Что Делать? What To Do?

Что Делать? Is the title of one of Lenin's books. "What is to be done?" is one way to translate the phrase. I like the simpler and more direct "what to do?"

I offer the following list of things to do:

I: Military

1. What Russia has done in Ukraine is an act of war. Recognize Russia's belligerent status. Ask Turkey to close the Turkish Straits to transit by Russian warships under the Montreux Convention. [By the way, we have to ask politely, since we never adhered to the convention and therefore do not have the rights of a signatory. Why not initiate discussion with Turkey to seek status as a signatory?]

2. While Ukraine is not a member of NATO, she has been granted membership in the Euro-Atlantic Partnership Council. Let's send an allied mission to Ukraine to assess their defense needs.

3. Reactivate discussions with Ukraine concerning transfer of warships from our reserve fleet to Ukraine. Include mine warfare vessels in the discussion.

4. Investigate modernizing Ukraine's Air Force and Air Defense.

5. Schedule friendly warship visits to NATO allies in the Black Sea: Bulgaria and Romania, and possibly Ukraine.

II. Economics

1. Don't threaten to withdraw from the G-8 conference in Sochi - withdraw! Now! Withdrawing from a conference may sound like a weak sanction. Not nearly as weak as threatening someday to think about doing it. Just do it!

2. Freeze Russian assets! Now! We can always unfreeze them later;

Getting Ukraine's economic house in order is probably the most urgent task. But it must be done in a way that improves the lives of ordinary citizens and builds Ukraine's productive capacity for the future. Here are some ideas set forth by economists Gorodnichenko and Roland:

"Although it is only a few days after the successful February revolution and the country is still in a state of flux, a new government is needed to deal with emergency economic measures.

• The country is days away from facing a $2bln payment to international bondholders.

• The provisional Ukrainian government does not have the necessary legitimacy to make all the changes demanded by the Maidan protesters.

The new government is inheriting a political system and a government administration that are in need of fundamental change. Because of this weakness, the new government needs to focus on a set of emergency measures that are both urgent and immediately feasible. In the long run, establishing a well-functioning democracy necessitates a new constitution and a popular referendum on a constitution, but that takes time. What must be done now? What needs to be changed in the long run?

• First, the Ukrainian currency Hryvnya should be switched to a float and it should depreciate significantly.

The current-account deficit (about 10% of GDP) is clearly unsustainable. This should stimulate the economy and preserve precious foreign currency reserves. Barriers to export should be removed.

• Second, the banking system badly needs liquidity and capital.

Raising these in the international financial market has become nearly impossible. The government should inject capital (for example, use a program similar to the TARP in the US). The Central bank should provide liquidity. Some form of temporary capital controls and temporary limits on withdraws of deposits appear unavoidable given the current ongoing bank run (deposits fell by a third in the last few weeks and are falling further on a daily basis). Banks should “reopen” after the infusions of capital and liquidity.

Third, the government must immediately present a plan to address fiscal imbalances over a period of several years.

• 
  

Given the deeply depressed state of the economy, now is not the time to implement deep budget cuts. But fiscal authorities can still lay out a budget plan for a gradual decline in deficits to restore confidence in the long-run solvency of the Ukrainian government. Stricter monitoring of spending to minimize corruption and waste of public functions must be implemented immediately to make the eventual fiscal consolidation less painful and restore confidence.

• Fourth, external payments are a heavy burden on the collapsing Ukrainian economy.

One step is to bring in the IMF as well as other donors (EU, USA, etc.) to bridge the short-term gap in foreign currency reserves.

These funds are essential to avoid a drastic immediate fiscal contraction in the immediate future. They are necessary to enable authorities to inject capital into Ukrainian banks. The amount of required support is likely to be in tens of billions of dollars. Moreover, a restructuring of some of Ukrainian debt is necessary to avoid outright default.

• Most of Ukraine’s external debt was accumulated under the previous corrupt regime.
• The new leaders have little moral obligation to commit to reimburse that debt, and creditors have little moral standing to demand repayment: they knew who they lent to.

On the other hand, the amount of Ukraine’s external debt is not that high, and costs of defaulting – exclusion of Ukraine from the bond market for five years or so – are not-zero.

Ukraine badly needs immediate breathing space to introduce reforms and relieve the burden imposed by the Yanukovych government. The main risk here is that the absence of primary fiscal surplus makes an immediate fiscal consolidation or monetization of spending unavoidable in case of outright default. But Ukraine had a nearly zero inflation rate for two year. Some inflation could be a stimulating force if it can be kept under control later on. The new provisional government of Ukraine must weigh the costs and benefits of these scenarios. But right now, it should not exclude the option of default if external support is not coming. An external default would then not alienate Ukraine from the international community, despite the short run disorder it might create.

• Fifth, a possible trade war with Russia and increased energy prices are looming.

Ukraine should prepare to obtain energy from alternative sources (including reversing the gas flow to get energy from the West).

• Sixth, some people and businesses will be hit very hard.

The government should prepare short-term relief for all those likely to fall into temporary poverty: guaranteed minimum food, heating, electricity and water, all supplied on a lump-sum basis.

• Last and not least, the EU and Ukraine should sign the association agreement.

This will anchor economic and political forces toward reforms and growth as well as provide credibility to the new government.

These emergency economic  measures will not address the need for fundamental long-term change. Once there is a legitimate government, elected on the basis of a Constitution approved by referendum, fundamental long term reforms can be implemented. These include a fundamental overhaul of government administration to root out corruption, fiscal decentralization to give more power to the regions, regulatory reform to break up monopolies, opening up entry to foreign firms and small private business, and securing a stable supply of energy by exploiting Ukraine’s large reserve of shale gas.

The need to act fast now does not mean one should not also begin in the necessary process of constitutional change. The people of Ukraine demand it. Ukraine had two revolutions in the last ten years. Both expressed people’s discontent with the status quo and aspirations for democracy. It needs to build a consolidated and participatory democracy. There will likely not be a third chance."

III Political

- Hold elections soon, with credible international observers.

- Convene a constituent assembly and  draft and ratify a new constitution as soon as possible.

Lots to do and not much time to do it.

Ukraine - March, 1944

The Spring thaw in Ukraine turned the roads and fields into a quagmire of mud. Retreating German soldiers did the best they could to destroy the railroads, the only viable means of transporting supplies across the muddy fields.

Here is an account written by a Soviet platoon commander faced with the challenge of moving his platoon across Ukraine in pursuit of retreating Germans. nearly out of ammunition and having lost the battalion field kitchen, the platoon depended on the kindness of local peasants to feed them:

"...we could not always have a normal meal — the battalion kitchen was stuck in the dirt somewhere and could not catch up with us. It was impossible to find a dry spot during breaks, we had to sit down right in the dirt and immediately fell asleep for 10 or 15 minutes. Some soldiers even fell asleep while walking from exhaustion. One should not forget that most of the soldiers were just 18 years old.

"We only survived on food provided by the population of the villages that we liberated from the Germans. At night and very rarely during the day we would make one-and-a—half- or two-hour stops in those villages to have a snack with what God had in store for us.

"The population welcomed us warmly, regardless of how hard it was for them to provide food to soldiers; they always found some nice treats — some villagers boiled chicken, others boiled potatoes and cut lard (soldiers dubbed this kind of catering ‘a grandmother’s ration’).

"However, such attitudes were common only in the Eastern Ukraine. As soon as we entered the Western Ukraine, that had passed to the Soviet Union from Poland in 1940, the attitude of the population was quite different — people hid from us in their houses, as they disliked and feared the Muscovites and Kastaps (a disparaging name for Russians in Ukraine – translators comment)."

So the dislike of Western Ukrainians for Russians that we see  in today's Ukraine is nothing new.

Balaklava - 160 Years Later

Reports of Russian Occupation of Crimea describe columns of Russian military vehicles passing by a customs check point at Balaklava near Sevastopol. A hundred and sixty years earlier, during the Crimean War, Balaklava was the main encampment of the British forces. The war, which pitted French, British and Ottoman forces against Tsarist Russia, ended in Russian defeat.

Russia under Tsar Alexander III recognized the need for reform of the Russian military. Great Britain, whose military forces competed with Russia for the incompetence prize, was victorious and therefore did no serious rethinking of military tactics and strategy until 1914.

The most famous account of the war was Alfred, Lord Tennyson's poem, "Charge of the Light Brigade," which celebrated a glorious, courageous cavalry charge that accomplished nothing except the loss of most of the brigade. Tennyson's highly romantic poem is worth rereading:

The Charge of the Light Brigade

Half a league, half a league,
  Half a league onward,
All in the valley of Death,
  Rode the six hundred.
'Forward, the Light Brigade!
Charge for the guns' he said:
Into the valley of Death
  Rode the six hundred.

'Forward, the Light Brigade!'
Was there a man dismay'd?
Not tho' the soldiers knew
  Some one had blunder'd:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die:
Into the valley of Death
  Rode the six hundred.

Cannon to right of them,
Cannon to left of them,
Cannon in front of them
  Volley'd and thunder'd;
Storm'd at with shot and shell,
Boldly they rode and well,
Into the jaws of Death,
Into the mouth of Hell
  Rode the six hundred.

Flash'd all their sabres bare,
Flash'd as they turned in air
Sabring the gunners there,
Charging an army while
  All the world wonder'd:
Plunged in the battery-smoke
Right thro' the line they broke;
Cossack and Russian
Reel'd from the sabre-stroke
Shatter'd and sunder'd.
Then they rode back, but not
Not the six hundred.

Cannon to right of them,
Cannon to left of them,
Cannon behind them
  Volley'd and thunder'd;
Storm'd at with shot and shell,
While horse and hero fell,
They that had fought so well
Came thro' the jaws of Death,
Back from the mouth of Hell,
All that was left of them,
  Left of six hundred.

When can their glory fade?
O the wild charge they made!
  All the world wonder'd.
Honour the charge they made!
Honour the Light Brigade,
  Noble six hundred!

Ukraine And Crimea: Iran, North Korea, Iraq And Syria Watching

Our leaders don't seem to have figured it out yet (though maybe they have) - if we (US, Germany, Great Britain, and France) don't keep Russia from dismembering Ukraine, it will become very much harder to persuade non-nuclear and near-nuclear powers to refrain from developing nuclear weapons.

How does that work?

In 1992, as the Soviet Union broke up, we persuaded Soviet successor states to return nuclear weapons in their custody to Russia for dismantling. In 1992, Ukraine had the third largest nuclear stockpile in the world - almost 2,000 warheads. In 1994, after an international agreement, Ukraine began shipping warheads to Russia for dismantling. By late 1996, the last warhead had been shipped to Russia.

In return, Ukraine was given solemn international guarantees that the major countries (plus Russia) would guarantee their sovereignty and territorial integrity. If Russia dismembers Ukraine, the lesson will be clear - the great powers leave nuclear states alone (e.g. Israel and Pakistan) and don't touch states with their own nuclear weapons. But non-nuclear states: resist great powers at your own risk.

If that happens, you can kiss non-proliferation good-bye.

American CEO's Are Forty Times As Productive As German CEO's

American CEO's Are Forty Times As Productive As Germans

At least that is what one might assume from the above graphic. That is, if you believe that capitalism dispenses rewards in a rational and proportional manner.

Then there's this:

Who was Tesla? He invented and designed the entire infrastructure to distribute electricity by alternating current, generate it more efficiently using the Tesla turbine, and invented radio. He had to fight all those "job creators" like Thomas Edison and Guglielmo Marconi to get his ideas adopted.

Sochi And The Cherkassy

Circassia: I just learned where the Circassian homeland is. It is the area in the North Caucasus near the shore of the Black Sea. Sochi is the town Circassians consider their traditional capital. Circassians were expelled from the region by Russians after their defeat in battle in 1864. Today's Olympic village at Sochi is built on the site of mass graves of Circassians who died in that battle. Many survivors dispersed to other locations in the Ottoman Empire. For details of this early ethnic cleansing, see: http://en.wikipedia.org/wiki/Cherkessia

Ukraine Tragedy

Make no mistake about it. The violence in Kiev we saw on TV was orchestrated in Moscow. Or perhaps in Sochi.

The map below depicts the main ethnic divisions in Ukraine. Kiev is the pink circle along the Dnieper River, surrounded by red. The pink shows the area of ethnic Ukrainians who predominantly speak Ukrainian and the red mostly speak Ukrainian. In this case, "mostly" is more than "predominantly." Russian speaking Ukrainians are shown in yellow and white. Russians dominate the Crimea (brown) and the heavy industrial  and coal mining area of the Donets Basin (brown and yellow hatched area).



 It is plain that Russia sees the Donbas as important, and does not want to cede control to the West.








This may seem like a return of Soviet cold war thinking.

Not exactly.

It is a return of Russian Imperial thinking. Did you notice the design of the Russian hockey uniforms at the Olympics? It is the coat of arms of the Russian Federation.

It is also the two-headed eagle, which served as the coat of arms of the Tsarist Russian Empire from the time of Peter the Great until the Russian Revolution of 1917.

Is Vladimir Putin the new Tsar?

Are There Sensible Republicans After All?

Early this evening, the Republican-dominated US House of Representatives passed a "clean" bill to raise the debt ceiling without tying it to any other legislation. The bill passed with only 28 Republican votes. The big news is that Speaker of the House John Boehner allowed the vote to be taken.

This lets the Treasury borrow money as necessary to pay bills we have already incurred. While that is good news, there shouldn't be the slightest controversy.

It would be better news if we did away with the "debt ceiling" altogether. Our need to borrow is governed by revenue and expenditures that already comply with the dictates of Congress.

Here is economist Jared Bernstein's take on what has happened.