Streetwise Professor

The US has indicted the Chinese military for cyberespionage. (Who knew?)

Meaning that soon there will be a Snowden “revelation” about NSA spying on China. Making book on that. (Recall that when he arrived in Hong Kong, Snowden revealed NSA operations to penetrate Chinese computers. That was his negotiating ploy to get Chinese protection. The Chinese, being no dummies, said thank you very much for that, and no doubt scraped everything they could off his computers, then pawned him off on the Russians.)

Before heading off to China, Putin announced that Russian troops currently deployed at the Ukraine border would return to their bases after spring training exercises.

Funny that, given that a couple of weeks ago he said that they had already withdrawn.

But never mind that little detail. Even after suppressing guffaws at the “training exercises” crock, you must recognize that Putin is not making any concession to the international community, or responding to international pressure, or having some deep change of heart over the prudence and justice of invading Ukraine. He is just bowing to a reality that readers of SWP should know well: the Russian military’s software/meatware problem.

The Russian military is still highly dependent on conscripts, despite efforts to increase the percentage of professional kontraktniki in the ranks. Due to demographic problems, and the scourge of dedovshchina, a few years back the Russians cut the term of conscript service from two years to one. These terms ended on 31 March, and new conscripts began to enter service on 1 April.

The terms of conscripts can be extended, but doing so for more than a couple of months is impractical. Draftees already pissed off at having to serve a one year sentence (and it is effectively a sentence to hard labor and corporal punishment, on the best of days) would likely become downright mutinous at the prospect of an extended term. (Inquiring minds want to know: has any genius journalist thought to try to determine if many of the 2013 class has indeed been held over?) Thus, it has been known for some time that after mid-May virtually all Russian units (with a few limited exceptions) would be unavailable for operations, let alone for offensive operations that might last some time. The deployed units would have to be pulled back,  the old conscripts mustered out, and the new conscripts mustered in and integrated with their units, a process that would take several months. (And it’s not like the newbies would be more of a danger to the Ukrainians than themselves after even a few months.)

And lo and behold. It’s mid-May, and Putin announces that the units will return to their bases.

This is not a coincidence, comrades. This is a military necessity. Therefore, read nothing into this about Putin’s intentions. Nothing. He is bowing to the fundamental fact that despite all the rubles he’s blown on hardware, the Russian military is severely hobbled by its archaic conscription-dependent mobilization model, the lack of warm bodies to fill the ranks, and the consequences of dysfunction in the barracks.

He has no  choice in this matter whatsoever. He is making lemonade out of lemons. Don’t be fooled. (But alas, many-including many in the markets, apparently-are being fooled. And badly.)

Some units, notably the VDV (airborne units), GRU spetznas, and air force units are less dependent on the conscription cycle. So watch to see whether these units also withdraw. I note that the Russians have deployed additional air force units to Belarus, and have announced a major air force exercise that just so happens to be scheduled for the date of the Ukrainian elections next Sunday. If airborne, GRU, and air force units remain deployed near the border, you can be doubly sure that Vlad is just biding his time while rotation process proceeds. I predict he will use the air force to maintain the pressure on Ukraine. The big exercise next week is part of that.

One moral of this story. Most commentary on Putin’s withdrawal order is tripe because it betrays not the slightest understanding of the realities of the Russian military. Anyone who does understand the constraints under which Putin is operating discounts the possibility that the withdrawal signals anything about Putin’s intentions or his assessment of the situation on the ground in Ukraine.

To be sure, that situation is not great, from the Russian perspective. There has been no great upswell of popular sentiment for secession or annexation even in the Donbas. (Who could have expected such from typically apathetic Sovoks?) Even the “commander” of the forces in the “People’s Republic of Donetsk”, the simultaneously sinister and comical Strelkov, was reduced to ranting about the failure of the locals to rally to the cause, and to call for women to take up arms. A motley collection of Sovok psychopaths, stiffened by some GRU cadres, is holding onto limited gains in places like Slovyansk. But although Donbas is not under Ukrainian control, it is not under Russian control either.

But if anything, that would provide an impetus for Putin to substitute Russian military intervention for a failed insurrection. I always discounted the possibility of an invasion, because even if the invasion succeeded the occupation would soon turn into a nightmarish quagmire. But Putin has used the threat of invasion (which can’t be discounted entirely despite its military insanity because one can’t discount that Putin is insane) to keep the pressure on Ukraine. If he is easing off on that pressure, it is not because he wants to. It’s because he has to.

Putin travels to China this week, and the big item on the agenda is the supposed signing of a long-awaited gas deal.

I’ve seen this show many times before, going back to 2004. Much fanfare ahead of the meeting! A deal is signed! But the price is TBD. Meaning there is no real deal. And then the charade occurs again a couple of years later.

So I’ll believe it when I see it.

The Russians, per usual, are doing all the talking about the impending deal. Apparently understanding that those who have seen the earlier episodes will be skeptical about any deal that doesn’t nail down pricing, they are at pains to claim that the pricing is all but set. Deputy Energy Minister Anatoly Yanovsky said the deal is “98 percent completed.” What does that mean anyways? By word count? Meaningless, if the missing 2 percent relates to price. Gazprom’s Alexi Miller says the deal is “one digit” away from completion. Well, which digit kinda matters. Is it in the hundreds column? The tens? The ones? (Or does the single digit refer to an upraised middle finger?)

If a deal does get done, pay close attention to the price. The Chinese have the bargaining power here. As they always have. But now it is greater because this is now part of Russia’s game with Europe and Ukraine. It very much wants to put pressure on the Europeans. So Putin/Gazprom might be willing to take a lower price to further that strategy.

Just as important, look at the formula. The reports I’ve seen are saying that the Russians will sell at a fixed price, in the range of $350-$380/MCM. If the deal is truly at a fixed price, this would be a major concession, as Gazprom is an ardent defender of oil-linked pricing. If it gives up the oil-link, that would be a major concession, and would put oil-linked deals in Europe under greater pressure than is already the case.

This figure is based on leaks from Gazprom, which is kind of appropriate given the massive leakage that occurs from its pipes. Perhaps the leaker is converting an oil-based formula number to a flat price. Moreover, regardless of how arrived at, is this a number for deliveries over the entire 30 year life of the contract, or just for the near term deliveries? I can’t imagine locking into a price over 30 years. There has to be some kind of indexing, but to what? That matters a lot. Moreover, I would not be surprised if  the Chinese agree to near-term prices that are comparable to European prices in order to give Russia a propaganda victory to use in its battle with the Euros, but get more than compensated at the back end through some convoluted pricing formula that is not publicly disclosed.

It is quite possible that it will be very difficult for outsiders to know exactly what terms the parties have agreed to, and to back out a price, or a price structure over the life of the contract. Recall the Rosneft/Transneft-Chinese oil deal that was signed in 2009. The Chinese made an upfront payment to pay for a pipeline, and presumably received a discount on the price. But the pricing terms were not transparent and who got the better of the deal was hard to figure. I wouldn’t be surprised to see the same thing happen here.

Also remember that Russian-Chinese deals are not ended with “and they lived happily ever after.” The Rosneft/Transneft-China ESPO deal has been marked by chronic pricing disputes between the parties. Don’t be surprised if that happens here too. The Chinese are also notorious for re-opening pricing terms after deals are signed. And their performance on contracts generally leaves something to be desired. They are notorious for defaulting on fixed price contracts when spot prices fall below the contract price: for this reason, most iron ore and coal sales to China are on spot terms only. Iran recently canceled a $2.5 billion deal with China to develop an oil field because the Iranians claim the Chinese are not living up to the terms of the deal (though this isn’t related to pricing per se). (H/T Neil C. Levine.) In other words, any deal is just setting the stage for ex post opportunism, by either party or both.

So even if Putin walks away from Beijing beaming a beatific botoxed grin, don’t draw too many conclusions. When two of the least transparent regimes in the world enter into a contract you cannot expect disclosure of the real terms, and the public announcements relating the deal will be intended primarily for propaganda purposes rather than to enlighten the world. When the inscrutable deal with the riddle/mystery/enigma folks, you can’t ever know what is really going on.

Further thoughts (added 5/19/14 at 1730 CDT). If and when a deal is announced, look to see whether there is a take-or-pay clause. The Russians usually insist on these, and they can be a source of major friction between the contracting parties if the price terms in the contract get out of alignment with spot market conditions, as is almost inevitable in a contract that extends over 30 years. I would be surprised if the agreement has take or pay terms and the Chinese also fund the construction of a pipeline upfront. Take-or-pay is usually a mechanism for protecting the party making the investment in the specific asset (like a pipeline or gas field): if the Chinese are funding the project, Gazprom doesn’t need take-or-pay to protect it. If anything, the Chinese would need protection against Gazprom’s opportunism.  If the Chinese indeed provide a substantial sum up front, as has been rumored (with sums of around $20 billion) the pricing terms of the contract become even more important: discounts later on in the life of the contract are necessary to pay the Chinese the principal and interest on the funding. There is no way that Gazprom will get European prices for sales to China if China also finances the investment. If Gazprom boasts that it indeed received European prices for sales to China, and the Chinese fronted the investment, you know there is something being hidden. (This happened with the Rosneft/Transneft deal.)  With respect to pricing, I can’t see any way that the deal would be at a fixed price for 30 years. There must be some sort of indexing. Again, if the boasting is about some price level that is anywhere near what the Russians get currently from Europe, be very suspicious. This is likely part of some sort of Three Card Monte game, with Russia tantalizingly flashing, then palming, the Black Queen to gull the suckers. If the deal is really for thirty years, there must be some sort of indexing mechanism, with a set of discounts, and the details here would be very devilish. Lastly (for now, anyways), I’ll be interested to see if the deal includes some sort of hostage exchange to protect each party against the predations of the other.

In the continuous process of Bayesian updating, my estimation of Noah Smith’s sensibility went up when I read his post on high frequency trading: he too recognized the ambiguous effects of informed trading. But my estimation plunged today when I read this. The piece comparing economists new and old is silly, superficial, and truth be told, embarrassingly ignorant.

Smith’s basic thesis is that economists of the 60s and 70s were “policy scientists”, theoretical rather than empirical, and ideological rather than practical, with that ideology being pro-market and anti-government: conservative, in a word. In contrast, modern economists are engineers focused on predicting human behavior rather than trying to influence policy, relentlessly empirical rather than theoretical, and due to their more practical grounding, less ideological, more skeptical of markets, and more supportive of government intervention.

All of which is tripe, of course.

Smith’s exemplar of the 60s-70s economist is Milton Friedman. Smith’s views of Friedman are apparently based on YouTube videos: he refers to those, but not to one piece of Friedman’s professional work. If he had paid the slightest attention to that work, he would have realized that his characterization is completely at odds with reality.

Friedman was all about using economics to explain human behavior and the consequences of the interactions between individuals in market settings. He was, first and foremost, a scientist.

Yes, Friedman did theory. But as his famous (and controversial) essay “The Methodology of Positive Economics” demonstrates, he viewed empirical evidence as the ultimate arbiter: theories were only as good as the empirical validity of their predictions. The objective of theory is to explain practical things. What’s more, Friedman practiced what he preached. He did empirical work. Lots of it. His PhD thesis, on the income from professional practice, was empirical. His most important and influential work, A Monetary History of the United States, 888 pages (!) of empirical work, done back when empirical work was a true labor.

Moreover, Friedman’s theoretical efforts spawned massive amounts of empirical research, precisely as he desired. The most notable example of this is his work on the theory of the consumption function, which was motivated by the empirical failures of the Keynesian consumption theory.

Nor was Friedman alone. The great Gary Becker just passed away. Becker was all about using economic theory to explain an incredible range of human behavior. He made practical predictions that are as amazing and empirically valid as those of auction theory and random utility discrete choice which Smith cites with approval as representative of modern economics.

In fact, the 1960s and 1970s were a period during which neoclassical economics was developed and applied extensively to produce tremendous insights on a broad range of human behavior, including family and fertility, crime, and myriad other subjects.  It was first and foremost about explaining human behavior. To the extent these explanations had policy implications, some economists were not shy about pointing them out. But that was a side-effect of the main thrust of their inquiries.

And believe it or not, these basic microeconomic tools are still amazingly powerful today.

Indeed, part of the reason that these theories were powerful is that they showed the flaws in numerous policies. Anti-trust and regulation immediately come to mind.

In other words, many economists of this earlier generation-and most notably Friedman-were all about understanding and solving real-world problems. This is not something that came to economics in the last decade or two. Noah Smith grossly mischaracterizes, and arguably slanders, the giants on whose shoulders he stands.

Such is the danger of doing the history of economic thought based on YouTube videos.

Smith notes that a larger fraction of published research today is empirical. Friedman would not be surprised. As Smith notes, the  price of empirical research relative to theoretical research  has gone down due to computation costs and the availability of data sets, and any good price theorist would predict that this will lead to substitution towards empirical work.

There is a corollary to this. The value of the marginal regression will fall to its marginal cost. As that cost has gone to zero, so has the value of the marginal piece of empirical research.

Insofar as the politics and ideology of economics is concerned, to say that economics was  a “conservative science” in the middle of the 20th century is beyond delusional. In what alternate universe?

In the 60s and 70s in particular, economists were broadly in favor of government intervention: this had been true since the 1930s. This was the golden age of Market Failure Economics. In macro, Keynesian fine tuning reigned supreme. To say otherwise is completely ahistorical.

Friedman and other avowedly pro-market economists were the exception, rather than the rule.

There was a shift among economists towards more pro-market, anti-government attitudes in the late-70s and early-80s due to the marked empirical failure of Keynesian economics in macro, the theoretical and empirical work on the actual causes and effects of regulation, and Coase’s logical evisceration of the Pigouvian market failure paradigm. To the extent that the pendulum has swung back it is due to the financial crisis, just as the shift to pro-intervention among economists in the 30s and 40s reflected the impact of the Great Depression.

Smith remarks that the  most well known current public economist, Krugman, is liberal, whereas the most well-known public economist of the 60s and 70s was Friedman, a conservative. But here again Smith is making a fundamental error. Yes, Friedman was a public figure in the earlier era, but there were many more economists on the left that played the role of public intellectual: Paul Samuelson is the most notable of these. Friedman was again the exception. What is remarkable is that these other economists have faded from view, whereas Friedman lives on, as the YouTube vids that Smith mentions attest. Who will remember Krugman 40 years from now? I am betting that Friedman will be better known in 40 years than Krugman will be. For myriad reasons, professional and personal.

Smith’s biggest blind spot-and the above shows that there are many-relates to government, and specifically government failure. He mentions how information economics has identified additional sources of market failure. But he utterly neglects to mention how some economists-including many from that earlier generation-have identified how private arrangements can mitigate these problems, and completely overlooks the fact that government may not be able to ameliorate these failures, and may create failures of its own. (And by saying “may” I am being overgenerous.)

Again, an awareness of the insights of some of those “policy scientists” whom Smith denigrates would disabuse him of this error. Coase in particular comes to mind. He emphasized that any analysis of policy could not end with the identification of a market failure: that was at best a beginning. Any analysis has to make comparisons between real world alternatives, rather than conjuring a magical government solution. I would further note that Coase was relentlessly empirical. “The Theory of Social Cost” grew out of an analysis of how the Federal Trade Commission actually worked.

Smith characterizes modern economists as more practical and less ideological than those of an earlier generation. And lo!, they are also liberal and favorably disposed to government intervention.

Smith is probably right about the political leanings of modern economists, and the basis for those views. So much the worse for modern economics.

But he can only make favorable comparisons between the current generation and Milton Friedman and others of an earlier generation by completely distorting the professional work of Friedman and his contemporaries. Smith probably does this out of ignorance, but that is no excuse. Smith doesn’t know what he doesn’t know, and this leads him to denigrate unfairly the legacy of the earlier generation and exaggerate the virtues of his own.

Hours after I wrote that a good model for understanding Ukraine would be medieval France or England, and that Putin would be perfectly fine with the country being ruled by local barons, Ukrainian Prime Minister Yatsenyuk warned of the dangers of the feudalization of the country, and said that was Russia’s goal.

Prime Minister Arseniy Yatsenyuk believes that separatists in the east are trying to achieve not federalization of state and its feudalization. But the central government will not allow it. Ukraine was, is and will be a unitary, independent and sovereign. The Head of Government said at the meeting of the second All-Ukrainian “round table” of national unity in Kharkov.

Yatsenyuk made another comparison that I had just mooted, namely that Ukraine would become a collection of rump statelets involved in frozen conflicts:

Ukraine should be a single unitary state with broad powers of regions and not to share small enclaves where every businessman will buy to itself local council, the local administration and have small Abkhazia, Ossetia and Transnistria in Ukraine.

Yatsenyuk seems to see what is transpiring in Ukraine, and Putin’s goals, similarly to what I’ve written here on SWP. Maybe we are both wrong, but I think this is a far more reasonable reading of Putin’s desired end state than to presume that he wants to invade and annex large swathes of Ukraine as he did Crimea.

Against this background, this article which is getting a great deal of play looks ridiculous. As I said in the comments to the earlier post:

[That] article is yet another example of the court press raving about Emperor Obama’s magnificent raiment, when in fact he is stark naked. The premise is that Putin wanted to invade and conquer Ukraine, and since he hasn’t, Obama must have deterred him. As I’ve written several times, I don’t believe that Putin had any intention of invading, let alone ruling over any part of Ukraine other than Crimea. Militarily it would be a disaster. Yes, he would likely succeed at first, but the occupation would become a bleeding ulcer. He is content to have frozen conflicts, and a balkanized and dysfunctional Ukraine. His primary objective is preventing Ukraine from moving closer to the EU and Nato, and having a weak Ukraine that he can manipulate from afar, primarily working through the oligarchs. He would be quite content having a purely transactional relationship with someone like Tymoshenko in charge.

With a few more Obama “victories” like Ukraine and Syria, we are well and truly ruined.

The NYT and Reuters are abuzz with stories about how Ukrainian oligarch Rinat Akhmetov has deployed his steelworkers to the streets of Mariupol, pushing out pro-Russian elements. Moreover, Akhmetov made statements that superficially seem to support the Kiev government, but which suggests that decentralization under a new constitution are the best way forward.

Be very, very suspicious. Saying that Akhmetov is untrustworthy is like saying that the core of the sun is pretty warm.

He rose to wealth and power during the early-90s, allegedly as an enforcer for organized crime elements in eastern Ukraine. He was a supporter of Yanukovych. There are allegations that he was a silent partner of Yanukovych’s son in a scheme to sell illegally mined coal that netted over $100 million. The Wikileaks cables include some more than unflattering references to him and his criminal connections.

In other words, he is as dirty as the soot spewing from the stacks of his steel mills.

Note that Putin and Russia appear to be unperturbed by developments in Mariupol, a sharp contrast to their hysterical reactions to attempts by the Kiev government to regain authority over the eastern provinces.

The Donbas scores a perfect 10 on the Sovok scale. Putin needs to have direct control over it like he needs a hole in the head. It suffices that Kiev does not control it. Another frozen conflict, a la Transnistria, South Ossetia, and Abkhazia, will serve his purpose, and he can no doubt reach an agreement with Akhmetov. And Akhmetov has no interest in direct Russian control. A Donbas that is not part of Russia spares Putin expense, and the headaches of dealing with the reprobates that are currently running wild there. But keeping the region on the boil undermines Kiev. It’s a win.

Pro-Maidan elements assert that Akhmetov was spurred to action not by the threat posed by the pro-Moscow rabble, but by the appearance of a pro-Kiev force from Dnipropetrovsk.

I don’t know exactly what Akhmetov’s game is, but he puts his interests first. He is not a Ukrainian patriot: he is a mobster and a thug. My guess is that Putin is happy to concede Akhmetov control over Donbas: he is much more biddable than the assortment of loons and lowlifes that comprise the Donetsk People’s Republic and the Luhansk People’s Republic. Akhmetov wants autonomy from Kiev, though he might pledge superficial fealty to it.

If you want a mental model, you could do worse than to harken back to medieval France, or medieval England during periods of weak monarchs or succession crises. Powerful local barons made formal pledges of loyalty to the monarch, but demanded virtual complete autonomy from central authority. They, and not the king, were the law wherever their writ ran. They schemed and fought to protect their property, and to take property and power from others. Outside nations pitched in to keep the country in turmoil and undermine the efforts of the center to bridle the barons.

Ukraine is cursed by its Sovok past, and the primitive capitalist accumulation that occurred upon the dissolution of the USSR. It is very close to Russia, and very far from God. People like Akhmetov have two goals: to protect the property and power that they secured through force and corruption, and to take additional property and power from other barons. Patriotism and principle have nothing to do with it.

Putin can exploit these circumstances to prevent Ukraine from forming a stable, unitary state that will move towards the west. He will reach agreements with the local barons.

There is every reason to be skeptical about the NYT and Reuter’s stories. Not the factual part, about Akhmetov dispatching legions of his laborers to assert control over parts of Donbas. But about the interpretation of his motives for doing so, and the implications of his actions. The western media appears locked into a simplistic narrative of Kiev vs. Moscow. Viewed through this lens, Akhmetov’s cracking down on separatists who are anti-Kiev must be anti-Moscow, and a separatist defeat must be a victory for Kiev and a defeat for Moscow. But it’s more complicated than that. The separatists have served a purpose for Putin-breaking up Ukraine-but he does not have a long term investment in them. A fractured Ukraine, with figures like Akhmetov exercising control over important regions can serve his long run purposes much better: he can reach accommodations with the Akhmetovs, whereas controlling the lumpenproletarians of the DPR is a much bigger headache. This works for Akhmetov too: indeed, his action followed close upon demands by the separatists that he pay taxes to them, so he has a strong incentive to put them in their place. But that doesn’t mean that he is acting in the interests of Kiev or the nation of Ukraine.

It took centuries for the French monarchy to suppress the local barons. Ukraine may become a modern, unitary state in a shorter time, but it isn’t going to happen soon.

There’s one other interesting angle here. The US has gone after one major Ukrainian oligarch: Dmytro Firtash, whom it is attempting to extradite from Austria. Akhmetov is as corrupt and criminal as Firtash, and indeed is closely associated with Yanukovych. But he seems under no legal threat from the US. Could it be that the US has decided that Akhmetov can facilitate a not war, not peace outcome that allows the US and EU to wash their hands of what is going on in Ukraine? That makes as much sense as anything.

The Russians are among the world’s greatest money launderers, if not the world’s greatest money launderers. (Just ask Bank of New York.) But before wholesale money laundering began in the 1990s, the Soviets were passed masters at laundering stories. Falsehoods, truth be told.

It worked like this. The KGB would plant stories in obscure publications in places like Pakistan. Some of these stories would be picked up by more established publications. Eventually, a few of these stories would make their way through the media food chain and appear in whole or in part in mainstream western publications, including some of the most prestigious ones like the NYT and WaPo.

I strongly suspect this is what is going on with a story that appeared in the German paper Bild am Sonntag on Sunday.

Russia has been pushing for months the story that American mercenaries from Blackwater or its successor firms Academi or Greystone have been employed in Ukraine to fight the separatists. This story first appeared in March. It got a second life in the aftermath of the fire in Odessa that resulted in the deaths of 40 separatists. There were accounts allegedly originating with ex-SBU (the Ukrainian equivalent to the FSB) agents that English speakers were directing the assault on the building that went up in flames. As if giving orders in English to Ukrainian soccer hooligans would be incredibly effective.

But the story went viral on Sunday with the Bild account. It stated that the German intelligence service, the BND, had reported to Merkel on 29 April that 400 Academi mercenaries were operating in eastern Ukraine, specifically in Slavyansk.

German intelligence has confirmed the presence of American mercenaries! QED!

Not so fast.

What was the source of the BND information? According to the Bild story, it was . . . wait for it . . . American intelligence.

So we are supposed to believe that US intelligence revealed what would have to be a highly classified operation that would almost certainly require a Presidential finding  to a foreign intelligence service. An operation that if disclosed would play right into Russian hands and have devastating effects on the US. And disclosing such an operation to the intelligence service of a country with which the US currently has a very fraught relationship in the aftermath of the Snowden revelations, no less.

As if.

I think I can reconstruct what actually happened. The Germans approached the US and asked about the rife rumors (originating in Russia and among pro-Russian elements in Ukraine) about American mercenaries operating in Ukraine. The US said Ha!. The BND duly reported this to Merkel. They told Bild that they had made a report to Merkel, who then reported that the BND had briefed Merkel about the story, insinuating that the BND had confirmed that mercenaries were in fact operating in Ukraine.

Bild is a rather dodgy tabloid. Respectable enough to be a credible source for the Russians, but hardly a pillar of establishment journalism.

Note that I haven’t linked to the Bild story. That’s because I haven’t been able to find a link. If you search the Bild website for “Academi” or “Blackwater” the search returns a story from early March. Sunday’s story is not online. That should raise  alarms.

Further note that no other more reputable publication has confirmed the Bild story, or found other reliable sources stating that US mercenaries are in Ukraine. In particular, no US publication has. Some of the many online sites that have run with the Bild story make a big deal out of this, insinuating that US publications are protecting the government.

Again: as if. The NYT and WaPo have run extremely damaging stories involving US intelligence operations, most notably related to Snowden revelations. So they are going to spike this story?

You know the way journalism works. If a blockbuster story breaks, every other major publication assigns its best reporters to the story, to see whether it can be confirmed, and to develop additional sources and/or different angles.

You know that’s what happened in response to the Bild story. But so far, not a peep from any major paper or news service. Meaning that either these outlets have found nothing, or are covering up to protect the US government.

So let’s say that you believe that the NYT and WaPo and AP and whoever are stonewalling to protect the administration or the CIA or the Pentagon. What about foreign papers? I am thinking specifically about Der Spiegel, the newsmag that runs Snowden story after Snowden story written by Laura Poitras, Holger Stark, and sometimes Jake Appelbaum.

You think that Spiegel would be running cover for the US? Hardly. Yet all the Spiegel has done is run a story repeating the Bild allegation.

So what we have is a single, rather marginal western publication running a story that story that echoes a Russian propaganda theme. It is highly implausible that the alleged ultimate source of the information-US intelligence-would in fact reveal it as described.  (Intelligence personnel who want to undermine administration policies they disagree with usually go directly to their pet reporters at the NYT or WaPo.) No other publication corroborates the story. The MO is similar to classic Soviet information operations.

So I totally  believe. Totally.

Some other reasons to doubt. The Ukrainian operation in Slavyansk and the Donbass generally has been hesitant and ineffectual. Hardly what one would expect from a force stiffened by 400 mercs. Moreover, one supposed reason to deploy the Academi force was to disrupt the referendum in the region. But the referendum went on, virtually undisturbed.

And I repeat: “American mercenaries in Ukraine” is a major Russian propaganda theme.  Lavrov reiterated it only yesterday, in his long interview with Bloomberg. He did it in his characteristically oily way, saying that Russian questions about American mercenaries had not been answered. In fact, they have been, rather emphatically.  It’s just that Lavrov is not willing to acknowledge this, wanting to keep the story going.

Given the impossibility of proving the negative, the mercenary story cannot be disproved. But everything about the story undermines its plausibility, not least its all too convenient echoing of Russian propaganda.

No. This has every sign of being a speciality of Russian information operations: a laundered story, originating from Russian sources and then put through several spin cycles involving western publications, emerging clean enough to convince those who want to believe that the US is the malign actor in this drama.

It cannot be emphasized enough that information warfare has been a central part of Russian operations in Ukraine. It also cannot be emphasized enough that the Ukrainians, but also the Americans, have been woefully overmatched in this war.

And speaking of overmatched, there is no doubt that Lavrov overmatches Kerry, and ridiculously so. Although every word out of Lavrov’s mouth was more mendacious than the one that preceded it, he is a far more impressive figure than Kerry. Whereas Kerry comes off as a posing, bloviating, superficial grandstander (probably because he is  a posing, bloviating, superficial grandstander), Lavrov comes off as a formidable and focused foe, and one who speaks English impeccably. No wonder he pwns Kerry every time they meet in Geneva.

Or to put it another way: it’s no wonder Lavrov takes Kerry to the cleaners. Just like he launders agitprop like the US mercenaries in Ukraine story.

Rogozin the Ridiculous is reveling in the role of Rogozin the Rabid in the post-Crimea period.

He made a road trip to Transnistria, where he said that if Moldova continues to pursue closer relationships with the EU and NATO, Russia would “unhitch” Transnistria from Moldova, a la Crimea. While in  Chisinau, Rogozin collected petitions pleading for Russia to Crimea-ize Transnistria.

The plane carrying some of the petitions and part of the Russian delegation was intercepted in Ukrainian airspace and forced to return to Chisinau, where the documents were seized. Rogozin took to Twitter, where he insinuated the plane he was on had been intercepted. But in fact, Rogozin was on another flight and made it to Moscow with some additional petitions, and the intercepted plane only carried his flunkies.

Romania had refused overflight to the Russian aircraft, which sent Rogozin into paroxysms of rage. He threatened to return to Moldova in a Tu-160 strategic bomber. The Romanians were not amused.

But Rogozin was just getting started. He has now communicated threats to shut off GPS stations in Russia, to cut off sales of Russian rocket engines to the US, and to deny US access to the international space station after 2020.

The last threats are unsurprising, and expected countermoves to US sanctions (e.g., cutting off exports of military-related technology). But the zest with which Rogozin delivered them is revealing.

But the most revealing thing is that Putin is unleashing Rogozin, and making the rabid one the public face of the Russian government. He is calculating that the weak-kneed in the west will wilt before this rhetorical onslaught. And sad to say, he is probably right.

The Kabuki dance in Donetsk goes on. The “separatists” announce they are holding a referendum on independence. Putin comes out and says, during a press conference with the head of the OSCE, that he wants them to delay it. The west breathes a sigh of relief. The markets rally.

But this call is not echoed by other Russian officials or on Russian media, and Putin does not repeat it. Separatists feign shock! shock! that Putin has betrayed them.

The referendum goes ahead and-brace yourself-the independence motion is adopted near unanimously with everybody voting. Sometimes more than once! To show how much they desire this, or something.

Within hours of the vote, the separatists ask for Russia to “absorb” the regions of Ukraine  that voted for independence. The Russians don’t come out and immediately say “I do”, but did make cooing noises:

“The preliminary results of the ballot counts convincingly show a real desire on the part of citizens of the Donetsk and Luhansk regions for the right to independently make decisions about issues that are vitally important to them,” it said.

It stopped short of advocating independence for the regions or their absorption into Russia, saying: “We believe that the results of the referendum should be brought to life within the framework of dialogue between Kiev, Donetsk and Luhansk.”

But of course the play is not over. But this being Kabuki, the future acts are very predictable. There will be some incident in the Donbass that will mean that Russian lives are at risk, and that fraternal obligations require the Russian Federation to take the newly independent republics under its wing. Or the Russians will do this after the Kiev government refuses to negotiate with the new “people’s republics” (as Russia is sure that it will not, as it cannot): the Russians will rage at how the American dupe fascists are refusing to negotiate with the reasonable people of Donetsk and Lugansk, and that the Russian government is left with no choice but to protect these poor oppressed people from the criminal junta in Kiev and their American overlords.

And the last act-as always-will involve Merkel and Obama and Kerry harumphing and vituperating. And then doing nothing, because nothing is the thing they want to do more than anything. And Vlad will nod and move on to his next target. Transnistria. Or the rest of “Novarossiya”. Or both. The end.

On Thursday, Putin held an ad hoc meeting with motley collection of leaders of the motley connection of nations that represent his allies: Belarus, Armenia, Kyrgyzstan and Tajikistan. These members of the Organization of Collective Security Treaty were called together in haste for an emergency meeting on Ukraine.

One remark jumped out at me, and illustrates my earlier post on how WWII history is used to advance Russian imperial objectives. Belarus’s Lukashenko brought up an episode from the War that the Soviets used in a way that I’ll discuss in a bit:

“Events happening in Ukraine do not allow one to sit quietly on the side-lines and just look at what’s going on,” – said Alexander Lukashenko after the meeting with Putin. According to the Belarus head of state first of all it concerns events in Odessa. “This takes us to the bad old parallels. I see that on TV screens these parallels have already appeared. We remember Chatyn, when several hundred villages in Belarus were burned by the Nazis on the same principle,” – he said. “Such actions are unacceptable in any state, and it will be even more unacceptable if we will quietly and watch what is happening. This is particularly true of the Russian Federation and Belarus. Naturally, we cannot just watch it, because that’s our people and they cry out for help and we need to respond to such things,” – said Lukashenko, adding that the situation is evolving very quickly.

The name of the village Chatyn is usually rendered as Khatyn. It is the site of a memorial complex commemorating more than 100 Belarussian villages where the Germans destroyed and massacred civilians in retaliation for partisan attacks.

But why in Khatyn? Why that particular hamlet from of the 100 villages  where Nazis massacred civilians, or of the over 9000 destroyed (with some of their residents surviving)?

The answer to those questions speaks volumes about the use and abuse of history by the Soviet Union and Russia.

Note the similarity of the name Khatyn to that of Katyn, where the NKVD assassinated tens of thousands of Polish officers with a pistol shot to the back of the head. When the Germans discovered the graves, the Soviets denied responsibility, and for decades shrilly asserted that the Germans had killed the Poles. At Nuremberg the Soviets tried to put Germans on trial for the killings, but the Americans and British knew the truth and refused to go along.

This was a forbidden subject in Communist Poland, but Poles around the world continually pressed the Soviets to acknowledge their guilt. They made a political issue of it in the United States. Congressional hearings on Katyn were held in the early-50s. It was an embarrassing and annoying subject for the USSR. So they came up with a bizarrely Sovok scheme to attempt to consign Katyn to the memory hole and  put a memorial to the victims of German atrocities in Khatyn. They erased all references to Katyn, the site of a Soviet atrocity, and made a great spectacle of Khatyn, the site of a German atrocity. By this three card monte trick the Soviets attempted to gull the world into believing that Katyn really was the site of a German war crime.

A CIA historian summarizes it well:

Meanwhile, the Soviets obliterated references to Katyn on maps and in official reference works. Then, in 1969, Moscow did something strange that many believe was further calculated to confuse the issue further: it chose a small village named Khatyn as the cite for Belorussia’s national war memorial. There was no apparent reason for the selection. Khatyn was one of 9,200 Belorussian villages the Germans had destroyed and one of more than a hundred where they had killed civilians in retaliation for partisan attacks. In Latin transliteration, however, Katyn and Khatyn look and sound alike, though they are spelled and pronounced quite differently in Russian and Belorussian. When President Nixon visited the USSR in July 1974, he toured the Khatyn memorial at his hosts’ insistence. Sensing that the Soviets were exploiting the visit for propaganda purposes, The New York Times headlined its coverage of the tour: “Nixon Sees Khatyn, a Soviet Memorial, Not Katyn Forest.” (The Times probably got it right. During the Vietnam war, the Soviets frequently took visiting US peace activists to Khatyn.)

The Telegraph ran a story about Nixon’s visit at the time:

President Nixon’s visit to the memorial in the Byelorussian village of Khatyn has caused a mistaken impression that Russia has erected a memorial to the victims of the wartime massacre of Polish officers in the Katyn forest. In fact, Khatyn and Katyn are two entirely different places; Khatyn, in which the ‘kh’ is pronounced like the English ‘h’ is a small village some 30 miles to the north-east of Minsk, the capital of Byelorussia.

Katyn, which is pronounced as written, is a town about 15 miles west of Smolensk, a provincial city in Russia proper. Khatyn is about 160 miles west of Katyn.

When Stalin and Hitler divided up Poland at the outbreak of the Second World War in 1939, some 240,000 Polish officers and men fell into Russian hands. After Hitler’s invasion of Russia in June 1941, 15,000 were found to be missing and the Russians denied all knowledge of them.

Katyn fell into German hands in the late summer of 1941 and at the beginning of 1943 the German army discovered a mass grave of 4,443 Polish officers and men.

When the Polish Government-in-exile appealed for an international tribunal to determine how the Poles died Stalin broke off relations. After re-taking Katyn the Russians set up their own inquiry and said the Poles had been executed by the Germans.

Later researches by Polish and independent authorities in the west, as well as wartime Foreign Office documents, leave no doubt that the Poles were executed by the Soviet secret police, the NKVD.

The Russians have tried to erase Katyn from maps and history books. The reference to it in the 1953 edition of the Soviet Encyclopedia was dropped in the 1973 edition. No visitors are allowed to the area and no memorial has been erected.

It was not until 1969 that the Russians announced the unveiling of a “memorial complex” on the site of the village of Khatyn. It was one of 9,200 Byelorussian villages destroyed by the Germans, and one of 136 of which all the inhabitants were killed.

The Russians appear to have chosen Khatyn because of the similarity of its name to Katyn. They hoped in this way to obscure the fact they have erected no memorial to the victims of Katyn, which was no less a crime than the one committed at Khatyn.

This is the way the Soviets manipulated World War II history to serve their ends. Putin continues these manipulations to this day, and good Sovok Lukashenko resurrects this staple of Soviet propaganda to slur the Ukrainians, by comparing them to Nazis.

Keep this in mind whenever Putin or any other Russian or FSU Sovok uses World War II history to make a political point, or to advance a political objective.