Those Stubborn Facts: Is the European Union Really Standing with Ukraine?

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energy, European Union, military aid, natural gas, oil, Russia, Those Stiubborn Facts, Ukraine invasion, Ukraine-Russia war

Amount of European Union payments to Russia for

energy supplies since it invaded Ukraine: $38

billion

 

Amount of European Union aid to Ukraine to help

it resist the Russian invasion: $1.09 billion

 

(Source: “The EU is paying 35 times as much for Russian fuel as it’s given Ukraine for defense, chief diplomat says,” by Sinead Baker, Business Insider India, April 6, 2022, https://www.businessinsider.in/politics/world/news/the-eu-is-paying-35-times-as-much-for-russian-fuel-as-its-given-ukraine-for-defense-chief-diplomat-says/articleshow/90686530.cms)

Our So-Called Foreign Policy: The Ukraine War is Creating Entirely New Nuclear Strategy Risks

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Biden, biological weapons, chemical weapons, deterrence, NATO, North Atlantic treaty Organization, nuclear war, nuclear weapons, Our So-Called Foreign Policy, red line, Russia, Ukraine, Ukraine invasion, Ukraine-Russia war, Vladimir Putin

The increasingly blustery way leading American politicians and chattering class members (mainly conservatives) have been talking about nuclear weapons and the Ukraine war is getting scary enough for me, and should be for you. (See, e.g., here.) Unless it’s OK that a major American city (or ten) may wind up looking like besieged and decimated Mariupol because playing chicken more boldly (but so far mainly verbally) with Moscow pushes above zero the odds of them getting hit by Russian warheads?

But something that worries me even more about these cataclysmic possibilities: For two main sets of reasons, the war could well create possibilities for nuclear weapons use that differ markedly from the scenarios that have dominated American planning for decades – and all the evidence indicates still dominates it today.

The first entails both Vladimir Putin’s invasion of Ukraine itself and the Russian dictator’s apparent decision to react to Ukraine’s stunning success to date in fighting back by raining maximum destruction on that country’s population. The second entails expansion of the North Atlantic Treaty Organization’s (NATO) membership right up to Russia’s borders after the Cold War ended and the old Soviet Union’s satellites became truly independent states and sought to join.

Simply put, the longstanding and existing scenarios have gone something like this: The Soviet Union (and now Russia) thinks about invading a NATO member (almost always the former West Germany) with its vastly superior conventional forces, but is deterred paradoxically by the very weakness of NATO’s conventional forces. The likelihood of these NATO forces getting overwhelmed and destroyed (along with all the NATO civilian personnel located nearby), would supposedly leave an American President no choice but to try to repel the attackers with nuclear weapons. The prospect that this escalation would turn into an all-out, world-destroying conflagration would be enough to prevent Moscow from attacking in the first place.

Today, however, the situation and possible nuclear scenarios are vastly different. After all, Putin has invaded not a NATO member – that is, a country whose security has been guaranteed by the alliance – but a country that hasn’t been permitted to join NATO. On the one hand, that’s comforting (except for the Ukrainians) because President Biden and other NATO leaders have ruled out the idea of direct military intervention in the conflict – precisely for fear that Russia could respond by attacking NATO units in Ukraine with nukes, or by attacking NATO forces and bases in members bordering Ukraine, or elsewhere in NATO-Europe, or even by striking the United States.

On the other hand, the very fact of heavy fighting in a country right next door to NATO members raises the possibility of the conflict spreading into those countries. This spillover could occur either by accident, or because Putin decides to attack the alliance’s extensive efforts to supply Ukraine. In turn, either such Russian operations could kill or wound NATO personnel who might be accompanying the weapons and other aid shipments as they travel through Ukraine, or Putin could decide to take out the facilities in Poland and other NATO countries from which these supplies are being sent into the war zone.

And don’t forget the spillover possibilities even from Russian attacks on Ukrainian forces inside Ukraine. Because Ukrainian resistance has been so effective (an outcome that so far was not only totally unexpected to the U.S. national security apparatus, but that contrasts strikingly with the longstanding assumption of Russian conventional military superiority that still underlies the alliance’s deterrence strategy), Moscow might need chemical or biological or nuclear weapons to regain the initiative. If these threshholds are crossed, the effects could, as noted here, easily blow beyond Ukraine’s borders and into NATO territory. And if NATO territory is affected, wouldn’t that qualify as an attack on a NATO member, or members, that would activate the alliance’s Article Five obligation that members view such a development as “an attack on all” – the core of the NATO treaty and the ultimate key to whatever deterrence power it’s assumed to have created?

Much more than the violations of international agreements that would result from these Russian moves, that’s why Mr. Biden and other NATO leaders have been warning Putin about “red lines” that he mustn’t cross by using these weapons of mass destruction. Yet the vague terms NATO has used to describe its promised responses so far make clear that alliance leaders haven’t yet decided how they actually would respond, and how to convey that message convincingly to Moscow. And yes, a Russian cyber-attack on a NATO member would trigger the same kinds of questions, uncertainties, and outright dangers.

As I’ve written repeatedly (notably here), the U.S. military doctrine that resulted and still prevails never deserved high marks for prudence, common sense, or even the basic test of a healthy sense of self-preservation. So it’s not like there’s a compelling case that Washington’s strategists today will come up with anything more sensible to handle these radically different challenges. And that’s all the more reason to try to put much more energy into stopping the fighting ASAP by cutting a deal that will surely fail to satisfy either Ukraine or Russia, but that ends, at least for the time being, the kind of reckless nuclear weapons talk that could all too easily lead to catastrophic nuclear weapons use – even if neither the United States nor its allies are actually attacked.     

Following Up: A Learning Curve on Ukraine Polling

Tags

CBS News, No-Fly Zone, nuclear war, Our So-Called Foreign Policy, Pew Research Center, polls, public opinion, Quinnipiac University poll, Reuters/Ipsos, Russia, The Wall Street Journal, Ukraine, Ukraine invasion, Ukraine-Russia war, YouGovAmerica

We’re getting some clarity from the – always imperfect – polls on whether Americans support direct U.S. military involvement in the Ukraine war, and the news is mostly good. Specifically, strong majorities currently reject “boots on the ground” and even the more limited no-fly-zone proposal for fear of risking nuclear war with Russia.

In other words, we know more than we did a little more than a week ago, when the Reuters news organization and the Ipsos polling concern asked respondents their views on the no fly zone, but didn’t mention the nuclear war thing in their question. That’s about as smart as asking someone whether they’d take medicine A to cure disease B without mentioning that medicine A could cause an even worse disease C.

Even weirder, the Reuters article describing the survey’s results actually pointed out this crucial omission. Just for the record, though, Reuters and Ipsos weren’t the only examples of polls completely ignoring vital context, as this YouGoveAmerica post makes clear.

But it seems that pollsters are displaying a learning curve – even in the foreign policy field in which, as the above linked RealityChek post shows, they’ve been especially clueless.

For instance, the YouGovAmerica outfit followed up its first ditzy survey on the No Fly Zone with another that – unlike its initial soundings – defined the idea (without naming it) rather than asking if people support it “without a definition.” What a concept! And once respondents were presented with the fact that American pilots shooting at Russian military planes, support fell support fell substantially.

A similar YouGov exercise for CBS News yielded much more opposition to the No Fly Zone. When it was simply mentioned by name, it enjoyed 59 percent to 41 percent backing. When respondents were told this would mean “U.S. forces might have to engage Russian aircraft, and be considered an act of war by Russia,” the results more than flipped. Sixty two percent opposed the idea and only 38 percent favored it.

Earlier this week, the Pew Research Center found that Americans opposed the United States “taking military action” in Ukraine “if it risks a nuclear conflict with Russia” by 62 percent to 35 percent – a margin much wider than that in the YouGovAmerica poll.

Also this week, the polling center at Quinnipiac (Conn.) University mentioned that a No Fly Zone “would lead NATO countries into a war with Russia.” Opponents prevailed over supporters by 54 percent to 32 percent.

Interestingly, much more public caution was displayed concerning the question of whether the United States “should do whatever it can to help Ukraine, even if it means risking a direct war between the U.S. and Russia” or “do whatever it can to help Ukraine, without risking “such a direct war. The don’t-risk-war option won out by 75 percent to 17 percent.

I’ve found less information on an early March Wall Street Journal poll (including on the phrasing of the questions), but it, too, revealed meager support for direct U.S. military involvement in Ukraine. Only 29 percent of respondents backed the N0 Fly Zone, and only ten percent would “send U.S. troops” to the country.

So why did I say at the outset that the polling news was only “mostly good”? Because in my view, the shares of Americans reportedly willing to risk nuclear war over Ukraine are still alarmingly high – in the 30s and 40s percents, except for the Wall Street Journal poll. It makes me wonder whether the mere mention of nuclear war is enough to show the full potential magnitude of these positions. Maybe respondents should have to watch, for example, this movie, too.

(What’s Left of) Our Economy: At Least Pre-Ukraine, U.S. Manufacturing’s Solid Growth Continued

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aerospace, aircraft, aircraft parts, automotive, Boeing, CCP Virus, coronavirus, COVID 19, Federal Reserve, interest rates, lockdowns, mandates, manufacturing, manufacturing production, medical devices, monetary policy, pharmaceuticals, real output, semiconductor shortage, semiconductors, Ukraine, Ukraine invasion, Ukraine-Russia war, {What's Left of) Our Economy

This morning’s Federal Reserve report on U.S. domestic manufacturing production (for February) was especially interesting for three reasons. First, it showed that the output of America-based factories rose month-on-month in inflation-adjusted terms by 1.20 percent. That was the best such performance since October’s 1.71 percent, and although it covers the period just before whatever Ukraine war-related disruption is going to hit the U.S. economy, it also contrasts with most (sluggish) estimates of overall American growth for the first quarter of this year. Manufacturing production revisions, moreover, were only slightly negative.

Second, since February, 2020 was the final data month before the CCP Virus and related lockdowns and voluntary behavioral changes started roiling and distorting the economy, it’s noteworthy that exactly two data years later, manufacturing output has grown by a real 3.37 percent. (As of last month’s Fed release, this figure was 2.49 percent.)

Third, these results hardly mean that domestic industry is in top shape, at least not historically speaking. For in inflation-adjusted production terms, it’s still 3.88 percent smaller than at its all-time peak – reached in December, 2007, just before the economy plunged into the Great Recession prompted by the global financial crisis.

February’s biggest monthly manufacturing production winners were:

>non-metallic mineral products, whose 3.46 percent monthly real expansion was its best since the 4.34 percent achieved in June, 2020 – during the rapid economy-wide recovery from the first wave of the virus and resulting activity curbs and dropoffs. This latest sequential increase brought output in the sector to 4.36 above its February, 2020 levels;

>the broad aerospace and miscellaneous transportation equipment industry, which increased after-inflation output in February by 3.22 percent. That rise was its best since July, 2021’s 4.21 percent, and the sector is now fully 16.90 percent bigger production-wise than in February. 2020;

>the small apparel and leather goods industries, which improved its constant dollar output on month by 2.96 percent, for its best sequential gain since January, 2021’s 3.31 percent. This industry’s production – which shrank greatly for decades due to low-cost foreign competition – is now up by just 1.85 percent since February. 2020; and

>wood products, where price-adjusted output expanded sequentially by 2.58 percent – the most since March, 2021’s 4.05 percent. In real terms, wood products production is now 6.28 percent greater than in February, 2020.

RealityChek regulars know that the broad machinery sector is a key barometer of national economic health generally speaking, since its products are used by so many manufacturing and non-manufacturing industries. So it’s good news that its sequential inflation-adjusted output advanced by a solid 0.78 percent in February, and even better news that January’s results were revised up from 1.08 percent to 1.83 percent – its best such perfomance since July. The machinery industry’s real output is now a strong 7.62 percent greater than in Febuary, 2020.

Of all the biggest manufacturing sub-sectors tracked by the Fed, only two suffered after-inflation monthly downturns in February:

>The automotive industry continued suffering from the global semiconductor shortage, with its constant dollar output sinking by 3.55 percent sequentially in February – its worst monthly performance since September, 2021’s 6.32 percent plunge. Price-adjusted production of vehicles and parts is now fully 10.68 below Febuary, 2020’s levels; and

>miscellaneous non-durable goods. Its real month-on-month output dipped by 0.36 percent in February, but since February, 2020, it’s off by 16.00 percent.

Industries that consistently have made headlines during the pandemic generally enjoyed February’s at least as strong as manufacturing overall.

Likely stemming from the widening flow of long overdue news from industry giant Boeing (see, e.g., here), aircraft- and parts-makers grew their after-inflation output in Febuary by 2.52 percent over Jauuary’s figure – their strongest such showing since August’s 3.44 percent. That January figure was revised down from 1.37 percent sequential growth to a still impressive 1.21 percent, and December’s upgraded 0.38 percent monthly dip is now judged to be a 0.62 percent decline. But after-inflation output for these companies is now up 16.35 percent since February, 2020 – up from the 13.14 percent calculable from last month’s Fed report.

The combination of a solid February and negative revisions also marked the big pharmaceuticals and medicines sector. February’s 1.08 percent price-adjusted monthly output gain was the industry’s best since August’s 2.39 percent. But January’s initially reported 0.27 percent sequential uptick is now pegged as a 0.14 percent decrease, and December’s upwardly revised 0.81 percent rise is now judged to be a 0.10 percent drop. Even so, total real pharmaceutical and medicines production is 14.91 percent higher than in February, 2020 – up from the 13.42 percent calculable last month.

Much better February results were turned in by the medical equipment and supplies sector. Monthly production improved by 1.39 percent – the best such result since the 10.78 percent reported in July, 2020, early during the recovery from the first pandemic wave.

And revisions were positively eye-popping. January’s initially reported 2.50 percent monthly real output rise is now judged to have been 3.26 percent, and December’s first estimate of a 2.75 percent after-inflation fall-off is now estimated at just a 0.37 percent decline. All told, this grouping is now 8.44 percent bigger real growth-wise than in February, 2020 – as opposed to the 4.43 percent increase calculable last month.

Those semiconductors in such short supply were more abundant after February’s price-adjusted sequential production increase of 1.96 percent that was the best such performance since May’s 2.61 percent growth. January’s previously reported fractional decline is now pegged at a 0.37 percent decrease, but December’s 0.52 percent rise is now estimated at 0.88 percent. Consequently, these industries’ real output is now up 21.97 percent since February, 2020, as opposed to the 20.66 percent calculable last month.

The economic fall-out of the Ukraine war won’t start being reflected in the Fed manufacturing production reports until next month, but it looks virtually certain that it will either keep inflation (and therefore manufacturers’ input costs) high or push it higher. A bigger wild card could be the Fed itself. The central bank yesterday did keep its quasi-promise to start increasing the federal funds rate, but the hike was only 0.25 percent. And though more increases supposedly are scheduled, they’re far from certain if overall growth weakens markedly (as the Fed itself has forecast). New, more dangerous CCP Virus variants can always emerge. But national rates of vaccination and natural immunity seem high enough – and the public fed up enough with restrictive mandates – to keep supporting growth all else equal for the foreseeable future.

So unless the fortunes of manufacturing and the broader economy diverge sharply, it looks like domestic industry’s steady-for-the-most-part expansion since the depths of spring, 2020 will remain on course.

(What’s Left of) Our Economy: Americans’ Real Wages Keep Sinking

Tags

CCP Virus, China, consumer price index, coronavirus, cost of living, COVID 19, CPI, energy, food, inflation, inflation-adjusted wages, living costs, lockdowns, private sector, real wages, Russia, sanctions, supply chains, Ukraine, Ukraine invasion, Ukraine-Russia war, wages, Wuhan virus, zero covid policy, {What's Left of) Our Economy

Last Thursday’s news coverage of U.S. inflation rates (as measured by the Labor Department’s Consumer Price Index, or CPI) rightly emphasized that the February headline figure hit its highest annual rate in 40 years. What such reports seem to have missed is something at least as important, especially for understanding why the American public seems so angry about these price hikes despite lots of other strong economic indicators.

Specifically, the same day the Labor Department released the new CPI numbers, it also posted data showing that after adjusting for inflation, wages for many major categories of U.S. workers saw their greatest drops in several months and in some cases longer than that. And much of the news was especially bad in manufacturing.

To start with the broadest grouping, in February, hourly pay for the average private sector worker fell on month by 0.80 percent, the worst such performance since the 1.72 percent decrease in June, 2020, early during the recovery from the CCP Virus’ first wave. (As known by RealityChek regulars, the Labor Department doesn’t track wages for government workers because those pay levels are mainly set by politicians’ decisions, and therefore say little about the fundamental state of the nation’s labor market or broader economy.)

For private sector production and nonsupervisory workers (who are often called blue-collar workers), the 0.86 real wage decline they experienced was also the worst since June, 2020 (1.30 percent).

On an annual basis, after-inflation wages in February sank for all private sector workers by 2.63 percent – the fastest pace since last May’s 2.67 percent. And for the blue-collar subset, they’re off by 1.93 percent – also the most since last May (2.69 percent).

Throughout manufacturing, these inflation-adjusted wages took major hits, too. For all workers in the sector, such pay dropped by 1.29 percent between January and February – the biggest falloff since May, 2020’s 1.76 percent. For industry’s blue-collar employees, they tumbled by 0.57 percent – the steepest since June, 2020’s 1.31 percent.

Much worse for manufacturing wages were the February year-on-year results. For manufacturing as a whole, they were down in after-inflation terms by 3.43 percent – the greatest decline since April, 2021’s 3.85 percent.

But the real stunner came for the production and nonsupervisory group. The 3.41 percent annual retreat in their real wages was the worst in more than 41 years – going back to July, 1980’s 3.90 percent.

And especially discouraging – with further price hikes in energy (and all the products and services that depend on it) and food seemingly certain because Russia’s invasion of Ukraine has disrupted global markets and supply chains anew, inflation-adjusted wages also seem likely to keep falling. The news that China has just locked down two big industrial cities in an attempt to fight a CCP Virus surge with its Zero Covid policy won’t help, either.

It’s true, as President Biden and his supporters keep noting, that growth is still strong, and that unemployment is way down.  But the former understandably can seem abstract, and high inflation means that even recent job gainers can’t be faulted for feeling that they’re falling behind economically despite paychecks resuming.  

 

Im-Politic: Major U.S. Ukraine Policy Puzzles on the Home Front Remain Unsolved

Tags

Biden, Democrats, gasoline, Iran, Iran deal, Iran nuclear deal, JCPOA, oil, oil prices, Our So-Called Foreign Policy, rural areas, Russia, sanctions, taxes, Ukraine, Ukraine invasion, Ukraine-Russia war, Vladimir Putin

Maybe you readers can help me out here, because I am really confused about what President Biden and other Democrats are saying about the biggest political and ethical issues surrounding his Ukraine war-related decision to ban oil imports from Russia and its likely effect on gasoline prices.

On the one hand, Mr. Biden and his party have portayed the higher oil prices as a sacrifice that Americans should be proud to pay in order to support Ukraine’s unexpectedly stout resistance to the Russian invasion, and one that the nation will agree to pay.

On the other hand, these Democrats have taken to blaming the higher pump prices on the Russian aggression itself, to the point of pushing the social media hashtag #PutinPriceHike.

Unquestionably, the Russian dictator’s decisions are ultimately responsible for the recent shake up in the global oil market that’s driven up prices for oil and all its derivatives (like gasoline) the world over. But now that he’s taken these steps, it seems that some fundamental consistency should be displayed in the Democrats’ case for the response they favor. For example, they could tell the public something like, “Yes, our response to the Russian attack will raise the price of oil. But higher pump prices are a sacrifice we should be proud to make for the cause of global security and freedom.” Why haven’t they?

Something else noteworthy about the stance of the President and his party. The effect of higher oil prices is the epitome of a regressive tax. In other words, because Americans at all income levels will face the same percentage increase when they pump gasoline (and when they heat their homes, if they rely on oil). So the bite on household budgets is deepest for the poorest and shallowest for the richest of us.

Higher oil prices will also surely kneecap any Democratic hopes of improving their political performance in rural America. After all, residents of the nation’s small towns and farming areas use much oil for transportation than their urban counterparts. So do the enormous number of voters in the suburbs, who played such a big role in Mr. Biden’s victory in 2020.

And let’s not forget an mammoth irony about higher U.S. and world prices for oil – as well as natural gas, another major Russian export. As has been widely observed, without steps that dramatically reduce the volume of Russian sales  globally, the more importers pay per barrel, the more revenue flows into Vladimir Putin’s treasury – and war machine. The same goes for Saudi Arabia and Venezuela, along with Iran if the President succeeds in his apparent aim of negotiating a deal aimed at preventing Tehran from building a nuclear weapon in part by lifting economic sanctions on its economy.

Whatever you think of President Biden’s approach to the Ukraine war, it should be clear that it can’t succeed for any length of time until firm support on the home front is secured. These unsolved puzzles and outright contradictions make clear how far his administration remains from achieving that essential goal. 

(What’s Left of) Our Economy: #PutinPriceHike? Not Even Close – Yet

Tags

baseline effect, Biden administration, CCP Virus, coronvirus, COVID 19, energy, fossil fuels, gasoline, inflation, lockdowns, oil, Putin, sanctions, stay-at-home, Ukraine invasion, Ukraine-Russia war, Wuhan virus, {What's Left of) Our Economy

According to the Biden administration, it’s the #PutinPriceHike. That is, don’t blame anything Washington has or hasn’t done for the the bulk of the high gasoline prices Americans have been paying lately. Instead, blame Russian dictator Vladimir Putin, his aggression against Ukraine, and the global oil market turmoil it’s triggered.

The trouble is, if you look at these prices in a comprehensive, statistically legitimate way, scapegoating Putin in this case isn’t justified yet. But the same methodology shows that Mr. Biden and his aides are off the hook, too – at least until recently.

Critics (see, e.g., here) have countered the Biden claims by noting that strong U.S. gasoline inflation predates the Ukraine war and even Russian military buildup by many months, and they’re right. As known by RealityChek readers, however, that’s far from the whole story. In particular, they’re ignoring the impact on gasoline and other prices of the ongoing aftermath of the CCP Virus pandemic, the brief but sharp recession created by the disease and related lockdowns and voluntary behavioral changes, and ongoing stop-start U.S. economy that’s still resulting.

In other words, they’re ignoring the “baseline effect” caused by the economic shocks of the 2020 pandemic year in particular. These drove economic activity down to such low levels, and kept it there so long, that any major return to normal (and therefore normal prices) is going to produce unusually lofty inflation stemming from a catch-up effect. Therefore, it won’t be possible to determine the role of other contributors to inflation in gasoline or any other goods and services until this baseline effect fades significantly and finally disappears. And therefore, scapegoating Biden for soaring gasoline prices pre-Ukraine buildup isn’t justified, either.

RealityChek reported yesterday that the latest official U.S. figures show that the baseline effect has ended for headline inflation, and looks on the way out for core inflation (which strips out food and energy price. And roughly the same is true for gasoline prices.

The table below shows their monthly year-on-year percentage changes for last year (2020-21) in the middle column and for pandemic-dominated 2019-2020 (in the righthand colum). The numbers begin in March because March, 2020 was the first month in which the virus began significantly affecting the economy.

Gasoline price annual percentage changes      2020-21             2019-20

March:                                                               22.58                 -10.05

April:                                                                 49.68                 -32.03

May:                                                                  56.51                 -33.67

June:                                                                  45.42                 -23.41

July:                                                                   41.93                -20.12

Aug.:                                                                  42.76                -16.67

Sept.:                                                                  41.93                -15.43

Oct.:                                                                   49.52                -18.15

As is evident, starting in March, 2020, gasoline prices began nosediving from their levels of 2019, and steep annual drops continued (though at a slower pace) through October. It’s easy to understand why. The combination of lockdowns and stay-at-home behavior caused automotive travel to crater, and national demand for gasoline naturally plummeted as well. Further, that’s clearly a big part of the reason why during the following March-October period, gasoline prices prices skyrocketed on the same annual basis. They were returning to normal from an artificially low base. And as a result, it’s wrong to blame the Biden administration exclusively or even mainly for this hot gasoline inflation.

From that point, however, the Blame Biden case gets stronger. The above table stops in October, 2021 because November was when the Putin military buildup began – and according to the Biden argument, gasoline prices really began taking off. What happened to annual gasoline prices increases from then until the end of  2021, and how strong was the baseline effect? Here are the numbers for November and December, with the 2020-21 annual increases in the middle column and the 2019-20 increases in the righthand column:

Gasoline price annual percentage changes      2020-21             2019-20

Nov.:                                                                  57.76                 -19.53

Dec.:                                                                  49.34                 -15.34

The strong 2020-21 yearly price increases continued for these two months. But the baseline effect (from the big 2019-20 price drops) weakened. In fact, the December, 2019-20 annual 15.34 percent annual gasoline price decline was the smallest such figure since March, 2019-20’s 10.05 percent. And the annual increase for the following March (22.58 percent) was less than half December’s 49.34 percent.

What about this January and February? For these months, of course, the comparison years are 2021-22 (whose increases are presented in the middle column) and 2020-21 (in the right hand column).

Gasoline price annual percentage changes      2020-21             2019-20

Jan.:                                                                   40.02                  -8.90

Feb.:                                                                   38.01                   5.42

So the story for the first two months of this year – between the start of Putin’s buildup and the (late February) invasion – is that annual increases slowed, but the baseline effect vanished much faster. Indeed, between February, 2020 and February, 2021, gasoline prices actually rose. So the administration’s #PutinPriceHike claims hold much less water.

Blaming Putin will become more credible going forward, as sales of Russian oil worldwide are curbed by sanctions. Since the global oil market is so thoroughly integrated, U.S. oil supplies will be crimped and upward price pressures will strengthen. But this is also the point at which other major administration policies will rightly attract attention for their role in spurring torrid gasoline inflation. They include in particular measures and rhetoric that throughout the President’s term have convinced oil and other fossil fuel providers that their industries’ growth will keep facing ever greater policy obstacles, and whose cumulative effect has undercut their ability to ramp up output quickly to fill the Russia gap.(See, e.g., here and here.)

All of which means that, as is the almost always the case with major economic trends and developments, recent gasoline price inflation has many causes, not one. And they can change profoundly in their nature and respective importance with the kinds of changing circumstances that have shaken the global oil and U.S. energy policy landscapes since the CCP Virus pandemic began. Let’s all hope, therefore, that American leaders across the political spectrum begin spending more time developing effective responses to oil price inflation, and less on bombarding each other and the rest of us with facile talking points.

(What’s Left of) Our Economy: A Rough January for U.S. Trade

Tags

Advanced Technology Products, ATP, China, goods trade, Made in Washington trade deficit, manufacturing, non-oil goods deficit, Russia, services trade, tariffs, Trade, trade deficit, Ukraine, Ukraine invasion, Ukraine-Russia war, {What's Left of) Our Economy

As known by RealityChek readers, yesterday I decided to put off finishing my normal same-day report on the new official monthly U.S. trade figures in order to spotlight some critical (and oddly neglected) developments in the Ukraine war/crisis.

But the trade results (for January) are still worth examining in detail, even though (as always), they’re lagging indicators, and even though they of course pre-date all the likely disruption to the global economy and U.S. trade flows seemingly sure to stem from the Russian invasion of Ukraine and ensuing conflict.

Notably, the combined goods and services trade gap hit its second straight monthly record in January, rising 9.43 percent sequentially, to $89.69 billion. Moreover, the deterioration came on virtually all key fronts. And the December total was revised up by a big 1.52 percent, from $80.73 billion to $81.96 billion.

The January goods deficit increased, too and hit its third consecutive record. The increase was 6.99 percent, from an upwardly revised $101.75 billion to $108.86 billion.

Meanwhile, the longstanding U.S. surplus in services, which has been considerably depressed by a CCP Virus pandemic that’s hit this sector particularly hard the world over, sank by 4.40 percent, from $19.79 billion to $19.17 billion. The sequential decrease came to 3.13 percent, the decline was the first since August, and the downward revision of the initially reported December level was a huge 4.40 percent.

Total exports fell on month for the first time since September – by 1.73 percent, from an upwardly revised and all-time high of $228.35 billion to $224.40 billion.

Goods exports dipped, too, and also for the first time since September. The decline was 1.47 percent, from a downwardly revised $158.21 billion to $155.89 billion.

As for services exports, they sagged by 2.32 percent, from an upwardly revised $70.14 billion to $68.51 billion. This decline was the first since August.

Overall imports climbed by 1.04 percent, from an upwardly revised $310.30 billion to $314.09 billion, and they hit their sixth monthly record in a row.

Goods imports rose 1.84 percent, from an upwardly revised $259.96 billion to $264.75 billion, and achieved their fifth consecutive all-time high.

Services imports in January, however, decreased month-to-month for the second time in a row – which hasn’t happened since January and February, 2021. The fall-off was 2.01 percent, from an upwardly revised $50.35 billion to $49.34 billion. That latter total was the lowest since August, and the December revision was a substantial 2.38 percent.

As known by RealityChek regulars, non-oil goods trade is the vast portion of U.S. trade flows heavily affected by America’s trade deals and other trade policy decisions – hence my monicker “Made in Washington” trade. (Trade liberalization in services remains at an early stage globally, and oil is rarely on the table in national trade policy-making or diplomacy.)

The export-import gap in this category hit its third straight record in January, widening by 6.55 percent, from $100.56 billion to $107.15 billion.

Non-oil goods exports sank sequentially by 1.72 percent, from $138.38 billion to $136.00 billion, while imports set their fifth straight record. They increased by 1.76 percent, from $238.94 billion to $243.14 billion.

The nation’s oil trade gap soared on a relative basis in January – nearly quadrupling on a pre-inflation basis (the same gauge used for all the numbers in RealityChek trade reports unless specified otherwise). But the January total of $426 million was tiny in absolute terms.

The two big (but modest) exceptions to the January pattern of expanding trade shortfalls came in manufacturing and Advanced Technology Products (ATP).

The former’s chronic and mammoth trade deficit actually retreated for the second straight month in January. The decline was 1.32 percent – from December’s $122.65 billion to $121.03 billion. But the new total was still the third highest ever.

Manufacturing exports plunged by 7.80 percent on month in January, from $100.14 billion to a $92.33 billion level that was the lowest monthly total since August’s $97.13 billion.

Industry’s imports shrank by 4.23 percent in January, from a record $222.79 billion to $213.36 billion – the lowest since September’s $211.33 billion.

The decrease in the January ATP trade deficit was 1.77 percent, from $19.80 billion to $19.45 billion, and the drop was the second in a row – a first since last June and July.

ATP exports plummeted in January from a record $34.46 billion to $29.65 billion. That 13.96 percent drop was the biggest such figure since the 16.55 percent nosedive in January, 2020 – as the pandemic was raging through and locking down China. And the January figure was the lowest since August’s $29.49 billion.

ATP imports were off significantly, and from a record, too. The December-January swoon of 9.66 percent, from $54.36 billion to $49.11 billion, was the biggest since last February’s 13.09 percent, and brought these purchases to their lowest level since last August’s $45.56 billion.

The enormous U.S. goods deficit with China was up in January, but by just 0.61 percent sequentially, from $36.15 billion to $36.37 billion. The increase was much smaller than that for non-oil goods (the closest global proxy for U.S.-China trade) – and adds to the evidence (see most recently here) that the Trump China tariffs have helped rein in this trade gap. But the monthly level was the highest since December, 2018’s $36.60 billion.

U.S. goods exports to China, however, decreased in January for the third consecutive month – by 14.27 percent, from $13.38 billion to $11.47 billion. That drop, moreover – to the lowest level since last September’s $10.91 billion – illustrates again, how short the Trump Phase One trade deal with China keeps falling of its targets.

U.S. goods imports from China declined as well in January – by 3.41 percent, from $49.53 billion to $47.85 billion. That shrinkage was the first since last April, and brought the monthly total to its lowest level since September’s $47.41 billion.

Since, as noted, these January trade figures predate the invasion of Ukraine (as will February’s), future prospects are especially murky.  So the wisest course of action seems to be holding off on the prognostication and focusing on data as it comes out until some clarity emerges – at least until the next next global shock.   

Our So-Called Foreign Policy: NATO, Ukraine, and the Primrose Path

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Austria, Finland, Finlandization, John Mearsheimer, NATO, NATO expansion, neutrality, North Atlantic treaty Organization, Our So-Called Foreign Policy, Russia, Ukraine, Ukraine invasion, Ukraine-Russia war, Vladimir Putin

Lots of attention has focused lately (and rightly, IMO) on whether the expansion of the North Atlantic Treaty Organization’s (NATO) membership ranks smack up against the Russian border wound up needlessly provoking Russian countermoves that have culminated in the invasion of Ukraine. Generally neglected but also important is examining the conflict and its runup from another angle: whether the West’s post-Cold War policies wound up leading Ukraine’s recent leaders down a primrose path, creating both unrealistic expectations about the alliance’s commitment to that country’s defense, and therefore equally unrealistic expectations in Kyiv about the best options for living on acceptable terms with Russia.

This neglect is surprising, to say the least, because so much evidence for that proposition is available from sources that can’t sanely be dismissed as apologists for Russian dictator Vladimir Putin, or as head-in-the-sand isolationists. (The latter accusation has been leveled against, notably, political scientist John Mearsheimer – who made this argument at length here back in 2015.) In fact, some of the most compelling material supporting the primrose path case comes from NATO itself. Just look at this document posted by the alliance from last month. Here are some highlights:

>NATO has permitted Ukraine to “actively contribute” (that is, fight alongside NATO forces), in “peace-support operations in Bosnia and Herzegovina, NATO’s two missions in Afghanistan, namely the International Security Assistance Force (ISAF) and the Resolute Support Mission, the NATO Training Mission in Iraq and the maritime operations Active Endeavour and Ocean Shield. It currently supports NATO’s Kosovo Force (KFOR) and continues to provide information in support of NATO’s maritime situational awareness in and around the Black Sea [which also borders Russia].”

>In this vein, “NATO has increased its presence in the Black Sea and stepped up maritime cooperation with Ukraine and Georgia.”

>”Furthermore, Ukraine is building capacity and interoperability through participation in the NATO Response Force as well as through the participation in exercises such as NATO’s flagship annual collective cyber defence exercise ‘Cyber Coalition’”.

>”Given this longstanding support and significant contributions to its operations, NATO offered Ukraine in June 2020 the status as Enhanced Opportunity Partner (EOP). This status works as a facilitator, providing Ukraine preferential access to NATO’s interoperability toolbox, including exercises, training, exchange of information and situational awareness….”

>”NATO supports Ukraine in building capabilities and interoperability through dedicated working groups, such as the Joint Working Group on Defence Reform, programmes….”

>”NATO has significantly stepped up its practical assistance to Ukraine following the illegal and illegitimate annexation of Crimea by Russia.”

This rhetoric and these concrete measures, moreover, have come in the context of the alliance’s landmark declaration at its 2008 summit in Romania that, “NATO welcomes Ukraine’s and Georgia’s Euro-Atlantic aspirations for membership in NATO.  We agreed today that these countries will become members of NATO.”

So leaving aside how Putin might have interpreted these developments, it seems reasonable that they fueled Ukraine’s leaders’ refusal virtually up to the last pre-invasion minute to entertain seriously Moscow’s demand that it rethink joining NATO. (Indeed, in 2019, Ukraine enshrined this goal in its constitution.)

After all, not only did NATO endorse its bid. It was already treating Ukraine, and especially its military, as a member in numerous – and tangible – respects.

Ukraine’s leaders are of course ultimately responsible for their own decisions. And the country’s valiant (and so far seemingly pretty effective) resistance, along with the impact on Russia of western sanctions, may well wind up preserving its right to take whatever national security steps it wishes – including joining NATO.

But when I look at the fates of European countries that have been willing to accept limits on their sovereignty – namely Finlandized and prosperous Finland, and neutralized and prosperous Austria – and compare them with the death and destruction being suffered by Ukraine, I can’t help but wonder if the alliance should have actually focused on convincing Kyiv that discretion can be the better part of valor.

Our So-Called Foreign Policy: U.S. Ukraine Policy’s Choices are Anything but Obvious Morally

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debt, deficits, economic aid, guerilla war, military aid, Modern Monetary Theory, morality, national interests, nuclear war, Our So-Called Foreign Policy, public opinion, Russia, sanctions, sovereignty, Ukraine, Ukraine invasion, Ukraine-Russia war, vital interests

I’ve been so concerned about the Russian invasion of Ukraine (and the preceding expansion of the west’s North Atlantic Treaty Organization deep into Eastern Europe) boosting the risks of nuclear war that I haven’t had time to write about some important details that should be considered as Americans weigh a response, and that have influenced my own thinking. In one of my very first RealityChek posts, I actually presented many of these ideas, which concern the role of morality in U.S. foreign policy. But they’re worth reviewing to show how they relate to the momentous – and morally horrific – events of the last week.

Most important:  As a sovereign country, the United States has an inalienable right to respond to this or any other foreign challenge or opportunity however its political system wishes. It doesn’t need to answer to its NATO treaty allies. It doesn’t need to answer to the European Union, the United Nations, or any foreign government or group of governments. It certainly doesn’t need to answer to gauzier supposed realities like “the intenational community” or “global public opinion.” And it certainly does mean that the American political system has an equally inalienable and absolute right to define moral behavior.   

In other words, sovereignty means that the government in question gets the last word (assuming it can enforce its will), and the high degree of security and economic well-being enjoyed by the United States – by virtue of geography, rich resource endowments, economic strength, technological prowess and a host of other advantages – means that the U.S. government has tremendous latitude in choosing what that last word is.

As I’ve argued (e.g., here) joining the fighting would be a choice that’s not only foolish (because Ukraine’s fate has never been seen as vital by American leaders o the public even during the Cold War decades when it was under the Soviet thumb) but possibly suicidal (because it could result in a direct conflict with an enemy possessing a big nuclear arsenal, including weapons that can reach the entire U.S. homeland).

At the same time, if the American people – the ultimate decision-makers in the national political system – want to go to war over Ukraine, despite the risks, and if they make their decision clear through mass protests or any other means, their sovereignty would make that choice entirely legitimate – though IMO borderline insane given the completely marginal self-interest involved.

Thankfully, the public appears to recognize this whoppingly lopsided risk-reward ratio.  And we know this not just becaue  polls have consistently shown opposition to “boots on the ground.” (See, e.g., here and here, although the level of support reported in both were alarmingly high.) We also know it because U.S. leaders seem to understand this public opinion – as President Biden has emphatically ruled out this course, his administration has nixed a similar proposal of enforcing no-fly zones against Russian aircraft over Ukraine, and nearly all Members of Congress have shied away from these options, too.

But a host of lesser responses have also either begun or are being actively discussed as well.  They include providing more economic and military assistance to the Ukrainians both as they’re still putting up a fight, or after a Russian victory – when Moscow could well face a large-scale guerilla war – tightening the economic screws further on Vladimir Putin, his cronies, his entire regime, and his economy; and deploying more U.S. forces to the Eastern European members of NATO to reduce the odds that Putin will move against them.

I’m personally fine with any or all of them in principle – although I do wonder from a logistics standpoint how military supplies will be able to reach the Ukrainians once the Russians are guarding all the borders, and about what dangers could develop from convoys with such supplies approaching territory Moscow controls now or probably will in the coming days and weeks. I’ve also expressed reservations about greatly expanding the U.S. military presence on the territory of the easternmost American allies. 

For the purposes of this post, however, my own views on these matters aren’t what matter. What I’m especially concerned with are three emerging, related, and disturbingly neglected ways in which policy and morality intersect in the Uktaine crisis.

The first I mentioned briefly yesterday – the disconnect between, on the one hand, the ringing calls heard throughout the country (including from President) to “stand with Ukraine” because it’s demanded by simple decency and morality, and on the other hand, and the strong determination of U.S. leaders to shield the domestic economy from the consequences of economic sanctions, above all in the energy sector – much less to avoid actual combat. To me, the morality of such positions is dubious at best. They sound like the classically hypocritical exhortation, “Let’s you and him fight.” And they strongly suggest that expressions of support like this are more about feeling good about oneself than about decisively helping the Ukrainians.

The second involves resource allocation decisions. Some of the Ukraine support steps that will be taken by Washington, like increased military and economic assistance, will require more spending, and more of American leaders’ time and energy.

But the spending proposals so far haven’t been accompanied by any proposals to raise taxes to finance them in the here and now. As a result, these expenditures will add to an already mammoth national debt. If you believe that school of thinking holding that such debts and the deficits that balloon them are No Big Deal economically, there’s no moral problem. If you don’t buy this Modern Monetary Theory, then more deficit spending adds to a national debt that already shapes up as a major burden on future generations (who of course can’t vote). To me that seems as morally problemmatic as the “Let’s you and him fight”-type policies.

The third moral difficulty – which is still more potential than emerging – is also a product of devoting more energy and resources to Ukraine without raising taxes or taking on more debt: This policy could mean less energy and fewer resources devoted to pressing domestic needs with their own big moral dimension. What’s the moral rationale for those taking a back seat, to whatever degree, especially when you consider that solving domestic problems – and doing meaningful, lasting good – is almost always easier than solving overseas problems? That’s because, however challenging those domestic problems, Americans have much more control over them.

All these moral quandaries are further and vastly complicated by another consideration widely ignored in morality-based calls to Do Something or Do More on the Ukraine crisis: No one is more of an expert on morality than anyone else – whether they’re rich or poor, highly educated or barely literate, profoundly eloquent or utterly inarticulate, famous or obscure, or whether they pound tables more vigorously than others or choke up more in official debates or on the air, or whether they’re clerics or laypeople.

If I thought Russia’s invasion of Ukraine threatened genuinely vital American interests – that is, that it endangers national physical survival or political independence, or major, long-term impoverishment – I’d urge sweeping aside these moral questions for reasons that should be obvious except to committed pacifists. I suspect most other Americans would, too.

But to an important extent, in the name of morality, backing is being voiced for U.S. Ukraine policy measures that could gravely and even fatally jeopardize American security or well-being in meaningful ways even though that embattled country isn’t vital.  So for both practical and moral reasons, it’s urgent to examine these moral dilemmas much more searchingly than has been the case, and for the public not to be intimidated or stampeded by the loudest or the most passionate or the most seemingly authoritative or the most widely promoted or covered voices they hear.