (A) Russia or (B) in a democratic country?

(6) The distribution of polling stations by the percentage of votes for the winning party in their region.

Did this happen in (A) Russia or (B) in a democratic country?

(7) In one region, in districts where turnout was less than 65%, party A got 30%, while party B got 39%. But in districts where turnout was higher than 65%, party A got 46%, while party B got only 31%.

Did this happen in (A) Russia or (B) in a democratic country?

(8) The distribution of polling stations by the percentage of votes for the winning presidential candidate in their region.

Did this happen in (A) Russia or (B) in a democratic country?

Turn the page for answers.

The answers are:

1) B
2) A
3) B
4) A
5) B
6) A
7) B
8) B

(1) The distribution of polling stations by the percentage of votes for Obama in the 2008 Presidential elections in the state of New York.

This happened in a democratic country.

(2) The dependence of the share of the vote for each of two parties on turnout in Moscow in the 2011 Duma elections. Each dot represents a region. Each region has a few dozen polling stations, and represents a few tens of thousands of voters. Part A is United Russia, Party B is the Communist Party.

This is almost the same graph as the one in Shpilkin’s [famous article about falsifications]. Only difference is that I grouped the data by region, so that it would be easier to compare with the graph for London in No.5, where there is no data at the level of individual polling stations.

This happened in Russia.

(3) In Detroit during the 2008 Presidential elections, more than 300,000 people voted. Of them some 97% voted for Obama, who went on to win nationally (albeit with a much lower score of 53%). Obama got 100% of the vote in more than 15 of the six hundred precincts of Detroit. The biggest of the precincts where he got 100% had 580 voters.

This happened in a democratic country.

(4) The distribution of polling stations by the percentage of votes for United Russia in Tatarstan in the 2011 Duma elections.

This happened in Russia.

(5) The dependence of the share of the vote on turnout in London during the 2010 Parliamentary elections. Each dot represents a region. Each regions represents a few tens of thousands of voters. Party A are the Conservatives, while Party B are Labour.

This correlation between party vote and turnout in the UK was discovered by Sergey Kuznetsov. I gave a simple explanation for this mysterious phenomenon in this article.

This happened in a democratic country.

(6) The distribution of polling stations by the percentage of votes for United Russia in the 2011 Duma elections in Dagestan.

This happened in Russia.

(7) In one region, in districts where turnout was less than 65%, the Conservatives got 30%, while Labour got 39%. But in districts where turnout was higher than 65%, the Conservatives got 46%, while Labour got only 31%.

This happened in a democratic country.

(8) The distribution of polling stations by the percentage of votes for Obama in the 2008 Presidential elections in Washington DC.

This happened in a democratic country.

Turn the page for conclusions.

This quiz does not, of course, prove that there’s no fraud in Russian election. However, it does caution us to take overly simple methods and bold conclusions with a pinch of salt.

In particular – due to the influence of populous sub-groups with their own particular voting patterns – a fair election need NOT have a Gaussian on a graph of turnout with voting share for a particular party. In the US, African-Americans overwhelmingly vote for the Democratic Party and its candidate; this explains the spikes Obama gets close to the 100% mark. The Detroit and Washington DC results are skewed in particular because they are predominantly African-American cities, plus the former hosts the automobile industries bailed out under the Obama administration.

Likewise, the share of votes for one party having a positive correlation with turnout is not indicative of fraud either. If that were the case, not only British elections would have to be considered rigged, but also those of Germany and Israel.

Now as blog readers will know from previous posts, I do think there is substantial election fraud in Russia: Around 5-7% in the 2011 Duma elections, and 3-4% in the recent Presidential ones. (This far more resembles someplace like Italy in the 1950′s than the US today where I very much doubt fraud is higher than 1%). However, the indicators I used to reach these figures are far more varied and nuanced than the flagrant statistical misuse that the far higher fraud figures like 10%+ are based on.

(Republished from Sublime Oblivion by permission of author or representative)
 
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It’s been a great year! To recap, in rough chronological order, 2011 saw: The most popular post (with 562 comments and counting; granted, most of them consisting of Indians and Pakistanis flaming each other); Visualizing the Kremlin Clans (joint project with Kevin Rothrock of A Good Treaty); my National Comparisons between life in Russia, Britain, and the US; my interview with (now defunct) La Russophobe; interviews with Craig Willy and Mark Chapman; lots of non-Russia related stuff concerning the Arctic, futurism, Esperanto, and the Chinese language; possibly the most comprehensive analyses of the degree of election fraud in the Duma elections in English; TV appearances on RT and Al Jazeera; and what I hope will remain productive relationships with Al Jazeera and Inosmi. Needless to say, little if any of this would have been possible without my e-buddies and commentators, so a special shout out to all you guys. In particular, I would like to mention Alex Mercouris, who as far as I can ascertain is the guy who contributed the 20,000th comment here. I should send him a special T-shirt or something.

In previous years, my tradition was to review the previous year before launching into new predictions. I find this boring and will now forego the exercise, though in passing I will note that many of the defining traits in 2010 – the secular rise of China and of “The Rest” more generally; political dysfunction in the US; growing fissures in Europe, in contrast to Eurasian (re)integration; the rising prominence of the Arctic – have remained dominant into this year. The major new development that neither I nor practically anyone else foresaw was the so-called “Arab Spring”, as part of a pattern of increasing political stress in many other states: Occupy Wall Street and its local branches in the West; the Meetings for Fair Elections in Russia; Wukan in China and anti-corruption protests in India. I don’t disagree with TIME’s decision to nominate The Protester as its person of the year. However, as I will argue below, the nature of protest and instability is radically different in all these regions. I will finish up by reviewing the accuracy of my 2011 predictions from last year.

tsar-putin 1. There is little doubt that Putin will comfortably win the Presidential elections in the first round. The last December VCIOM poll implies he will get about 60%. So assuming there is no major movement in political tectonics in the last three months – and there’s no evidence for thinking that may be the case, as there are tentative signs that Putin’s popularity has began to recover in the last few weeks from its post-elections nadir. Due to the energized political situation, turnout will probably be higher than than in the 2008 elections – which will benefit Putin because of his greater support among passive voters. I do think efforts will be made to crack down on fraud so as to avoid a PR and legitimacy crisis, so that its extent will fall from perhaps 5%-7% in the 2011 Duma elections to maybe 2%-3% (fraud in places like the ethnic republics are more endemic than in, say, Moscow, and will be difficult to expunge); this will counterbalance the advantage Putin will get from a higher turnout. So that’s my prediction for March: Putin wins in the first round with 60%, followed by perennially second-place Zyuganov at 15%-20%, Zhirinovsky with 10%, and Sergey Mironov, Mikhail Prokhorov and Grigory Yavlinsky with a combined 10% or so. If Prokhorov and Yavlinsky aren’t registered to participate, then Putin’s first round victory will probably be more like 65%.

2. I will also go ahead and say that I do not expect the Meetings For Fair Elections to make headway. Despite the much bigger publicity surrounding the second protest at Prospekt Sakharova, attendance there was only marginally higher than at Bolotnaya (for calculations see here). So the revolutionary momentum was barely maintained in Moscow, but flopped everywhere else in the country – as the Medvedev administration responded with what is, in retrospect, a well balanced set of concessions and subtle ridicule. Navalny, the key person holding together the disparate ideological currents swirling about in these Meetings, is not gaining ground; his potential voters are at most 1% of the Russian electorate. And there is no other person in the “non-systemic opposition” with anywhere near his political appeal. There will be further Meetings, the biggest of which – with perhaps as many as 150,000 people – will be the one immediately after Putin’s first round victory; there will be the usual (implausibly large) claims of 15-20% fraud from the usual suspects in the liberal opposition and Western media. But if the authorities do their homework – i.e. refrain from violence against peaceful protesters, and successfully reduce fraud levels (e.g. with the help of web cameras) – the movement should die away. As I pointed out in my article BRIC’s of Stability, the economic situation in Russia – featuring 4.8% GDP growth in Q3 2011 – is at the moment simply not conductive to an Occupy Wall Street movement, let alone the more violent and desperate revolts wracking parts of the Arab world.

3. Many commentators are beginning to voice the unspeakable: The possible (or inevitable) disintegration of the Eurozone. I disagree. I am almost certain that the Euro will survive as a currency this year and for that matter to 2020 too. But many other things will change. The crisis afflicting Europe is far more cultural-political than it is economic; in aggregate terms, the US, Britain and Japan are ALL fiscally worse off than the Eurozone. The main problem afflicting the latter is that it suffers from a geographic and cultural rift between the North and South that is politically unbridgeable.

The costs of debt service for Greece, Portugal, Italy, and Spain are all quickly becoming unsustainable. They cannot devalue, like they would have done before the Euro; nor is Germany prepared to countenance massive fiscal transfers. The result is the prospect of austerity and recession as far as the eye can see (note that all these countries also have rapidly aging populations that will exert increasing pressure on their finances into the indefinite future). Meanwhile, “core Europe” – above all, Germany – benefits as its superior competitiveness allows it to dominate European markets for manufactured goods and the coffers of its shaky banking system are replenished by Southern payments on their sovereign debt.

The only way to resolve this contradiction is through a full-fledged fiscal union, with big longterm transfers from the North to the South. However, the best the Eurocrats have been able to come up with is a stricter version of Maastricht mandating limited budget deficits and debt reduction that, in practice, translates into unenforceable demands for permanent austerity. This is not a sustainable arrangement. In Greece, the Far Left is leading the socialists in the run-up to the April elections; should they win, it is hard to see the country continuing on its present course. On the other side of the spectrum, the Fidesz Party under Viktor Orbán in Hungary appears to be mimicking United Russia in building a “managed democracy” that will ensure its dominance for at least the next decade; in the wake of its public divorce with the ECB and the IMF, it is hard to imagine how it will be able to maintain deep integration with Europe for much longer. (In general, I think the events in Hungary are very interesting and probably a harbinger of what is to come in many more European countries in the 2010′s; I am planning to make a post on this soon).

Maybe not in 2012, but in the longer term it is becoming likely that the future Europe will be multi-tier (not multi-speed). The common economic space will probably continue growing, eventually merging with the Eurasian Union now coalescing in the east. However, many countries will drop out of the Eurozone and/or deeper integration for the foreseeable future – the UK is obvious (or at least England, should Scotland separate in the next few years); so too will Italy (again, if it remains united), Greece, the Iberian peninsula, and Hungary. The “core”, that is German industrial muscle married to Benelux and France (with its far healthier demography), may in the long-term start acquiring a truly federal character with a Euro and a single fiscal policy. But specifically for 2012, I expect Greece to drop out of the Eurozone (either voluntarily, or kicked out if it starts printing Euros independently, as the former Soviet republics did with rubles as Moscow’s central control dissipated). The other PIGS may straggle through the year, but they too will follow Greece eventually.

I expect a deep recession at the European level, possibly touching on depression (more than 10% GDP decline) in some countries.

4. How will Russia’s economy fare? A lot will depend on European and global events, but arguably it is better placed than it was in 2008. That said, this time I am far more cautious about my own predictions; back then, I swallowed the rhetoric about it being an “island of stability” and got burned for it (in terms of pride, not money, thankfully). So feel free to adjust this to the downside.

  • The major cause of the steep Russian recession of 2008-2009 wasn’t so much the oil price collapse but the sharp withdrawal of cheap Western credit from the Russian market. Russian banks and industrial groups had gotten used to taking out short-term loans to rollover their debts and were paralyzed by their sudden withdrawal. These practices have declined since. Now, short-term debts held by those institutions have halved relative to their peak levels in 2008; and Russia is now a net capital exporter.
  • I assume this makes Russia far less dependent on global financial flows. Though some analysts use the loaded term “capital flight” to describe Russia’s capital export, I don’t think it’s fair because the vast bulk of this “flight” actually consists of Russian daughters of Western banking groups recapitalizing their mothers in Western Europe, and Russians banks and industrial groups buying up assets and infrastructure in East-Central Europe.
  • The 2008 crisis was a global financial crisis; at least *for now*, it looks like a European sovereign debt crisis (though I don’t deny that it may well translate into a global financial crisis further down the line). There are few safe harbors. Russia may not be one of them but it’s difficult to say what is nowadays. US Treasuries, despite the huge fiscal problems there? Gold?
  • Political risks? The Presidential elections are in March, so if a second crisis does come to Russia, it will be too late to really affect the political situation.
  • Despite the “imminent” euro-apocalypse, I notice that the oil price has barely budged. This is almost certainly because of severe upwards pressure on the oil price from depletion (i.e. “peak oil”) and long-term commodity investors. I think these factors will prevent oil prices from ever plumbing the depths they briefly reached in early 2009. So despite the increases in social and military spending, I don’t see Russia’s budget going massively into the red.
  • What is a problem (as the last crisis showed) is that the collapse in imports following a ruble depreciation can, despite its directly positive effect on GDP, be overwhelmed by knock-on effects on the retail sector. On the other hand, it’s still worth noting that the dollar-ruble ratio is now 32, a far cry from what it reached at the peak of the Russia bubble in 2008 when it was at 23. Will the drop now be anywhere near as steep? Probably not, as there’s less room for it fall.
  • A great deal depends on what happens on China. I happen to think that its debt problems are overstated and that it still has the fiscal firepower to power through a second global crisis, which should also help keep Russia and the other commodity BRIC’s like Brazil afloat. But if this impression is wrong, then the consequences will be more serious.

So I think that, despite my bad call last time, Russia’s position really is quite a lot more stable this time round. If the Eurozone starts fraying at the margins and falls into deep recession, as I expect, then Russia will probably go down with them, but this time any collapse is unlikely to be as deep or prolonged as in 2008-2009.

new-eurasia 5. Largely unnoticed, as of the beginning of this year, Russia, Belarus, and Kazakhstan became a common economic space with free movement of capital, goods, and labor. Putin has also made Eurasian (re)integration one of the cornerstones of his Presidential campaign. I expect 2012 will be the year in which Ukraine joins the Eurasian common economic space. EU membership is beginning to lose its shine; despite that, Yanukovych was still rebuffed this December on the Association Agreement due to his government’s prosecution of Yulia Tymoshenko. Ukraine can only afford to pay Russia’s steep prices for gas for one year at most without IMF help, and I doubt it will be forthcoming. Russia itself is willing to sit back and play hardball. It is in this atmosphere that Ukraine will hold its parliamentary elections in October. If the Party of Regions does well, by fair means or foul, it is not impossible to imagine a scenario in which accusations of vote rigging and protests force Yanukovych to turn to Eurasia (as did Lukashenko after the 2010 elections).

6. Russia’s demography. I expect births to remain steady or fall slightly (regardless of the secular trend towards an increasing TFR, the aging of the big 1980′s female cohort is finally starting to make itself felt). Deaths will continue to fall quite rapidly, as excise taxes on vodka – the main contributor to Russia’s high mortality rates – are slated to rise sharply after the Presidential elections.

7. Obama will probably lose to the Republican candidate, who will probably be Mitt Romney. (Much as I would prefer Ron Paul over Obama, and Obama over Romney). I have an entire post and real money devoted to this, read here.

The US may well slip back towards recession if Europe tips over in a big way. I stand by my assertion that its fiscal condition is in no way sustainable, but given that the bond vigilantes are preoccupied with Europe it should be able to ride out 2012.

8. There is a 50% (!) chance of a US military confrontation with Iran. If it’s going to be any year, 2012 will be it. And I don’t say this because of the recent headlines about Iranian war games, the downing of the US drone, or the bizarre bomb plot against the Saudi ambassador in the US, but because of structural factors that I have been harping on about for several years (read the “Geopolitical Shocks” section of my Decade Forecast for more details); factors that will make 2012 a “window of opportunity” that will only be fleetingly open.

  • Despite the rhetoric, the US does not want to get involved in a showdown with Iran due to the huge disruption to oil shipping routes that will result from even an unsuccessful attempt to block of the Strait of Hormuz. BUT…
  • While a nuclear Iran is distasteful to the US, it is still preferable to oil prices spiking up into the high triple digits. But for Israel it is a more existential issue. Netanyahu, in particular, is a hardliner on this issue.
  • The US has withdrawn its troops from Iraq. In 2010, there were rumors that the US had made it clear to Israel that if it flew planes over Iraq to bomb Iran they would be fired upon. This threat (if it existed) is no longer actual.
  • The US finished the development of a next-generation bunker-busting MOP last year and started taking delivery in November 2011. But the Iranians are simultaneously in a race to harden and deepen their nuclear facilities, but this program will not culminate until next year or so. If there is a time to strike in order to maximize the chances of crippling Iran’s nuclear program, it is now. It is in 2012.
  • Additionally, if Europe goes really haywire, oil prices may start dropping as demand is destroyed. In this case, there will be an extra cushion for containing fallout from any Iranian attempt to block off the Strait of Hormuz.
  • Critically, the US does not have to want this fight. Israel can easily force its hand by striking first. The US will be forced into following up.

The chances of an Azeri-Armenian war rise to 15% from last year’s 10%. If there is any good time for Azerbaijan to strike, it will be in the chaotic aftermath following a US strike on Iran (though the same constraints will apply as before: Aliyev’s fears of Russian retaliation).

world-crude-oil-prodcution-and-fitted-growth-oil-drum

[Source: The Oil Drum].

9. Though I usually predict oil price trends (with great and sustained accuracy, I might add), I will not bother doing so this year. With the global situation as unstable as it is it would be a fool’s errand. Things to consider: (1) Whither Europe? (demand destruction); (2) What effect on China and the US?; (3) the genesis of sustained oil production decline (oil megaprojects are projected to sharply fall off from this year into the indefinite future); (4) The Iranian wildcard: If played, all bets are off. But I will more or less confidently predict that global oil production in 2012 will be a definite decrease on this year.

If investing, I would go into US Treasuries (short-term) and gold to hedge against the catastrophic developments; yuan exposure (longterm secular rise) and and US CDS (potential for astounding returns once SHTF). Property is looking good in Minsk, Bulgaria, and Murmansk. Any exposure to Arctic shipping or oil & gas is great; as the sea ice melts at truly prodigious rates, the returns will be amazing. I do think the Euro will survive and eventually strengthen as the weaker countries go out, but not to the extent that I would put money on it. Otherwise, I highly agree with Eric Kraus’ investment advice.

10. China will not see a hard landing. It has its debt problems, but its momentum is unparalleled. Economists have predicted about ten of its past zero collapses.

11. Solar irradiation was still near its cyclical minimum this year, but it can only rise in the next few years; together with the ever-increasing CO2 load, it will likely make for a very warm 2012. So, more broken records in 2012. Record low sea ice extent and volume. And perhaps 100 vessels will sail the Northern Sea Route this year.

12. Tunisia is the only country of the “Arab Spring” that I expect to form a more or less moderate and secular government. According to polls, 75% of Egyptians support death for apostasy and adultery; this is not an environment in which Western liberal ideas can realistically flourish. Ergo for Libya. I can’t say I have any clue as to how Syria will turn out. Things seem strange there: Russia and Israel are ostensibly unlikely, but actually logical, allies of Assad, while the US, France, the UK, and the Gulf monarchies are trying their best to topple him. These wars are waged in the shadows.

I've got some ways to go before I reach Navalny's demagogic stature.

I’ve got some ways to go before I reach Navalny’s demagogic stature.

13. As mentioned in the intro, 2011 has been a year of protest. As I argued in BRIC’s of Stability, in countries like China, Russia, or Brazil they will remain relatively small and ineffectual. Despite greater scales and tensions, likewise in Europe (though Greece may be an exception); these are old societies, and besides they are relatively rich. They won’t have street revolutions. I do not think Occupy Wall Street has good prospects in the US. By acting outside the mainstream (as part of a “non-systemic opposition”, to borrow from Russian political parlance) it remains irrelevant – the weed smoking and poor sartorial choices of its members works against its attaining respectability – and municipalities across the US are moving to break up their camps with only a few squeaks of protest. (This despite the arrests of 36 journalists, a number that had it been associated with Russia would have cries of Stalinism splashed across Western op-ed pages). I say this as someone who is broadly sympathetic with OWS aims and has attended associated events in Berkeley.

The nature of protest in the Arab world is fundamentally different, harkening back to earlier and more dramatic times: Bread riots, not hipsters with iPhones; against cynical and corrupt dictators, not cynical and corrupt pseudo-democrats; featuring fundamental debates about reconciling democracy, liberalism and religion, as opposed to weird slogans like “Occupy first. Demands come later.” Meh.

14. The world will, of course, end on December 21, 2012.

What about the 2011 Predictions?

1) My economic predictions were basically correct: “Today I’d repeat this, but add that the risks have heightened… The obvious loci of the next big crisis are the so-called “PIGS” (Portugal, Italy, Greece, Spain), and Ireland, Belgium and Hungary.”

2) Neither the Iranian war (chance: 40%) or an Azeri-Armenian war (chance: 10%) took place. If they don’t happen in 2012, their chances of happening will begin to rapidly decline.

3) Luzhkov still hasn’t been been hit with corruption charges, but merely called forth as a witness. Wrong.

Prediction of 3.5%-5.5% growth for Russia was exactly correct (estimates now converging to 4.0%-4.5%).

With headlines this December cropping up such as “End is nigh for Russia’s ‘reset’ with US“, my old intuition that US – Russia imperial rivalry couldn’t be set aside with a mere red plastic button may have been prescient: “In foreign policy, expect relations with the US to deteriorate.”

4) Pretty much correct about the US and the UK, though I didn’t predict anything drastic or unconventional for them.

5) “Oil prices should stay at around $80-120 in 2010 and production will remain roughly stable as increased demand (from China mostly) collides with geological depletion.” Totally correct, as usual.

6) China will grow about 9.4% this year, well in line with: “China will continue growing at 8-10% per year. Their housing bubble is a non-issue; with 50% of their population still rural, it isn’t even a proper bubble, since eventually all those new, deserted apartment blocs will be occupied anyway.”

7) 2011 was the warmest La Nina year on record, so in a sense thermometers did break records this year.

“Speaking of the Arctic, as its longterm ice volume continues to plummet and sea ice extent retreats, we can expect more circumpolar shipping. I wouldn’t be surprised to see up to 10 non-stop voyages along the Northern Sea Route from Europe to China, following just one by MV Nordic Barents in 2010.” If anything, I low-balled it. 34 ships made the passage this year! Sea ice cover was the second lowest on record, and sea ice volume was the lowest. So in the broad sense, absolutely correct.

“Likewise, expect the Arctic to become a major locus of investment.” This year, plans were announced to double the capacity of the Port of Murmansk by 2015.

8) Wrong on the Wikileaks prediction. The insurance file was released by The Guardian’s carelessness (whose journalists, David Leigh and Luke Harding, then proceeded to mendaciously lie about it), not by Assange. And the extradition proceedings are taking far longer than expected, though my suspicions that his case is politically motivated is reinforced by US prosecutors’ apparent pressure on Bradley Manning to implicate Assange in the theft of the State Department cables.

9) On Peter’s enthusiastic reminder, I did get my Russia Presidential predictions for 2012 wrong. Or 75% wrong, to be precise, and 20% right (those were the odds that I gave for Putin’s return back in May). I did however cover it separately on a different post, here. That said, I do not think the logic I used was fundamentally flawed; many other Kremlinologists ended up in the same boat (and most didn’t hedge like I did).

(Republished from Sublime Oblivion by permission of author or representative)
 
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At least, surely more so than Obama, winner of 2009′s Nobel Peace Prize.

Let’s do it by the numbers. Russia under Putin fought one war, in response to Georgian aggression against Ossetians with Russian citizenship and UN-mandated Russian peacekeepers. In contrast, Obama has participated in two wars of aggression: the Iraq War he inherited from G.W., and a new one in Libya. The latter is a war of aggression because NATO clearly exceeded its UN mandate to protect civilians, instead conducting a campaign clearly aimed at regime change. So Obama has presided over two more wars than Putin, and crucially, has participated in two wars of aggression to Putin’s zero.

If you insist on counting the Second Chechen War, then one must also tally the dozen or so countries in which the US is currently waging shadow wars involving drone strikes on terrorists – or to be more accurate, suspected terrorists. But at least Chechnya was an internal affair and presented a truly direct threat to Russia, with armed bands raiding over the borders. There is far less of a case to be made why the US has the right to prosecute an international “war on terror.”

This is why the adjudicators of the Confucius Peace Prize, in awarding it to Putin, proved themselves far less dishonest than the Nobel Committee. The ridicule they have been subjected to by the Western media is a compliment to their integrity.

Update: Mark Adomanis raises some additional points on this matter.

(Republished from Sublime Oblivion by permission of author or representative)
 
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And ironically, despite my blog’s focus, to date my US predictions have been more accurate than my Russian ones. Obama to become President? Check. Republicans to win 2010 mid-terms? Check. The emergence of “a new party, a new politics”, with “the feds [facing] challenges from the far-left and the far-right”? Check (Tea Party, Occupy Wall Street). Dammit, even the prediction about falling fertility rates is panning out (to Mark Steyn’s presumed chagrin, it now equals “decadent” France’s) – though that wasn’t a particularly hard one to make, given the recession and looming economic collapse and all. Perhaps I should give up on this Russia-watching thing and just analyze the US? ;)

Anyhow, back to Obama’s impending loss. To be fair, the title is a bit of a misnomer. I’d actually put his odds at 35% (Republicans – 65%). There really isn’t much to explain, is there? The economy sucks and is almost guaranteed to get better than worse. Output remains below peak 2007 levels. The deficit remains stubbornly high and the budget crisis will rear its head again in January 2012. Lord knows what it will become if there is another recession on the scale of the last one. Unemployment remains stuck at over 9%. Obama’s net approval rating is -12%. By the metrics I used to predict McCain’s defeat in 2008, Obama looks like he’s in deep trouble.

For what it’s worth, the InTrade prediction market is coming to the same conclusion. The latest figures created by gamblers who put their money where their mouths are give Obama a 48% chance, but as you can see since the market became high-volume in around April this year he has been trending down. (PS. Note the spike in early May, that was the Osama bin Laden assassination).

obama-bets

Incidentally, it was right around this time that I gambled $10 at Bodog on an Obama loss, immediately after the OBL assassination to take advantage of the cacophony of voices proclaiming Obama’s victory was now sealed. Yes, it would have played a huge rule had it happened a few days before the elections. But in May 2011? A year is an eternity in politics. New issues will cover over any lingering legacy of the OBL assassination. And that is why, with the bookies offering very favorable odds of 17/10 – and at the time, assessing Obama’s chances at only 45% – I made the bet below on Bodog.

obama-will-lose

In retrospect, with Obama’s re-election metrics continuing to decline, this was a very good bet if I say so myself. If things pan out, I will almost make back the $20 I lost betting on Medvedev as Russia’s next President.

Now a few words on the consequences (and refraining from bringing my own ideologies into this). Obama is not going to solve America’s economic problems. Nor is a Republican President. In any possible political configuration arising post-elections, raising taxes is nigh impossible – and that is the only way to alleviate the budget deficit which has been running at banana republic levels of 10% of GDP since 2009. Not cutting spending will lead to default, either outright or as is more likely by inflation (cue Argentina 2002). Both will be deleterious. Cutting spending at a time when the private sector is too over-leveraged to take up the slack will knock the legs out from the economy and likely result in a big collapse in output (cue Latvia 2008).

The fundamental problem is high oil prices, and the fact that any marginal increases in supply of this commodity that underpins all modern economies is being bid away by emerging markets that can make more productive use of them – primarily, China, with its factories and surfeit of cheap, relatively high-skilled labor (what’s the better return for a barrel of oil – the gas tank of an American SUV, or a Guangzhou factory making useful widgets?) – or the oil exporters themselves. To make the best of the current situation, the US needs long-term investments in raising its human capital (which, elite universities aside, is fairly low by developed country standards, as measured by international standardized tests) and raising energy efficiency. But these are only good in the long-term, and even here special interests are doing their best to prevent anything from being accomplished.

That is why the entire debate in the US over austerity vs. stimulus (both are suicide), or “American exceptionalism”, or the Presidential elections (given Obama’s stance on the War on Terror, Wikileaks, interventions, poker, weed, etc., to what extent to they really matter?), are all so tiring and mundane. In the face of uncompromising fiscal and energetic realities, which the US can mitigate to a degree but chooses not to, they are nothing but meaningless distractions.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Two weeks ago, I received a Facebook message from Kim Zigfeld, she of the infamous La Russophobe, asking me if I was interested in an interview with her. It didn’t take long for me to come to the wrong decision!

And so commenced our interview. It was a long grind. After ceaseless goings back and forth, arguments about what is really going on in that land of Russia, some 12,000 words of it, we finally entered wacko paradise – INTERVIEW: Anatoly Karlin. Here are a few lines from the freak show stage to whet your appetites!

  • Suppose Shamil Basayev had been found in a lovely home just outside Tbilisi and after Russians assassinated him the Georgian president was invited to Washington and warmly embraced by Obama, how would Russians have reacted?
  • So the USA should forget that Russia is trying to destroy it because China is trying even harder?
  • Frankly, we find your intellectual dishonesty really repugnant, and characteristic of the failed Soviet state. The rulers of the USSR always spoke to the outside world as if they were speaking to clueless idiots. But it was the USSR that collapsed into ruin, wasn’t it?
  • We don’t believe any thinking person can argue that any other Russia blog that has ever existed has come close to being as inspirational to the blogosphere as La Russophobe… Yet many of your Russophile brethren insist on pretending to dismiss us. Why are they so unwilling to admit how good we are? Why don’t they realize how foolish they look? Is it some sort of psychological complex on their part, or is it a crazily ineffective propaganda scheme?

Indeed. Anyhow, apart from her flattering review of my work and the conspiratorial theorizing, the interview mostly focuses on the bread and butter politics that many of us Russia watchers love to talk about. Enjoy the ride! (I did!!!)

Because some of you guys don’t want to grace La Russophobe with a visit, or are banned from it, I’m reprinting the interview below and opening it to comments.

INTERVIEW: Anatoly Karlin

Anatoly Karlin (who says Russophiles don't have hair on their chests??)

Anatoly Karlin (who says Russophiles don’t have hair on their chests??)

LA RUSSOPHOBE: Welcome to La Russophobe, Anatoly. Let’s start with current events. Almost immediately after America’s public enemy #1 Osama Bin Laden was discovered hiding in plain sight in Pakistan and assassinated, the Pakistan government started coming in for heavy criticism in the West, especially in the USA. And right after that, Russia invited Pakistan to pay the first state visit on Moscow in three decades, and warmly embraced it. Do you think this was a mistake on the part of the Kremlin? Does it concern you at all to see Russia providing aid and comfort to nations like Pakistan, Syria, Iran and Libya? Suppose Shamil Basayev had been found in a lovely home just outside Tbilisi and after Russians assassinated him the Georgian president was invited to Washington and warmly embraced by Obama, how would Russians have reacted?

ANATOLY KARLIN: And yet the US – with the exception of a few Republicans – is still okay with continuing to provide Pakistan with dollops of aid every year. It has had close security relations with Pakistan since the 1980’s, when both supported jihadists fighting the Soviets in Afghanistan. It is ridiculous to condemn Russia for “warmly embracing” Pakistan – even if signing a few accords on anti-drugs and economic cooperation can be construed as such – when the US has much deeper relations with them, and for far longer.

Why talk of hypothetical scenarios, when we’ve got real examples? After the Georgians opened fire on UN-mandated Russian peacekeepers, and invaded South Ossetia, the entire Western political class “warmly embraced” Georgian President Saakashvili – a terrorist to the inhabitants of Tskhinvali, whom his army shelled in their sleep.

As for providing “aid and comfort” to Iran or Libya – by which I take it you mean refusing to formally condemn them – why should Russia feel guilty about it, when the West keeps its peace on regimes that are every bit as odious but serve its interests? Saudi Arabia has no elections and doesn’t allow women to drive cars, which makes it less progressive than Iran. It hasn’t exactly made the top headlines in the US media, but in recent weeks Bahrain has “disappeared” hundreds of injured Shia protesters – and many of the doctors who treated them. Why no crocodile tears for them? Presumably, because Bahrain hosts the US Fifth Fleet and Saudi Arabia is the world’s swing oil producer.

The US tries to pursue its own national interests, like most countries. Human rights are fig leaves, or secondary considerations at best. Good for America! Russia happens to have better relations with countries like Libya or Iran than with Saudi Arabia or Bahrain, and I don’t know why it should torpedo them for the sake of foreign national interests.

LA RUSSOPHOBE: That sure is a whole bunch of words, but you haven’t answered our questions, and if you don’t we won’t publish your answers. We’d like to you to assume that Americans are no better at admitting their hypocrisy than Russians, and won’t stop being offended by Russian actions just because they haven’t been as tough on Pakistan as they should be. Russia is puny economically and militarily compared to America, and America is a world leader while Russia has virtually no allies. Do you or don’t you think it was a mistake for Russia to antagonize the US by meeting with Pakistan in the wake of the Bin Laden arrest? How would Russians have reacted if the US had met with Georgia’s ruler after a hypothetical killing of Basayev in Georgia?

ANATOLY KARLIN: Had Russian special forces killed Shamil Basayev in a Tbilisi suburb, this would have implied a very close security relationship between Russia and Georgia – including Georgian acquiescence for the Russian military to operate throughout its territory (i.e. something analogous to the US-Pakistani relationship). Or do you believe that Spetsnaz is so awesome that it could it just stroll into the heart of Georgia, take out the mark in a heavily defended compound, and exfiltrate back into Russia? I don’t think so, and I’m supposed to be the “Russophile” here. As such, I do not believe the Russians would have objected to the US inviting the Georgian ruler over for some Maine lobster and coffee.

If the Americans are deranged enough to be offended by Russia meeting with Pakistani leaders, then they should grow a thicker skin and / or undergo a sanity check. There are few good reasons not to pursue your national interests; indulging irrational psychoses is not one of them. Fortunately, I haven’t come across anything suggesting that the US got “antagonized” by the Russia-Pakistan meeting – and quite rightly so, as there is no need to get one’s knickers in a twist over perceived slights / ridiculous trivialities.

LA RUSSOPHOBE: The assumption made in our question was that the government of Pakistan was complicit in hiding Bin Laden for years and that the US forces struck without the government’s permission. Pakistan is rife with lurid anti-Americanism, similar to what flies about in Georgia with regard to Russia. Do you have any evidence to show that Pakistan helped the US to kill Bin Laden? Do you really expect our readers to take you seriously when you suggest that if it were discovered that Basayev had been hiding in Georgia for years and that Russians went in and killed him with no open Georgian assistance they would have seen Georgia as their friend?

ANATOLY KARLIN: I don’t have the security clearances (or hacking skills) to have these details of Pakistan’s relationship with OBL. Even CIA Director Leon Panetta doesn’t know, at least publicly, whether Pakistan is “involved or incompetent.”

In your scenario, the Russians wouldn’t see Georgia as their friend; they would see it as a “frenemy,” much like how Americans view Pakistan. Managing frenemies requires delicacy, balance, and a lot of bribes. It’s easy for you to say that the US should “get tough” on Pakistan. The world isn’t that simple. Next thing you know, the Pakistanis will ditch the US, cease all attempts to root out militants and cosy up with China.

By and by, if you’re really that obsessed about Russia’s overtures to Pakistan, you might want to examine China’s role. They have recently offered Pakistan 50 new fighters, which is a much warmer embrace of Pakistan than anything Russia has proffered to date.

LA RUSSOPHOBE: So the USA should forget that Russia is trying to destroy it because China is trying even harder? That’s the most hilariously stupid thing we’ve ever heard! Lots of Americans criticize China harshly, but our blog is about Russia and we don’t intend to lose that focus. Your childish attempts to throw the spotlight away from Russia are ridiculous and sad. You admit you have no evidence that Pakistan did anything except facilitate Bin Laden’s activities, which means that your first answer to our question was an absurd lie. Your suggestion that Russians would do anything other than brutalize Georgia utterly obliterates your credibility. Now please tell us: Russia has risked infuriating the world’s only superpower and biting the hand (Obama’s) that feeds it. What does Russia get in return to counterbalance that in terms of good relations with Pakistan?

ANATOLY KARLIN: I think the idea that China selling fighters to Pakistan – let alone Russia signing economic deals with it – implies that it is trying to “destroy” the US is hilariously stupid, but then again that’s just me.

Russia doesn’t get much, as Pakistan is of little importance to it (unlike China, which partners with it against India, and unlike the US, which desires its cooperation on Islamic militants). But that doesn’t matter since the very idea that building relations with Pakistan “risks infuriating” the US is crazy and absurd on too many levels.

LA RUSSOPHOBE: Why talk about hypotheticals, you ask? You don’t get to ask questions here, you haven’t invited us for an interview. But just for the heck of it, because it’s our blog and we make the rules, that’s why. If you don’t want to follow them, then you’ll publish your views elsewhere. Which, of course, is your right — but we’d have thought you’d enjoy a bit of access to our readers.

ANATOLY KARLIN: To clarify, it was a rhetorical question (as are all my questions in this interview). I did not mean to interview you here – though if you’re interested, I’m happy to offer you one on my blog. You’ll generate lively discussions among my readers at a minimum.

LA RUSSOPHOBE: In regard to Libya and Syria, we mean taking actions to block and obstruct Western support for the democratic movements, especially defending the regimes and criticizing the West in public, and providing Syria with weapons. Sorry if we weren’t clear. Can you understand the question now? Hopefully so, because you won’t get a third chance.

ANATOLY KARLIN: It does not concern me in the slightest. My reasons, in simple(r) language: (1) The West supports regimes that are every bit as odious when they serve its interests, (2) therefore, its motives are not pro-democratic, as its claims, but self-interested and imperialist, and (3) by the principles of reciprocity, Russia has every moral right to call the West out on its hypocrisy and support regimes that it is friendly with.

When the US cancels its $60 billion weapons deal with Saudi Arabia, and condemns them for their human rights violations, perhaps then it would have the moral authority to demand Russia do likewise with its disreputable clients. As it stands, Washington’s protests regarding Russia’s relations with Libya & Co. reek of arrogance and double standards that Russia should not be expected to indulge.

BTW, I find your sensitivity to Russia “criticizing the West in public” to be quite hilarious. Surely the beacon of free speech can take some? Or does Russia have to build shrines to it, or rename its main boulevard after G.W. like Tbilisi did, or something? (these are rhetorical questions)

LA RUSSOPHOBE: Are you suggesting that you believe Russian power is such that it can afford to act however it likes regardless of the way in which its actions may provoke the USA and NATO?

ANATOLY KARLIN: Any country’s foreign policy has to take into account the likely reactions of other international actors. I do not believe Russia should “act however it likes,” though not so much for fear of “provoking” the US or NATO (which in any case have limited options for retaliation) but because in most cases cooperation and accommodation – to a reasonable extent – are more productive than mindless confrontation.

Your language indicates that you have a more zero-sum view of global affairs, what with your insinuation that the main reason Russia shouldn’t antagonize the US is because it is “puny” in comparison and “has virtually no allies.” In other words, it has to unconditionally submit to Western whims. Quite apart from its sordid implications – that might makes right, in which case you could make the same argument for why the “puny” Baltics and Georgia should bow down before Russia – it’s not even convincing on its own merits.

Russia is less powerful than the US, but on the other hand it doesn’t have America’s global commitments – the US is fighting three wars at this time, which drastically limits its freedom of action elsewhere. Its economy is much larger than Russia’s, but it has a far worse fiscal position. The US has big markets and technologies to offer, but Russia’s trade with America is insignificant compared with Europe. Besides, Russia enjoys leverage as a big supplier of oil to world markets, and natural gas to Europe, and of nuclear technology and weaponry to potential adversaries of the US (meaning that it’s patently not in America’s interests to alienate Russia). As for NATO, its relevance has plummeted in the post-Cold War period – its members haven’t been able to agree on a plethora of important issues such as the Iraq War, Georgia’s accession, and Libya!

And lest we forget, Russia is hardly alone in its skepticism on Libya. There’s also the other BRIC’s, as well as (NATO members) Turkey and Germany.

LA RUSSOPHOBE: In a recent comment on the Streetwise Professor blog, you called Russian “president” Dima Medvedev a “pathetic shell” and an “empty suit.” We couldn’t agree more! In return, would you agree with us that Vladimir Putin, who personally handed power to Medvedev, showed extremely poor judgment in doing so, and that this calls all his other policies into question? After all, though Medvedev has no real power he does have technical legal authority and could thrust Russia into a constitutional crisis at a moment’s notice if he chose to do so.

ANATOLY KARLIN: I don’t view Medvedev as a disaster. On a positive note, he fired more entrenched bigwigs in two years as President than Putin did in eight. But too often, he comes off as naïve and overly submissive to Western demands. A good example is his okaying of the UN resolution authorizing NATO to protect Libyan civilians, which has seamlessly transitioned into a lawless drive for regime change. According to Konstantin Makienko, editor of the Moscow Defense Brief, this will cost Russia at least $8.5 billion in lost economic opportunities (not to mention hurting its image as a sovereign world power).

Putin’s choice of Medvedev wasn’t a mistake. At least, it’s too early to tell. For now, I don’t oppose Dima iPhonechik (as he is known on Runet). On the other hand, I certainly think it prudent that someone like Putin is there to give Medvedev the occasional reality check, and remind him that the West only looks out for itself and that Russia’s only true allies are its army and navy.

LA RUSSOPHOBE: So just to be clear, you don’t think it was a mistake to give enormous power to a “pathetic shell” and an “empty suit,” right?

ANATOLY KARLIN: Most politicians fit this description. So, no.

LA RUSSOPHOBE: Are you saying there is nobody in Russia except Vladimir Putin who is not a pathetic shell and empty suit?

ANATOLY KARLIN: That is not what I’m saying, as most Russians are not politicians.

LA RUSSOPHOBE: Your answer is profoundly childish, asinine, and indicates you have no wish to be taken seriously. Any intelligent person would have clearly understood were asking whether you are excusing Putin’s choice of a “pathetic shell” and “empty suit” for president because every other person he could have chosen also fit that description. There is no requirement that the Russian president be a politician. Mikhail Khodorkovsky would be president today, for instance, but for Putin having him arrested and sent to Siberia. So we’ll ask again: Are you saying there was nobody who was not a pathetic shell and an empty suit that Putin could have chosen to succeed him?

ANATOLY KARLIN: I don’t know. If I had access to alternate worlds in which Putin nominated other successors, and they got to demonstrate whether or not they were empty suits, then I’d be able to answer the question.

LA RUSSOPHOBE: But you’ve already said that you approve of Gennady Zyuganov and Dmitri Rogozin. Wouldn’t Russia have been better off if Putin had named one of them as his successor? We ask you again to stop dodging our questions like a coward: Can you or can you not point to a person Putin could have chosen as his successor who would not have been an “empty suit” and a “pathetic shell”? We realize that you can’t win by answering. If you say there is nobody, then you confirm Russia is a truly wretched land. If you say there is somebody, then Putin made a gigantic error in judgment by not choosing that person. But you must answer. Because if you don’t, everyone will see you as a sniveling intellectual coward.

ANATOLY KARLIN: This implies that anything is better than an empty suit, which is not really the case. For instance, Zhirinovsky is quite obviously not an empty suit, but does any reasonable person want him in power? I don’t think so.

But if you still insist on a concrete answer, a Putin – Zyuganov tandem is my dream team (implausible as it is in practice).

LA RUSSOPHOBE: What makes you say it is implausible? If Vladimir Putin had told the Russian people to vote for a ham sandwich to replace him, they would have done it. What’s more, Putin would not have allowed anybody but the sandwich to receive votes. If Putin had named Zyuganov, Zyuganov would have been elected. Apparently you mean it’s implausible because Putin doesn’t share your admiration for Zyuganov. Why not? What mistake is Putin making in evaluating this fellow?

ANATOLY KARLIN: Presumably, because the gap in their worldviews is too unbridgeable. Zyuganov has condemned Putin as a protégé and stooge of the oligarchy, which to a large extent is true. Though I don’t presume to speak for Putin, I imagine he sees Zyuganov as a Soviet-era dinosaur, whose autarkic leanings and unqualified admiration of Stalin have no place in a modern society. This is also true.

But their incompatibilities are precisely the reason why I’d like to juxtapose them, the idea being that Zyuganov can push for the restoration of a social state, while Putin’s influence will provide a check on his more regressive, Brezhnevite tendencies.

LA RUSSOPHOBE: The single greatest mystery for us about Russia is why, when Boris Yeltsin was universally despised in 1999, in single-digit approval territory with talks of impeachment for genocide, the Russian people followed his instructions like lemmings and picked Putin as his successor. Can you explain that behavior to us?

ANATOLY KARLIN: I think the conventional explanation is that Putin’s law-and-order image and savvy handling of the Second Chechen War contributed more to his political ascent than Yeltsin’s endorsement.

LA RUSSOPHOBE: Do you have any factual basis whatsoever for that ridiculous statement? Are you seriously suggesting that Putin could have emerged from a contested election as the winner without being the incumbent in March 2000? Even if the people were widely impressed in that way, why wasn’t Yeltsin’s approval more than enough to cause the Russian people to reject him? And if Putin did so well, isn’t that a huge positive reflection on Yeltsin, meaning Russians have vastly misjudged him?

ANATOLY KARLIN: From the beginning, Putin worked hard to differentiate himself from Yeltsin and his “Family.” Athletic sobriety versus a fermentation barrel. Sort out the mess, drown the terrorists in the outhouse, reconsolidate the country. Now obviously, incumbency advantages and the oligarch media helped Putin immensely, but for all that there are limits to what those factors could have accomplished by themselves. There was a flurry of short-lived Prime Ministers between March 1998 and VVP’s appointment in August 1999, and their approval ratings bombed nearly as much as Yeltsin’s despite the oligarch media being on the Kremlin’s side throughout.

Putin wouldn’t have won if he hadn’t been the incumbent for the simple reason that he’d have had no administrative resources to draw upon. But his incumbency allowed him to shine, and become popular, and defeat Zyuganov. Had Yeltsin nominated someone like Chernomyrdin, Kiriyenko, Stepashin, or Nemtsov as his successor, then today’s ‘party of power’ might well be the KPRF.

I agree that Yeltsin’s designation of Putin as his successor is one of his best decisions – not that there’s much competition there.

LA RUSSOPHOBE: So you have no factual basis (i.e., a citation to published authority) for your claim, right?

ANATOLY KARLIN: It’s certainly news to me that any of the above is controversial. I guess I can Google up a paper if you insist on it:

“Putin enjoyed a vertiginous rise in popularity following his appointment as prime minister in August 1999. Polls indicated those willing to vote for him as president climbed from 2% in August [to] 59% in January. By then his approval rating as prime minister was 79%. In contrast, for the past several years Yeltsin’s approval rating had been in the single digits. Putin’s rise was fueled by two factors: the war in Chechnya, and the strong showing of the pro-Putin Unity party in the December 1999 Duma elections… It was Putin’s determined handling of the war which then led to his spectacular and sustained rise in popularity.” – from Putin’s Path to Power (Peter Rutland, 2000).

LA RUSSOPHOBE: Do you realize that you are citing a “forthcoming” publication and that the footnote given by the author is blank? Do you realize that your own source says Putin didn’t get above 50% voter inclination until Yeltsin had already made him president? If Putin could have got elected on his own as prime minister, why in the world was it necessary to make him president first? Wasn’t that obviously a gambit to wedge him into office?

ANATOLY KARLIN: You’re just nitpicking now. This was the version accessible on the Web, it was published and if you want a formal citation here it is – Peter Rutland, “Putin’s Path to Power,” Post-Soviet Affairs 16, no. 4 (December 2000): 313-54. The footnote is not blank, it names the source as Yuri Levada.

The same source indicates that the bulk of Putin’s rise in popularity took place during his tenure as Prime Minister, with voter inclination going from the low single digits in August to exactly 50% in December 1999, which I’d say is a winning figure. He was appointed President on January 1st, 2000, after which his popularity remained stable at a high level. This had the practical effect of bringing forwards the elections by 3 months. Did this make a crucial difference? Putin’s approval rating was 70% in March 2000; it was 61% in June 2000 (but rose to 73% a month later), when the election would have otherwise occurred. Considering that Putin won the 2000 elections with 53% of the vote to runner-up Zyuganov’s 29%, I don’t see how the delay could have made a difference.

Mind you, this is all said with the benefit of hindsight. It may well be Yeltsin wasn’t confident that Putin would maintain his high ratings – for instance, he may have feared that the Second Chechen War would go badly and dent his popularity – and wanted to maximize his chances at the elections by giving him the Presidency early. Alternatively, he may have realized just how deeply he screwed up the post-Soviet transition, and decided that it was in Russia’s national interests to get a new face for the new millennium.

LA RUSSOPHOBE: Despite nothing but pro-Kremlin propaganda on TV, and a soaring price of oil and revived Russian stock market, confidence in the Kremlin just slipped below a majority. Yet job approval for both Medvedev and Putin remains above 65%. Given that Medvedev and Putin wield dictatorial power and completely control the Kremlin. How is that possible? Are the people of Russia stupid or something?

ANATOLY KARLIN: This is a non-story. Approval for the government always lags the personal popularity of Putin and Medvedev by about 20-30% points, as you can confirm by browsing previous Levada opinion polls. Why that is the case, I’d guess because Tsars are often more popular than their Ministers.

LA RUSSOPHOBE: You’re saying Russia is an irrational country where people hate the government and its policies but don’t hate those who wield absolute authority over the government and its policies?

ANATOLY KARLIN: I’m saying what I said: rulers are often more popular than the government as a whole (for instance, whereas only 19% of Americans trusted the government in Washington in 2010, Obama’s approval rating has hovered from 41% to 52% in the past year).

Anyhow, I would hardly take a government approval rating of 51% (as of May 2010) as evidence that Russians “hate the government and its policies.”

LA RUSSOPHOBE: May 2010? Wouldn’t this year be more relevant? In May 2011, approval fell below a majority. Do you really believe that’s not at all significant? Don’t you think it’s rather idiotic to compare Obama, who has just replaced a highly unpopular president and is undertaking massive reform, and who does not have one tenth the control over the US government that Putin has over Russia, to Putin, who was replaced by a puppet of his own choosing? And don’t you think it’s utterly dishonest for you to use America as a benchmark when it’s convenient for you, but then to say that America is a “different country” and inapplicable to Russia whenever it’s not convenient? Frankly, we find your intellectual dishonesty really repugnant, and characteristic of the failed Soviet state. The rulers of the USSR always spoke to the outside world as if they were speaking to clueless idiots. But it was the USSR that collapsed into ruin, wasn’t it?

ANATOLY KARLIN: Apologies for the mistype, it should have said May 2011. As you can see from the link, government approval was 48% in April and 51% in May. I don’t believe it’s significant, because it’s hardly changed from a year ago when it was 56% in May 2010, and going even further back, government approval was lower than 50% for almost the entirety of the 2000-2007 period, falling to as low as 25% in March 2005.

I was only using Obama to illustrate that Russia is hardly atypical in that its leaders are more popular than the government as a whole, not to draw a direct comparison between him and Putin. Ditto for your next question accusing me of double standards.

LA RUSSOPHOBE: But Obama doesn’t illustrate that. You again reveal a very poor understanding of how the US government works. Obama has very little power under the US Constitution, so he can’t properly be blamed for most of the decisions that the American public care about. It’s entirely rational to have one view of him and another of the legislature. But Putin has total power, and all of the government’s actions are directly controlled by him. Russians would have to be psychotic to view the government and Putin as being separate, or to allow Putin to escape blame for the government’s failed policies. But what really interests us is this: Isn’t it pretty telling that in a country where the government controls all the TV broadcasts and does not allow any true opposition political parties it cannot manage to generate more than a bare majority of support? What would the rating be if NTV were still going strong and Nemtsov had 75 seats in the Duma? Can’t you admit that the Russian government is obviously failing under Vladimir Putin?

ANATOLY KARLIN: Not really because it is likewise entirely rational to have one view of a Russian ruler (e.g. as competent), and another of the state bureaucracy (e.g. as venal and incompetent). But I digress.

I disagree with your assumptions. Though the Russian state does exert editorial influence over TV broadcasts, as in De Gaulle’s France, this ignores the fact that the print media is largely independent and critical; furthermore, as of 2011, some 42% of Russians accessed the (unregulated) Internet at least once per week. I notice that your own articles are regularly translated on Inosmi (mostly for their entertainment value, if the comments are anything to go by). And the main reason that “true” opposition parties – by which I take it you mean the liberals – aren’t in the Duma has nothing to do with their being “oppressed” and everything to do with their proud association with the disastrous neoliberal reforms of the 1990’s, lack of constructive solutions (their slogans are pretty much limited to “Putin Must Go!” and variations thereof) and worshipful adulation of everything “European” or “Western” as “civilized” in contrast to barbaric, corrupt Russia, or “Rashka” as they like to call it. There is no need to cite Kremlin propaganda or “web brigades” to explain their 5% approval ratings, as their anti-Russian elitism is quite enough to do the trick by itself.

So to answer your questions, by the numbers. The government’s approval rating of 51% is respectable, and the main reason it isn’t higher is that – as with governments anywhere – some of its policies aren’t successful and/or hurt big electoral groups (a good example is the 2005 reforms of pensions benefits, in the course of which its approval rating fell to a nadir of 25%). If Nemtsov had 75 seats in the Duma, this would imply that he somehow managed to reacquire significant support, which would in turn mean that the current regime must have failed in a major way and consequently its approval rating would necessarily be very low. I can’t admit that the Russian government is failing under Putin because to me its failure is very, very far from “obvious.” Give me a call when the protesters at your Dissenters’ Marches start to outnumber the journalists.

LA RUSSOPHOBE: Isn’t it true that the only reason the prime minister of Russia has not been sacked is that his name is Vladimir Putin?

ANATOLY KARLIN: I don’t believe things would be much different if his name was Vladislav, or Ivan, or indeed any other.

LA RUSSOPHOBE: So you’re seriously saying that you believe if Putin were president and Medvedev was prime minister with Putin’s record, Putin would not have fired Medvedev .

ANATOLY KARLIN: This assumes that the reason Medvedev hasn’t fired Putin is because he is the bad man’s puppet.

My impression is that they form one team, with Putin as its unofficial CEO, and Medvedev as his protégé. Their end goals are broadly similar: stabilization (largely achieved under the Putin Presidency), followed by economic modernization, and liberalization. Their differences are ones of emphasis, not essence. Furthermore, Putin has lots of political experience, immense reserves of political capital in the form of 70% approval ratings and influence over United Russia, and close relationships with the siloviki clans.

In other words, Putin is an extremely useful asset, and Medvedev is wise to keep him on board – despite Putin’s occasional acts of symbolic insubordination.

Had Medvedev behaved in a similar way in 2007-2008, then yes, he’d probably have been demoted, or passed over as a Presidential candidate. But why on Earth should Medvedev have done that? At the time, he was an apprentice. He did not have the qualifications to be cocky like Putin does now, e.g. stalling the disintegration of the country, breaking the oligarchs’ power, managing Russia’s economic revival, presiding over a decade of broadly rising living standards, etc.

LA RUSSOPHOBE: One more time. Putin has a bad record as prime minister. No thinking person can dispute that. Are you seriously saying it’s not bad enough to justify his dismissal, not as bad as that of other Russian prime ministers who have been dismissed in the past, that another man with the same record would not have been dismissed by Putin himself?

ANATOLY KARLIN: If approval ratings are anything to go by, then Putin’s record as PM is very, very far from “bad.” He MAY have dismissed a similar PM in his position, but the reasons for that would have been insubordination or his political ambitions – not incompetence or unpopularity.

LA RUSSOPHOBE: The Politburo had high approval ratings too, didn’t it? And Putin’s approval is falling, isn’t it?

ANATOLY KARLIN: I don’t know about the Politburo, as I’m not aware of any opinion polls on them. Yes, Putin’s approval rating has fallen by about 10% points in the past year. So what? It’s still at 69%, a figure most national leaders can only dream of. It’s not unprecedented either. For instance, it was less than 70% from November 2004 to July 2005.

LA RUSSOPHOBE: Well, some people would say falling approval is a bad thing. Guess you think they are all morons. Putin’s poll rating slipped below 50% in mid-2003, and right after that both Khodorkovsky and Trepashkin were arrested. Then people in the opposition started dying. Guess by you that’s all just pure coincidence, right?

ANATOLY KARLIN: What? According to the link I provided above, Putin approval rating was in the 70%’s in mid-2003. More specifically, it was at 75% in September, the month before MBK’s arrest. Please read the link more carefully before making insinuations.

LA RUSSOPHOBE: Your egomania is getting the better of you, dude. We were not referring to anything you linked to, we were referring to the fact that the war in Chechnya was going really badly in 2003, it was a bloodbath and the Russian people were sick of it. As a result, this. You have totally ignored the wave of arrests and murders that followed. You’re the one who needs to pay more attention. We ask you again: Was it just a coincidence that when the war in Chechnya, Putin’s main claim to fame, started going really badly major opposition figures started getting arrested and killed? Believe it or not, we can keep this up just as long as you can, you’re not smarter or tougher than us, and we will wipe that schoolboy smirk right off your face.

ANATOLY KARLIN: We’ll see about that. Your first problem is that the poll you cite ISN’T of Putin’s approval rate, but of VOTER INCLINATIONS. There is a big difference, namely that whereas you can “approve” of several different politicians, you can only vote for one of them. Hence, the percentage of people saying they’d vote for Putin can always be expected to be lower than his approval rate – which was at 70% in May 2003. That’s relatively low but still well within his usual band of 65%-85%.

Second, I want to see the evidence for your claim that the war in Chechnya was going “really badly” in 2003. In that year, 299 soldiers died in the line of duty, down from 485 in 2002, 502 in 2001, and 1397 in 2000. According to the graph of North Caucasus violence in this paper (see pg. 185), there was no discernible uptick in 2003.

Third, both Trepashkin and Khodorkovsky were arrested in October 2003. That’s a whole five months after the poll showing a slight dip in Putin’s popularity. Your conspiracy theory has no legs.

LA RUSSOPHOBE: Are you really unaware of what was happening in Chechnya between the middle of 2002 and the middle of 2004? This is what, just for instance:

“Between May 2002 and September 2004, the Chechen and Chechen-led militants, mostly answering to Shamil Basayev, launched a campaign of terrorism directed against civilian targets in Russia. About 200 people were killed in a series of bombings (most of them suicide attacks), most of them in the 2003 Stavropol train bombing (46), the 2004 Moscow metro bombing (40), and the 2004 Russian aircraft bombings (89).”

“Two large-scale hostage takings, the 2002 Moscow theater hostage crisis (850 hostages) and the 2004 Beslan school siege (about 1,200), resulted in the deaths of hundreds of civilians. In the Moscow stand-off, FSB Spetsnaz forces stormed the buildings on the third day using a lethal chemical agent. In the Beslan hostage case, a grenade exploding inside the school triggered the storming of the school. Some 20 Beslan hostages had been executed by their captors before the storming.”

We’re not going to allow any further responses, the fact that you are willing to speak about Chechnya without knowing such basic information makes it clear nothing at all would be achieved in doing so. Let’s move on.

LA RUSSOPHOBE: Suppose that Boris Nemtsov were elected president of Russia in 2012. What specific negative consequences do you think this would have for Russia? Would you admit that anything at all in Russia would change for the better if Nemtsov was in charge?

ANATOLY KARLIN: I’m no seer as to predict what will happen with President Borya at the helm, but I can make some inferences from history. As the liberal governor of Nizhniy Novgorod oblast from 1991 to 1996, praised by the likes of Margaret Thatcher, he oversaw an economic collapse that was – if anything – even deeper than in Russia as a whole. Industrial production fell by almost 70%, as opposed to 50% at the federal level; mean incomes declined from 90.8% of the Russian average in 1991, to just 69.5% by 1996.

As Deputy Prime Minister, the New York Times described Nemtsov as an “architect of Russia’s fiscal policy.” In July 29th, 1998, Borya predicted that “there will be no devaluation.” Three weeks later, on August 17th, Russia defaulted on its debts. The ruble plummeted into oblivion, along with his approval ratings, and soon after he quit the government. The next decade he spent on self-promoting liberal politics and writing “independent expert reports” whining about Putin that are as prolific (there are now 7 of them) as they are misleading.

Nemtsov hasn’t exactly made a good impression on the two occasions he enjoyed real power. Who knows, perhaps third time’s the lucky charm. But I wouldn’t bet the house – or should that be the Kremlin? – on it.

LA RUSSOPHOBE: Same question for Alexei Navalny.

ANATOLY KARLIN: Life may become harder for corrupt bureaucrats and dark-skinned minorities. Supporters of gun rights will have cause to celebrate.

In short, it’s a mixed bag. I wish Navalny well in his RosPil project, but I wouldn’t support any of his political ambitions unless he firmly disavows ethnic Russian chauvinism.

LA RUSSOPHOBE: But Putin hasn’t disavowed ethnic Russian chauvinism. So why do you support his political ambitions? Would you criticize Putin if Navalny announces his candidacy and then gets arrested just like Khodorkovsky?

ANATOLY KARLIN: Putin is most assuredly not a Russian (russkij) chauvinist. He has condemned nationalism on many occasions, and stressed the multiethnic nature of the Russian Federation – as well he should, as nationalism is one of the biggest threats to its territorial integrity. If anything, the nationalists hate Putin even more than the liberals. Visit their message boards and you will see endless condemnations of the current regime as a Zionist Occupation Government intent on selling off the country, populating it with minorities, and exterminating ethnic Russians. The Manezh riots and the banning of the Movement Against Illegal Immigration (DPNI) of the past few months should, if anything, convince one that relations between the Kremlin and far-right groups are decidedly antagonistic.

I will certainly criticize the Kremlin if Navalny is arrested on bogus charges (unlike Khodorkovsky, who is quite guilty of tax evasion). Not Putin because it is highly unlikely he’d have anything to do with it. But I very much doubt it will come to that. To have done so much anti-corruption work as Navalny without getting into any major trouble for it – at least up till now – means that he almost certainly has a good krysha (roof), i.e. political protection of some sort.

LA RUSSOPHOBE: Please provide a link quoting Putin “condemning” Russian nationalism. And please explain why the cabinet wasn’t multi-ethnic under Putin.

ANATOLY KARLIN: There are literally thousands of links on this topic. Here’s one for your delectation, from December 2010:

“If we don’t appreciate Russia’s strength as a multinational society, and run about like madmen with razor blades, we will destroy Russia. If we allow this, we will not create a great Russia, but a territory riven by internal contradictions, which will crumble before our very eyes… I wouldn’t give 10 kopeks for someone who travels from central Russia to the North Caucasus and disrespects the Koran.”

There is nothing to explain. Off the top of my head, Minister of Economic Development and Trade Elvira Nabiullina and Minister of Internal Affairs Rashid Nurgaliyev are Tatars, and Minister of Emergency Situations Sergey Shoygu is Tuvan.

LA RUSSOPHOBE: Our readers may not be familiar with Life News. Can you tell them what that is? Is it, for instance a national TV network? Has Putin ever condemned Russian nationalism in a speech to the Duma, or one of his national Q&A sessions, or in an address to the nation? Has his government ever handled a nationalist the way it handled Mikhail Khodorkovsky? If Putin is serious about protecting the people of the North Caucasus, why do so many of them have to go to Strasbourg?

ANATOLY KARLIN: As far as I know, it’s an online news site with a TV operation. (I’m surprised you haven’t heard of it, it was the first to get hold of a video of Oleg Kashin’s beating). But you can find the above quotes repeated on hundreds of sites. You can read the full speech here.

Would this Q&A on national TV from December 24th, 2010 qualify? That’s at least five denunciations of nationalism in one speech:

“We have to suppress extremism from all sides, wherever it comes from… It’s vital that that all Russians citizens, whatever their faith or nationality, recognize that we are children of one country. In order to feel comfortable anywhere on our territory, we need to behave in such a way, that a Caucasian isn’t afraid to walk Moscow’s streets, and that a Slav isn’t afraid to live in a republic of the North Caucasus… I’ve said this many times before, and I say it again, that from its beginnings Russia grew as a multinational and multiconfessional state… This “bacillus” of radicalism, it’s always present in society, just like viruses in nearly every human organism. But if a human has good immune defenses, these viruses don’t propagate. Likewise with society: if society has a good immune system, then this “bacillus” of nationalism sits quietly somewhere on the cellular level and doesn’t seep out. As soon as society begins to slack off, this immunity falls – and so the disease begins to spread… Russia is a multinational state. This is our strength. No matter what they say, those who sabotage these foundations, they undermine the country.”

If by that you mean prosecuting MBK for breaking laws, then just this past month two ultra-nationalists were jailed for the murder of HR lawyer Stanislav Markelov and journalist Anastasia Baburova.

Presumably, there are many Russian cases at Strasbourg because Russia is part of the Council of Europe – which it could leave, if it wanted to – and because it has a big population with a creaky justice system?

LA RUSSOPHOBE: We didn’t say we hadn’t heard of it, we said our readers might not have. Because it’s pretty obscure. On Strasbourg, you’re again missing the point. See, if Russia under Putin really treated the ethnic peoples fairly, then they would not need to go to Strasbourg, and they would not go because it’s lot of trouble to go. And Putin could order that it be so, and it would be so. But he has not done it. And that’s why they go to Strasbourg. You’ve also lost the thread on Putin and nationalism. Putin is only talking about race murders and racism, not Russian nationalism, and only from the perspective that he fears racists who dare to run wild in the streets he’s supposed to control. And it’s only lip service. When is Putin photographed cuddling dark-skinned people? Where is his program for racial tolerance in Russian schools? Has he ever delivered a speech on national television, ever once in his entire tenure, to lecture the nation on race violence? More importantly, though, when has he ever gone beyond race murder to discuss the horrific consequences of raging Russian nationalism — for instance towards Georgia? Never. To the contrary, Putin actively stoked the flames of hostility towards Georgia, actively fuels Russian xenophobia and hatred of the United States, because doing so helps him stay in power. Your attempt to claim that Putin is Russia’s variant of Martin Luther King is absurd on its face. When Politkovskaya was killed for championing the rights of dark-skinned people, Putin basically said she got what she deserved. Putin routinely pours scorn on the Strasbourg court and has done nothing to improve the quality of justice for Russians as a result of its numerous decrees finding Putin’s government guilty of state-sponsored murder, kidnapping and torture. He has never once taken a such a personal interest it the prosecution of a nationalist as he did with Khodorkovsky. That’s what we meant.

ANATOLY KARLIN: I never claimed that Putin is Russia’s MLK, that is absurd, as his job is in governance not civil activism.

By the numbers. “Cuddling dark-skinned people” – what, just like he does with rare and exotic animals? Do you realize how patronizing – and yes, racist – that sounds? I don’t know about his school policies. As far as I know, Putin never gave a speech solely on race violence on Russian TV, but even if he did, I’m sure you’ll just move the goalposts further (as you did here) and ask if he ever apologized to ethnic minority representatives for past hate crimes, as Germany did for the Holocaust.

As for Georgia, I’m afraid you’ve got the wrong suspect – better ask Saakashvili why he feels it’s okay to invade a South Ossetia that wants nothing to do with him and murder people with Katyusha rockets in their sleep in the cause of Georgian nationalism. Though I’m aware that you’d have much preferred that Russia turn a blind eye to the attacks on Ossetian civilians and its own peace-keepers, failing to do so isn’t exactly nationalism.

Individual racist hoodlums, reprehensible as they are, are not the grave threat to the state that Khodorkovsky was. As such, a personal interest in their prosecution is not required or expected.

LA RUSSOPHOBE: You mean you actually believe that Navalny could be arrested on bogus charges in order to prevent him challenging Putin for the presidency and Putin might have nothing to do with it? That if Putin gave the order to do no such thing, and let Navalny run if he wanted, Putin might be ignored?

ANATOLY KARLIN: I suppose Putin COULD do it, but that’s beside the point. That’s not how they roll. If the powers that be really, really didn’t want Navalny to run for the Presidency, he’d be disqualified on a technicality. As for the latter point, the notion that Putin would think of “ordering” someone NOT to be arrested is pretty ludicrous as it implies an absurd degree of micro-management on his part.

LA RUSSOPHOBE: There’s no doubt that Khodorkovsky was guilty of some criminal violations, that’s not the point. We believe your comment about him is extremely dishonest and an insult to our intelligence. The point is the Khodorkovsky was arrested for doing things that many other Russian businessmen close to Putin have done and continue to do without charges being filed, and was arrested only when he began making noises about challenging for the presidency, and that unlike any of the others he was lobbying strongly to bring Western accounting transparency to Russian business. Do you honestly believe that Putin himself declares all his income on his tax returns? That Khodorkovsky’s arrest was in no way political?

ANATOLY KARLIN: My main problem isn’t that Khodorkovsky’s arrest was political, but that it wasn’t political enough! Were I in charge like a Sid Meier’s Civilization player, all the other oligarchs would join MBK on his extended Siberian vacation, with their ill-gotten assets confiscated and returned to the Russian people.

And if wishes were fishes… Still, let’s get some things straight. On coming to power, Putin made an informal deal with the oligarchs that allowed them to keep their misappropriated wealth in return for paying taxes and staying out of politics. This wasn’t a perfect solution, but one could reasonably argue that it was a better compromise than the two alternatives: large-scale renationalization, or a continuation of full-fledged oligarchy.

For whatever reason – be it self-interest, hubristic arrogance, or even genuine conviction in his own rebranding as a transparency activist – MBK wasn’t interested in this deal. Instead, he bribed Duma deputies to build a power base and tried to run his own foreign policy through YUKOS. So what if other businessmen close to Putin were involved in shady enterprises, you ask? The “others do it too” argument is for the playground, not a court of law. Unlike them, MBK mounted a direct challenge to the Russian state – funded by wealth he’d stolen from it – that Putin was under no obligation to tolerate.

The bottom line is he failed at his power grab, becoming a victim of the same lawless system that he had no qualms exploiting to become Russia’s wealthiest man in the first place (his sordid activities may have extended to murder). Too bad for him, he should have spent his loot on buying foreign football clubs and luxury yachts, like Abramovich. Smallest violin in the world playing for his lost opportunity to enjoy la dolce vita!

I’d really recommend the liberals adopt some other martyr as the face of their Cabbage Revolution, because Khodorkovsky’s sure ain’t pretty!

As regards Putin’s financial probity, I addressed this question below.

LA RUSSOPHOBE: If you had to choose someone from the opposition to replace Medvedev in 2012, who would you choose and why?

ANATOLY KARLIN: That’s easy, Gennady Zyuganov. The Communists are by far the most popular opposition to the Kremlin today. Plus, they make awesome vids.

LA RUSSOPHOBE: We’re not sure you understood the question. You mean you think Zyuganov is the best choice among all those opposed to Putin and Medvedev to be their successor?

ANATOLY KARLIN: Yes, I’d take the Communists over liberals mooching at Western embassies any day of the week. If you listen to Zyuganov’s recent speech, you will find that he is deeply critical of Putin’s and Medvedev’s record.

I think he’s the best choice among the current opposition, but the issue is, of course, arguable. What’s undisputable is that it’s the most democratic. According to opinion polls, a great many Russians hold socialist (40%), Communist (18%), and agrarian (19%) values – all of which the KPRF espouses. The numbers of those with liberal (12%) or ethnic nationalist (12%) values is much lower.

LA RUSSOPHOBE: So you’re saying you think an avowed communist apparatchik is a better choice to govern Russia than Mikhail Kasyanov, who was hand-picked by Vladimir Putin to run the country?

ANATOLY KARLIN: Zyuganov has some good ideas about reintroducing progressive taxation, strengthening the social safety net, and increasing spending on groups like pensioners, working mothers, students, and public workers. Misha knows how to take 2% kickbacks and whine about his former employer to Western journalists.

LA RUSSOPHOBE: If you are right and, two decades after the collapse of the USSR, the best alternative to a proud KGB spy as Russia’s leader is a shameless Communist apparatchik, doesn’t that say something pretty damning about the people of Russia, the quality of their citizenry and their ability to modernize, adapt and grow? After all, Americans were able to follow Richard Nixon with Jimmy Carter, George W. Bush with Barack Obama. Are they really that much better than Russians in this regard?

ANATOLY KARLIN: If the Communists are Russians’ best alternative, it implies that they suffer much less cognitive dissonance than Americans, who claim to want a Swedish-style wealth distribution but consistently give power to plutocrats drawn from a common “bipartisan consensus.” So that’s another way of looking at things.

LA RUSSOPHOBE: If you had to choose someone, and you could choose anyone at all, to be the next president of Russia, who would you choose and why?

ANATOLY KARLIN: Dmitry Rogozin, because his Twitter feed is the best thing since sliced white bread. Realistically? Despite my criticisms of his rule, I think Vladimir Putin remains the best choice.

LA RUSSOPHOBE: But Rogozin is a fire-breathing nationalist. How do you square criticizing Navalny on this ground and then totally ignoring it with respect to Rogozin?

ANATOLY KARLIN: I think advancing Rogozin on the merits of his Twitter feed provides a strong clue on the (non) seriousness of the proposal.

LA RUSSOPHOBE: Kevin Rothrock of “A Good Treaty” says Putin won’t return to the presidency in 2012, Medvedev will be reelected. Do you agree?

ANATOLY KARLIN: Yes, I do. If I had to bet on it, I’d give the following odds: Medvedev – 70%, Putin – 25%, Other – 5%.

LA RUSSOPHOBE: What odds do you give Medvedev of defeating Putin in an “election” that Putin wants to win?

ANATOLY KARLIN: If they go head to head, I’d say: Putin – 75%, Medvedev – 25%.

According to opinion polls, 27% of Russians would like Putin to run as a candidate in the 2012 elections, compared to just 18% who are Medvedev supporters (another 16% would like to have both of them run; I count myself among them). Putin’s approval ratings are consistently higher. He has the support of the party of power and the siloviki, though Medvedev can count on the Presidential Staff. A recent infographic in Kommersant indicates that Medvedev enjoys slightly more media coverage.

I think Medvedev will only get a good chance to beat Putin if the allegations of massive corruption against the latter are found to be actually true. As I argue below, I doubt Putin is personally corrupt – at least, not to banana republic-type levels – so I don’t see that becoming a decisive factor.

LA RUSSOPHOBE: Rothrock says the 2012 election won’t be free and fair by European standards. Do you agree?

ANATOLY KARLIN: Mostly, I disagree. As I noted in this post, the results of the 2008 Presidential elections almost exactly matched the results of a post-elections Levada poll asking Russians whom they voted for. The percentage of votes for Medvedev, and the percentage of those who later recalled having voted for Medvedev (excluding non-voters), was exactly the same at 71%. If vote rigging were as prevalent as you guys seem to think, there would logically be a big discrepancy between these two figures, no?

(And before you retort that the director of the Levada Center, Lev Gudkov, is an FSB stooge or some such, consider that he writes things like this: “Putinism is a system of decentralized use of the institutional instruments of coercion, preserved in the power ministries as relics of the totalitarian regime, and hijacked by the powers that be for the fulfillment of their private, clan-group interests.” Doesn’t exactly sound like the biggest Putin fanboy out there…)

The question of whether elections will be fair is a different quantity. The Russian political system is a restricted space, in comparison to much of Europe, which I suppose makes it less fair. On the other hand, it’s hardly unique in that respect. The first past the post system in the UK, for instance, means that in regions dominated by one party, there is no point in voting for an alternate candidate (a feature that has led to artificially long periods of Conservative domination).

LA RUSSOPHOBE: If Putin does return to the Russian presidency in 2012, do you believe there’s any chance he’ll leave power in anything but a coffin? If so, tell us how you think it could happen.

ANATOLY KARLIN: He might also leave in a helicopter, a Mercedes (or a Lada Kalina, if he’s feeling patriotic that day), or even a computer if “mind uploading” is developed like those technological singularity geeks predict.

Okay, let’s be clear… unlike you, I don’t view Putin as a dictator. The Russian Federation is, at worst, semi-authoritarian, and has been such since 1993 – when the “democratic hero” Yeltsin imposed a super-presidential Constitution with tank shells. If Putin becomes President in 2012, he will likely leave in 2018 or 2024.

LA RUSSOPHOBE: But according to your own words, the only way Putin will become “president” in 2012 is if you are very, very wrong. So your prediction about him them leaving office is just drivel, isn’t it? Or are you saying he’ll take a six-year holiday and come back in 2030?

ANATOLY KARLIN: It’s not a prediction, it’s a supposition (note my qualifier: “likely”). As I said, I’m not a seer. What I do know is that Putin honored the constitutional limit on two Presidential terms in 2008, defying the predictions of legions of Kremlinologists, so based on historical precedent I assume he’ll continue to follow the letter of the law.

VVP will be 78 years old in 2030. I suspect he’ll be playing with his great grandchildren by then, not running the country. Unless he takes up Steven Seagal on his offer to become a cyborg, or something.

LA RUSSOPHOBE: Could you have asked for a more Russophile-friendly president of the USA than Barack Obama? If so, how could Obama have been even more Russophile-friendly while still retaining credibility among American voters?

ANATOLY KARLIN: If by “Russophile-friendly” you mean a President who takes a neutral and constructive position towards Russia (as opposed to McCain’s kneejerk Russophobia), then yes, quite a few improvements could be made.

Repealing Jackson-Vanik is one long overdue reform, as Russia hasn’t restricted emigration for over two decades. Introducing a visa-free regimen will make life a lot easier for both Russians and Americans. Agreeing to let Russia have joint control of European ballistic missile defense will alleviate Russian concerns that the system is targeted against them, and will give the US leverage to extract more Russian cooperation on issues of mutual concern such as Iran’s pursuit of nuclear weapons. Admittedly, the last will be a difficult pill to swallow, for those who are still entombed in Cold War mindsets.

LA RUSSOPHOBE: You seem a bit confused. The President of the USA can’t repeal a law. Try reading the Constitution. What could Obama have done within his power as president that he has not done? Are you proposing that Europe will have joint control over Russian ballistic missile defense as well?

ANATOLY KARLIN: Presidents can lobby to repeal a law, but OK – point well taken. I don’t deny that Obama has been a good President for US-Russia relations.

This is common sense on his part. The US is an overstretched Power, with a budget deficit of 10%+ of GDP; it’s fighting in Iraq, Afghanistan, and Libya; China is emerging as a major economic and military challenger; and the government is sinking into dysfunctional partisanship. Reaching some kind of accommodation with Russia is very much in the US national interest, even if the residual Cold Warriors and neocons are too blind to see it.

If the US granted Russia joint control of its BMD systems in Europe, and if – for whatever reason – Russia were to install BMD facilities abroad in Belarus or Transnistria, then yes, it would be justified for the US and a European authority to demand joint control over those Russian BMD systems.

(Ideally, in my view, all parties should abandon BMD projects against next to non-existent threats from countries like Iran, and concentrate their resources on far more pressing issues, such as anthropogenic climate change).

LA RUSSOPHOBE: Are you saying Obama isn’t lobbying to repeal JV?

ANATOLY KARLIN: Obama could be more pro-active about it. It’s been three years now and still no cake.

LA RUSSOPHOBE: According to Transparency International Russia has become much more corrupt while Putin has held power, and there’s certainly no evidence it has become less corrupt. Do you believe Putin is personally corrupt, in other words that he’s taken any money or wealth in any form that he has not declared on his tax return while president or prime minister?

ANATOLY KARLIN: I take issue with your first statement. Russia’s Corruption Perceptions Index (CPI) was 2.1 in 2000; it remained unchanged, at 2.1, in 2010. How does this indicate that Russia has become “much more corrupt” under Putin? I’d call it stagnation. (And that’s corruption as measured by a metric that has been widely criticized for its subjectivity and methodological flaws. But that’s another topic).

Unfortunately, I don’t have access to Putin’s bank accounts (of course, neither do the legions of journalists writing about his $40 billion offshore fortunes). In fact, as far as I know, these claims originated with Stanislav Belkovsky, a political scientist citing “anonymous sources” in the Kremlin. The sole problem with his thesis? He doesn’t give any evidence whatsoever to back up his claims.

My impression is that Putin is not personally corrupt – at least, not to Suharto-like extremes. Sure, it’s not as if Putin buys his $50,000 watches and vintage cars with his own salary; that’s the job of his staff, to maintain a respectable image. And this isn’t uncommon. For instance, President Sarkozy wears a $120,000 Breguet, among several other luxury watches in his collection.

PS. I noticed in your translation of Nemtsov’s report that he took issue with taxpayer-funded estates “that are at the disposal of the country’s top leaders” as one example of Putin’s incorrigible corruption. The first example of this ‘corruption’ he cited was Konstantinovo Palace, near St.-Petersburg. Some facts: it’s an imperial-era palace that fell into disrepair in the 1990’s; Putin merely ordered its restoration. It’s possible to visit it as a tourist, and in fact I did, in 2003. Like many other cultural attractions, it has its own website. I wouldn’t find it surprising if tourism has already repaid the ‘corrupt’ state investments into its reconstruction.

LA RUSSOPHOBE: Please have a look at the nice red-and-white chart in this link. Would you like to change your answer?

ANATOLY KARLIN: The chart shows that Russia’s position fell in Transparency International’s global rankings from 82nd in 2000, to 154th a decade later. What the esteemed author, Ben Judah, conveniently forgot to mention was that the sample of countries it was measured against rose from 90 to 178.

So, that’s a no.

LA RUSSOPHOBE: You’re saying that the revelation that there are seventy two more countries in the world than previously thought that are less corrupt than Russia is insignificant? You’re saying that you don’t think it reflects at all badly on Vladimir Putin that there are 153 world nations that are less corrupt than Putin’s Russia?

ANATOLY KARLIN: You’d benefit from a course in Stats 101. Russia’s absolute ranking has fallen, but this was exclusively due to a doubled sample. Its absolute score remains exactly the same at 2.1, and it stayed in the bottom quintile in the global rankings. There is no “revelation” to speak of as statisticians would have ACCOUNTED for the fact that the sample only covered less than half the world’s countries in 2000!

I completely agree with you that Russia’s position in Transparency International’s CPI rankings reflects badly on VVP… if the ‘perceptions’ of their self-appointed experts actually had anything to do with reality! Fortunately for Russia, that is not the case. Quite apart from its methodological flaws – using changing mixes of different surveys to gauge a fluid, opaque-by-definition social phenomenon – it doesn’t pass the face validity test. In other words, many of the CPI’s results are frankly ludicrous. Do you truly believe that Russia (2.1) is more corrupt than failed states like Zimbabwe (2.4) and Haiti (2.2), or that Italy (3.9) is more corrupt than Saudi Arabia (4.7) which is a feudalistic monarchy for crying out loud!? If you do, may I respectfully suggest getting your head checked?

There are many other corruption indices that are far more useful and objective than the risible CPI.

One of them is Transparency International’s less well-known Global Corruption Barometer. Every year, they poll respondents on the following question: “In the past 12 months have you or anyone living in your household paid a bribe?” According to the 2010 version, some 26% of Russians said they did, which is broadly similar to other middle-income countries such as Thailand (23%), Hungary (24%), Romania (28%), or Lithuania (34%). It is significantly worse than developed countries such as the US (5%) or Italy (13%) – though Greece (18%) isn’t that distant – but leagues ahead of Third World territories like India (54%) or Sub-Saharan Africa (56% average).

Another resource is the Global Integrity Report, which evaluates countries on their “actually existing” legal frameworks and implementation on issues such as “the transparency of the public procurement process, media freedom, asset disclosure requirements, and conflicts of interest regulations.” (This involves rigorous line by line examination of the laws in question, as opposed to polling “experts” on their “perceptions” as in the CPI). Russia has relatively good laws, but weak implementation, making for an average score of 71/100 as of 2010 (up from 63/100 in 2006). As with the Barometer, Russia is somewhere in the middle of the pack. It does better on the International Budget Partnership, which – believe it or not – assesses budget transparency. On the Open Budgets Index of 2010, Russia scored 60/100 (or 21st/94 countries), which is worse than most developed countries like the US (82) or Germany (67), but average for its region, and well above states like Nigeria (18) or Saudi Arabia (1).

Now I hope you won’t take away the wrong impression here. It is not my intention to argue that there’s no corruption in Russia, or that it isn’t any worse than in most of the developed world. But I do not consider Russia’s corruption to be atypical of other middle-income countries, and it’s certainly nowhere near the likes of Zimbabwe or Equatorial Guinea as those who praise the Corruption Perceptions Index would have you think.

LA RUSSOPHOBE: But Anatoly, you’re still ignoring our questions, and that’s very rude. As TI started bringing in more and more countries within its survey, it found that far, far more of them were LESS corrupt than Russia, and only a handful were MORE corrupt. You can’t seem to decide if TI’s data is reliable, and therefore proves corruption isn’t getting worse in Russia, or unreliable, and therefore can be ignored when it claims Russia is a disastrous failure. Since you don’t care about facts, let’s talk about anecdotes: Have you personally ever actually tried to do business in Russia?

ANATOLY KARLIN: So what?? The experts polled by Transparency International believed Russia to be a corrupt hellhole in 2000 (bottom 9% globally). They believed Russia to be a corrupt hellhole in 2010 (bottom 14% globally). Nothing changed.

Just because more countries were included in the survey during the intervening period says absolutely nothing about corruption trends in Russia!

TI’s data used to compile the CPI is reliable enough at measuring corruption PERCEPTIONS; what I think I made quite clear is that I do not believe those perceptions to be reflective of Russia’s corruption REALITIES, because of the methodological and face validity problems that I discussed above. As such, I do NOT view TI’s CPI as a reliable measure of corruption in Russia. There are far better measures such as the Global Corruption Barometer, the Global Integrity Report, and the Open Budget Index.

You can view Russia’s scores on these, relative to other countries, in my new post on the Corruption Realities Index 2010. It combines the findings of the three organizations above, and in the final results Russia comes 46th/93 (and before you rush off to claim it is “Russophile”-biased, note that Georgia comes 21st/93). Nobody would claim being about as corrupt as the world average to be a great achievement, and I never did; but neither is it apocalyptic.

No, I haven’t done business in Russia. Is it supposed to be a prerequisite for studying corruption in Russia? In any case, even if I had done business there, my experiences wouldn’t necessarily be representative of the business community at large.

LA RUSSOPHOBE: Well, see, if Russia wasn’t really so bad, or was in stasis compared to other countries, then you’d expect to see an equal division between “less corrupt than Russia” and “more corrupt than Russia” as new countries were added to the mix. But in fact, as new countries are added the overwhelming majority turn out to be less corrupt than Russia. Even if Russia’s score is overstated by one-third, Russia still isn’t among the 100 most honest nations on the planet. A person who truly cared about Russia would be very, very concerned about this. You, instead, seek to rationalize Russian failure and by doing so you help it continue. So as we’ve said before, with “friends” like you Russia needs no enemies.

ANATOLY KARLIN: I doubt Russia’s corruption problem will be fixed sooner by screaming “ZAIRE WITH PERMAFROST!!!” at any opportunity, but that’s just me so let’s agree to disagree.

LA RUSSOPHOBE: Why don’t you live in Russia?

ANATOLY KARLIN: This question appears to be a variation of the “love it then go there” argument, which is a false dilemma fallacy.

Anything more I say will only be recapping issues I’ve already addressed in this post.

LA RUSSOPHOBE: Again, you’ll have to answer our questions or your interview won’t be published. Bizarre as it may seem to you, those are our rules. Incidentally, our readers aren’t overly interested in following links to your blog. Care to try again?

ANATOLY KARLIN: My reasons for living not living in Russia are simple and mundane: at the present time, I see more opportunities for myself where I currently reside than I do in Russia. I’d prefer to finish my last year in university, and overall, the Bay Area is a pretty cool place to be in.

This may change in the future, as in general, I view myself as a wanderer, a “rootless cosmopolitan” if you will, and some other countries on my to-go list include China, Argentina, and Ukraine / Belarus.

However, I doubt your motive in asking this question is to exchange pleasantries about my life goals. Instead you or your readers may legitimately ask why my opinions on Russian politics, society, etc., should carry any weight when I don’t live there.

First, who I am, where I live, and what flavor of ice cream I like has no bearing on the validity of any arguments I make about Russia or indeed almost anything else. Not only is disputing that a logical fallacy, but for consistency you’d then have to dismiss almost all Western Kremlinologists – including those you approve of, such as Streetwise Professor, Paul Goble, Leon Aron, etc – who likewise don’t live in Russia.

Second, you might be implying that I should “love it or leave it,” i.e. leave the US (which I hate) and go to Russia (which I love). Not only is this also a logical fallacy, a false choice dilemma, but it is also untrue. There are many aspects of the US which I love and likewise many aspects of Russia that I hate, and vice versa.

Third, you may say that I “voted with my feet,” thus proving that USA is Number One. Sorry to disappoint, but one person cannot be generalized to ‘prove’ things one way or another on issues as subjective as which country is better or worse than another. The exercise is entirely pointless given the huge impact of unquantifiable cultural factors and specific and personal circumstances inherent to any such judgment.

Fourth, and finally, even if I did live in Russia, the Russophobe ideologue will only argue that it’s confirmation that I’m an FSB stooge – because, as he or she well knows, the Kremlin crushes all dissent and only allows Putinistas online.

LA RUSSOPHOBE: We don’t believe any thinking person can argue that any other Russia blog that has ever existed has come close to being as inspirational to the blogosphere as La Russophobe. Just for instance, neither your blog nor the one you (laughably) consider the best in the universe, Kremlin Stooge, would exist without our inspiration. And if there’s one thing we respect about you, it would be your willingness to admit the extent of our influence. Yet many of your Russophile brethren insist on pretending to dismiss us. Why are they so unwilling to admit how good we are? Why don’t they realize how foolish they look? Is it some sort of psychological complex on their part, or is it a crazily ineffective propaganda scheme?

ANATOLY KARLIN: I think you’ve given all the answers in advance.

LA RUSSOPHOBE: No, we’ve given a choice of options, and maybe you can think of another one we haven’t.

ANATOLY KARLIN: It might have something to do with them seeing you as a slanderous egomaniac with delusions of grandeur (“La Russophobe, of course, stands alone as the best Russia blog on this planet, or any other”), though admittedly, also morbidly entertaining, like the artworks of Damien Hirst. But I’m sure they’re just jealous. After all: “ревность – сестра любви, подобно тому как дьявол – брат ангелов.”

You’ll always be an angel to me, La Russophobe!

LA RUSSOPHOBE: Do you seriously believe Kremlin Stooge is the best Russia blog on the planet, or were you just being a provocateur?

ANATOLY KARLIN: It’s a tossup between Kremlin Stooge (popular coverage), Russia: Other Points Of View (in-depth economy, politics, media), A Good Treaty (society), The Power Vertical (politics), Sean’s Russia Blog (history), and Sublime Oblivion (demography)… well, if you insist, add La Russophobe (the кровавая гэбня).

(Of course, these are only the English-language blogs. There is also Alexandre Latsa’s Dissonance blog, en français, and it goes without saying that there are dozens of extremely good Russia blogs на русском.)

At a minimum, they all offer something unique. Selecting the best one is, by necessity, an exercise in subjectivity. With that caveat, I find Mark Chapman’s Kremlin Stooge, Russia: Other Points of View, and Eric Kraus’ Truth and Beauty to be the most interesting English-language blogs.

Thanks for your thoughtful questions, and wish you the best.

LA RUSSOPHOBE: Thanks for the interview, and good luck with your blogging!

(Republished from Sublime Oblivion by permission of author or representative)
 
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A year ago I predicted that there will be a “decoupling from the unwinding“, as “emerging markets” by and large ride out the temporary shocks of declining Western demand for their exports (China) and the interruption of Western credit intermediation (Russia) before resuming growth. This is one aspect of the trends leading to the imminent demise of Pax Americana, which will be replaced by “the age of scarcity industrialism” / “a world without the West“. We are now entering this Empire’s endgame.

After briefly stalling in early 2009, China’s economy roared back to life on the back of massive credit loosening to build (or overbuild) infrastructure and industrial capacity. Though not the most efficient use of resources, it did have the advantage of 1) maintaining growth, 2) forestalling the social unrest that would rise up if it wasn’t, and 3) at least Chinese investments went into building up their real economy (amongst other things, it became the world’s largest producer of wind turbines and photovoltaic panels in 2009), instead of the pork and oligarch welfare programs more characteristic of the US “stimulus”. And though Russia’s GDP contracted by 7.9% in 2009 – far higher than expected by most commentators, largely thanks to the dependence its big corporations acquired on continuous flows of intermediated Western credit – it began to slowly recover from mid-2009, industrial output is now rising at a fast clip, and investment banks are predicting growth of 4-6% for 2010. The other two BRIC’s, Brazil and India, didn’t have too many problems at all since they had neither a big credit nor trade dependence on the submerging Western markets.

In the long-term, I argued that the brunt of the crisis would fall on the “submerging” Anglo-Saxon markets, thanks to their “charades over “quantitative easing” (translation: printing money), transfer of toxic “assets” onto the public account”, and unsustainable fiscal stimuli. Today, the American political system is for all practical purposes broken. Republicans won’t agree to tax increases, Democrats won’t agree to cutting entitlement programs. The legislative process is reverting to that of the 17th century Polish-Lithuanian Commonwealth, when a single veto could (and did) prevent anything being agreed on in their Sejm, or parliament. (Hint: the ultimate consequences weren’t good for Poland).

The inflated hopes and expectations accompanying Obama’s accession to power were indeed, just as I suggested on his election, “greatly constrained by financial and institutional realities”. He is a weakling President, alternating between meaningless populist rhetoric and pandering to the Wall Street oligarchs; scorned by the left as Bush II with gloss, and condemned by the right as a foreign Marxist Islamofascist: his policies and outreaches failing at home and abroad, rejected in his own heartlands, these outcomes are engendered by and in large part made inevitable by his hopelessly pollyannish belief in his own messianic powers of compromise and persuasion.

If you think things look bad now, with the budget deficit at 10% of GDP for 2009 and a similar figure projected for 2010, don’t look at what awaits us in a few more years. The fiscal pressure is only going to increase as the baby boomers start retiring, and as long as the US remains a populist democracy the public will not allow it to cut entitlements (at least until China and the world’s oil exporters force it on them). For instance, the Congressional Budget Office believes that the US will never again run a balanced budget, and you can guess its consequences for American global power. Furthermore, this doesn’t take into account that 1) the vast majority of prior budget forecasts have been optimistic and 2) this assumes that none of the potential breaking-points that could doom Pax Americana (which I’ve identified as imperial overstretch, geopolitical shocks, and oil-credit perturbations caused by peak oil) come to pass.

As shown above, the US has had an almost continous budget deficit since the start of its “age of diminished expectations” in the 1970′s, funded by investors willing to buy up its Treasuries, accepting low returns in exchange for America’s perceived status as a “safe haven” (so-called “American alpha”). Yet with the American empire crumbling at the margins and their own most optimistic forecasts predicting a structural deficit into the foreseeable future, will investors continue buying up Treasuries – or will they turn to more promising emerging markets? Could it even be possible that the US is already in its imperial endgame, as argued by John Michael Greer?

A different reality pertains within the Washington DC beltway. Where states that fail to balance their budgets get their bond ratings cut and, in some cases, are having trouble finding buyers for their debt at less than usurious interest rates, the federal government seems to be able to defy the normal behavior of bond markets with impunity. Despite soaring deficits, not to mention a growing disinclination on the part of foreign governments to keep on financing the same, every new issuance of US treasury bills somehow finds buyers in such abundance that interest rates stay remarkably low. A few weeks ago, Tom Whipple of ASPO became the latest in a tolerably large number of perceptive observers who have pointed out that this makes sense only if the US government is surreptitiously buying its own debt.

The process works something like this. The Federal Reserve, which is not actually a government agency but a consortium of large banks working under a Federal charter, has the statutory right to mint money in the US. These days, that can be done by a few keystrokes on a computer, and another few keystrokes can transfer that money to any bank in the nation. Some of those banks use the money to buy up US treasury bills, probably by way of subsidiaries chartered in the Cayman Islands and the like, and these same off-book subsidiaries then stash the T-bills and keep them off the books. The money thus laundered finally arrives at the US treasury, where it gets spent.

It may be a bit more complex than that. Those huge sums of money voted by Congress to bail out the financial system may well have been diverted into this process – that would certainly explain why the Department of the Treasury and the Federal Reserve Bank of New York have stonewalled every attempt to trace exactly where all that money went. Friendly foreign governments may also have a hand in the process. One way or another, though, those of my readers who remember the financial engineering that got Enron its fifteen minutes of fame may find all this uncomfortably familiar – and it is. The world’s largest economy has become, in effect, the United States of Enron.

And it’s not only tree-hugging Druids that are raising the alarm. Niall Ferguson, court historian for Pax Americana, is also tolling the bell for its imminent demise on the pages of the Financial Times (A Greek crisis is coming to America).

What we in the western world are about to learn is that there is no such thing as a Keynesian free lunch. Deficits did not “save” us half so much as monetary policy – zero interest rates plus quantitative easing – did. First, the impact of government spending (the hallowed “multiplier”) has been much less than the proponents of stimulus hoped. Second, there is a good deal of “leakage” from open economies in a globalised world. Last, crucially, explosions of public debt incur bills that fall due much sooner than we expect. …

For the world’s biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the “safe haven” of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.

Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase “safe haven”. US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941. …

The International Monetary Fund recently published estimates of the fiscal adjustments developed economies would need to make to restore fiscal stability over the decade ahead. Worst were Japan and the UK (a fiscal tightening of 13 per cent of GDP). [AK: Yes, Britain is screwed. So is Japan]. Then came Ireland, Spain and Greece (9 per cent). [AK: The PIIGS (Portugal, Italy, Ireland, Greece, Spain are screwed too, especially Greece and Spain at this point]. And in sixth place? Step forward America, which would need to tighten fiscal policy by 8.8 per cent of GDP to satisfy the IMF.

Explosions of public debt hurt economies in the following way, as numerous empirical studies have shown. By raising fears of default and/or currency depreciation ahead of actual inflation, they push up real interest rates. Higher real rates, in turn, act as drag on growth, especially when the private sector is also heavily indebted – as is the case in most western economies, not least the US.

Although the US household savings rate has risen since the Great Recession began, it has not risen enough to absorb a trillion dollars of net Treasury issuance a year. Only two things have thus far stood between the US and higher bond yields: purchases of Treasuries (and mortgage-backed securities, which many sellers essentially swapped for Treasuries) by the Federal Reserve and reserve accumulation by the Chinese monetary authorities.

But now the Fed is phasing out such purchases and is expected to wind up quantitative easing. Meanwhile, the Chinese have sharply reduced their purchases of Treasuries from around 47 per cent of new issuance in 2006 to 20 per cent in 2008 to an estimated 5 per cent last year. Small wonder Morgan Stanley assumes that 10-year yields will rise from around 3.5 per cent to 5.5 per cent this year. On a gross federal debt fast approaching $15,000bn, that implies up to $300bn of extra interest payments – and you get up there pretty quickly with the average maturity of the debt now below 50 months. [AK: This refers to the dreaded "debt compound trap", in which the real costs of servicing debt spiral out of control and the only way out is restructuring (partial / negotiated default) or "monetization" of the debt (inflation). PS. The "debt trap" is essentially what brought down the regime of Louis XVI in 1789].

The Obama administration’s new budget blithely assumes real GDP growth of 3.6 per cent over the next five years, with inflation averaging 1.4 per cent. [AK: Ha!] But with rising real rates, growth might well be lower. Under those circumstances, interest payments could soar as a share of federal revenue – from a tenth to a fifth to a quarter.

Last week Moody’s Investors Service warned that the triple A credit rating of the US should not be taken for granted. That warning recalls Larry Summers’ killer question (posed before he returned to government): “How long can the world’s biggest borrower remain the world’s biggest power?”

The US is a weakened skier and is now hurtling towards a rock-strewn double black for which it is not prepared in any way, shape, or form. But at least for now, its position looks stable – after all, it grew at an annualized 5.7% in Q4, 2009 (half due to inventories buildup). The same cannot be said of Greece and the Eurozone, which seem to be approaching a major crisis in mid-2010.

Afflicted with a dysfunctional political system and chronically unable to balance its budget (sound familiar?), yet without the manifold benefits of “American alpha”, Greece is facing a looming default propelled by a 13%-of-GDP budget deficit (even granting full benefit of the doubt to Greece’s dodgy statistics service), public debt at 113% of GDP (well above the 60% limit imposed by Maastricht), and draconian austerity plans that are politically unrealizable.

If Greece were to impose the draconian pay cuts under way in Ireland (5pc for lower state workers, rising to 20pc for bosses), it would deepen depression and cause tax revenues to collapse further. It is already too late for such crude policies. Greece is past the tipping point of a compound debt spiral. …

Remember, Athens holds the whip hand over Brussels, not the other way round. Greek exit from EMU would be dangerous. Quite apart from the instant contagion effects across Club Med and Eastern Europe, it would puncture the aura of manifest destiny that has driven EU integration for half a century. …

No doubt, EU institutions will rustle up a rescue. RBS says action by the European Central Bank may be “days away”. While the ECB may not bail out states, it may buy Greek bonds in the open market. EU states may club together to keep Greece afloat with loans for a while. That solves nothing. It increases Greece’s debt, drawing out the agony. What Greece needs – unless it leaves EMU – is a permanent subsidy from the North. Spain and Portugal will need help too.

The danger point for Greece will come when the Pfennig drops in Berlin that EMU divergence between North and South has widened to such a point that the system will break up unless: either Germany tolerates inflation of 4pc or 5pc to prevent Club Med tipping into debt deflation; or it pays welfare transfers to the South (not loans) equal to East German subsidies after reunification.

Before we blame Greece for making a hash of the euro, let us not forget how we got here. EMU lured Club Med into a trap. Interest rates were too low for Greece, Portugal, Spain, and Ireland, causing them all to be engulfed in a destructive property and wage boom. The ECB was complicit. It breached its inflation and M3 money target repeatedly in order to nurse Germany through slump. ECB rates were 2pc until December 2005. This was poison for overheating Southern states.

And according to Stratfor:

The crisis is rooted in Europe’s greatest success: the Maastricht Treaty and the monetary union the treaty spawned epitomized by the euro. Everyone participating in the euro won by merging their currencies. Germany received full, direct and currency-risk-free access to the markets of all its euro partners. In the years since, Germany’s brutal efficiency has permitted its exports to increase steadily both as a share of total European consumption and as a share of European exports to the wider world. Conversely, the eurozone’s smaller and/or poorer members gained access to Germany’s low interest rates and high credit rating. And the last bit is what spawned the current problem.

Greece now has the following choices:

1) Balance the budget. To do this Greece would have to cut its government spending by as much as half, resulting in sky-rocketing unemployment (20%+) and severe social unrest. Greeks are volatile, not like disciplined Germans or apathetic Latvians.

2) Leave the EMU. And print a New Drachma to inflate away its debt into oblivion, as was once typical for the Med nations. But then it would lose its geopolitical anchor in Europe and lose access to any further foreign investor money. According to Willem Buiter, this isn’t too likely.

Would a eurozone national government faced either with the looming threat of default or with the reality of a default be incentivised to leave the eurozone? Consider the example of a hypothetical country called Hellas. It could not redenominate its existing stock of euro-denominated obligations in its new currency, let’s call it the New Drachma. That itself would constitute a further act of default. If the New Drachma depreciated sharply against the euro, in both nominal and real terms, following the exit of Hellas from the eurozone, the real value of the government debt-to-GDP ratio would rise. In addition, any new funding through the issuance of New Drachma-denominated sovereign bonds would be subject to an exchange rate risk premium, and these bonds would have to be sold in markets that are less deep and liquid that the market for euro-denominated Hellas debt used to be. So the sovereign eurozone quitter and all who sail in her would be clobbered as regards borrowing costs both on the outstanding stock and on the new flows.

A sharp depreciation of the nominal exchange rate of the New Drachma vis-a-vis the euro would for a short period improve the competitive position of the nation because, with domestic costs and prices sticky in nominal New Drachma terms, a nominal depreciation is also a real depreciation. Nominal rigidities are, however, less important for eurozone economies than for the UK, and much less important than in the US. Real rigidities are what characterises mythical Hellas, as it does real-world Greece, Italy, Spain, Portugal and Ireland. The real benefits from a nominal exchange rate depreciation would be eroded after a year – within two years at most – before you could say cyclical recovery. The New Drachma would be a little currency in a big global financial market system – not an instrument to be used to gain competitive advantage or to respond efficiently to asymmetric shocks, but a source of extraneous noise, excess volatility and persistent misalignments, rather like sterling.

A eurozone member state faced with the prospect of sovereign default, or just having suffered the indignity of sovereign default, would be immensely relieved to be a member of the eurozone. The last thing it would want to do is give up the financial shelter provided by membership in the eurozone to try and emulate Iceland, New Zealand or the UK.

3) Old-school default. And be shunned by the rest of Europe. Though threatening to blow up the bomb is to Greece’s advantage, since this will shift the burden to…

Europe – or precisely, Germany – having to make their choice.

1) Let them burn. Germany is getting impatient of being used as Europe’s cash cow for the past 60 years, and may simply tell Greece to deal with it herself. This will likely lead to spiraling debt service costs, fiscal-social-political breakdown, and heightened borrowing costs for the other PIIGS, maybe even a “cascading collapse” of Europe’s entire southern periphery (in the most extreme case, even Belgium and France would be threatened). This would finish off the EU as a meaningful institution, and with it will go the main vehice through which Germany and France wield power at a global level.

2) Berlin bails out Greece. Involves a different set of problems. A straight-out bailout will invite moral hazard and political dissatisfaction amongst the German electorate, who have had their wages constrained for years while the PIIGS wallowed in their bubbles. But all in all, preferable to the above scenario, or the prospect of a spreading crisis of confidence also forcing Germany to bail out Italy, Spain, or even France, all of whom have far bigger borrowing needs (and for which even Germany doesn’t have the resources). Therefore, Germany will probably lead an EU bailout of Greece (even though there is no formal mechanism for doing so) – but in exchange, it will want major political concessions.

But the days of no-strings-attached financial assistance from Germany are over. If Germany is going to do this, there will no longer be anything “implied” or “assumed” about German control of the European Central Bank and the eurozone. The control will become reality, and that control will have consequences. For all intents and purposes, Germany will run the fiscal policies of peripheral member states that have proved they are not up to the task of doing so on their own. To accept anything less intrusive would end with Germany becoming responsible for bailing out everyone.

Granted, at the moment the EU is stalling, not making any commitments; not surprising, given the cluttered and unwieldy talking shop that it is. But as Greece’s bond auctions (almost certainly) fail over the next few months to meet its soaring debt financing commitments, and as it falls into its debt compound trap, the fiscally secure nations – that is, primarily Germany – will realize the dangers of allowing the contagion to spread. And Germany in particular will see a chance to regain the sphere of influence over Mitteleuropa denied it since the Second World War.

Either way, in 2010 the EU institutions are going to be sidelined in favor of more workable, bilateral relations – especially between the Franco-German core and the weakening peripheries. The way will be opened for the return of Great Power politics to the European continent.

Looking further ahead, within a year the US will again enter a state of crisis. Based on Obama’s low popularity at the end of his first year (is he going to set a time record for failed Presidency?) and his loss of Massachusetts (!) to the Republicans, the political gridlock will only harden. As I forecast last September, “the feds will face challenges from the far-left (new Huey Long’s, anarchism, etc) and the far-right (demands for more state rights, anti-tax movements, “American reactionary patriots”, etc)” – though right now, the far-right movements appear to be the more powerful emerging faction (see the grassroots appeal of the reactionary, back-to-the-18th-century Tea Partiers, who in an electoral contest would now garner 17% of the vote – is the US finally going to see a powerful 3rd party?). PS. American corporations can now legally buy themselves political parties.

Second, in addition to the political problem, there will be a renewed economic and credit problem as the Second Wave of the Housing Crisis engulfs the nation because of rising defaults from adjustable-rate mortgages, many of which will be coming due by 2011.

And this brings us to a third problem, a renewed banking crisis. But this time, instead of withdrawing from emerging markets to the “safe haven” of the US, the banks will instead invest more into promising emerging markets (e.g. the BRIC’s) and commodity speculation (see peak oil), while divulging their US holdings and triggering capital flight. This will compount the political and economic problems, as America’s “rootless cosmopolitans” / financial and their political flunkies come under fire from both the far-left and right-wing producerist reactionaries.

Then there’s the fourth problem – peak oil. World oil production capacity may have peaked in 2010, and projections indicate that 2012 will see an accelerating downslide. This time there will be a both severe credit contraction, far exceeding the one in 2008-2009 (because this time capital will be fleeing the US) and soaring oil prices. The American consumer will live through a far more severe retrenchment than in 2007-2009, starting in 2011. The entailing fall in consumption will further reinforce the banking crisis, the wider economic crisis, and the political crisis. By this point, the “Tea Party”-Republican candidate may be well ahead of Obama, who by this point is utterly discredited.

Now what should Obama do? Note that by this time the Iran crisis will be coming to a head. Sanctions will have failed (China and Russia will see no reason to cooperate seriously). Israel will be getting extremely restless, since it treats the Iranian nuclear bomb as an existential threat. And Obama may well come to view a decisive resolution of the Iran issue as the only road still left open to him to claw back domestic and international legitimacy. However, Iran likely has the capability to block the Strait of Hormuz to oil tankers for several weeks using mines and anti-ship missiles. 20% of the world’s oil shipments pass through those narrow Straits. Needless to say, in a world entering the downslope of Hubbert’s peak, any disruption to global oil supplies will have tremendous, chaotic repercussions – economic, financial, political, and geopolitical – that we have no way of predicting in advance.

In conclusion, Pax Americana is going to face a series of severe crises in the next three to five years (and not only its lynchpin, the US). The European crisis, linked to the Med credit bubbles, is leading to the slow unraveling of the EU’s legitimacy in favor of its core states, France and especially Germany. It will come to a head in the next few months. Japan is facing an irredeemable fiscal and debt crisis, which will explode in the next few years: eventually, it will likely bandwagon with China (leveraging its technological base to gain favorable access to China’s markets and labor force) and ditch its post-1990 turn towards neoliberalism, which was never suited for the Japanese mentality anyway, in favor of Asian socialism.

Finally, the US itself will face a panoply of challenges – fiscal profligacy (stemming from its belief that it can have both guns & butter on a shrinking industrial base), imperial overstretch (Afghanistan, Iraq), political dysfunction, a new housing, credit, and economic crisis, soaring energy prices (disastrous for suburbia), and geopolitical challenges (Iran, China, Russia). It can deal with any one of them, but I can see no way how it would be able to deal with all of them coming within a few years of each other. The consequences?

Namely, there will be a partial collapse of legitimacy in the government; the feds will face challenges from the far-left (new Huey Long’s, anarchism, etc) and the far-right (demands for more state rights, anti-tax movements, “American reactionary patriots”, etc); fertility will collapse from the current replacement-level rates to around 1.3-1.7, as welfare shrinks and the utility of having children for the very poor, currently the most fecund social group, drops; crime will increase, etc. Yet within a decade a new social order will gradually emerge, probably fiscally and socially conservative and more authoritarian than the current one, and with it a new equilibrium will slowly, painfully come into being.

However, the US will almost certainly remain a Great Power. I certainly do not see it collapsing into separate states or regions, as dreamt of by the likes of Igor Panarin or Gerald Celente. In some ways, by casting aside its global imperial shell, it will actually become stronger – it will no longer be weighed down by the burden of global empire, and can focus on other activities the more effectively, such as reconstructing its industrial base and reinforcing its neo-colonial sphere around North America, the Carribbean, and perhaps Central America / Venezuela. Whatever form America’s new political economy takes (something resembling Putinism?, or maybe Chavismo?), it will likely be far better suited for the coming age of scarcity industrialism (characterized by economic statism, Realpolitik, and mercantile trade relations), than the crumbling colossus that is today’s Pax Americana.

(Republished from Sublime Oblivion by permission of author or representative)
 
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I would like to wish all Sublime Oblivion readers a very happy and successful New Year. One of my major motivations for writing is getting comments and feedback, so please continue – the more you inflate my ego, the more time I will feel compelled to spend on the blog. ;)

Year in Review: 2009

All in all, 2009 was rather less interesting that 2008, which saw three thresholds of portentous significance – the final peaking of global oil production, the discovery of the magnitude of the Arctic methane meltdown, and the collapse (and partial recovery, abetted by prodigious state credit infusions) of the global financial system. Simultaneously, Russia, China, and other rising powers have begun presenting a rising challenge to Western hegemony on an ever broader front. The key trends of 2009, whether leaders and pundits recognized it or not, were about managing the consequences and realities of 2008.

From the American viewpoint, 2009 was the year of Obama. He realized that the “cowboy diplomacy” pursued by Bush alienated key allies on perceived vital issues (Afghanistan, stimulus spending, etc), and sought to reinvigorate relations with its traditional allies and reach out to its enemies. Though publics tended to be enthusiastic, governments were not as moved; the European states continue stalling on commitments to Afghanistan, whereas Russia, China, and the Muslim world have decidedly spurned him on the basis that actions speak louder than words. They have a point. Obama has essentially continued post-2006 Bush policies based on a “realist” appraisal of American interests – prodigal military spending, “occupation” of the Middle East (as perceived by Muslims), support for Israel, resistance against Russian neo-imperial ambitions for the former Soviet space, engaging with China without reference to human rights, supporting sanctions against Iran while leaving “all options on the table”, etc. This creates a certain impression of schizophrenia to the administration’s actions – popular abroad but spurned by friend and foe; repudiating the Bush legacy but continuing it in practice; talking of reforming healthcare and closing Guantanamo, but stymied by discredited Republicans at home. It’s all a muddle.

So is the bind that the US is stuck in regarding Iran. Officially it supports gasoline sanctions, but they are unlikely to have much effect if Russia circumvents them (which it is likely to do given its continued geopolitical jockeying with the US) – and even if Russia acquiesces to the sanctions, enforcing the sanctions will be difficult. Israel is a loose cannon. It cannot allow the possibility of a radical Islamic regime acquiring a nuclear capability, and will do everything – including striking its nuclear installations – to prevent it. As a consequence, the US will be drawn in because of their fears that in the aftermath, the Iranian military will mine the Strait of Hormuz and interdict the Gulf oil shipping which carries 20% of world oil production. This may usher in a general Middle East war whose geopolitical, economic, and financial ramifications may veer wildly out of control, possibly culminating in the fall of Pax Americana itself. In both the US and Iran, domestic forces are driving the two countries to a confrontation. This is a geopolitical predicament that is becoming increasingly clear, with the US issuing greater threats and Iran intensifying its nuclear brinkmanship in the last few months of 2009.

Even as the US was focused on the Middle East, the Kremlin has been using the resultant “window of opportunity” to continue reasserting its influence over the former Soviet space – expanding the scope of the CSTO military alliance, strengthening ties with Ukraine’s Russia-friendly political forces, pressuring Uzbekistan with a new military base in Kyrgyzstan, and making a customs union with Belarus and Kazakhstan. Though its economic crisis was deep, it did not have major negative internal effects either humanitarian or political, which put Russia in a yet stronger position relative to its Near Abroad. With the Kremlin’s simultaneous strengthening of internal control (e.g. over the oligarchs), Russia continued to return to its past-and-future as a Eurasian empire.

Driven by desperate credit infusions and fiscal spending, the US and Europe began to experience an anemic recovery in mid-2009, – but one that cannot be sustained, especially since the resource fueling it (yes, oil) has peaked, and will decline at an accelerating pace after 2010. The price of recovery is massive new debt, transferred from private to sovereign hands, and a widening of the same imbalances that caused the crisis in the first place. Yet a far worse example of eating the seed corn is the debacle of the Copenhagen summit, where the nations of the world failed to agree on emissions cuts to check runaway global warming. We need to limit the temperature rise to no more than 2C, because after that there are numerous tipping points that will make an accelerating Klimakatastrophe inevitable; this implies that at the minimum, global emissions should peak by 2015, and decline by 80% by 2050 over 1990 levels. The commitments made at Copenhagen are feeble, more so even than Kyoto – largely thanks to Chinese sabotage. (Well, at least we didn’t die of swine flu). In related news, the increasing habitability of Greenland has driven it to make further strides towards declaring formal independence from Denmark.

Riding roughshod over Ireland and the Czech Republic, the EU finally passed the Lisbon Treaty, which gives the large, pro-strong-Europe countries like Germany, France, and Italy far more voting power relative to Euroskeptic nations. Should the Franco-German bloc wish, it now has many of the tools to dominate Europe and present an economic and cultural challenge to US hegemony; whether they will manage to do so is very much open to question, given the rising pressures on European unity presented by trends such as: 1) the rising power of France relative to Germany and 2) the deep-grained economic predicaments of the Mediterranean Rim.D

The skylines lit up at dead of night, the air-conditioning systems cooling empty hotels in the desert, and artificial light in the middle of the day all have something both demented and admirable about them: the mindless luxury of a rich civilization, and yet of a civilization perhaps as scared to see the lights go out as was the hunter in his primitive night. – Baudrillard

There is perhaps no better metaphor for the spectacle of Dubai going bankrupt just as it completed the greatest monument to petro-fueled Gulf vanity, the 818-meter tall Burj Dubai.

Though the Gulf states have increased moves to band together in a customs union, and are slowly but surely transferring their alliance to China – the country likely destined to be the last hegemonic power of the industrial age.

Edit 1/5/09 – There is a better metaphor (or personification?), and best of all it was probably unwitting. From Facebook: Vilhelm Konnander has just (LOL) read today’s “The National” about Burj Dubai: “The tallest tower in the world, its feet anchored in the UAE and its crown floating in the clouds, was inaugurated in an eruption of fireworks last night.”

2010 Predictions

1) World economy continues an anemic recovery, though there are significant risks to the downside.

2) Obama’s honeymoon period is over, his approval ratings are on the downslide, and his major domestic and foreign policy initiatives have almost all failed. Republicans will carry the mid-term elections in 2010, but there is a strong mood of apathy and a sense that what is really needed is a new party, a new politics – though this will only start playing a great role in the post-Obama, or post-2012, era. Rising violence in Iraq (perhaps abetted by Iran, to demonstrate to the US the dangers of attacking it); a false quiet in Afghanistan, as the Taleban limit activity to conserve their strength while the US presence in Afghanistan is strong (they know the Americans will retreat the bulk of their forces soon enough anyway).

In the UK, Gordon Brown (New Labour) will almost certainly lose to James Cameron (Conservatives) in the mid-2010 elections.

3) Possible wars. Foremost looms the shadow of Iran and the bomb, of course. I doubt the US will attack in 2010, unless Israel forces its hand. It will first exhaust its options with sanctions, etc, which will almost certainly be ineffective. The Iranian IRGC-linked hardliners in power (figurehead – Ahmadinejad), under pressure from the Rafsanjani / Mousavi clerical clan, will not yield, and will remain defiant internationally to justify increasing their hold on internal power. There will be tension, but no war – especially since the US still needs to develop its Massive Ordnance Penetrator, the next-generation bunker-buster, to have a high level of confidence that a bombing raid on Iranian nuclear installations have truly done their job. (True, postponing the strike to 2011 or 2012 makes the world economy more vulnerable to disruption because oil prices will be higher then and oil supplies tighter, but then again I highly doubt the administration takes “peak oil” into consideration in its strategic planning). Likelihood: 25%; Severity: 6.

What is much more likely to happen is a new war between Israel and Hezbollah. Since 2006, Israel may have infiltrated Hezbollah, aided by internal splits within the organization, and has taken stock of lessons learned during the unsuccessful last war; it may now want to send a signal to Iran and preemptively incapacitate one of its most effective means for retaliating against Israel into the bargain. Israeli special forces are more than capable of producing a false flag, even if Hezbollah refrains from doing it for them. Furthermore, Hezbollah is causing Saudi Arabia trouble by sending fighters and weapons to the Shia insurgency in Yemen fighting the Saudis; SA would appreciate an Israeli crippling attack on Hezbollah, and may give concessions to Israel, such as allowing it to use its airspace in a strike against Iran (the US has said it will shoot down Israeli planes flying to Iran over Iraq). This further increases the incentives for Israel to pummel Hezbollah, this time round with a real, large-scale ground invasion. Likelihood: 50%; Severity: 3.

A new Russia-Georgia war remains a serious possibility, if Saakashvili uses his rapidly rebuilding military forces to make another megalomaniac lunge at reclaiming South Ossetia, or if Russia orchestrates a false flag to give itself the justification to roll in the tanks to Tbilisi and set up a puppet regime. In the latter case, the “new cold war” atmosphere of August 2008 will begin to appear to be distinctly jovial. Likelihood: 10%; Severity: 4.

Finally, we should note that a) Azerbaijan and Armenia have a bitter rivalry, cultural and geographic over the Armenian-populated and -occupied Azeri enclave of Nagorno-Karabakh, b) though it lost a war to Armenia in the early 1990′s, Azerbaijan has been implementing a rapid military modernization since 2006 with the help of oil pipeline transit revenue from the BTC, and its military budget alone is now equivalent to Armenia’s entire state budget, c) Armenia and Turkey are slowly moving towards a reconciliation under Russian brokerage, which threatens Azerbaijan’s strategic position, and d) Armenian-Azeri talks over Nagorno-Karabakh have recently collapsed. The obstacle to war is that Turkey and the US, though friendly with Azerbaijan, are very unlikely to give it direct support; but Armenia is in the CSTO military alliance with Russia. An Azeri attack will almost certainly lead to a decisive Russian response, furthermore there is a large Russian military base in Gyumri, Armenia. Unlike Saakashvili, Aliyev is a rational leader, and for now Russian and Turkey have a mutual interest in keeping things contained. That said, the possibility of a new war cannot be fully discounted – especially if it is simultaneous with the chaos unleashed by a US-Israeli war with Iran and its proxies.

Expect instability, but not collapse, in Pakistan, Egypt, Mexico, some or all of the Baltic states. Despite the occasional rhetoric, there is very little chance of a new Korean war, a Venezuela-Colombia war, or an Israel-Syria war.

4) Given that Russia’s demography has continued improving even in 2009, a year of deep economic contraction and scare stories (false) of an abortion apocalypse, it is almost certain that it will continue improving further in 2010 and that the year will see the first year of positive population growth since 1994 (or 2009). Birth rate = 12.5-13.0 (reasons), Death rate = 13.5-14.0 (a reason), Net Migration = 1.5-2.0, all / 1000. Economic growth of around 3-5% of GDP sounds reasonable. Lots of privatizations and corruption investigations as part of the Surkov clan’s struggle against the siliviki and “their” state companies. Ukraine under Yanukovych will join Eurasec or the Russia-Belarus-Kazakhstan customs union, but is yet unlikely to join the CSTO or give Russian 2nd language status.

5) Oil production in 2010 will be around the same as 2009 – increased demand will collide with geological depletion to keep output stable. Oil prices in H1 will remain at 70-90$, and will rise to 90-110$ in H2 on the basis that background geological depletion will be cancelled out by OPEC going back on its 2009 production cuts to fuel the ongoing global recovery. Of course, if there are serious confrontations with Iran, the oil price will veer right off the historical charts.

6) No major AGW-related physical events (except for a heatwave or two), given that solar irradiation remains at an unusually long trough – expect the fireworks by 2012-15. AGW skepticism will become more popular in the wake of Climategate. China and its proxies will prevent any more significant action being taken at the next UN climate change summit in Mexico, than was “achieved” in Copenhagen. By year-end the performance of the world’s top supercomputer will exceed 3 petaflops (repeat of 2009 prediction).

7) China’s growth will slow from around 8% in 2009, to perhaps 5% in 2010 as it cuts back on the loose credit in recognition of the problems this is going to create further down the line (this is already happening). Otherwise, expect China to continue keeping a low profile as the US insists on shooting itself in the foot.

What about the 2009 Predictions?

How did my previous set of 2009 predictions go?

1) Correct about the American H2 2009 stimulus-boosted recovery, though too pessimistic about its strength. That said, doesn’t change the fact it’s unsustainable, even in the medium-term.

2) Correct about the end of deflation, resumption of credit flows, and rebounding commodities.

3) I was completely, 100%, totally right on my oil price predictions.

However, an incipient global recovery in the second half will result in a rebound in oil prices from around 40-50$ per barrel in the first half, to 60-80$ in the second.

Not so much on food, admittedly.

4) Right on Germany’s and Japan’s steep GDP declines, not so much on China’s anemic growth – massive credit expansion and fiscal stimulus in the People’s Republic has resulted in the building of ever more unneeded capacity, resulting in a growth rate of around 8% instead of the predicted 2%. Correct on rising protectionism, and the economic collapses in the Baltics and Ukraine.

5) The “flight to safety” ended, and as predicted the US $ weakened relative to the Euro (1 Euro = 1.41$ on Jan 1st 2009, = 1.46$ on Jan 1st 2010, now with an upward rather than a downward trend). The pattern for the yen has been similar. The latest CBO figures suggest that the US budget deficit will be 9.9% of GDP for 2009, within my predicted band of 8-13%.

6) Very wrong on Russia’s GDP growth – instead of 1%, it will decline by around 7-9%. I misunderestimated the depth of its consumers’ and companies’ reliance on credit, and the extent of its credit crunch. Nonetheless, the core of what I predicted, such as the declining influence of the oligarchs and the lack of any significant fall in real wellbeing, has been correct. There have been no serious political challenges to Putvedev, as Russia’s ruling tandem retain extremely high approval ratings. And as predicted, the RTS has recovered to above 1000 (to around 1500 in fact).

7) Wrong that Yushenko and Saakashvili would not survive 2009 as political leaders. Well, Yushenko will almost certainly (95%+) be kicked out of the Presidency in the coming Ukrainian elections, probably in favor of Yanukovych. Saakashvili, with his deepening megalomania, has managed to hang on, despite spirited defiance from the opposition and an attempted military coup. If he survived 2009, most likely he will survive for a few years more.

8) My optimistic forecasts on Russia’s demography, which bucked the conventional “wisdom”, have been fully validated, and in the case of the death rate even substantially superseded.

In Russia, the birth rate will be between 11.5 and 12.5 / 1000, the death rate at 14.5 and 15.5 / 1000 and net migration will fall substantially to 0.5 / 1000. For comparison, the figures for the first ten months of 2008 were 12.1, 14.8 and 1.7 respectively.

According to Rosstat figures for Jan-Nov 2009, the birth rate was 12.4, the death rate was 14.1, and the net migration rate actually rose to 1.8 / 1000 during Jan-Oct.

9) No major new wars.

10) Slightly wrong on supercomputer performance, totally correct on oil production fall. Contrary to prediction, no major AGW physical “event”.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Every once in a while, there occurs a major shift in the international arena. The First World War and its consequences were the seminal change of the last century, collapsing ancient empires and ushering in a new era of ethno-nationalist clashes, political radicalism and emerging powers challenging the established order of Versailles, forces that were fully unleashed in the aftermath of the Great Depression. From the middle of the Second World War, it became clear that the new world order would be defined by a bipolar competition between the USSR and the US. The next major shift occurred with the oil shocks of the 1970′s, when growth throughout the industrialized world, capitalist and socialist alike, declined, and they were beset with increasing social problems, while the beginning of the rise of China and the economic re-emergence of Western Europe and Japan heralded a new, globalizing multipolarity that was confirmed by the end of the Cold War and the collapse of the USSR.

The next two decades saw the triumph of “Western liberal democracy as the final form of government” and the spread of the neoliberal consensus, all underwritten by American military dominance and the new resources unlocked by the opening of formerly autarkic economies. Generally speaking, this was a rather peaceful and prosperous time. Though wars continued and there was the occasional genocide in Rwanda or Darfur, the overall incidence of violence declined sharply in all categories, the sole exception being terrorism. Similarly, the opening up of world trade sharply increased consumer power in the US and Europe as China’s reserve armies of labor set about producing cheap goods, a process lubricated by cheap oil, gargantuan freighters and developments in supply-chain management. And though its flowers still bloom and the politicians smile and exude the air that nothing’s much amiss, the winds of time are shifting, the sun is already setting on this world, and darkness is about to creep in.

Quite literally. The cheap oil that underpins industrial civilization is ending, as the world approaches peak oil production – the point when about half of recoverable reserves have been taken out of the ground. The remaining half lies in remoter places and will be much harder to extract, especially taking into account that the resources for doing so will be significantly more limited due to the collapse of the world credit system, a system that should have died a free-market death in late 2008, but which limps on, zombie-like, sustained by governments whose solvency now hangs by a thread only maintained by investors still naive enough to believe in their credibility.

This is because the defining feature of this crisis is not so much even the collapse of world industrial output and trade, which was by itself unprecedented in its magnitude this century except by the Great Depression, but the sheer burden of bad debts and fiscal obligations accumulated by governments in the developed world, especially in the Anglo-Saxon world. First, they are running unprecedented peacetime budgets – both as a consequence of their disastrous pro-cyclical spending during the fat years, and to fund the stimuluses with which they hope to get their economies out of the rut. Second, they printed lots of money under the euphemism of “quantitative easing”. Third, they carried over private losses and bad debts onto the public account – socialism for the rich, capitalism for the rest.

In the next few years, according to commentators like Willem Buiter, these reckless policies are going to lead to classic emerging-market currency crises in the Anglosphere, or “submerging markets” as he calls them. This is not surprising. Taking the United States as the most significant and typical example, to run the kind of deficits projected – 13% of GDP this year, over 10% again in 2010, and red into the rest of Obama’s term even under the rosiest projections – requires a very credible commitment to returning to a balanced budget within a limited timeframe.

First, this requires a rapid economic recovery. However, all the monetary and fiscal tools for accomplishing this have already been used at and beyond their limits. In the 1980′s, once the task of breaking inflation was accomplished, interest rates were eased back and the economy recovered rapidly. Today, interest rates have already been cut to minimal levels and the economy seems to have bottomed, but even so it remains extremely feeble, with the real unemployment rate (“U-6″) currently at 16.8% and rising. Recovery is likely to be slow as households begin to pay off their debts instead of increasing consumption, the linchpin of the US economy. If it is politically feasible (uncertain) and should there be high inflation brought on by the recent monetary splurge and once-again soaring oil prices (almost certain), interest rates will have to be raised, which risks short-circuiting a feeble recovery.

Second, even during the mis-named “Bush boom” growth was large jobless and inequality-enhancing, with half coming from distribution (the “Wal-Mart effect) and the other half from better productivity from financial services!, as measured by the number of transactions undertaken. These are not going to be repeated, the first because rising energy prices are increasingly making the JIT distribution model untenable, the second because the financial system, outside of a few well-connected insiders like Goldman Sachs and JPMorgan, now lives on government guarantees.

Third, the next years are going to see rising demands for social spending as younger Americans make themselves heard, whose worldviews are relatively more socialist and European-like. The rising number of retiring baby boomers will necessitate far more Social Security, Medicare and Medicaid spending, out of funds that will simply not be there because the cookie jars were looted a long time ago. Then there’s the whole chimera about greencollar jobs. In principle, as a convinced peakist with serious concerns about the consequences of anthropogenic global warming, I support subsidizing green industries like renewable energy and hybrid automobiles. But these are luxuries only a more prudent economy could afford, like China. In the US, it will result in very few jobs being created and will constitute further drains on its fiscal credibility – and hence the means of sustaining this very program. More spending on healthcare? The sector is already horrifically bloated, and should if anything be reduced and rationalized.

So in conclusion, the US faces years of relative stagnation, and no credible way of paying back its metastasizing public debt. As long as investors stick it out and rates remain low, this remains a sustainable, albeit unsatisfactory, state of affairs. The reason the US Treasury rates fell so low and the country even tipped over into deflation was that the global equity collapse had investors fleeing to the perceived haven of last resort – US Treasury bonds. Yet as I pointed out in Decoupling from the Unwinding, one of the effects of this crisis will be to decisively sever the links between the West and the Rest (emerging markets). In a few more years, investors will realize that whereas China has real long-term growth prospects, they are unlikely to ever see positive returns on their US bond investments, as the US gradually monetizes its debt. They will jump ship, resulting in rising rates on US debt and making it increasingly unaffordable to service. Unless they inflate it away, of course. Would you like to die by ice or fire?

Let’s whimsically set the date for this collapse for August 2012. The liberal international order, Pax Americana, will collapse with it. However, there will be numerous signs of its slow demise well beforehand, which will be reflected in geopolitical events.

The focal point is the Middle East, that great intersection of energy, power, instability and hatred. Iran is continuing in its efforts to build a nuclear bomb to consolidate the new Persian empire. It is currently strong, demographically, but destined to get weaker as the younger, sub-replacement level generations become adults. The regime is also increasingly ideologically insecure. The nation is currently at around where the Soviet Union was in the early-1980′s on its belief matrix – the egalitarian, totalitarian ideals of the Islamic Revolution are now a distant memory, clouded over by the drugs, lasciviousness, and Westernization now typical of its larger cities. Part of the population yearns for the West, disillusioned with their own society and skeptical of the clear evidence of clerical corruption. Yet the most influential clerical elites have retrenched around the hardline Ahmadinejad and the Islamic Revolutionary Guard Corps (IRCG), who want to return to a future of austere Islamic government. Thus there is currently a revival of radicalism in the Islamic Republic, less potent than in the 1980′s, yet now married to its greater technological capabilities. This revival is almost certainly destined to be short-lived, but has the potential to go out with a bang.

This possibility must be considered especially seriously given that Israel is now ruled by Benjamin Netanyahu, a man who in 2007 opined: “It’s 1938, and Iran is Germany, and Iran is racing to arm itself with atomic bombs”. It is likely that were it not for US restraint, the Israelis would have long since bombed Iranian nuclear and military facilities. They have received permission from Saudi Arabia, via backdoor diplomatic channels, to fly over their territory to do so. This is unsurprising, because the Gulf monarchies face a significant challenge from Iran, which foments Shi’ite unrest in Bahrain and parts of Saudi Arabia, and is suspected of funding a Shi’ite insurgency in northwest Yemen that threatens to spill over the borders. Though moderate Arab rulers pay lip service to Islamism, they certainly have no intention of allowing it to infringe on their political power. Iran’s other lever is its control of Hezbollah, an impressively disciplined organization that managed to (arguably) win a war against Israel in 2006. Though they do not pose an existential threat to Israel, they can create an serious political and strategic problem through massed rocket attacks, to counter which Israel is now assembling a multi-layered, world-class ABM system.

If Iran gets the bomb, it will unleash a Middle Eastern arms race, in which Saudi Arabia, Egypt and Turkey will feel compelled to build up arsenals of their own. Iran will become much more confident about sponsoring Shi’ite separatism and drawing Iraq closer into its fold. In the endgame, the US cannot allow this challenge to its hegemony in the oil-rich Middle East to go unanswered, in particular the dependence of the Gulf States and now Iraq on its military tutelage, no matter the cost of meeting the call. It will strike Iran, or give Israel the go-ahead, well before Iran comes close to testing its bomb.

The pressure will be ratcheted up gradually. If talks scheduled for 1st October 2009 fail to achieve any Iranian compromises on its nuclear program, as usual, then the US will probably activate what it calls “crippling” sanctions on Iran with the connivance of Britain and France, especially targeting the 40% of gasoline it imports. In practice, this is unlikely to achieve much, especially since Russia – having received no firm guarantees from Washington recognizing its desired sphere of influence over the post-Soviet space – will likely help Iran shrug off sanctions by allowing Iran to satisfy its shortages through imports from Russia’s Caspian ports.

This talk of Russia’s role brings us to another point. The US is currently in a profound strategic dilemma, having to choose three areas in which to exert its strength – in particular its limited manpower: a) Afghanistan / Pakistan and the “war on terror”, b) blocking the arrival of a new Persian Empire with nukes and c) containing a resurgent Russia possibly intent on rebuilding its own old empire.

The recent American successes in Iraq have generally stabilized the country, though smaller-scale violence lingers on and might well flare up again should pressure be loosened up. This necessitates that the bulk of US military manpower remains locked up in Iraq, which gives nations like Russia, which desires to reverse its post-1991 geopolitical losses, a “window of opportunity” to make its challenge. And although the US presence in Iraq is winding down, it is simultaneously becoming pressured by requirements elsewhere – as of today, counting contractors, there are more Americans fighting in Afghanistan today than the Soviets deployed at their peak. (A common counter-argument is that of the 120,000 armed US personnel stationed there, some 68,000 are contractors who mainly do things like fixing electrical lines or washing pots and pans; however, the comparison remains valid because these would be the functional equivalent of Soviet “Class C” divisions mostly concerned with logistical issues).

The Afghanistan quagmire will likely be seen by future historians as an American strategic blunder of the first magnitude. First, it developed as a simple reaction to al-Qaeda’s use of Afghanistan as a base to plot out the 9/11 attacks, yet apart from that, the expansionist Taleban were a much bigger problem for Iran and Russia than for the US (even as the US oil corporation Unocal, with the backing of the CIA, was negotiating with the Taleban over the construction of a Trans-Afghanistan Pipeline to carry natural gas from Turkmenistan to the Indian subcontinent in 1998, Iran was seriously threatening war with the Taleban for the murder of Iranian diplomats). By keeping Afghanistan and the Central Asian jihadi threat suppressed, the US uses its own resources to spare Russia’s and Iran’s from the necessary work of patrolling Afghanistan’s borders, aiding the Northern Alliance and other anti-Taleban insurgents, intercepting jihadi aid to their domestic Islamic militants and maintaining the stability of the Central Asian republics. Hence Russia’s generally quiescent attitude towards allowing the US to transport non-military supplies to Afghanistan and usage of Central Asian bases.

Second, and more importantly, the US is not fighting to win. Afghanistan is not Serbia, and it is not even Iraq. It is a proud tribal society with a total fertility rate of nearly 7 children per woman. Trying to instill “liberal democracy” is a quixotic endeavor. Preaching, let alone practicing, “human rights” is (correctly) interpreted as a sign of moral weakness, and an incentive to up the pressure. The only way to actually win in Afghanistan is through burned-earth like brutality and ruthlessness, like Cromwell’s pacification of Ireland. Anything else is a waste of time and money. As it is, the US is pouring its resources like water into the sands of the “graveyard of empires”, and taking NATO along for the ride – a strain that threatens the very survival of the alliance. This would not be nearly as critical if the jihadi threat was the only storm-on-the-horizon the US-centered world order faced; yet in combination with Iranian brinkmanship, the Russian resurgence, the Chinese mercantile challenge and the increasing reflection of the limits to growth onto the world economy, the days of Pax Americana may well be numbered. Let’s return to Iran.

From this year, the countdown will be really on as Iran reaches for the bomb, Israeli hysteria (understandably) rises and the US becomes ever more desperate for a radical solution. By 2011-12, Obama will be coming under increasing conservative pressure – an again worsening economic position and a “patriotic-reactionary” movement to counter the perceived intrusion of government onto an ever expanding array of economic and social activities – which will if anything make his administration more conductive to the thought of a foreign adventure to take the population’s mind of economic stagnation, rising poverty and perhaps by that point, capital flight. The Israelis will receive the signal to strike. Since this would draw in the US anyway, it will decide that it might as well strike Iran itself, and degrade the Iranian military as much as possible so as to circumscribe the Islamic Republic’s retaliation capabilities.

The US will have no problem in gaining air superiority and destroying a vast array of fixed Iranian targets, because the Iranian integrated air defense system is relatively obsolete and can be eluded by stealth, defeated by electronic countermeasures and neutralized. However, given the dispersed nature of Iran’s military forces it will retain a significant amount of retaliatory capacity – in particular, the ability to mine the Strait of Hormuz using fast attack craft and harass shipping with coastal shore batteries, diesel submarines in the shallow waters of the Strait, and perhaps suicide attacks from civilian-appearing vessels armed with explosives. Iran’s development of an indigenous UAV capability, by enabling it to scout out the presence of oil tankers, represents a significant force multiplier, especially if Iran also has the technological capacity to network its findings with its other military assets.

This is not to say that the War Nerd is correct when he says that any US naval assets off the coast of Iran will be blown to smithereens, which referred to a rather artificial and improbable scenario. In all likelihood the Iranian threat will be contained within weeks, the country will be thoroughly bombed into submission and perhaps the regime will be overthrown. But in its death throes, it could also kill the world economy:

Most importantly, it would not have to be effective. The mere possibility of mines — the uncertainty factor — would not only slow down the movement of tankers in the Gulf, but also spike insurance rates. Tankers cost a lot of money and their cargoes these days are incredibly expensive. Risking both ship and cargo is not something tanker owners like to do. They buy insurance. If the possibility of mines in the Gulf existed, insurance rates would not only rise, but might become altogether unavailable. Insurance and re-insurance companies these days do not have enormous appetites for unpredictable risk involving large amounts of money. And without insurance, as we saw during the tanker wars in the 1980s, owners won’t take the risk themselves.

Iran’s counter could be to increase the potential risk to the point where insurers back off. At that point, governments would have the option of insuring tankers themselves. Given how quickly governments move, particularly in what would have to be an international undertaking, oil supplies could be disrupted for days or even weeks. At this point, speculators and psychology aside, prices would spike dramatically. The creaking sound would turn into a cracking sound for the world economy.

Ergo, oil prices spike well north of 200$ per barrel in a time of global economic weakness and all-round instability. The psychological effects cannot be anything but extremely negative, and such a scenario may constitute the signal for global investors to finally throw in the towel on the US.

The third key element in near-future geopolitics, in addition to the Afghanistan imbroglio and the Iranian Question, is the continuing resurgence of Russian power across Eurasia. Far from being weakened by the economic crisis, it has used it to build up its relative strength, from politically-motivated loans to Belarus, to its decision to only enter the WTO as part of an economic bloc encompassing Belarus and Kazakhstan, to continuing pressure against Ukraine. It has also consolidated its military position in Abkhazia and South Ossetia and the state has reinforced its control over the commanding heights of the economy, suborning the last of the independent-minded oligarchs to its will. Driven by a belated recognition of its immutable geographic and climatic disadvantages that doom it to eternal backwardness and submission within the context of Westernization, it is slowly but inexorably returning to its “steady state”, its past-and-future as a Eurasian empire defined by political sovereignty, economic autarky and spiritual sobornost. The only thing still missing is an ideology, but that can be re-invented. The collapse of liberal globalization can only accelerate these trends.

As long as Washington stands in the way of this reassertion – which it has, from its unleashing of an infowar against Russia following the Yukos Affair in 2003 to its persistent championing of NATO membership for Ukraine and Georgia – it will remain Russia’s “prime enemy”, at least in the minds of those who matter. As such, Russia will do absolutely nothing to help the US maintain the current world order, which is not favorable to Russia’s interests. Expect a tense, uneasy game of give-and-take and tit-for-tat involving Russian arms sales to Iran and Venezuela, covert American support for colored revolutions across the post-Soviet space, intrigues over Central Asian allegiances and the placing of natural gas pipelines, Russian revanchism in the post-Soviet space, Russian and Chinese stalling of Western-promoted sanctions in the UN, etc… Above all, bear in mind that the Western view on Russia is fundamentally wrong, since Russia’s leaders distrust the “liberal interventionists”, “end of history” ideologues of the Clintonian era at least as much as they dislike the neocon “New Cold Warriors”.

Herein lies the gulf between the West and the Russians. The West divides the world between the Cold War and the post-Cold War world. It clearly prefers the post-Cold War world, not so much because of the social condition of Russia, but because the post-Cold War world lacked the geopolitical challenge posed by the Soviet Union — everything from wars of national liberation to the threat of nuclear war was gone. From the Russian point of view, the social chaos of the post-Cold War world was unbearable. Meanwhile, the end of a Russian challenge to the West meant from the Russian point of view that Moscow was helpless in the face of Western plans for reordering the institutions and power arrangements of the region without regard to Russian interests.

… Russians saw their efforts as a deliberate attempt to destroy Russia and the degree to which Russians are committed never to return to that time. It is hard to imagine anything as infuriating for the Russians as the reset button the Clinton administration’s Russia experts — who now dominate Obama’s Russia policy — presented the Russian leadership in all seriousness. The Russians simply do not intend to return to the Post-Cold War era Western experts recall so fondly. …

While Russia’s concerns with Georgia are the noisiest, it is not the key Russian concern in its near abroad — Ukraine is. So long as the United States is serious about including Ukraine in NATO, the United States represents a direct threat to Russian national security. A glance at a map shows why the Russians think this.

Russia remains interested in Central Europe as well. It is not seeking hegemony, but a neutral buffer zone between Germany in particular and the former Soviet Union, with former satellite states like Poland of crucial importance to Moscow.

… As the United States causes discomfort for the Russians, Russia will in turn cause discomfort for the United States. The U.S. sore spot is the Middle East, and Iran in particular. Therefore, the Russians will respond to American pressure on them where it hurts Washington the most.

The Cold Warriors don’t understand the limits of Russian power. The post-Cold Warriors don’t understand the degree to which they are distrusted by Russia, and the logic behind that distrust. The post-Cold Warriors confuse this distrust with a hangover from the Cold War rather than a direct Russian response to the post-Cold War policies they nurtured.

Finally, there’s China. Over the last decade, the world economy came to be powered by a powerful global symbiosis termed “Chimerica”, a state of affairs in which Americans spent and lent China money to build up the industrial capacity to produce ever more goods for Americans to spend on. Now as long as the limits to this unsustainable, imbalanced growth kept put – limits as in affordable oil and other commodities, access to credit, etc – the party continued.

This is no longer the case. The world economy has crashed. Chinese students laughed in the Secretary of the Treasury Tim Geithner’s face when he tried to assure them the US would keep the US dollar strong and that the trillions of dollars of Chinese investments are safe in the US. The Chinese leadership seems to agree and has started to massively step up its acquisitions of natural resource companies, farmland and foreign elites (via politically-motivated loans at preferential rates). Though there is little overt evidence of a ditching of the dollar, this is to be expected – given that China has so much invested in the US, trying to get out visible would provoke a catastrophic scramble in which it will lose more than it gains. That said, the signals of retreat are certainly visible, especially when set against the typical opacity of China’s rulers.

Globalization allowed China to build up a massive industrial base – as of 2008, it produced 48% of the world’s steel and 50% of its cement – and it has already bought up, or stolen, the majority of key technologies needed to build an advanced industrial system. They can now afford to gradually stop subsidizing American purchases of their products and concentrate on the development of a consumer consciousness among their own, 1.3 billion strong population. This decision to reorient their political economy will complement current rhetoric about building the “harmonious society“, with its emphasis on reconciling socialism, regional and internal inequalities, democracy and environmentalism. From now on, growth will be slower as it is curbed by stagnant world demand, accumulating bad loans, diminishing returns, etc, – it will likely be around 5-7% a year in the 2010′s, rather than the 10% typical of the 1980′s to 2000′s. Nonetheless, it should continue at a fast enough rate to soak up the new landless labor, ease social tensions and enable it to launch a geopolitical breakout. The inevitable transition from a centrally-weak, disbalanced and commercialized nation to a centralized, internally-peaceful hegemonic empire will not be smooth, but China’s forward momentum is simply too large to derail its rise to superpower status.

Externally, China will use its rapidly growing relative strength to create a new geopolitical reality, especially as the retreat of American power becomes ever more evident in the early to mid-2010′s. As the only major industrial nation still enjoying rapid growth, it will now be the main setter of world demand for oil and other strategic commodities, putting a floor on most commodity prices in the years ahead – especially since the state is now taking advantage of low prices to diversify itself from US Treasuries and lock in or accumulate the reserves needed to power its industrialization in the decades ahead. (A related recent story is China’s plans to restrict rare earth metal exports, which if rapidly implemented could create a hi-tech crunch in the decade before mines elsewhere could reopen and ramp up production to meet global demand). China’s influence in South-East Asia, East Asia, East Africa and the Middle East will rise in counter-balance to the US, but the process is unlikely to lead to military clashes because both nations will be much more preoccupied with managing internal tensions.

In conclusion, the geopolitical winds are shifting. There is a gathering storm that will sweep away the current liberal globalized order, and a new reality of econo-political blocs competing for markets, land and resources will take its place. The root cause is the accelerating fiscal and economic collapse of the system’s underwriter, the United States. (The even deeper reason would be that limited oil and energy reserves would be more efficiently used in China to make things than spent on American gas-guzzlers).

However, these changes will appear to observers as an incomprehensible cascade of failings of the international system and spreading chaos: jihadi successes (mounting losses in Afghanistan, continuing terrorist attacks carried out by al-Qaeda’s “franchises”, the possible collapse – or radicalization (Turkey?) – of moderate Muslim governments); state collapses (peak in world food prices, out-of-control insurgencies, falling revenues from energy exports and climatic catastrophes like drought – watch Pakistan, Mexico); the confrontation with Iran (whether or not it ends with a Middle Eastern war, this saga is only beginning to get played out); the Russian resurgence (may be manifested in renewed expansionism in the post-Soviet space – Georgia, Crimea and the Baltics are potential flashpoints – and the race of countries like Germany, Finland, Turkey and / or Japan to reach some kind of accommodation with Russia, contrary to US interests) and the continuing secular ascent of China (due to its gradual nature, this is unlikely to result in any “big events” (although a flareup over Taiwan or the South China Sea is always a possibility) – that said, in the longer run this is going to be one of the most significant geopolitical trends).

By 2019, we will look out upon a new world as different from 1989, as 1944 was from 1914, or 1991 was from 1961. A partially revived American superpower will face a real “peer competitor” in China, though their competition will be restrained by domestic troubles and a shared concern for global stability and the future of industrial civilization. Many of the world’s least developed regions will have begun to fall apart, forsaking the torturing lights of civilization for the comforting darkness of simplistic barbarism. The European Union will have fallen apart under the stresses of its contradictions and its constituent nations will have reverted to their traditional balance-of-power rivalries, while Japan decides it would be better off band wagoning with China. A more insular, nationalist and powerful Russia is a wildcard, either in the throes of demographic and economic stagnation – or enjoying new, unprecedented power accruing from its energy wealth and warming landmass. By then, the clouds will be gathering for an even greater storm – the point sometime in 2030-2050 when the limits to growth make themselves really felt, and industrial civilization falls into its moment of greatest peril. The shifting winds will have become a gale.

(Republished from Sublime Oblivion by permission of author or representative)
 
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This is my first follow-up post to The Belief Matrix, in which I attempted to advance a universal model for civilizational responses to subsistence crises (The Malthusian Loop) and the Western challenge (The Sisyphean Loop). The first country I’ll apply this too is the US, because doing so will allow me to make several important points about the nature of the belief matrix – namely, that even nominally “Western nations” like the US – that archetype of the West – is imprisoned within the Sisyphean loop.

This is because the Idea of the West, as previously defined, is a rationalist absolute, whereas all other human societies are not. Hence the US can never attain full union with it, but only try to. Instead, decade by decade and century by century, it redefines liberty. This is a mostly consensual social activity that rarely veers into large-scale violence, the Civil War being the most vivid exception (though even it was an extraordinarily civilized affair by the standards of the time). This process is so internalized that Americans, along with the British or the French, think of themselves, and define themselves, as “Westerners” with no apparent conflict between it and their national identities. To the contrary, they are complementary.

Through the accumulated circular momentum of liberal tradition, the structure of its political system which moderates sharp swings towards extremism in the population and of the media which muffles extremist voices, and most importantly its reconciliation of liberalism with popular democracy, America’s “liberty loops” manage to remain anchored firmly within the bottom-right quadrant, well away from the instability brought on by the disillusionment / rejection of tradition of the left, and the totalitarianism of the top. But what makes the US a spiritually much more satisfied nation is that the very organic nature of the integration of its sobornost and Westernism makes Americans unaware that they live in the Belief Matrix, just like everyone else.

Below is the belief matrix for the US during the past century.

At the beginning of the century, America was an open, self-confident, emerging Great Power, with a rapidly growing economy and population. Though after the end of the First World War there was widespread concern over Bolshevism, European entanglements, and immigration, this did not significantly lower its belief in itself.

This changed substantially in the 1920′s, which saw a significant retreat from tradition: a) female suffrage from 1920, b) the first great consumer revolution, including mass automobile production and chain stores, c) the rise of crime and homicide rates, linked in part to Prohibition. The US started drifting left.

This drift accelerated during the early 1930′s in the time of the Great Depression, when a) economic output collapsed by around 25%, causing mass unemployment, b) homicide rates peaked at over 9.0 / 100,000 during 1931-34, c) the American fertility rate fell to a nadir close to the replacement-level rate of 2.1 children per woman during the 1930′s, d) numerous incidents of labor unrest, and e) the federal government came to face significant challenges from the right and the left (e.g. Huey Long with his “Every Man a King” socialism) – though at no time was it really threatened, which testifies to the stability and dynamic inertia of its liberal democratic tradition.

From the late 1930′s, the economy began to recover and criminality declined. The US began to recover faith in itself and its mission after the uncertainties about the future of liberalism and capitalism prevalent in the 1930′s. This was reinforced by victory in World War Two and the massive economic, political and spiritual boost it imparted to the US, which emerged as a global hegemon, far stronger than the USSR.

Despite the McCarthy witch-hunts and the launching of the military-industrial complex as a permanent feature of American society, the 1950′s and 1960′s retain a reputation of being a Golden Age of US history. Morale was high due to visible US superiority – despite occasional shocks such as the Soviet testing of a nuclear bomb in 1949, the (false) fears of a “missile gap” in the mid-1950′s and the Sputnik shock of 1957. The period saw an unprecedentedly low level of income inequality and the massive economic growth that caused the post-war to 1973 period to become known as the “miracle years”.

Homicide rates remained at around 5.0 / 100,000 (a relative low by US historical standards) until the late 1960′s and a spirit of confident, middle-class domesticity contributed to a baby boom that resulted in US fertility rates lasting through to the early 1970′s, by which time it had begun to drop precipitously, along with the rest of the industrialized world.

Meanwhile, belief in the validity of the Idea of the West remained extremely firm – so firm, in fact, that anti-Communist feelings manifested themselves into overt persecution in contravention of the Idea of the West (with its emphasis on rule of law). This is the Law of Circularity in action (from the Belief Matrix) – at its extremes, ideologies converge (or flip); even as the Red Scare zealots shouted about the Communist threat to US liberties, their own actions forsook their principles – to the overwhelming approval of the American population, at least until they stumbled over into the realm of the absurd (i.e. the McCarthur-Army hearings).

Though the US moon landings of 1969 seemed to mark the apogee of the American Golden Age, in reality the country was already in fast moral decline. The oil crisis. Anti-war movements. Watergate. Vietnam. Hippies. Roe vs. Wade. Culture war. Drugs. Oil crises. Limits to growth. The waxing Soviet menace (they achieved nuclear parity and conventional superiority in Europe by the mid-1970′s). Rapid fertility decline. The rising economic challenge from Japan and Germany, and the beginning of deindustrialization in the Mid-West. During this period the country moved sharply left, away from tradition and belief in itself; yet as always, the socio-cultural liberalization of the 1970′s was the author of its own demise, spelled out in this case by the Reagan reaction – a peculiar mix of economic deregulation, hard-line foreign policy and social conservatism.

By the early 1990′s, there appeared an ostensible new dawn in the wake of the collapse of the Soviet Union. Fukuyama began proselytizing his End of History thesis, proclaiming Western liberal democracy to be the final stage of history, following a long tradition stemming from Manichaeism through Marx. This became somewhat of a pillar of Western thought. China and Russia, the two erstwhile socialist giants, were beginning to acquire new dependencies with the West. The Asian model of development seemed increasingly discredited with the collapse of Japanese growth rates in the early 1990′s, and later “confirmed” by the East Asian financial crisis of 1997. Europe was increasingly anemic and mired in social problems stemming from its aging populations and welfare states.

Meanwhile, the US flourished. Its economic growth rate remained relatively healthy at 3.1% in the 1990′s, virtually unchanged from the 1970′s or 1980′s. Fertility rates continued to climb upwards ever so slightly from their late-1970′s to mid-1980′s nadir (though much of the growth can probably be attributed to increasing numbers of younger Hispanic immigrants and the (non-repeatable) increasing age of mothers at average childbirth). Finally, homicide rates fell to lows unseen since the 1945-1973 “Golden Age”…

Yet much of this progress was illusory, and it began to unravel during the Bush years. Income inequality rose to levels unseen since the Great Depression. Though crime remained at a relatively low level of around 5.0-6.0 / 100,000, this was only accomplished by imprisoning an ever greater portion of the American population. Even as car production fell from 13.0mn units in 1999 to 8.7mn units in 2008, the financial industry metastasized. The 2000′s saw a “jobless recovery” from the .com bust while median incomes stagnated (or outright declined, if the people at ShadowStats have a point). The US is coming to resemble the late USSR across a disturbingly wide spectrum of social, economic, military and cultural indicators. It has been moving away from the state of sobornost, “a deep sense of spiritual harmony amongst classes, regions, races and sexes”, since the 1970′s, i.e. towards the left on the Belief Matrix.

9/11. Iraq. Extraordinary renditions. Guantanamo. The Katrina debacle. Housing bubble. Regulatory capture. Credit collapse. The fall of the investment banks. The rise of the “Rest” (led by China and Russia), who are hardly best friends with the “West”. The Great Recession. Deficits, debt, decline. As a result, the American population is now rapidly moving away from the firm belief in the West that characterized the 1990′s, and even further away sobornost. The election of Obama, perhaps the most liberal and outsiderish President in history, is just a reflection of these deeper trends. At an unconscious level Americans realize they have deep problems requiring radical solutions.

A detailed discussion of the waning superpower’s future prospects I leave for another post – suffice to say that whereas in the next decade its power will likely decline precipitously relative to China’s, its inherent geographic, economic and institutional strengths will allow it to remain a key pole of the emerging new world order, and we are likely to see a certain resurgence by the late 2010′s or early 2020′s, as soon as its current imbalances and contradictions are resolved or at least contained.

Based on the dynamics of the Belief Matrix, it is likely that the US will repeat the dynamics of the Great Depression not only in economic, but in social terms. Namely, there will be a partial collapse of legitimacy in the government; the feds will face challenges from the far-left (new Huey Long’s, anarchism, etc) and the far-right (demands for more state rights, anti-tax movements, “American reactionary patriots”, etc); fertility will collapse from the current replacement-level rates, as welfare shrinks and the utility of having children for the very poor, currently the most fecund social group, drops; crime will increase, etc. Yet within a decade a new social order will gradually emerge, probably fiscally and socially conservative and more authoritarian than the current one, and with it a new equilibrium will slowly, painfully come into being.

However, due to the sheer circular momentum of America’s liberty cycles, and the sheer power of the historical force behind, the country is likely to remain, at least in most respects, a liberal democracy. The same cannot be said of Russia, Turkey, or even countries like Germany or Japan.

PS. A reply to Alex Knight’s comment on the original Belief Matrix post:

but let us never forget that US capitalism developed precisely by committing genocide against the millions of native people who inhabited this “abundant high-quality land”.

likewise in terms of labor, we can never erase the painful history of enslavement of millions of Africans, whose unpaid labor created much of these “surpluses.”

True… but the West is just that… rule of law, sanctity of contract, etc. Not humanism or kindness. Some 72,000 “vagrants” (mostly peasants driven off the land by new, dispossessing elites – and this is a massive number given that the size of the English population was only around 4mn then) were hanged in Henry VIII’s England… so can we really say that “barbarous Muscovy” under “Ivan the Terrible” was that much more “tyrannous” than his English contemporary?

The native peoples of North America practiced a form of primitive communism where land was held in common and the concept of private property did not exist. This was in direct contravention to Western civilization, and as such a heresy worthy only of extirpation. Similarly, at the time it made a great deal of rational, economic / capitalist sense to use Negro slaves imported from Africa to grow sugarcane and cotton in the West Indies and the American South…

But by its own standards, however, the US has always succeeded at maintaining a symbiotic relationship between its “folkish” elements and the Idea of the West… that is, amongst the people who matter. This might be – well, is – hypocrisy, but as the commentator Kolya pointed out, “Hypocrisy is a tribute vice pays to virtue”. [Did some quick Googling, this quote originally comes from someone called La Rochefoucauld - "Hypocrisie est un hommage que la vice rend à la vertu"]. I suppose it is valid to argue that hypocrisy is better than being simple full of vice with no respect for virtue… at least hypocrisy offers the chance of a way out, or light at the end of a dark tunnel. Others would say instead that hypocrisy is the truest matrix, the most perfect totalitarianism…

(Republished from Sublime Oblivion by permission of author or representative)
 
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Whispers of war are heard in the Caucasus, as the anniversary of last year’s South Ossetian War approaches. Will the guns of August be fired in anger to mark the occasion?

Here are some things we need to keep in mind when analyzing this:

    • It was Georgia that attacked South Ossetia last year, mere hours after Saakashvili promised them peace and eternal friendship and candy. The Georgians proceeded to indiscriminately bombard Tskhinvali, a densely populated town full of civilians, with Grad missiles. They also attacked UN-mandated Russian peacekeepers, which constitutes a clear casus belli. Russia’s response was just and proportionate.
    • The Western media at the time presented this as a struggle between aggressive Russian tyranny and democratic Georgia, spewing the most propagandistic bilge imaginable (e.g. headlines about Russia attacking poor little Georgia, while showing Georgian Grad rockets being fired at Tskhinvali!). Putin’s well-argued justifications of Russian intervention were censored and manipulated by CNN and Western journalists with enough personal integrity to refrain from unconditionally siding with Saakashvili were blacklisted.
    • In reality there is much evidence, including the testimonies of former Georgian cabinet members, to the effect that Saakashvili was planning to retake the “lost territories” months beforehand.
    • Since then the media retracted their most sensationalist claims in a bid to reinforce their (questionable) reputations for objectivity. Many media outlets now acknowledge the reality of Georgian aggression and war crimes. Amongst those who looked at the issue in detail, only the most diehard neocons and Russophobes still deny that it was Georgia that was primarily responsible for the war. In their circles, the idea of Russian war guilt is almost an article of faith. Applying Occam’s Razor would suggest they are wrong.
    • Nonetheless, the US continues to unconditionally support Saakashvili, even under the Obama administration (whether this is because of American geopolitical interests, or because they really are hoodwinked by Georgian PR, is an exercise I leave to the reader). In doing so they turn a blind eye to Saakashvili’s repression of the opposition. This only serves to further reinforce the Russian conviction that the West cares about democracy only in so far as it advances its geopolitical interests. Far from pressuring the Russians to cease and desist, the West’s hostile rhetoric, encroachment on Russia’s security space and dismissal of Russian protestations will only reinforce Russia’s disillusionment with the West and make it ever more unwilling to consider Western interests.
    • This disillusionment is especially prevalent amongst the Russian elites and younger people with Internet access. Thanks to the West, they are coming to the conclusion that no matter what their country does – right or wrong – it will be condemned by the champions of Western chauvinism regardless. The only way to make them the West happy would be to lie down and lick its boots, but few peoples anywhere think this way, let alone in a nation as proud as Russia. Though Georgia struck first, this war marked the most significant Russian retaliation to years of humiliations yet; it sent a message that it would no longer passively resign itself to Western imperialism.
    • Look at the detailed Legal Case for Russian Intervention in Georgia by Nicolai Petro which looks at these issues in scholarly depth.
    • All this may lead to a growing preference for Realpolitik over “liberal internationalist” solutions to Russia’s geopolitical problems, which will go in tandem with an internal power shift towards the hardliners. They are interested in more than just responding to external aggression against the Russian Federation; they want to redefine Russia itself.
    • As I pointed out in my previous post Reconsidering Parshev, the weight of history is forcing Russia back to its future, the desires of its leadership regardless (let alone the desires of Westerners). This past-and-future is a Eurasian empire based on economic autarky, political sovereignty and spiritual sobornost. Amongst many other things, this implies control over the Caucasus.
    • Georgia is the linchpin of the Caucasus. Securing a Russian-friendly government there will reinforce Russian control of gas flows from Central Asia to Europe, extend its influence over the Black Sea region and allow it to link up with its ally Armenia, which hosts a Russian military base. Nabucco will turn into a pipedream, at least as long as relations between Iran and the West remain strained.
    • As Stratfor points out in Georgia: Left to Russia’s Mercy?, Georgia is not a strong nation. It is riven by divisions that could be exploited, e.g. separatist-minded Adjara and Armenian-populated Samtskhe-Javakheti. Its economy is dependent on agriculture and the government budget relies on pipeline rents. Meanwhile, Saakashvili’s brand of market fundamentalism may have provided a temporary boost from efficiency gains, but the attendant deindustrialization now limits its longer-term prospects.
    • “Soft” measures failed to topple Saakashvili in the past year. He retains the approval of perhaps half the population, crushed an attempted military coup (or set it up himself) and now appears to be more secure in his position than he was in months.
    • Another important point is that many elements of the Russian military were disappointed at being ordered to stop before overthrowing Saakashvili. They would love to finish the job (and furnish the excuse).
    • That said, Saakashvili is hardly a peacenik either. According to Kirill Troitsky’s “War taught them nothing” in Voyenno-Promyshlenny Kurier, the Georgians have been rapidly rearming since 2008. Regaining control over South Ossetia and Abkhazia remains a strategic goal of the Georgian regime.
    • Russia is upgrading and expanding its forces in South Ossetia and Abkhazia. It is renovating Soviet-era air and naval bases in Abkhazia, deploying its own border guards to the region (which increases the chances of an incident), kicking out foreign observers, and equipping the 131st Motor Rifle Brigade in Abkhazia with the latest T-90 tanks. Below is a photo of a Russian soldier in Abkhazia posing in front of his new kit, first posted to the social networking site Odnoklassniki (the Russian Facebook).

  • The focus on Abkhazia suggests that any Russian offensive would be focused on the west of the country, bypassing urban quagmires in Tbilisi. This would cut Georgia’s links to the Black Sea and sever the gas pipelines running across its territory. The Armenians may be persuaded to join in the dismembering of Georgia through the “liberation” of their compatriots in Samtskhe-Javakheti, through which Georgia would be cut clean in half. Azerbaijan would be cornered into quiescence. The main uncertainty is how Turkey would respond to such developments; it is not as pro-NATO and pro-West as it was a decade ago.
  • Several commentators believe the risks of a new war are high. Stratfor believes Georgia will return into Russia’s fold by the early 2010′s, though it does not believe there will be a Russian military offensive this year. Vaha Gelaev, a former member of the now-disbanded “Vostok” Chechen battalion, is certain there will be war this summer. Pavel Felgenhauer has been raising the prospect of a new war since March in Wartime Approaching in the Caucasus and Risk Increasing of Russian Intervention in Georgia. Now he’s saying there’s an 80% chance of war breaking out this August. The Chechen terrorist site Kavkazcenter claims a 300-strong convoy of Russian tanks, BMPs, BTRs and multiple launch rocket systems are moving towards Georgia. If Russia were to attack Georgia, the optimal time would be August, before the autumn rains set in.
  • That said, Felgenhauer is not a reliable military analyst. He predicted the Georgians would humiliate the Russian Army in a war.

In conclusion, though innocent of starting last year’s Ossetia War, Russia made significant geopolitical gains and its elites became more disillusioned with the West. Control over South Ossetia and Abkhazia now make an invasion much easier to carry out than in 2009. The troops in the region conducted military exercises in July, they are being equipped with modern armaments and Russia’s naval forces in the region are recently very active. The main question is, are these forces meant to deter Georgia from another military attempt to reintegrate its “lost territories”, or are they to be the spearheads of a pre-meditated Russian aggression?

I think somewhere in between, as is usually the case. Russia still respects its foreign relations enough, if not with the West then with the rest, to pay lip service to international law; however, it won’t hesitate to exploit any serious Georgian provocation. I don’t think Saakashvili is a complete idiot, so barring independent lower-rank Georgian military adventurism (or very skilled Russian feigning of said adventurism), the chances of war breaking out this August must be rather small. Perhaps 10-20%. We’ll see. In any case this August is going to be a tense and potentially very fun time in the Caucasus. And that’s not going to change any time soon, because based on current trends the reassertion of Russian power over the Caucasus is almost inevitable this decade.

(Republished from Sublime Oblivion by permission of author or representative)
 
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With the recent election of the controversial (to put it mildly) Ahmadinejad to the Iranian Presidency, it is time to look at what this portends for the future of Iran and the Middle East region in general.

The first question we need to ask is whether Ahmadinejad’s victory was free and fair. Stratfor believes it may well have been, describing it as a “triumph of both democracy and repression“. According to this narrative, Western liberals misread sentiment in Iran, seeing it in Manichean terms of a struggle between iPod youth (anyone who blogs, tweets, etc) and corrupt Islamist crustaceans. Yet in reality, except for a few urbane Anglophone professionals, there is no Iranian audience for Western iCivilization. Ahmadinehad appeals to a solid bloc based on his platform stressing Islamic piety (a return to the glory days of the early Revolution), combating corruption (in which many of the “liberal” clerics, as typified by Rafsanjani – an ally of Mousavi, are believed to be implicated in), promoting rural development and curbing inequality, and a strident foreign policy aimed at establishing Iran as a regional and nuclear Great Power. US Iran expert Flynt Leverett in Spiegel argues that allegations of fraud are based on nothing more than an extraordinary amount of wishful thinking by the US.

That said, there’s some pretty damning evidence to the contrary. Juan Cole compiled six reasons in Stealing the Iranian Election, where there is now a heated ongoing discussion. For instance, his support in the Azeri provinces was inexplicably high, considering that Mousavi, an ethnic Azeri, was popular there; he also won over the cities, where he isn’t as popular (on the other hand, the regional election results do show that the race was much closer in the Azeri areas and Tehran; in the Persian provinces, Ahmadinejad’s margin of victory was as high as 3:1). Other irregularities from established form, such as a suspicious uniformity paving over traditional regional and ethnic fluctuations. (Muhammad Sahimi notes that the election data shows “a perfect linear relation between the votes received by the President and Mir Hossein Mousavi” over time, with the incumbent always leading by a 2:1 ratio, which he argues is highly unlikely due to the fragmented character of Iran’s ethnic composition; however, it should be noted that this approach is flawed since much the same argument could be made for Obama’s win). Khamenei immediately approved the alleged results, foregoing the customary 3-day waiting period. The counting happened very quickly and Ahmadinejad declared a 64% victory immediately after the polling closer, not far from his official 62.6%. Etc, etc… you get the idea.

But then again… researchers Ken Ballen and Patrick Doherty from the Terror Free Tomorrow outfit conducted a poll three weeks before the elections. It showed Ahmadinejad leading by a more than 2:1 ratio, even amongst Azeris. As such, Ahmadinejad actually did worse in the polls than the survey may have indicated. Furthermore, support was highest for Ahmadinejad amongst that most networked (and supposedly pro-West, but not) age group, the 18-24 year olds. The leading candidates were Ahmadinehad (34%) and Mousavi (14%), with Karroubi and Rezai polling insignificant support. 27% were in the “I Don’t Know” category, 15% didn’t answer and 8% said none, folks whom the pollsters expected to lean heavily towards Mousavi. As covered by Langer,

Rather it leaped in another direction, noting that “the race may actually be closer than a first look at the numbers would indicate,” because more than six in 10 respondents who expressed no opinion “reflect individuals who favor political reform and change in the current system.” It went on to predict “that none of the candidates will likely pass the 50 percent threshold.”

And though this question on whether the elections is fascinating in its own right, I suspect pursuing it further will just lead to ever more circles of claim, refutation and counter-claim, frequently colored by ideology (whether it be neocon, revolutionary-Islamist, conservative-”liberal”-Islamist, or Westernism). For the record, I believe the weight of the evidence indicates that Ahmadinejad would have probably won anyway, with around 50% of the vote and a small risk of a runoff against Mousavi. Electoral engineering and use of administrative resources ramped it up by 10-15% to provide Ahmadinehad with a safe win.

Now, I’ll turn to a second, and more interesting, question – what does it mean for Iran’s political development, and the geopolitics of the region?

But first, a quick guide. Unlike Russia or Venezuela, there is little doubt that Iran is an authoritarian state. Though there is an active electoral process for the Majlis and the Presidency, it is heavily circumscribed by the unelected Guardian Council of clerics, now headed by Khamenei (the system is a unique hybrid of Velayat-e Faqih (rule by Islamic jurists) and modern parliamentary democracy). He has the supreme executive power over matters of state. Khamenei is seen as the real power in the land and is an ally of Ahmadinejad. These hardliners draw support from the Iranian Revolutionary Guard Corps (IRCG), a paramilitary organization that controls lucrative shares in the national economy and encompasses the Basij reserves forces. According to the Guardian,

Superimposed on this picture has been the widely-held belief – now surely established as accurate – that Khamenei has had the backing of a hard core of radical mullahs, revolutionary guards and intelligence officers who may not have been in the vanguard of the Islamic revolution but cut their teeth in Iran’s bloody 1980-88 war with Iraq.

The group, which has coalesced around Ahmadinejad, harbours dreams of transforming Iran from an Islamic republic to an Islamic government, a distinction which would do away with elections and the need to observe the late Ayatollah Khomeini’s invocation to respect the “people’s will”. By this vision, Iran would forever take its guidance only from the divine, in the form of an all-powerful spiritual leader.

Opposed is a conservative-Islamist (not to be confused with “moderate”, never mind “liberal) faction centered around Rafsanjani, the second most powerful man in the Islamic Republic, who is allied with Mousavi and former President Khatami. They favor business interests and reconciliation with the West. They have a reputation for corruption and their power is declining relative to Khamenei and the IRGC.

Stratfor believes the Iranian political system is approaching an impasse. According to their analysis, the “the cohesiveness of the Iranian state has been deteriorating, with a rift between the president’s ultra-conservative camp and the pragmatic conservative camp led by Rafsanjani”. This struggle, already inflamed by Ahmadinejad’s radical Presidency, has been brought to the fore by Obama’s offer of rapprochement – opposed by the hardliners, welcomed by the pragmatic conservatives. Furthermore, the clerics as a class are under pressure from all sides, hardliners, reformers and (small and weak) outright pro-Western liberals alike:

Because he is the first Iranian president who is not also a cleric, Ahmadinejad sought to strengthen his position by claiming that his policies were guided by the highly revered and hidden 12th imam of the Shia, the Mahdi. This claim has unnerved the clerics: It undermines their privileged position, not only in the Iranian political system but also in religious terms. The implication of this is that if laypeople have access to the messiah, there is no need for them to rely on clerics — who historically have had tremendous influence among the masses.

Meanwhile, the elite Islamic Revolutionary Guards Corps (IRGC) is emerging as a powerful player in Iran, currently second only to the clerics. But as the clerical community becomes marred by internal disagreements and the aging ayatollahs who founded the republic anticipate the day when they will be succeeded by a second generation, the IRGC is very likely to emerge as the most powerful force within the state. The ayatollahs have used their religious position to control the ideological force; if they should become weaker, the non-clerical politicians and technocrats will have a tough time dealing with the IRGC.

It should also be pointed out that Ahmadinejad, far from being a driving force, is but a reflection of deeper dynamics at work. Ranj Alaaldin does not imagine President Mousavi would institute any real changes:

Even with Mousavi in power, Iran’s foreign policy would likely be no different than it has been under Ahmadinejad. A 20-year absence from the public eye, coupled with dazzling words of change that skillfully capitalize on the “Obama effect” gripping the world, does wonders to beguile a young generation of supporters who never knew or have forgotten the radicalism and bloodshed that marked Mousavi’s tenure as prime minister from 1981 to 1989 (the Iranian Revolution’s most significant years).

Indeed, anyone believing Mousavi would be the one to unclench the Iranian fist for a hand-in-hand partnership of peace with the United States is guilty of wishful thinking. It was Mousavi, after all, who was at the center of the Iran hostage crisis and remains complicit in an operation he commended as “the beginning of the second stage of our revolution.” And it was Mousavi who was the protégé of Ayatollah Ruhollah Khomeini (chief architect of the Iranian Revolution and founder of theocratic Iran), a former member of Hezbollah’s leadership council, sworn enemy of Israel, and a prime minister under whose watch thousands of political prisoners were massacred in 1988. And finally, it was Mousavi who initiated Iran’s nuclear program in the 1980s and likely would be intent on carrying through Iran’s nuclear ambitions, the foremost issue central to any improvement in relations with the West.

All of this discussion assumes that it is even worth debating whether Mousavi would bring change to Iranian foreign policy when he would have no authority to do so in the first place. Supreme Leader Ayatollah Ali Khamenei has the final say on matters of foreign policy, not the president. Given Khamenei’s clear approval of what he called a “glittering” Ahmadinejad victory, and because it is the theocracy that verifies the count in the absence of any outside monitors — meaning that any election rigging was done with the supreme leader’s backing — it is he who will need convincing if Iran is to divert from a path of nuclear capability, hostility toward the United States, and support for terrorism.

(It should be noted that Rafsanjani does not refrain from using extreme language either.)

However, he pins hope on the “tenacious middle-class, educated, and youthful Mousavi supporters who have cried foul and rallied and bled in the streets” to force the theocrats to bring about real change. Though overall he’s pessimistic…

More likely, however, the unelected mullahs who rule Iran behind the scenes will be concerned about a galvanized army of reformists who have undermined its authority in recent weeks by, for example, entering the squares and openly mixing and dancing in groups of males and females in direct contravention of clerical law. The leadership might therefore double down on its hard-line foreign and domestic policies, starting with a ruthless endeavor to keep Ahmadinejad in power through any means necessary, so long as the end remains a theocratic Iran.

Returning to the aforementioned poll from Terror Free Tomorrow, 77% of Iranians want all leaders, including the Supreme Leader, to be elected, and similar percentages welcome Western investment and humanitarian aid to Iran (who wouldn’t?). Some 83% strongly favor nuclear energy – that’s OK, nuclear power is a great idea, especially for Iran since it could then export more of its hydrocarbons. Besides, big majorities would acquiesce to inspections of nuclear facilities if accompanied by trade liberalization. Support for cooperation with the US, like stopping funding insurgents in Iraq and to Hizbullah and Hamas, is also very considerable.

These positive attitudes aren’t extended to Israel, however. Though 27% support recognizing Israel if a Palestinian state is established, another 62% would oppose any peace treaty with Israel and favor all Muslims fighting on until there is no State of Israel in the Middle East. And although Christians are almost as popular as Sunni Muslims, opinions on Jews are split in half, with 40% having a positive attitude and a stunning 32% having a negative one.

So now we move onto our last analysis – what’s going to happen in the region?

Iran is split into three social groups. The main one, which is further growing in power, is the hardline element that embraces pursuit of regional hegemony, nuclear weapons and confrontation with the West. It’s main protagonists are Ahmadinejad, the IRGC, and the hardline clerics. Khamenei is increasingly tilting in this direction, the latest evidence for which is his condemnation of Obama’s palm leaf extending Cairo speech.

The second one is that of the old-school clerics, fiery revolutionaries when younger, now willing to reach an accommodation with the US while enjoying the finer things in life. Though some parts of this grouping have become discredited, there is wide grassroots support for reformers who want to make the system more democratic.

The third group are the pro-Western liberals, who are and will almost certainly remain marginal – though they are sure to continue getting the best exposure in the Western media.

This election shows that Iran has purposefully chosen the path of confrontation. There will be a purge of the pragmatic conservative and reformist clerics and, buoyed by increasing oil prices, Iran will accelerate nuclear development, intensify its rhetoric and perhaps increase its funding of terrorist and insurgent groups. Cognizant of its current strength (a still unstable Iraq next door; an excellent demographic profile for war that will fade away as its current fertility rate of 1.7 makes itself felt on the size of future generations; a US Navy for now vulnerable to its asymmetrical developments in drones, torpedoes and anti-ship missiles), the hardliners are going to use the next few years to try to establish Iran as a regional hegemon.

This will not ultimately be acceptable to the US – though it can abandon Israel, it cannot abandon the Middle Eastern oilfields. Yet paradoxically, the election of Ahmadinejad has been a boon for Israel – a symbolic victory that underlines the rising existential threat it faces from Iran, which exists whether or not Ahmadinejad is actually in charge or not.

…Israeli Defense Minister Ehud Barak has said that there is not much to be expected from Mousavi. Israeli Mossad chief Meir Dagan told the Knesset that if Mousavi had won, Israel would have had a more serious problem trying to make a case to the world about the threat from Iran, because the international community views Mousavi as a moderate.

It is estimated it will take Iran perhaps another four to five years to develop nuclear weapons. During this time, the chances of an Israeli strike will grow; in particular, the US is likely to come around to its way of thinking, particularly if the economic crisis further intensifies and Obama has to give freer rein to hawkish elements with his administration in order to retain his grip on domestic matters. Iran will grow increasingly emboldened and aggressive on once-again soaring oil prices.

Eventually, this might well end in a major aero-naval assault on Iran’s nuclear facilities (a few strikes won’t do given that the facilities are dispersed and hardened, unlike Osirak in Iraq in 1981) carried out by Israeli with passive or even active US support. The moderate Arab states will condemn this, but will secretly be very happy. Iran retaliates by again destabilizing the fragile foundations underlying the recent peace in Iraq, intensifies support to Hamas and Hizbullah and perhaps attacking US military bases and oil export terminals in the region; with the international situation spiraling out of control, Syria may even make another attempt for the Golan Heights, using the new asymmetrical war concepts displayed by Hizbullah in 2006 into action.

Or Iran’s new Islamist wave may pass by without major consequences. In any case in the long-term a US-Iranian rapprochement is likely. Conflict between Iran and the West prevents the effective exploitation of Iran’s natural gas reserves, which are the world’s joint-second largest (with Qatar) after Russia’s. Given current trends towards the concurrent resurgence of the Russian Empire, it is in the interests of Europe and in extension to US to reach an accomodation with at least one of them. Considering that the Persian Empire is much farther away, less powerful and hence less threatening, Iran is counter-intuitively likely to become the West’s friend within the decade, for the current radicalization now stirring up cannot be sustained in the long-term. Another sea change is that a weakening Israel may seek closer connections to Russia – there is already a visa-free regime between the two countries, and Israel has stopped supplying Georgia with weaponry in acquiescence to Russian wishes.

(Republished from Sublime Oblivion by permission of author or representative)
 
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At the recent Summit of the Americas in Trinidad, two great leaders, Obama and Chavez, shook hands in what could be the symbolic first gesture of reconciliation. Treasonous neocons will no doubt rush to condemn this as yet another limp-wristed and unilateral concession to “America’s enemies”, reminding their listeners that Chavez closed down opposition media, nationalized American assets and welcomed Russian warships and strategic bombers to his realm.

Yet their stubborn animosity is worse than just imperialist arrogance – it is stupid. They fail to realize that in the past decade Latin America in general, and Venezuela in particular, has become too politically mature to be easily manipulated into serving US (corporate) interests by economic hitmen, CIA operatives and their local surrogates. It is to Obama’s credit that he is willing to move from willful denial to cautious acceptance of the decline of overt American power in Venezuela and elsewhere.

For that is the new reality. The Venezuelan opposition is increasingly discredited for its unconstructive hostility to the government and extra-legal attempts to overthrow Chavez, one of which nearly succeeded in 2002. This resulted in blowback against the US for its covert involvement The government’s refusal to renew the licenses of opposition media outlets that seditiously backed the abortive coup is thus completely understandable, as is Chavez’ personal animosity towards Bush and outreach to other states in similar straits. Furthermore, it should be noted that the owners of newly nationalized companies, including American ones, were fairly compensated.

Meanwhile, within five years of taking real power in Venezuela, a corrupt, disorganized and class-ridden country, Chavez managed to a) double the GDP, b) halve the number of people living in poverty and c) drastically improve practically every indicator of social wellbeing from child mortality rates to inequality to tertiary education enrollment rates (I already covered these successes in prior posts). This does not mean that Venezuela is no longer a corrupt, disorganized and class-ridden country – it still is, to an extent – but the improvements are undeniable and Chavez enjoys high approval ratings. It is thus unseemly and dishonest of the Western MSM to excoriate Chavez as a thuggish populist strongman and economic illiterate.

Let us hope they take a clue from Obama. Or from Mark Weisbrot and his fellow authors, who in their latest paper, The Chávez Administration at 10 Years: The Economy and Social Indicators, give a glowing verdict on the achievements of the Bolivarian revolution.

Economic Growth: As you can see from the graph below, Chavez inherited an ailing, stagnating economy. From 1978-1998, Venezuela’s per capita GDP declined by 21.5%. Chavez was initially politically weak, with the state-owned oil company (PDVSA), the linchpin of the Venezuelan economy, controlled by forces intensely hostile to Chavez. Furthermore, they began to actively sabotage the economy from December 2001, when the Venezuelan Chamber of Commerce organized a general business strike against the government. This culminated in a two day military coup in April 2002 that temporarily unseated Chavez. Adding to the political instability and capital flight, the PDVSA oil strikes of Jan-Feb 2003 led to a short but severe recession.

After the oil strike and Chavez's consolidation of power, Venezuela racked up one of the highest growth rates in the world.

After the oil strike and Chavez’s consolidation of power, Venezuela racked up one of the highest growth rates in the world.

However, once the opposition were neutralized Venezuela managed to rack up very rapid growth. Even canceling out the post-recession recovery, GDP grew at an annual pace of 8.8% from the end of the shaded part in the graph above to Q2 of 2008, or at 6.9% in per capita terms. This is not an unimpressive achievement. The (mean) average Venezuelan increased his output as fast as the average Argentine, Indian and Russian during those years; from the major countries, only the Chinese did significantly better.

Furthermore, growth was broad-based and primarily private – contrary to media myths, the oil sector actually experienced negative growth from 2005-2007 after its quick initial recovery from the PDVSA strikes. Manufacturing grew at a respectable annual rate of 13.2% from 2004-2007. For all the ruckus over incipient statism with all its negative connotations, the public share of GDP declined.

Social Progress: The economy not only grew at an impressive tempo, but the benefits accruing to it were more equitably distributed than at any time in Venezuelan history. Despite the opposition-instigated economic reversals of his mid-Presidency, from 1999-2008, poverty more than halved from 43% to 26% and extreme poverty plummeted from 17% to just 7%. Its Gini index, a standard measure of inequality, dropped from 47 to 41 – though still high, it is extraordinarily egalitarian by Latin American standards and all the more impressive considering it came at a time of rising oil prices.

Infant mortality dropped from 19.0 / 1000 in 1999 to 14.2 / 1000 in 2008; post-neonatal mortality was cut by more than half. Food security improved through the Programa Alimenticio Escolar school-feeding program and the heavily subsidized Mercal network of government food stores. Despite fairly rapid population growth, from 1999-2007 access to clean drinking water increased from 80% to 92% of the population and access to sanitation increased from 62% to 82% of the population. These achievements were facilitated by impressive improvements in medical care – the numbers of physicians, hospitals and other medical facilities increased by almost an order of magnitude.

From 1999-2008 Venezuela finally achieved near universal primary school enrollment and near universal secondary enrollment. Participation in higher education increased by an astounding 138%. Since the extra human capital embedded in education is a vital prerequisite for longterm economic growth, Chavez laid very important foundations here.

Labor: Unemployment dropped, and naysaying propagandists to the contrary, not just because the state hired all the new people. Though employment in the public sector increased by around 50% since 1999 and its share of the total workforce increased from 13.1% to 16.6%, it was commensurate with the large expansion of the state undertaken under Chavez in the second half of his Presidency. However, it remains quite low by developed-country standards.

Government Finance, Current Account. Although the dramatic rise in oil prices helped, non-oil revenue also increased from 11.7% of GDP in 1998 to 14.2% of GDP in 2007 due to improved tax collection. Revenue and spending both increased, the government maintained a stable budget surplus. However, the state oil company PDVSA also had 6.1% of GDP in public expenditures – this, along with peak oil, is probably what caused Venezuelan oil extraction to fall. That said, I think leaving more resources in the ground for a time when they’ll become worth much more is in itself not a bad investment. Similarly, the current account stayed firmly in the black throughout.

For a more detailed discussion of Venezuela’s prospects during this world depression, please see Victimized Venezuela II: Beware of Schadenfreude. Suffice to say the situation is unlikely to turn critical and Chavez will remain politically secure, the wishes of some in the US foreign policy establishment regardless.

That said, there do exist serious problems in Venezuela – inflation, an overvalued bolivar, corruption, obstacles to small and medium business (SME) growth and crime… just to prove I’m not a chavista fanatic.

Problem – Exchange Rates, Inflation. After subsiding from a peak at around the time of the PDVSA strikes, inflation crept back up to around 30% since 2006, supercharged by soaring global food prices. However, since its exchange rate is fixed at 2,150 bolivars to one US dollar, the inflation contributed to massive over-valuation of its currency, estimated at more than 50%. This needs to be fixed if Venezuelan manufacturing is to become competitive and to dilute the economy’s dependence on oil rents – growth in this sector mostly ceased by 2008, and as of December 2008 was down by 25.4% from December 2007. Devaluation is also needed to narrow an awning budget deficit some expect to exceed 20% of GDP in 2009, a disturbing figure even by recent spendthrift standards.

Now that Chavez won the referendum on the abolition of term limits in February 2009 and given that the next Presidential election is in 2012, there are already signs of a stealth devaluation. Because subsidizing dollars is much harder with oil prices at 50$ instead of 100$ per barrel, the government is limiting the amounts of dollars Venezuelans can buy for foreign travel and are considering doing the same with luxury imports. Though Finance Minister Ali Rodriguez says a devaluation will not happen in 2009, a “multitiered exchange rate” is possible – that is, continuing the current peg only for vital imports such as medicine, food staples, and industrial machinery.

This will keep social discontent to a minimum (for a year or two, Venezuelans will have to live with fewer imported cars and cakes, but they’ll have bread). The boost in inflation will be counteracted by shrinking demand and general global deflation. Furthermore, Venezuela has low foreign debt, considerable reserves and China is keeping a floor under commodity prices by buying them up on the cheap across the world. Coupled with what already looks like an incipient recovery in emerging Asia, Venezuela, like Russia, should come out of the crisis relatively unscathed, leaner and ready to enjoy a second round of soaring oil prices. Meanwhile, Chavez is continuing to invest in long-term development by pouring money into infrastructure projects like building an extensive railway system – an excellent idea for the post-peak oil world.

Problem – Corruption, Obstacles to SME Growth. Venezuela is ostensibly the 158th most corrupt nation in the world, according to Transparency International. Yet as I noted in one of my very first articles for Da Russophile, Reading Russia Right:

While there’s no denying Russia is plagued by corruption, to suggest it is endemic like in a failed state is ludicrous – and would frankly be obvious to anyone who has visited the countries on that list. The problem with the CPI is that it’s a survey of outsider businesspeople and their subjective perception of the situation. While improving perceptions is an important goal, it does not necessarily correlate perfectly with reality. TI’s Global Corruption Barometer asks ordinary people how affected they are by corruption, for instance, have you paid a bribe to obtain a service this year? In 2007, 17% of Russians did – putting them into the same quintile as Bulgaria, Turkey and the Czech Republic. In other words, slap bang in the middle of world corruption, rather than at the end.

Pretty much the same argument can be made with Venezuela. In 2007, only 12% of Venezuelans paid a bribe to obtain services, basically the same proportion as the supposedly much cleaner Czechs.

The root cause of this is the sheer amount of restrictions on business in Venezuela – it comes 171st in Ease of Doing Business rankings. In this atmosphere, doing business in full compliance with all the laws and regulations is nigh impossible and forces enterprises into a constant search for shortcuts by reaching understandings with regional bureaucrats. This distorts the economy, dissuades investors and reduces the potential rate of economic convergence with the developed world. And lowers its position on the Corruption Perceptions Index

Yet ultimately, the important thing is to get stuff built – parasites skimming 10% off a project is regrettable, but not catastrophic. As long as a developing country has basic market mechanisms, a semblance of macroeconomic stability, an open economy and most importantly, high human capital, its economy will converge to developed country levels. Many deeply corrupt and bureaucratized countries (Italy immediately springs to mind) managed the transition and fell into economic stasis only after they got rich.

The current preference for short-term social gratification in place of faster diversification through manufacturing is lamentable, but perhaps unavoidable. Chavez operates under the same political constraints that conditioned the classical Latin American caudillo. Maintaining the acquiescence of the statist bourgeoisie, if not their active support, is key to retaining power, given their control over the traditionally tightly intertwined business-bureaucratic-military complex. It appears to me that this structure is being rapidly dismantled in Venezuela since 2003. (Paradoxically, by constructing a new elite drawn from the younger, educated proletariat, Chavez may well end up ushering in the conditions for a leaner, more effective capitalist economy).

Sociological speculations aside, it is however indisputable that Chavez is building the future more actively than any previous Venezuelan leader – despite the cancerous growth of bureaucracy, socialist tendencies and failure to reform the economy on his watch.

Problem – Crime. I am always skeptical about attributing crime trends, positive or adverse, to governments. They can influence them but can’t control them, for they depend on a great many variables inter-connected in ways little understood even by modern criminologists. That said, I thought it would be instructive to actually plot out Venezuela’s notoriously high homicide rates against other Latin American nations.

First, even by the time Chavez was inaugurated President in February 1999, Venezuelan homicide rates had a long, secular trend towards growth, much like Brazil and Jamaica.

Second, they peaked in 2003, at the end of a turbulent period of opposition-instigated anarchy. Since then homicide rates fell slightly, but it seems from the graph of Colombia that once entrenched, high homicide rates are very hard to reverse.

Third, there are allegations that the Venezuelan state contributes to the high homicide rates with its supposedly lax policies towards the “war on drugs”. Right-wing commentators lambast Chavez, left-wing commentators lambast the CIA, and in general the situation seems shady and unclear. I will not comment on these angry accusations and conspiracy theories (which might be true, who knows?) except to state the obvious and recommend global drug legalization.

Fourth, many of the big cities where crime is concentrated are actually run by opposition mayors.

Along with the likes of Colombia, South Africa and Iraq, the chances of violent death in Venezuela today are typical of a medieval society. By my rough calculations, at current rates every thirtieth Venezuelan can expect to be murdered during his or her lifetime. You really don’t want to be a young man living in a seedy Caracas slum nowadays…

Crime is no doubt a huge problem in Venezuela requiring the utmost attention and possibly draconian measures. Which will not happen, as Chavez is far too humanistic for that, and tradition-bound; Venezuela abolished the death penalty way back in 1863…

Problem? – Authoritarianism. Even Freedom House, a notoriously compromised organization, refrains from labeling Venezuela as Not Free. According the Economist Democracy Index, it is a hybrid regime much like that of Russia, Turkey or Georgia – neither a traditional liberal democracy nor an authoritarian state. The Polity IV Project, an academic database tracking democracy trends since the end of the Second World War, gives Venezuela 5 on a scale ranging from -10 (full autocracy) to 10 (full democracy). I suggest reading their 2007 Venezuela Report to anyone genuinely interested in its political status – their main complaint is on weak executive constraints.

Furthermore, democracy is no panacea. Chavez may have increased his personal power and perhaps this trend will intensify, yet he empowered communities by expanding local democracy, education and healthcare. Much of Latin America is enmeshed into backward, class-ridden systems wherein minuscule middle classes exploit the state to serve their own ends, while keeping the masses suppressed by neglect, ignorance, poverty and religion. Chavez is breaking Venezuelans free of this unholy matrix.

I once talked on a plane with a Venezuelan who lamented on the idleness and lack of curiosity of the people, and about how the equivalent of a small town is murdered there every year. Sounds to me like they need a good dose of revolutionary fervor directed towards building up the country. Hopefully the Bolivarian Revolution will sweep away the oligarchic degenerates into political irrelevance and Chavez will use the opportunity to build a modern industrial economy and reinstall liberal democracy once the heavy lifting is finished.

Yet in any case the US should not concern itself over his democratic or human rights credentials, be they fair or foul. Venezuela has Latin America’s biggest reserves of oil and its Orinoco tar sands could potentially hold as much oil equivalent as Saudi Arabia (though being hard to exploit they are worth much less). Although it exports much of its oil to the US, the Chinese have recently been getting in on the action in a big way, as part of their global strategy of locking up diminishing natural resources to fuel industrialization for a few more decades. Cutting off a major part of America’s economic lifeblood at a time of peaking global oil extraction in the service of abstract concepts like democracy is strategic folly.

Overthrowing Chavez and installing a pliant satrap is no longer realistic – the Venezuelan state is now stronger, Chavez is popular and the opposition is viewed as venal and discredited in the eyes of voters. Even from a military perspective, intervention is politically unacceptable and in any case becoming riskier year by year as the Bolivarian republic plows part of its oil windfalls into acquiring modern diesel submarines, air defense systems and Sukhoi fighter jets from Russia – a relatively cheap and effective way of negating American CVBG diplomacy.

Finally, in any case Venezuela has, interesting enough, the most positive outlook on the US of any major Latin American country – Chavez’s tirades to the contrary. This should provide further incentives for cooperation rather than conflict.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Debunking Russophobic drivel is somewhat akin to grenade fishing – so damn easy that you almost feel a bit guilty for stooping to such a level and wasting your time. But that’s what makes it really fun. So although Fedia Kriukov, Eugene Ivanov, Eric Kraus and the folks over at Russia: Other Points of View have already blasted enough fish out of the water to feed a man for a lifetime, I can’t help but to add more to the pile. The article in question is Beware of Doing Deals with Putin by Kasparov in the WSJ.

Vladimir Putin’s regime is fighting for its political life. That’s the good news. But the bad news is that the Obama administration is sending out mixed messages that may help the Russian autocratic regime survive.

That is certainly news to me – both that the “regime” is fighting for its political life and that Obama has any influence whatsoever on whether it survives it or not.

It’s quite telling that given the context he says this is “good news” – apparently, Kasparov puts his own hatred of Putin and neocon agenda above the economic difficulties now besetting ordinary Russians. Kind of recalls the Bolshevik saying, “the worse, the better!”.

No wonder he has an approval rating of about 2%.

On Friday, Secretary of State Hillary Clinton will meet with her Russian counterpart, Sergey Lavrov, in Geneva, Switzerland. The agenda will include talks on arms control and NATO. But in the forefront of everyone’s mind should be the secret letter that President Barack Obama recently sent to Russian President Dmitry Medvedev. The New York Times broke the story this week, reporting that Mr. Obama’s letter proffered a deal for the U.S. to “back off deploying a new missile defense system in Eastern Europe” in exchange for Moscow’s help in stopping Iran from “developing long-range weapons.”

The thinking here is not sound. Russia’s overwrought protest against antimissile systems never sprung from any genuine strategic fear. It was always a ploy and a distraction from its real agenda.

It is not a threat today. As I said before here, given trends and the precedent, that may not be the case tomorrow. AMD technology is improving rapidly and once the work of setting up the ADGE (Air Defense Ground Environment) is completed, rapidly expanding the system becomes cheap and feasible. If NATO were 100% genuine in their claims that its only purpose is to defend against Iran, they would treat Russian proposals to base the system on Russian (or Azeri) soil much more seriously.

Mr. Putin — who is now prime minister of Russia — relies heavily on oil revenues to maintain his grip on power. It is in his interests to increase tensions in the Middle East as a way of driving up global oil prices. There is no deal the U.S. can cut to stop Mr. Putin’s Russia from arming Mideast terrorists and helping Iran’s nuclear program.

This is one of the oldest “liberal” spiels in the book – as soon as oil prices drop, the regime is supposed to fall apart. This is supposedly because the Russian system of government depends on sharing out oil rents amongst warring clans and as such becomes fragile when rents decline. An attractive theory, but one for which I have not encountered any good evidence.

Kasparov has his reputation on the line. Signs are appearing that the worst of the crisis in Russia is already over (topic of my next post). Thus he is now seeking an escape clause – blame a naive Obama for rescuing the Putin regime by “sending out mixed signals”, or blame “Mideast terrorists” for increasing political risks and thus raising oil prices, despite that the end of cheap oil is rooted in fundamental geological factors.

Secret letters aside, there are other troubling signals coming out of the Obama administration. One such sign came last week in Japan, where Mrs. Clinton talked about the “three Ds” of U.S. national security. She listed defense, diplomacy and development. But she left off the vital fourth “D” — democracy. The omission was no doubt welcomed by Mr. Putin.

Because the “democracy agenda” worked out so well for the US under Bush. Hundreds of thousands of Iraqi dead, four thousand US casualties, three trillion dollars and five years later – and the damn country is Not Free even according to “Freedom” House, a notoriously ideological organization.

The reality of the matter is that you cannot have democracy without security and development and thankfully this is now tacitly accepted in Washington. Since this threatens an end to Kasparov’s whoring amongst policymakers of influence, no wonder he is so troubled by these signals.

Another troubling sign came in Munich, Germany, last month, where Vice President Joe Biden talked about the need for “pushing the reset button” on America’s relationship with Russia. But pushing reset won’t pressure Mr. Putin into acting responsibly on the world stage. It will only obscure, for a time, Russia’s malignant and contagious virus of authoritarianism.

While all these deals and olive branches are being extended to the Kremlin, there is ample evidence suggesting that the Putin regime is teetering toward collapse. One sign: Russia is beefing up its federal security forces in order to violently repress public protests. Last month, for example, the regime created the “National Center of Crisis Management,” which will deploy uniformed troops against “disturbances.”

So let me get this straight. The Latvian government collapsed. Every third Ukrainian lacks means for food. California is marching towards bankruptcy, 9 million families are on the verge of losing their homes and manufacturing and housing are all collapsing in the US…oh sorry, I’m succumbing to “whataboutism“. Let’s start over.

The only real “evidence” of unrest I’ve come across were the small, mafia-linked and unauthorized Vladivostok protests by car dealers three months ago. The Western press has been recycling this single event ever since. Kasparov should have been more original and condemned the brutal goons of the Kremlin for dragging away this courageous young protester – or maybe not, since he directed his anger against an opposition rally (which was authorized and want off peacefully). But had he been an “Other Russia” member…there’d have been no end of rhetoric about the Russian totalitarian state.

See above. The vast majority of Russians do not want to participate in protests, view the likelihood of major unrest as low and approval for Medvedev and Putin remains very high. Views of where the country is going and approval for the government remain higher than they were for much of the Putin era, not to even mention Yeltsin.

It probably won’t be enough to quell public anger. Protests are increasing in Russia because many voters didn’t care that their elections were rigged until inflation started squeezing them. Time has run out on the illusion of economic prosperity for the average Russian.

Real wages and pensions have both more than doubled since 2000. Consumerism took off. The “average Russian” believed himself or herself to be much more prosperous in 2008 than in 2001. The sheer presumption of this Bolshevik in saying that this is an “illusion” is difficult to comprehend – certainly far more difficult than to remember the hyperinflations and cronyism of the 1990′s.

Meanwhile, the Russian National Welfare Fund — created to back up the state pension system — is being raided to prop up the monopolistic industries belonging to Mr. Putin’s closest allies. Billions are being handed out to the likes of oligarchs Oleg Deripaska, Sergey Chemezov and Roman Abramovich — money that is going to service debt, not to develop industry.

As a matter of fact these were all subordinated loans, with much stricter conditions attached to them than in the Wall Street bailouts. Kasparov not surprisingly also leaves out the history of how American spendthrifts have been gouging Social Security to plug up budget deficits even in the good old days when the economy was ostensibly healthy…there I go off again. I really hate that Russophobe “whataboutism” argument. In my opinion its the childish squeal of the hypocrite, the kind of thing you hear on a playground. I mean, fucking what about it?

Russian industrial groups all relied on financing from Western banks prior to September 2008. Around that time, the liquidity they relied on dried up but the repayment schedules remained fixed – if anything, all the banks became desperate to cash back in because of their subprime and related losses. This economic crash was unforeseen and they could not be blamed for this dependence, as Russia’s own financial system was underdeveloped. They were propped up to avert debt defaults and the loss of valuable and strategic assets, not to rescue failing industries as it the case with the Wall Street banks or the Mid-West carmakers.

Finally, complaining about how money is going to service debt instead of developing industry is especially retarded. Does Kasparov want Russia’s firm to lose their prize assets, be deprived of cheap Western credit in the future and for the Russian government to spend that money on building car factories themselves?

What kind of fucking “liberal” is he?

When even billionaires are feeling the pinch, this may not be enough to arrest the slide. In the past year, according to the magazine Finans, the number of Russian billionaires was cut in half to 49 from 101. Many of those who remain may be billionaires only on paper; it appears that many of them have debts that exceed assets. This may be why Mr. Putin attended the World Economic Forum in Davos recently to push debt forgiveness.

Or perhaps it’s because the international financial system is insolvent and a global debt jubilee is inevitable – one way or another.

Consider also that the Kremlin just struck a deal with China to send Russian oil to China at rock-bottom prices (under $20/barrel) for 20 years in exchange for $25 billion in loans. Powerful countries don’t cut such deals unless they are desperate for cash. What’s happening in Russia is that we are witnessing the survival gambit of a corrupt regime. The question is whether the West will bail out the Russian dictatorship or let it fall.

Unless someone finds a reputable source confirming this (and I haven’t), then I can only conclude this is 100% fabrication.

Those loans were made to Rosneft at favorable interest rates of 6% a year so as to lock in future supplies for China – i.e. Russia is contractually bound to sell 300,000 barrels of oil a day to China for the next twenty years. The pricing mechanism in such deals are usually tied to market rates with some adjustments for volatility and is independent of the loan.

China is centralized and disciplined enough to realize that resource scarcity is going to become a major issue in the near future and plans and acts accordingly – lock in supplies, as it’s been doing everywhere from Africa to Latin America. It’s state controlled enterprises think as much in terms of geopolitics as markets and are willing to win China guaranteed supplies of strategic resoures, even if it goes against short term economic rationalism.

Some may doubt the fragility of the Putin government. But there are plenty of examples in history of supposedly entrenched regimes falling quickly. In late 1989, many in the West were surprised to see the Velvet Revolution in Czechoslovakia. Others didn’t foresee the sweeping away of totalitarian regimes in Poland and Hungary.

Mr. Putin and his allies live in fear of a popular uprising because it would likely force them into bankruptcy, exile and even prison. They cannot be expected to operate Russia as a rational state actor. Indeed, they may relish a violent clash with a contrived enemy in hopes of building nationalistic support — the war with Georgia this past summer may just be a prelude.

I’ll just quote Putin – “I’m amazed by their skills at seeing black as white, of portraying aggressors as victims and of blamimg the real victims for the consequences of the conflict”.

The West must not be tempted by a desire to maintain comfortable relations with the current government in charge of Russia. After years of criminal mismanagement, the Russian economy is falling apart more rapidly than those of other industrialized nations. The popular outrage that will lead to regime change will stem from the public realization that the Russian economy is in worse shape than other leading nations.

Japan, Korea and Germany are certainly in worse straits – their contractions have been comparable and their economies, reliant as they are on collapsed world demand, are not recovering any time soon. I would also argue that the relatively good American performance is dependent on a one-off “flight to quality” and that a 10% peak-to-trough fall in GDP predicted by Nouriel Roubini is inevitable – even making the questionable assumption that the dollar survives.

There was a bout of overproduction in first half of 2008 and since the onset of the crisis Russian inventories have been falling, for as Eric Kraus points out, the Russian economy is more flexible than those of industrialized countries – “downward adjustment of wages and staffing levels can occur virtually overnight, with production simply halted until inventories are reduced to the desired level”. The repayments crisis has subsided and the ruble fell, which will engender an economic recovery that I predicted three months ago. Indeed, as of February Russia’s VTB manufacturing PMI rose to 40.6 from around 34 in the prior two months, indicating that the rate of decline is falling. This is, incidentally, better than the global manufacturing PMI which was at 35.8 as of February, giving the lie to the charlatan’s claims that Russia is in “worse shape than other leading nations”.

Again, much more on the economy in a post soon to come.

In fact, it is no longer taboo in Russia to speak openly of the post-Putin era — even among regime loyalists. The foreign businessmen and politicians eager to play ball with Mr. Putin should bear in mind that in all likelihood Mr. Putin will not be around that much longer. Nor will the dubious deals that he and his friends are making in Russia’s name for their own profit go unexamined after they are gone.

I suspect Kasparov will be increasingly exposed for the charlatan he is and Russians will go from reading and making fun of translations of his writings on Inosmi to completely ignoring him.

This kind of attitude – at once arrogant, wrongheaded and authoritarian – explains the antipathy or indifference all Russians have for the “liberals” (I use the quotation marks very deliberately). He is certainly not a liberal – he is either a charlatan or a Bolshevik, or some unholy mix of the two.

The argument for the former is obvious. He is a Bolshevik in the sense that he puts the interests of neocon and anti-Putin ideology above that of Russia as a country, just as Lenin considered it fit to call for the enemy’s victory during the Russo-Japanese War to further his own goals of revolution. It is alright and healthy to have vocal disagreements on matters of national policy; it is quite another to denounce the country as a dictatorship to foreigners and repeatedly call for its ostracization from the international community (unlike the Communists, for example, who ironically make up the country’s primary loyal opposition today). This is why, except for a small percentage of fifth-columnists and saboteurs, all Russians would much rather Kasparov had stuck to his original calling – chess.

In his previous career as chess grandmaster, he was well known as insufferably arrogant and self-centered (I think its somewhat telling that his major work on the game was entitled My Great Predecessors). That said, at least consigned to that absurd and aloof world, he would not have done so much damage in poisoning America’s image in Russia and tainting the cause of patriotic dissent.

There, I’ve done it. The grenade’s gone off and the dead fish are bobbing up to the surface. Except that whereas you have to wait five seconds for the grenade, here I’ve spent two hours debunking an article that was probably wrapped up in twenty minutes. Why can’t they make a machine that would do this quickly and automatically? It’s so simple and formulaic, I doubt it will even have to be able to pass the Turing test.

Damn, I feel bad now.

(Republished from Sublime Oblivion by permission of author or representative)
 
With increasing signs of economic collapse, military overstretch and political problems, is the US doomed to go the way of the late USSR?
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Inspired in no small part by the political charade over the bail-outs and boondoggles that plague the TV screens and electronic ether, I’ve compiled a top 10 list of ways in which the US increasingly resembles the collapsing Soviet Union for your information / despair / entertainment / Schadenfreude / ridicule / etc.

A list of how Russians screwed up and Americans are repeating their mistakes step by step. A list that may provoke much needed debate and change that we can really believe in.

10

An alcohol epidemic from the 1960′s on that kept Russian life expectancy flat ever since.

Dietary catastrophe resulting in historically unprecedented obesity and diabetes rates.

9

Hated and feared for human rights violations, invasion of Afghanistan and Communist rhetoric, and its socialist model discredited.

Hated and feared for use of torture, invasion of Iraq and post-Cold War triumphalist arrogance, and its neoliberal model discredited.

8

Military overstretch, economic distortion and disaster in Afghanistan.

Imperial overstretch, runaway military budget and return to the “graveyard of empires”.

7

Wasteful investments into infrastructure, bloated bureaucracy and inefficient industry.

Decaying infrastructure, misplaced investments into suburbia, bloated financial system and hallowing out of industry.

6

Collapse in morality, bloated bureaucracy and soaring corruption.

Regulatory capture, bloated special interests and legalistic mafia.

5

Suppression of statistics and silencing of dissent.

Manipulation of statistics and ignores dissent.

4

Dependence on foreign credit from debts and oil sales.

Dependence on foreign credit from debts, “dark matter” and the $’s status as global currency reserve.

3

Young reformer takes power and talks of glasnost and perestroika while avoiding real reform.

Young “outsider” wins the elections and talk of change and hope…

2

Ethnic nationalism and separatist tendencies.

Tax revolts and state rights.

1

More and more people began to predict Soviet collapse in the late 1980′s.

More and more people are beginning to predict an American collapse now…


10) The first disturbing similarity is the rapidly deteriorating health of the population. From the 1960′s, an alcohol epidemic began to sweep Russia as binging graduated from something done on holidays to a monthly and then a weekly affair. The drinking epidemic spread to women and younger people, and intensified amongst middle-aged men. Once subjected to the cheap alcohol and social dislocations of the post-Soviet world, an already stagnating average life expectancy plummeted.

As late as 1990, not a single state in the Union had an obesity rate of greater than 15% of the adult population; today, not a single state (with the marginal exception of Colorado) has an obesity rate of less than 20%. The national obesity rate soared to 34%. The percentage of American adults suffering from diabetes is now 11%, and another 26% have impaired glucose tolerance. Although improvements in US life expectancy haven’t stalled, change has been slower than in most other developed countries and even then was mostly accounted for by improved medical technology, and successes in reducing tobacco smoking and overconsumption of animal fats. An economic collapse now would trim the vastly expensive healthcare system and almost certainly result in a mortality spike – especially considering that the baby boomers are now nearing retirement age.

Both the Russian and American epidemics affect poor, middle-aged people the most; a difference is that the alcohol epidemic affected men more than women, whereas in the US obesity is slightly more prevalent amongst women than men. Vodka sales made good profits for the state (via taxes) during the Soviet period and good profits for private distilleries in the post-Soviet period; the American diet makes good profits for fast food outlets and the parasitic “food processing” companies that degrade good corn into corn syrup. Perhaps the most poignant comparison is in the kinds of TV adverts that dominate the airwaves in both countries. In Russia after 9pm, every third commercial suddenly becomes about some or another kind of beer (that’s an improvement over the 1990′s, when they ran all day); in the US, day or night, every third commercial praises the virtues of some kind of meretricious fat-soaked starchy thing.

9) Throughout the early Cold War, the USSR was a source of inspiration to leftist Western intellectuals and Third World countries looking to throw off the imperialist yoke and modernize quickly. But by the early 1980′s, pressure was being applied to the Soviet Union on account of its violations of the human rights treaties it was a signitary to. Central planning remained an alien ideology to all Western societies, increasingly so as its failures became clearer. It was condemned for its invasion of Afghanistan (in reality, an intervention at the request of its new socialist government to defend them from Islamists).

The United States gained a great moral victory from the collapse of the USSR (despite it being a result of internal dynamics) and enjoyed it during the 1990′s. However, this came to an end after 2001 due to the hypocritical and immoral way it went about waging the Orwellian-sounding “war on terror”. Preemptive war on made-up pretenses, extraordinary renditions of terrorist suspects and the neocons’ incessant freedom-rhetoric was something the world by and large couldn’t square together. This resulted in its poor showing in international approval ratings and its repeated “victories” in the “world’s greatest threats to peace” category with Iran, Israel and North Korea as regular runner-ups and after party company. Although the fairness of such characterizations can be disputed, they are ultimately immaterial since it is perceptions that matter – not right or wrong, however defined.

The central planning model of the USSR was fully discredited by the 1980′s; neoliberalism is similarly on en route to the ashcan of history.

8) The USSR was spending about 25% of its GDP on the military by the 1980′s. Not only did this squeeze consumption and contribute to stagnant real incomes from around the mid 1970′s, it divested resources from investment into renewing the capital stock, civilian R&D and improvement of human capital via education and healthcare. However, official figures were ridiculously low – around 2.5% or so of GDP – due to statistical fudging and giving purely military enterprises funny names like the Chelyabinsk Tractor and Machine Building Factory (invented example).

The US maintains unrivaled power projection capabilities, a global network of 700 military bases and the world’s most technologically advanced military force – but it comes at a steep price. While the official military budget for FY2008 is around 520bn $, to this must be added the costs of the wars in Iraq and Afghanistan (170bn $), interest on past military expenditures (170bn $), nuclear weapons (30bn $), veterans (70bn $), “homeland defense” (70bn $) and other spending on their lavish healthcare and education entitlements, military foreign aid and “black projects”. (And btw, the figures for interest, nukes and veterans are from 2005). Therefore, it is probably entirely reasonable to double the entire military budget to better appreciate its true magnitude – i.e., quite possibly close to 10% of GDP. Add in the distortions – military production has the smallest multiplier effect on the economy (machine building has the biggest), and its claim on skilled workers (something like half of R&D outlays in the US are for military applications), and you get a superpower severely hobbled by its arms’ burden.

This is not a good situation, but not critical either. Yes, it ties down a big chunk of the economy in unproductive pursuits and contributes to the institutional corruption and runaway spending that is typical of military-industrial complexes. I happen to consider that most of the procurement programs currently being pursued are useless, from unproven missile defense to the overhyped F-35 (just build a few hundred much superior F-22′s instead) to the shiny new surface warships and aircraft carriers that are of dubious value in our era of advanced cruise missiles, UAV’s and supercavitating torpedos. (But this for another post). Most poignantly, Obama is now preparing to withdraw from Iraq (where stability is not yet assured, and which is far more strategically important) to free up troops for Afghanistan, the graveyard of empires…and ignoring Soviet veterans’ warnings of what might await them. And the economy is nowhere near as dominated by the priorities of the Armed Forces as was the case in the USSR. Nonetheless, huge military spending and foreign adventures do not necessarily lead to collapse – by themselves. However, the other economic and confidence problems now facing the US now make that a realistic possibility.

7) The Soviet Union invested vast resources into industrial development. However, they were frequently inefficient, wasteful and of questionable quality; and in any case were being severely undercut by the arms burden by the 1980′s.

Although the US built up a world class public infrastructure prior to the 1980′s, since then investments in this area have dropped off. The roads in California are frequently cracked and potholed – vastly inferior to what one might find in Germany, and not much better than in Russia. One quarter of bridges are structurally deficient, in most cities the water pipeline system is a century old and the electrical grid befits a Third World country.

Even worse is that much of the “infrastructure” that was built up in the past few decades consisted of lavish homes in sururbia requiring massive inputs of cheap energy to function normally. When oil is at 10$, spending an hour driving to work is monetarily (if not spiritually) sustainable; as we pass the oil peak and other resources (almost certainly) fail to make good the gap in time, this will change as petrol soars in price, even assuming it will remain available on the open market. Due to the “psychology of preveious investments” (see James Kunstler’s work) it is unlikely Americans will summon the will to scale down its suburbia before the laws of economics and geology force them into it.

Soviet industry was inefficient and was destroyed when subjected to market forces. American industry has already been hallowed out; high productivity growth masks a huge decline in quantity and complexity of its “industrial ecosystem”. US vehicle production fell from 13.0mn to 10.8mn from 2000 to 2007, held up only by the (doomed in the long-term) SUV market which is the only sector in which the Big Three made any profits. (During the same period, Germany increased production from 5.5mn to 6.2mn and Japan from 10.1mn to 11.6mn). Its machine tool building industry has for all intents and purposes collapsed. The only marginally healthy manufacturing industries left are in aerospace and defense. This is going to have very bad consequences when inflows of cheap credit from abroad can no longer sustain the US consumption boom; the manufacturing sector that could potentially have led to a quick revival simply no longer exists.

6) Whatever the faults of the USSR in its early years, there was genuine enthusiasm for building socialism relatively untainted by corruption. This began to change rapidly for the worse from the 1970′s. The elites became exclusively concerned with their own power and wellbeing, ultimately leading to the “insider buyout” that probably best describes what happened in its dying days. The size of the bureaucracy exploded and its effectiveness plummeted. A small change for the better under Gorbachev in the mid to late 1980′s led to catastrophic collapse, endemic corruption under Yeltsin, and some improvements under Putin from a very low base. Blatant self-enrichment of the elite at society’s expense became an accepted norm.

How does this translate to the US?

Collapse in ethics, quoting Buiter in Fiscal expansions in submerging markets:

… Financial regulation and supervision was weak to non-existent, encouraging credit and asset price booms and bubbles. Corporate governance, especially but not only in the banking sector, became increasingly subservient to the interests of the CEOs and the other top managers. There was a steady erosion in business ethics and moral standards in commerce and trade. Regulatory capture and corruption, from petty corruption to grand corruption to state capture, became common place. Truth-telling and trust became increasingly scarce commodities in politics and in business life. The choice between telling the truth (the whole truth and nothing but the truth) and telling a deliberate lie or half-truth became a tactical option. Combined with increasing myopia, this meant that even reputational considerations no longer acted as a constraint on deliberate deception and the use of lies as a policy instrument. As part of this widespread erosion of social capital, both citizens and markets lost faith in the ability of governments to commit themselves to any future course of action that was not validated, at each future point in time, as the most opportunistic course of action at that future point in time – what macroeconomists call time-consistent policies and game theorists call ’subgame-perfect’ strategies.

Under bloated special interests, I put the bloated financial services industry, the legalistic mafia, the healthcare industry and the prison-industrial complex. Finance as a share of GDP doubled in the last 30 years, transforming it from a service industry to a rent-seeking one. The proliferation of lawyers amidst amidst burgeoning legalism in society is another example of a self-serving mafia feeding on the blood of the citizenry, as are the “justice” systems and prisons that have gone together with them (the US has an incarceration rate that is unprecedented amongst anything but totalitarian societies). Finally there’s the healthcare industry, perversely regulated in such a way as to make it far less efficient than if it were nationalized or completely private and delivering one of the worst results for the buck in the world – and like a metastasizing cancer, it’s share of GDP has also exploded in the past few decades.

5) Since the 1970′s real wages for workers in the Soviet Union ceased growing, pressed down by the demands of the military-industrial complex. When statistics began to show that the average life expectancy was stagnating and infant mortality rising, they ceased publishing them.

Real median income in the US slowly increased from 35,000$ in 1967 to 46,000$ in 2005; however, the rate of increase slowed and for the first time in modern history it didn’t exceed the level reached at the peak prior to the last recession in 2000-2001 during the growth years of the Bush Presidency. In reality however the situation is even worse because since the time of Reagan the definition of inflation used by the government was being continuously reworked to make the figures appear better than they otherwise would have been, using substitutions and hedonics to spruce up the figures (i.e. adjusting for consumers switching to other products when similar products become expensive, and trying to put values on quality improvements). If the BEA (Bureau of Economic Analysis) continued using its old measuring standards, then a) the economy would have been in stagnation during the 1990′s and recession in the 2000′s, b) inflation would have been steadily increasing to a peak of nearly 14% in 2007 and c) median incomes would have been in steep decline. According to this thesis, then, the only reason the US avoided a big fall in living standards was due to the massive expansion in credit…which brings us to the next point.

4) The Soviet Union grew rapidly in the 1950′s and 1960′s because it was easy to move plenty of rural farmhands into relatively low-skilled industrial jobs. However as labor stocks became limited and focus shifted towards improving technology and productivity, GDP growth slowed and eventually stagnated. Collapse was delayed by the onset of high oil prices, which allowed the USSR to more easily import food products, machinery and technologies. When that collapsed in the mid-1980′s, the state was forced to run up huge debts to maintain mounting entitlement obligations, an overgrown military and bail out its East European satellites. Corruption and hidden inflation overtook the state and broke it.

According to Willem Buiter writing in Can the American economy afford a Keynesian stimulus?, America is a nation in fundamental disequilibrium. It can finance its continuous double deficits by giving its foreign investors an atrocious rate of return. In prior times, they accepted this because of America’s status as the largest economy, sole superpower and global financial center. This was presumed to reduce risk, so investors traded profits for security. From 2000-2004, it is estimated that the US exported some 559bn $ of this “dark matter“, or some 5% of its GDP at the time (the UK was second with 234bn $, or a stunning 15% of GDP). It also draws immense strength from the $’s role as the global reserve currency, for instance by allowing it to comfortably buy oil at $-denominated prices even when the currency is weak.

Due to its imperial overstretch, moribund financial system and frozen credit markets prepped up only by the federal government means that American alpha is almost certainly going to disappear in the next few years. The US fiscal deficit is going to be more than 12% of GDP in 2009 and will remain in the red for at least the next few years. Once global flight to quality ceases, the US will experience difficulties borrowing due foreign f ear of American reluctance to commit to servicing their external obligations without inflation. The interest rates on them are going to be punitive and so a greater amount of resources will have to go towards servicing the debt, thus triggering a potential debt crisis. Buiter predicts a global dump of US dollar assets including Treasury bonds within the next two to five years as investors lose faith in the ability of the US Federal government to generate the primary surpluses required to service its debt without selling much of it to the Fed on a permanent basis, or that the nation as a whole will be able to generate the primary surpluses to service the negative net foreign investment position without the benefit of “American alpha”.

In conclusion, the only reason the US can afford to have both guns and butter is that the outside world is willing to provide it with cheap credit. This will no longer be the case as soon as global panic subsides, and the US will face the real possibility of a debt-and-currency crisis which it will have to inflate its way out of (on which they seem to be making a good start). The 2010′s will see plummeting global oil extraction and sky-high prices. If the $ were to collapse, the imports of oil that fuel the economy will plummet and may lead to a post-Soviet-scale drop in GDP (unless the US uses its military clout to lock in Iraqi and Saudi production – however, given its fiscal problems, questions about political unity and rhetorical commitment to human rights, that would be hard to achieve).

America can take consolation in one thing, however – the collapse in Britain, which is three times as reliant on “dark matter”; which is a much bigger energy importer relative to production; whose industry is in a far more decayed state; and where real breakup is far more likely because of ethnic tensions, will be much worse.

3) When Mikhail Gorbachev (the youngest member of the Politburo) came to power he talked of increasing transparency (glasnost) and restructuring (perestroika). Yet the most dangerous moment for a bad government is when it starts to reform. In reality the Soviet system was already very probably unsalvageable by then, partly because even the leader himself continued to be a part of the system, beholden to dominant interests (in the Soviet case, to the military-industrial complex, the nomenklatura and workers) and steeped in delusions of grandeur. Even as he attempted to liberalize and solve many interlocking social and economic problems at once, social entitlements were increased, new weapons systems ordered and foreign borrowing increased. Half-measures and reckless credit giveouts to save the system led to massive waste, insider plunder and the start of the disintegration of the economy by the late 1980′s.

The similarities with Obama are striking. Obama is one of the youngest Presidential candidates ever, and talks of hope and change. He comes after the zastoi, deterioration in political and civil liberties and reckless foreign military adventures of Bush II. Like Gorby, he is immensely popular throughout the world. He plans on expanding healthcare and other social entitlements, burdening the economy with farcical green schemes* and is intent on rescuing the troubled financial system by massive infusions of credit, with no regard for the future inflationary consequences. His advisors are the same clique of insiders under previous administrations, especially the Clinton one. He is beholden to the financiers and industrial lobbying groups that fund him and the middle classes that are the bedrock of American political power (as were Soviet workers), which are now being whittled down by the collapse in credit and repossessions. Major cuts in funding for the the Armed Forces and sustainable retreat are simply not envisioned. *As anyone who reads this blog nows, I consider global warming one of the greatest challenges faced by civilization. The problem is that schemes to fund “clean coal” or implement carbon trading are too little, too late, too costly and too unreliable.

Obama is steeped in the Pax Americana mindset (just as Gorbachev was steeped in scientific socialism), which is complacent and rests on its laurels; and as such the possibility of collapse simply cannot seriously enter his mind or considerations. Therefore the truly revolutionary reform that is needed to preserve the current system is unlikely to be contemplated, if its even possible.

2) As economic and political difficulties mounted in the USSR, they were further reinforced by disintegration on ethnic lines, diverting administrative and economic resources away from what should have been more pressing matters.

Recently New Hampshire formally requested a casus foedoris with the other states of the union separately from the federal government in a RESOLUTION affirming States’ rights based on Jeffersonian principles.

That this State does therefore call on its co-States for an expression of their sentiments on acts not authorized by the federal compact. And it doubts not that their sense will be so announced as to prove their attachment unaltered to limited government, whether general or particular. And that the rights and liberties of their co-States will be exposed to no dangers by remaining embarked in a common bottom with their own. That they will concur with this State in considering acts as so palpably against the Constitution as to amount to an undisguised declaration that that compact is not meant to be the measure of the powers of the General Government, but that it will proceed in the exercise over these States, of all powers whatsoever: that they will view this as seizing the rights of the States, and consolidating them in the hands of the General Government, with a power assumed to bind the States, not merely as the cases made federal, (casus foederis,) but in all cases whatsoever, by laws made, not with their consent, but by others against their consent: that this would be to surrender the form of government we have chosen, and live under one deriving its powers from its own will, and not from our authority; and that the co-States, recurring to their natural right in cases not made federal, will concur in declaring these acts void, and of no force, and will each take measures of its own for providing that neither these acts, nor any others of the General Government not plainly and intentionally authorized by the Constitution, shall be exercised within their respective territories; and

That the said committee be authorized to communicate by writing or personal conferences, at any times or places whatever, with any person or person who may be appointed by any one or more co-States to correspond or confer with them; and that they lay their proceedings before the next session of the General Court; and

That any Act by the Congress of the United States, Executive Order of the President of the United States of America or Judicial Order by the Judicatories of the United States of America which assumes a power not delegated to the government of United States of America by the Constitution for the United States of America and which serves to diminish the liberty of the any of the several States or their citizens shall constitute a nullification of the Constitution for the United States of America by the government of the United States of America. Acts which would cause such a nullification include, but are not limited to:

I. Establishing martial law or a state of emergency within one of the States comprising the United States of America without the consent of the legislature of that State.

II. Requiring involuntary servitude, or governmental service other than a draft during a declared war, or pursuant to, or as an alternative to, incarceration after due process of law.

III. Requiring involuntary servitude or governmental service of persons under the age of 18 other than pursuant to, or as an alternative to, incarceration after due process of law.

IV. Surrendering any power delegated or not delegated to any corporation or foreign government.

V. Any act regarding religion; further limitations on freedom of political speech; or further limitations on freedom of the press.

VI. Further infringements on the right to keep and bear arms including prohibitions of type or quantity of arms or ammunition; and

That should any such act of Congress become law or Executive Order or Judicial Order be put into force, all powers previously delegated to the United States of America by the Constitution for the United States shall revert to the several States individually. Any future government of the United States of America shall require ratification of three quarters of the States seeking to form a government of the United States of America and shall not be binding upon any State not seeking to form such a government; and

That copies of this resolution be transmitted by the house clerk to the President of the United States, each member of the United States Congress, and the presiding officers of each State’s legislature.

New Hamphshire isn’t isolated. States rights bills are being pushed in nine states this year and almost half the states’ legislatures have plans to pass similar resolutions. While most are addressed to Congress or the President to back off from further violating state’s rights, New Hampshire is appealing for solidarity from other states to develop a casus feodoris / alliance to develop a counter-weight to the federal government in case it increases interference in state matters or moves towards authoritarianism to manage the consequences of the economic crisis. The incidence of tax revolts are growing.

This is all still very far from the situation in the USSR, where after all half the population wasn’t even Russia whereas the US is a nationally homogeneous nation. Nonetheless, the trends are ominous. There is no visible horizon to the end of the economic crisis, and even as late as 1989 no Soviet republic except the Baltics wanted out.

1) Economist Willem Buiter believes there will be a global dumping of $ assets within two to five years. Financial advisor James West writing in SeekingAlpha believes a US debt default and dollar collapse are “altogether likely”. Russia fund investor Eric Kraus has been lamenting the unsustainability of American disbalances for years and predicted the US will fall into a debt trap last November. The economist Nouriel Roubini, one of the few to have foreseen this crisis, predicts this recession will be far longer and deeper than any other post-war recession. Even the Economist mentioned the possibility of a US debt-and-currency crisis in one of its recent issues.

Dmitri Orlov explicitly compares the US to the USSR, and concludes that the collapse will be worse, at least in social terms, in the former. The Russian economist Mikhail Khazin predicts a 25-40% drop in American GDP. Future and trends analyst Gerard Celente, who succesfully predicted the collapse of the Soviet Union, now foresees an unprecendented fall in US economic output, tax rebellions and food riots. Russian professor Igor Panarin sees disintegration and civil war as soon as this year.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.