Is Russia’s Economy Collapsing?

What first struck me about Georgi Kantchev and Evan Gershkovich’s report in the Wall Street Journal was the slug: “Investment is down, labor is scarce, budget is squeezed.” What struck me is that it could well be written about the United States. Business investment is down:

Labor is scarce:

That’s what a low unemployment rate means by definition. When the unemployment rate is low only a very small percentage of those who want jobs don’t have them. Do I need to comment on whether the budget is squeezed?

And yet I don’t believe that the U. S. economy is collapsing. Is Russia’s? I don’t think we can tell from reading the cited article. For example this sentence: “The country’s biggest exports, gas and oil, have lost major customers.” They’ve also gained major customers. Russian oil exports measured in dollars have actually increased since the invasion of Ukraine. The reason for that is that the price of oil has risen.

The sanctions imposed by Russia’s erstwhile trading partners are resulting in Russia being more dependent on China. Russia’s economy had approached autarky because of prior sanctions. I don’t think we know enough to make any sweeping claims about what will happen next with Russia’s economy. Don’t be surprised if the moment that shooting stops, German imports from Russia jump right back up.



George Friedman is pretty bitter about the attacks on the Iraq War coming from all sides occasioned by the 20th anniversary of the invasion. Here’s his conclusion:

Invading Afghanistan and Iraq was the only practical option if the goal was to cripple a very capable enemy. The U.S. launched broad attacks in multiple countries. This could provoke hostility, but there was no better option. It was an unconventional counteroffensive, and this is what its critics dislike, but they offer no clear alternative. After 9/11, the threat was simply too great. The strategy was worldwide disruption. It was not pretty, but it worked. There were no other large-scale attacks on the U.S. homeland.

I find that a flood of illogic. Iraq was not a threat. Repeat: it wasn’t a threat. It didn’t harbor Al Qaeda until we removed Saddam Hussein. Furthermore, we have clearly failed in Afghanistan. If invading Iraq and Afghanistan were our only options against a “very capable enemy”, why has failure been an acceptable option in both countries?

I would like to suggest to Mr. Friedman that Al Qaeda was not the threat; our own laziness and carelessness were the threats. They are still threats. Al Qaeda was not a “very capable enemy”. They got lucky. Evidence: we have had no successful mass attacks by Al Qaeda since 9/11. Mr. Friedman’s interpretation is that’s because we invaded Iraq and Afghanistan. That sounds like the tiger repellent argument to me.

This is not 20-20 hindsight on my part. I’ve been saying all of this for 20 years. The evidence that I was right continues to mount.


We’re #1!

When I read this statement by Marc Joffe in a piece at Cato, “Are Taxes Really Lower in California than in Texas?” (spoiler alert: it depends on how you figure it)

WalletHub recently published an analysis of tax burdens by state that included some surprising findings: most notably, that Texas state and local governments impose heavier taxes on median earners than their California counterparts. Of the fifty states plus DC, the Golden State had the 12th lightest tax burden, while Texas ranked 41st.

I immediately hustled over to the analysis at WalletHub comparing total tax burdens by state, pretty sure of what I would find. Of course, Illinois has the higher tax burden in the country (the alternative analysis at Tax Foundation gives no joy—we’re in the six states with the highest burden there).

Two questions immediately come to mind. Why are Illinois’s taxes so high? Our roads are full of potholes and the state contribution to K12 education is one of the lowest in the country. The answers I would give are:

  • Illinois is one of the most corrupt states in the country. Our only real competition is Louisiana and that’s saying something.
  • Public employees (teachers, police officers, firefighters) are among the best-compensated in the country and we have a lot of them
  • Sales taxes and property taxes are high—without Prop 17 California’s taxes would be a lot higher.

The other question, of course, is why do I live here? Largely by accident. I moved to Illinois to attend college and never left. I like my house. There isn’t much to draw me to any other state. It’s better to be going to something than fleeing from something. Almost the only attachments I have to my state of origin, Missouri, are to the dead. Now my closest family are in Iowa, Minnesota, Michigan, Indiana, New York, and Florida and I wouldn’t move to be near any of them.


Listening But Not Acting

I didn’t know whether to be amused by Phelim Kine and Stuart Lau’s piece at Politico, “Ukraine is changing the math for countries caught between the U.S. and China”, for which the tag line appears to be “Europe is listening” or shocked at how obtuse it was. Here’s the meat of the piece:

Since Russia’s full-scale invasion of Ukraine, the Europeans are starting to pay more attention to Biden’s message about the dangers of dependence on dictatorships. With urgency like never before, they are restricting exports of chip-making equipment to China, banning TikTok on government devices and pushing protectionist trade policy. Even long-time holdout Germany, the European Union’s biggest economy and a heavy investor in China, is starting to question its business-first ethos.

China is fighting back. It’s strengthening ties with Russia, offering up a peace plan for Ukraine and pushing the message that governments can be “democracies” even if they deny their citizens the right to vote freely for their leaders.

“We are at a heightened moment — between the war in Ukraine, China’s alignment with Russia, and continued economic tremors — and the stakes for international leadership are fraught,” said Stephen Feldstein, who served as U.S. President Barack Obama’s deputy assistant secretary of State for democracy, human rights and labor, and who regularly advises current administration officials on those issues.

Europe is listening.

Listening perhaps. Just not acting. Consider:

Point to Europe’s distancing itself from China on that graph. That’s a trick question. They aren’t.

Just as is the case in supplying Ukraine with arms our European cousins talk a good fight but they’re completely willing to let the United States carry the weight and Uncle Sugar is dumb enough to do it.

Actually I expect the Germans to sour on trade with China. China ran a trade surplus with Germany last year for the first time since 2009 and that doesn’t fit in with Germany’s trade policy. Both China and Germany depending on running trade surpluses with just about everybody in the world including each other is a formula for collision. I don’t think there’s an off ramp for Germany but we’ll see.



One of the sad things about priorities is that all of the things you value can’t be your #1 priority. Just to take one notable example, I think that U. S. national security has a higher priority to us than Ukrainian sovereignty does.

Having too many priorities is a particular problem for the Federal Reserve. By statute it has multiple priorities: maximum employment, stable prices, moderate long-term interest rates, and a sound banking system. Today the editors of the Wall Street Journal claim that Silicon Valley Bank’s weaknesses were allowed to undermine the bank’s solvency by a Federal Reserve Bank that had priorities other than their statutory ones:

The San Francisco Fed is responsible for regulating banks in the Western U.S., and one of those was Silicon Valley Bank (SVB) that failed two weeks ago.

The problems at midsize banks appear most acute in the SF Fed district. See failed Silvergate Bank, and First Republic and PacWest Bancorp, which have scrambled to raise cash. What did the Fed’s examiners miss, and why?

Judging by her public presentations, San Francisco Fed President Mary Daly has been focused more on the progressive priorities of climate change and equity. In June 2021, she touted the regional Fed’s work cataloguing climate risks, including “formal surveys, listening sessions, and targeted meetings with CEOs to better understand how climate risk affects decision making and resiliency planning.” She added: “Consistent with our history, we have assembled a team to study how these issues are likely to impact the Federal Reserve’s mandates in the future.”

Climate change “including the frequency and magnitude of severe weather events—affects each of our three core roles,” the bank’s website says. For instance, climate change may “challenge the resiliency” of banks and “low-and moderate-income communities and communities of color.” What about the resiliency of banks to runs on deposits or rising interest rates?

A San Francisco Fed memo last October noted that its “Supervision + Credit (S+C) group” has been working with Federal Reserve Board Vice Chair for Supervision Michael Barr to “inform his agenda and priorities”—namely, financial risks to banks from climate change, cryptocurrency, financial fairness and the Community Reinvestment Act. None of these contributed to SVB’s failure.

SVB was required under the Dodd-Frank Act to conduct quarterly stress tests to ensure it could withstand financial shocks and other adverse events. It’s not clear if the bank evaluated a scenario in which rapidly rising interest rates led to an outflow of deposits and losses on sales of fixed-income assets, but it should have.

The San Francisco Fed’s job is to ensure that banks model economic and financial scenarios that could materially impact its balance sheet. News reports say examiners flagged problems at SVB as early as 2019 in its risk controls and uncovered more last summer. But why didn’t they take corrective actions—for instance, by limiting the bank’s ability to grow?

Perhaps because SVB was fulfilling the SF Fed’s social and climate agenda. SVB noted in its 2022 annual investor report that it received its first “outstanding” rating from examiners on its Community Reinvestment Act plan, which included billions of dollars for low-income housing and initiatives to promote “a green economy and green communities that build wealth in communities of color.”

I have no ability to evaluate that claim.

I think that the Federal Reserve has a broader problem. Note what’s not in its list of priorities: running the economy and minimizing unemployment. Which of the Fed’s statutory priorities have they managed successfully? I would argue none of them. This

does not look like they’re maximizing employment. This

does not look like they’re maintaining stable prices. This

doesn’t look like they’re maintaining moderate interest rates. It looks like they kept interest rates too low too long.

Whether they’re maintaining a stable banking system is what’s being tested now but it doesn’t look to me as though the Fed has succeeded in anything it’s supposed to do.



This report by Aaron Zitner in the Wall Street Journal has some resonance with things I’ve been saying around here recently:

Patriotism, religious faith, having children and other priorities that helped define the national character for generations are receding in importance to Americans, a new Wall Street Journal-NORC poll finds.

The survey, conducted with NORC at the University of Chicago, a nonpartisan research organization, also finds the country sharply divided by political party over social trends such as the push for racial diversity in businesses and the use of gender-neutral pronouns.

Some 38% of respondents said patriotism was very important to them, and 39% said religion was very important. That was down sharply from when the Journal first asked the question in 1998, when 70% deemed patriotism to be very important, and 62% said so of religion.

The share of Americans who say that having children, involvement in their community and hard work are very important values has also fallen. Tolerance for others, deemed very important by 80% of Americans as recently as four years ago, has fallen to 58% since then.

and this is disheartening:

The share of Americans who say that having children, involvement in their community and hard work are very important values has also fallen. Tolerance for others, deemed very important by 80% of Americans as recently as four years ago, has fallen to 58% since then.

As you might expect there’s some difference between the priorities of Millennials and Baby Boomers or Silent Generation but the decline in importance of those traditional values was observed among all cohorts.

Much of the rest of the report is devoted to searching, largely in vain, for an explanation for the dramatic change. I’ve already provided my explanation.



Coming up with anything to post about has been a challenge lately. The reasons are various including some of the things people are talking about incessantly are of little interest to me, on some I’ve commented to death, and on many we’re waiting for new developments and holding our collective breath. Life isn’t like television or the movies and some things just don’t resolve themselves over the course of an hour or two.

I see a common thread running through many of these stories: denial. I mean it in the clinical sense of avoiding uncomfortable truths by denying reality.

Our political parties are greatly polarized—more polarized than at any previous time in my lifetime. They are polarized to the point that each party reflexively rejects what the other party wants, frequently just because that’s what the other party wants.

It’s bad enough when one of our political parties is in denial but both of our political parties seem to avoiding uncomfortable truths.

Take the whole kerfuffle over Donald Trump’s indictment. Will he or won’t he? Should he or shouldn’t he? I maintain the view I have held for some time: that President Trump should be prosecuted to the full extent of the law but those to whom that is a critical matter of saving the republic will be disappointed that extent isn’t particularly far. Furthermore, there is a strong element of battlespace preparation in the whole matter.

One of our political parties is in denial that there’s anything at all to prosecute over; the other is in denial that their primary interest is battlespace preparation.

While I understand the appeal that Donald Trump had for some I didn’t agree with it. I agree even less with maintaining loyalty to him at this point. It’s hard for me to imagine something more discouraging than a rerun of the 2020 presidential election.

There is similar denial about the war in Ukraine, what may or may not be an incipient banking crisis, the grave differences of opinion being called “the culture wars”, the U. S.’s relationship with China, and a h0ost of other issues. It’s not that they’re not important, it’s that they won’t be resolved in a way to satisfy the 24/7 news cycle and the realities of all of them are uncomfortable.


Dispatches From the Front

You might find this first-hand account of the collapse of Silicon Valley Bank interesting. Darius Rafieyan and Mattathias Schwartz report at Business Inside:

Over the last two weeks, Insider has conducted a series of interviews with an employee of Silicon Valley Bank who gave a firsthand account of the bank’s March 10 implosion as experienced by rank-and-file staff. Their identity is known to Insider, which agreed to kee

Here’s a snippet:

The weekend after the FDIC takeover was crazy. Originally there was a list of 13 VC firms, which said they were willing to sign a statement saying that they supported us. We needed to grow that number. We spent a whole weekend on the phone, email, chat, any sort of way to get in touch with the VC firms, partners of the VC firms, operating partners, CFOs, anybody we could to try and get them to rally. I think the number is at 630 supporters as of today. It’s been amazing to see the VCs themselves rally and create this awareness. Many folks had our back from the beginning. Once they knew their money was safe again, other folks changed their tune.

I wouldn’t even say that they were rallying for SVB. It was for an institution like SVB to exist, for the sake of the innovation economy. Our goal that first weekend was to get as many clients as we could on board. Because if they’re on board for support, that will help send a signal to the Fed or the FDIC to step in in some capacity. And they did — it worked. On Sunday, when the Fed said, “We’ll make depositors whole,” that was a huge sigh of relief for VCs trying to make payroll. We’d had so many clients tell us that they might have to shut down or cover payroll by borrowing with a personal guarantee.


Their Brains Are Different

A study by some German researchers has found empirical support for the Sapir-Whorf hypothesis: Anna Demming reports at Live Science:

A person’s native language may shape how their brain builds connections between different hubs of information processing, a new brain scan study reveals.

The observed differences in these language network structures were related to linguistic characteristics in the native languages of the study participants: German and Arabic.

“So the difference we find there shouldn’t be due to different ethnic background but really because of the language we [they] speak,” Alfred Anwander(opens in new tab), a researcher at the Max Planck Institute for Human Cognitive and Brain Sciences in Germany who led the study, told Live Science. The research was published online in February in the journal NeuroImage(opens in new tab).


Discussing the paper at a seminar(opens in new tab), Patrick Friedrich(opens in new tab), a researcher at the Institute for Neuroscience and Medicine at Forschungszentrum Jülich in Germany who was not involved in the study, noted that the brain’s language network is understood to be “more or less universal among participants of different native languages.” Yet, scientists have observed differences in how the brain processes second languages.

“I thought this study was really interesting because it shows for the first time a structural difference depending on the native experience,” rather than languages learned later, Friedrich said.

The “Sapir-Whorf hypothesis” also known as “linguistic relativity” is the idea that language influences the speaker’s worldview and thinking. I don’t believe in the strong version of that theory which is that the language you speak dictates the concepts you can understand. I do believe in the weak version which is that language affects what and how you think.

None of this should be particularly surprising. Like a muscle the brain develops in specific ways when exercised and different languages place different requirements on the speaker. This study is interesting in that it focuses on the “mother tongue”, i.e. the first language you learn to speak. Clearly, more study is needed but but it certainly provides some food for thought.


And Now For Something Completely Different

In the Wall Street Journal Aylin Woodward reports on a study at MIT to determine the best way to twist an Oreo:

“I’ve always been annoyed that I have to twist them apart and then push creme from one side onto the other,” said Crystal Owens, a Ph.D. candidate in MIT’s mechanical engineering department.

She led a group of researchers on a quest to figure out if there was a trick to getting the creme to glom onto both halves.

Usually, Ms. Owens studies materials that could be used as ink for 3-D printing, squishing them between two counter-rotating metal plates in a device known as a rheometer to study how the fluids deform and respond to torsion, or twisting forces.

She and her colleagues determined that the creme stays on one half or the other 80% of the time. Speed, direction, or technique don’t seem to make a difference. Their hypothesis is that the creamy center is stronger than it is sticky. Nabisco expressed delight in the study, favoring “data-informed creativity”.

No report on what happened to the cookies that were used in testing. By my count 28 family-sized bags of Oreos were used.

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