The stakes in sanctions against Russia: Nationalize Western assets in Russia

The stakes are increasing. The world is entering uncharted waters in the middle of a powerful storm. The New York Times writes:

Besieged by an onslaught of sanctions that have largely undone 30 years of economic integration with the West in the space of two weeks, President Vladimir V. Putin on Thursday opened the door to nationalizing the assets of Western companies pulling out of Russia and exhorted senior officials to “act decisively” to preserve jobs.

With Russia in danger of defaulting on its sovereign debt and facing a sharp contraction in its economy, the West is betting that the looming, generation-defining economic crisis could make Russians turn on their president. It is also possible, however, that the crisis could end up strengthening Mr. Putin, validating his narrative that the West is determined to destroy Russia.

“I have no doubt that these sanctions would have been implemented no matter what,” Mr. Putin said in televised remarks on Thursday, arguing that his intervention in Ukraine served merely as a pretext for the West to try to wreck Russia’s economy. “Just as we overcame these difficulties in years past, we will overcome them now, too.”

But the sanctions imposed in the two weeks since the invasion — combined with multinational companies that employ tens of thousands of Russians voluntarily deciding to withdraw amid the global outrage — dwarf any other economic pressure that Russia has faced under Mr. Putin.

With the ruble having lost nearly half its value in the last month, prices of basic goods have risen sharply, causing panic buying at supermarkets. The central bank, which has kept the Moscow stock exchange closed since the war began, has introduced new capital controls, preventing companies from withdrawing more than $5,000 in cash for the next six months.

“This will be a gigantic, transformational downturn,” said Ruben Enikolopov, rector of the New Economic School in Moscow.

The Institute of International Finance, a Washington-based association of financial firms, predicted that Russia would see a 15-percent decline in its gross domestic product this year, which would wipe out much of the economic growth that Mr. Putin has presided over since taking office in 1999.

And things could get even worse. Further escalation of the war could lead more countries to refuse to buy Russian energy, the institute’s economists said, “which would drastically impair Russia’s ability to import goods and services, deepening the recession.”

The alarm with which Russian planners view the downturn is reflected in the radical measures they have proposed to arrest it.

Of particular concern are Western companies that once symbolized post-Soviet Russia’s integration into the world economy, like McDonald’s and Ikea, that have now shuttered hundreds of stores and factories. Mr. Putin told officials in the televised meeting that the assets of such companies should be put under “external management” and then transferred “to those who want to work.”

Dmitri A. Medvedev, the vice chairman of Mr. Putin’s security council, said the Kremlin could respond to Western companies leaving the Russian market with the seizure of their assets “and their possible nationalization.”  

The risk for the West, some warned, is that the crushing sanctions could spark a backlash.

“The medicine could turn out to be worse than the illness, even from the point of view of declared goals,” Mr. Enikolopov said, arguing that the sanctions could end up entrenching anti-Western views. “No one is looking at the collateral damage at all.”

On the shore of western Russia’s Lake Valdai, Tatyana Makarova, an entrepreneur, said that she supported Mr. Putin’s war in Ukraine — and that the impact of the sanctions only shows that Russia has been excessively dependent on the West. Ms. Makarova, who owns a small cleaning company, said in a phone interview that she believed the economic crisis would finally force Russia to develop homegrown technology. ​​ 

“Perhaps this will be good for us,” she said. “This will wake Russians up, and thank God.”  

Timofey Bordachev, a prominent political analyst, wrote that the new “Iron Curtain now descending between the West and Russia” offered the country “an absolutely fantastic chance to start a more meaningful and independent life.”

Multiple thoughts come to mind.

One is that the West has committed a colossal mistake by remaining reliant on carbon energy. Europe needs Russian oil and gas. For at least the last ~20 years, the Europeans and Americans should have been building nuclear power plants as fast as they could. Not only do we face an environmental disaster, we also face blackmail by tyrants with oil or natural gas. On both environmental and national security grounds, Western politics has failed miserably. 

And, just like some Russians believe that Russia should not have let itself become dependent on the West, The West should not have remained dependent on Russia energy.

Another is that nationalization of Western assets in Russia makes sense. Putin and Russian elites run an autocratic kleptocracy. Stealing Western assets is perfectly reasonable to a kleptocrat who thinks they can get away with the theft with an acceptable cost-benefit outcome.

Also the matter of the Russian people is important. Will they turn toward or away from Putin and his kleptocratic police state? People in a nation under siege as Russia now is tend to rally around the flag and the leader, even a brutal, corrupt tyrant like Putin. At present, all the Russia people get to hear is an endless stream of lies about poor, innocent Russia being brutally attacked by those evil Western fascist countries. The entire Russian nation is one gigantic echo chamber. Only Putin speaks in it. There is no war in Ukraine, just an innocent little 'special military operation' to stop Ukrainian fascists from slaughtering innocent, defenseless pro-Russian Ukrainians.

Maybe this is, as Mr. Bordachev says, an absolutely fantastic chance to start a more meaningful and independent life.

Assuming we don't self-annihilate, if this conflict wakes the West up perhaps it will be good for most people. And thank God if it does wake us up. Unfortunately, there is no way this will be any good for Ukraine any time soon. They're royally hosed. The West needs to build a (sanctions) wall and make Russia pay for who they murdered and injured and to fix what they broke.

One can also hope that if waking up does happen in the West, it will make the threat of China clearer. China is an even deadlier threat to the global economy, democracy, truth and the rule of law than Russia. Both are about equally deadly in terms of nuclear weapons.

Regarding the attempt to overthrow the US government on 1/6

The Guardian reports that attempts by the ex-president and allied Republican elites knew they were breaking laws in their attempt to overthrow the US government on 1/6. The Guardian writes:

Interrupting the certification of Joe Biden’s election win on 6 January last year as part of the scheme to return Donald Trump to office was known to be unlawful by at least one of the former president’s lawyers, according to an email exchange about the potential conspiracy.

The former Trump lawyer John Eastman – who helped coordinate the scheme from the Trump “war room” at the Willard hotel in Washington – conceded in an email to counsel for then vice-president Mike Pence, Greg Jacob, that the plan was a violation of the Electoral Count Act.

But Eastman then urged Pence to move ahead with the scheme anyway, pressuring the former vice-president’s counsel to consider supporting the effort on the basis that it was only a “minor violation” of the statute that governed the certification procedure.

The admission that the scheme was unlawful undercuts arguments by Eastman and the Willard war room team that they believed there was no wrongdoing in seeking to have Pence delay the certification past 6 January – one of the strategies they sought to return Trump to power.

It additionally raises the prospect that the other members of the Willard war room – including Trump’s former attorney Rudy Giuliani and Trump’s former strategist Steve Bannon – were also aware that the scheme to delay or stop the certification was unlawful from the start.

The request to adjourn the joint session was one of several strategies Eastman had laid out in an infamous memo presented to Trump, Pence and top aides last year that outlined how the former vice-president could attempt to unilaterally overturn the 2020 election results.

The strategy to delay the joint session past 6 January was about buying time for Trump and his team to pressure state legislatures to send Trump slates of electors to Congress on the basis that the Biden slates were illegitimate because of supposed election fraud.

The email exchange – revealed in court filings by the select committee last week – shows Eastman attempted to take advantage of the fact that the Electoral Count Act was not followed exactly in the immediate aftermath of the Capitol attack to try and benefit Trump.

“The Senate and House have both violated the Electoral Count Act this evening – they debated the Arizona objections for more than two hours. Violation of 3 USC 17,” Eastman wrote to Jacob in his 9.44pm email, referring to the statute in the US criminal code.

But in the second part of his email, Eastman claimed that because the statute had already been violated in small ways – delays that amounted to a few hours at best – Pence should have no problem committing “one more minor violation and adjourn for 10 days”.

That admission is significant since it demonstrates Eastman knew the scheme to delay Biden’s certification was unlawful – which the select committee believes bolsters its case that he was involved in a conspiracy to defraud the United States and obstruct Congress.

This disclosure of crime arguably puts Biden and Merrick Garland in an uncomfortable position. They do not want to prosecute the ex-president or the criminals who planned and tried to help him overthrow the government. 

The best strategy for Biden and Garland to shield the high level 1/6 traitors and criminals is to (i) say nothing about this, and (ii) repeatedly deflect attention to prosecutions of the low level degenerates, street thugs and traitors who physically attacked the capitol on 1/6. That should do the trick.

No doubt, Republicans in congress will somehow blame Biden and Democrats for 1/6. That should distract public attention and help the ex-president skirt the law to come out untouched and fighting for self-righteous revenge. Of course, defense attorneys for the ex-president and his criminal gang will use every possible trick, dodge, sleight of hand and technicality to subvert the law so that the courts find no wrongdoing. 

As we all know, when it comes to trying to overthrow the US government, small infractions of law are acceptable. But when it comes to prosecuting the traitors and thugs involved in an overthrow attempt, no miniscule infraction is tolerable. As usual, the game is rigged heavily in favor of the bad guys, neo-fascism and the rule of the thug and heavily against the good guys, democracy and the rule of law. Just politics as usual for American elites.

Biden's and Garland's legal defense strategy for the ex-president 

and his co-conspirators

Regarding inflation and corporate profits

The pandemic and supply chain disruption have damaged a lot of businesses, with many having gone bankrupt. But not all. The solidly liberal Hightower Lowdown (HL) sees corporate greed as the major factor in the inflation. The HL argument is as follows:

What the GOP bemoans as America’s inflation problem[1], is actually a corporate greed problem.

Of course, the greedmeisters and their apologists are deeply offended by this charge, huffing in outrage that their pursuit of corporate profit has not driven any price surges. In our economy of free market competition, they snap, consumer prices are established by the Holy Law of Supply and Demand. They lecture that when shortages occur, prices naturally rise, and that incentivizes additional production, which magically establishes a new supply/demand balance. Even if one producer or a monopolistic cabal of producers tries to overcharge consumers, these theoretical new competitors will draw customers from the gougers and keep prices in check. In the sanctuary of this concept, the free market is a virtuous, self-regulating circle of competitive fairness. Its zealous devotees have successfully convinced nearly all public policy makers to avoid government intrusion into its delicate mechanism.

But there’s one big problem with their virtuous circle: It’s a laissez-fairyland fraud that implodes when it hits the hard reality that our economy doesn’t remotely resemble a competitive marketplace. As the Lowdown detailed in October, nearly every economic sector in the US (from high tech to farm and food) has been locked down by a handful of overpowering corporate giants. For some 40 years, corporate-directed government policies have (1) intentionally promoted (even subsidized) mega-mergers; (2) gleefully green-lighted anticompetitive business tactics; and (3) aggressively inculcated and celebrated the economic lie that bigger is better. Thus, in short order and with practically no public awareness, much less discussion, America has been transformed into Monopoly Nation.

Brand name corporations are not being forced to markup price tags just to cover rising costs for raw materials, labor, transportation, etc. Indeed, in a competitive marketplace, they’d have to eat much of those increases by taking a bit less in profits. (The giants have been stockpiling record profits for years, so they could easily weather a downtick.) They’re now raising prices not simply to maintain exorbitant profits, but instead to squeeze even greater profits from hard-hit consumers. And then they cynically exploit the public’s worry about inflation to create more inflation.

Consider diapers, a necessity for many families. As corporate watchdog Judd Legum recently reported, the huge consumer product seller Procter & Gamble announced last April that Covid-driven production costs were forcing it to raise the price for its Pampers brand. At the time, it had just posted a quarterly profit of $3.8 billion, and P&G could easily have absorbed a temporary rise in its costs. But instead of holding the price to ease their customers’ economic pain, the conglomerate used a global health crisis to justify upping diaper prices. Six months later, P&G’s quarterly profit topped $5 billion and, in that same quarter, P&G spent $3 billion to buy back shares of its own stock–a Wall Street manipulation that artificially bloats the wealth of top execs and other big shareholders. In sum, P&G used the excuse of inflation to inflate the price of diapers, then used the extra money extracted from families to inflate the value of its stock in a ploy to further enrich its biggest shareholders. And why wouldn’t savvy consumers switch from Pampers to Huggies, the brand sold by Kimberly-Clark, P&G’s main “competitor”? Because co-monopolist Kimberly-Clark goosed up its prices at the same time. (The two companies control 80% of the global disposable diaper market.)

In 2019, the year before Covid-19 hit, big US corporations hauled in roughly a trillion dollars in profit. Only two years later, during the pandemic, they grabbed more than $1.7 trillion. Antitrust analyst Matt Stoller finds that this huge profit jump accounts for 60% of the inflation now slapping US families. The CEO of Kroger, the supermarket goliath, gloated last summer that “a little bit of inflation is always good in our business,” adding that “we’ve been very comfortable with our ability to pass on the increases” to consumers. “Comfortable” indeed. Last year, Kroger spent $1.5 billion of its monopoly profits on stock buybacks to reward executives and other big shareholders. In January, McDonald’s gushed to its shareholders that 2021 had been “a banner year.” Executives bragged that despite the supply disruptions of the pandemic and higher costs for meat and labor, they used the chain’s pricing power to up prices, thus increasing corporate profits by a stunning 59% over the previous year. And the party goes on: “We’re going to have the best growth we’ve ever had this year,” Wall Street banking titan Jamie Dimon exulted at the start of 2022. 

The same monopoly pricing power that abuses consumers can simultaneously exert “monopsony” power. While monopoly refers to a market with very few sellers, monopsony is a concentrated, non-competitive market with only a handful of dominant buyers. Monopsony empowers those few buyers to dictate prices and onerous terms of business to myriad independent sellers of components, ingredients, and services.

For a brief tutorial on monopsony, let me call in Professor Hamburger. More than any of the other price hikes in 2021, the 21% spurt in the cost of hamburger and other beef products may have jolted Americans the most. Over a few short months, a restaurant burger or a package of ground beef became noticeably pricier, and tight-budget families wondered why cattle ranchers were hitting them with such an increase.

They weren’t. In fact, back at the ranch, the hardy families that raise cattle were being slammed, too–not by price increases, but by disastrous decreases. As Prof. Hamburger explains, this double whammy is the direct result of our government’s abdication of its antitrust responsibility. Since the 1980s, state and federal politicians and regulators have blithely allowed a handful of ever-bigger meat processors to buy out or force out hundreds of feedlots and packing houses that previously competed to purchase from local cattle raisers.

Consequently, we have a BS beef economy in which producers and consumers alike are now at the tender mercies of a meat cartel: 85% of the US beef market is controlled by just four multibillion-dollar goliaths. (JBS and National Beef are Brazilian owned; Tyson Foods and Cargill Inc are US-based multinationals.) Despite already wallowing in fabulous profits, this beef cartel has been raising consumer prices during the pandemic, not to stay afloat, mind you, but to profiteer. And it’s working nicely for them. Their profit margin at the end of 2021 was 300%(!) higher than the previous year.

Meanwhile, the same monopoly that’s ripping off customers has been using its monopsony power to bankrupt the beef industry’s last competitive segment: independent cattle raisers. Not only have the Big Four eliminated local and regional cattle-buying competition, but they’ve also divided the national ranching territory, so they don’t have to bid against each other. The result is a corrupted marketing system that traps and strangles ranchers.

The New York Times recently reported, Steve Charter [discussed here], a third-generation Montana rancher, hoped for a good sale when he saw supermarket beef prices rising, so he took 120 head to an auction that delivers cattle to a JBS plant. He was told he had to commit to selling only to JBS, at a price to be dictated later by the Brazilian behemoth. “I wanted to tell him to go to hell,” Charter says, “But what choice did I have?” There were no other bidders, and cattle are expensive to keep. His break-even price was $1.30 a pound. “Without any consulting or dealing,” he says, “they just decided that they were going to pay me $1 a pound.”

Question: Setting aside its liberal bias, is HL's argument convincing that big corporation profits are significantly or mostly contributing to inflation, or is this cherry picked liberal propaganda that unreasonably distorts reality?

Footnote: The GOP is pounding on Biden and Democratic politics for current inflation. According to HL, a key GOP argument asserts that Biden lavished giveaways on millions of lazy workers, which led to slackers refusing to go to work. In turn, that lead to widespread disruptions in the global supply chain, causing shortages. That forced corporations to raise prices, and that swamps the middle class with systemic inflation. 

Assuming that HL reasonably summarizes a key Republican argument blaming Biden and the Dems, (i) it is conveniently silent about high profits for at least some giant corporations with limited competition, and (ii) it ignores the fact that global supply chain disruptions, e.g., shortage of silicon chips for electronics, have little to do with American workers refusing to take jobs. Presumably, that's why this is called global supply chain disruptions, not American supply chain disruptions.

Pragmatic rationalism: Summary and links to discussions

The context

Intolerance is almost inevitably accompanied by a natural and true inability to comprehend or make allowance for opposite points of view. . . . We find here with significant uniformity what one psychologist has called ‘logic-proof compartments.’ The logic-proof compartment has always been with us. -- Master propagandist Edward Bernays, Crystallizing Public Opinion, 1923

We found ourselves at the end of chapter 3 with a dystopian assessment of democracy, an apparent ill-suited match between the mental apparatus of the public and the high-minded requirements of democracy: People should be well informed about politically important matters, but they are not. People should think rationally, but they most often do not. -- Political psychologist George Marcus, Political Psychology: Neuroscience, Genetics, and Politics, 2013

“. . . . the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. . . . cherished ideas and judgments we bring to politics are stereotypes and simplifications with little room for adjustment as the facts change. . . . . the real environment is altogether too big, too complex, and too fleeting for direct acquaintance. We are not equipped to deal with so much subtlety, so much variety, so many permutations and combinations. Although we have to act in that environment, we have to reconstruct it on a simpler model before we can manage it.” -- Christopher H. Achen and Larry M. Bartels, Democracy For Realists: Why Elections Do not Produce Responsive Governments, 2016

The tedious thing

The issue of my political ideology comes up from time to time, usually when I'm being criticized as unreasonably biased, partisan, socialist, stupid or whatever. It's tedious to repeatedly explain my ideology, pragmatic rationalism (PR). A post summarizing it and linking to past posts is in order. 

Short summary: PR is an ideology based on moral values of (i) acceptance of facts, true truths and sound reasoning, especially whenever they are inconvenient or cognitive dissonance-inducing, (ii) service to the public interest (it's complicated but it favors democracy, civil liberties, the rule of law, transparency, honesty, balancing of public and private interests, reasonable regulation of commerce, etc.), and (iii) reasonable compromise to ward off authoritarianism.

PR is intended to be an anti-biasing, anti-ideology ideology. It is intended to help reduce emotion to increase rationality and acceptance of inconvenient facts, truths and sound reasoning. It mostly ignores things like conservatism, liberalism, socialism, capitalism, Christianity and so forth. Disputes about those are essentially contested, and thus for the most part resolvable only by compromise or brute force. 

PR focuses mostly on what most people claim their politics is based on, facts, true truths, sound reasoning, what's best for the people and the country (service to the public interest) and for pro-democracy people, reasonable compromise. Things like personal morals, self-esteem and group loyalty are baked into the 'service to the public interest' moral value. Maybe most of those can be called less contested concepts, especially facts. Despite facts being either mostly or completely objective, they are still often contested, usually they are inconvenient, i.e., when they generate cognitive dissonance.

PR is an anti-biasing, anti-ideology ideology: Political, economic and religious ideologies tend to lead the believer's mind to distort, deny or downplay facts, reality, truths and sound reasoning that are inconvenient. Humans hate cognitive dissonance, ambiguity and uncertainty. The human mind evolved to rationalize uncomfortable things into other things or nothings that are more psychologically comfortable. (June 3, 2019 post)

An attempted brief explanation of PR: It's not clear this attempt succeeds, but it's there. (Dec. 28, 2019 post)

Shared traits of bad leaders: Books teach that bad leaders tend to be ruthlessly demagogic and authoritarian. They usually (~97% of the time?) rely more on deceit, lies, slanders, irrational, emotional manipulation and flawed motivated reasoning. The emotional manipulation usually appeals to and foments negative emotions such as unwarranted fear, anger, hate, bigotry, intolerance and distrust, all of which tend to divide and polarize societies. Propaganda based significantly or completely on motivated reasoning generally makes arguments on some combination of emotional manipulation, logic flaws, deceit, lies, opacity and slanders of target individuals, groups and/or nations. (Aug. 10, 2019 post) 

Self-criticism of PR: Many criticisms can be leveled at PR, e.g., it is impractical for whole societies, especially ones awash in propaganda, opacity and deceit like the US. That is probably true. Nonetheless, considering criticisms helps to clarify what might be possible and what probably isn't. (Aug. 13, 2015 post)

How PR fits with social science research: Short answer is that PR fits. It should fit because it is built largely on human cognitive biology, neuroscience, psychology, social behavior science and related sciences. There's also a strong streak of moral philosophy inherent in PR. 

This quote from a 2013 book chapter on ideology exemplifies the fit:

While I will review a great deal of important research on the structure and determinants of political ideology in this chapter it is important not to lose sight of the implications of low levels of political knowledge, instability in measures of issues preferences, and multiple dimensions of issue preferences when evaluating research on individual-level political ideology. At a minimum, these findings encourage us to consider models of ideology that do not require a great deal of sophistication from most people and to be aware of the limits of ideology among nonelites. --- Feldman, S. (2013). Political ideology. In L. Huddy, D. O. Sears, & J. S. Levy (Eds.), The Oxford handbook of political psychology (pp. 591–626). Oxford University Press.

Based on that, a test for PR asks if it is too sophisticated for nonelites to adopt a pro-rationalism mindset that looks to facts, true truths and sound reasoning as a major basis for political thinking and belief. (Aug. 15, 2021 post)

Complexity is unavoidably embedded in PR: Politics is very complicated, despite strenuous argument from some that it isn't. It just is. That is inherent in the human condition and the workings of the human mind. Therefore, PR is necessarily complicated, although at one time I used to naïvely think it was simple. Now I know better.

For example, service to the public interest and many of the concepts it includes are complex because they are essentially contested. There is thus no authoritative definition or agreement on definitions about when and how they apply in various circumstances. That is an unavoidable aspect of politics. That is why reasonable compromise is necessary in a democracy. In a dictatorship, autocracy, neo-fascism, plutocracy or other non-democratic form of government, definitions and compromise are at the whim of the person or people in power. (July 11, 2020 post)