Streetwise Professor

It looks like the lid is about to blow in Afghanistan. The riots over the latest episode of Koran burning–stoked, not banked by Obama’s obsequious apology–are getting all the coverage.  But the most important–by far–development is the murder of two American officers, a major and lieutenant colonel inside a secure area of the Afghan Interior Ministry.

The media coverage is portraying this as just a part of the explosion of medieval rage in Afghanistan, but the details suggest something more planned-and sinister:

An Afghan security source said the American officers killed on Saturday had been found dead with gunshot wounds deep inside the heavily fortified Interior Ministry.

“There is CCTV (closed-circuit television) there and special locks. The killer would have had to have the highest security (clearance) to get to the room where they were killed,” the source told Reuters.

There is one report naming a suspect:

Afghan authorities said on Sunday they believe an Afghan police intelligence officer may have been involved in the shooting deaths of two U.S. officers inside the interior ministry a day earlier, prompting NATO to recall all its staff from ministries.

Abdul Saboor, 25, is the main suspect in the killing, which took place at close range well inside the heavily fortified ministry in the centre of the capital, Kabul, senior security sources told Reuters on condition of anonymity.

“Abdul Saboor is at large right now. He is the main suspect for us but we can not draw any conclusions over whether or not he is the killer,” one of the sources said, adding that CCTV footage shows that Saboor had access to the Command and Control Centre where the slain Americans were found.

That last connection seems extremely weak: CCTV shows he had access, but when? Does CCTV show him entering or leaving at the time of the slayings?

The BBC has more detail on Saboor:

He had served in several Afghan ministries and had worked at the interior ministry for some time, with responsibilities for security arrangements and access to top level intelligence briefings and secure radio communication channels.

Yes, this may be a case of autojihad syndrome, detonated by the Koran burnings, but the targets, the location, and the background of the possible perpetrator suggest something more. This guy was not an ignorant hothead from the sticks.  Or at least one should hope that such types are not given responsibilities for security arrangements, etc.

The jobs of the killed Americans has not been disclosed, which is interesting in itself. One reasonable possibility is that they were counterintelligence specialists. Afghan security forces are riddled with Taliban sympathizers/operatives-and Pakistani ISI agents, and Americans responsible for identifying them and rooting them out would be prime targets.  The riots would provide background noise that would be quite useful in obscuring the motive for the murder.

And even the riots themselves cannot be viewed as purely spontaneous reactions to an outrage against local religious sensibilities.  There is a war in the shadows in Afghanistan.  Karzai and his family are corrupt to the core, and deeply enmeshed with Pakistan, and in particular Pakistani intelligence.  Karzai resents US/NATO anti-corruption and anti-drug efforts, which strike very close to home.  The ISI is hell-bent–as it has been for decades–in securing control over Pakistan and getting the Americans out.  The Taliban are its creation and its creature.  The US/NATO commitment to Afghanistan is equivocal at best.  Obama has made it clear that he has no stomach for the conflict, and is looking for a way out.  The Koran burnings provide a perfect pretext for unleashing violent protests that will push a wavering Obama and NATO closer to the exits.  Killing Americans in a secure location-even if these individuals were not targeted specifically based on their jobs and expertise-would only intensify the push.

NATO is responding in a way that probably delights Karzai and the ISI: they are withdrawing all personnel from Afghan ministries.

The whole way this is being handled in the media is extremely annoying.  The entire herd is running with the outraged Islamic sensibilities theme, and refusing to entertain the very real possibility-certainty, in my mind-that these sensitivities are being manipulated and stirred up by Karzai and the ISI as part of a war against NATO and the US.  In so doing, they are obscuring the real issues and choices facing the US and NATO.

The administration response, notably the aforementioned obsequious apology delivered by the president personally, only helps cement that narrative.  (Which could well suit Obama just fine, given his evident preference to bug out.)

The contrast between Obama’s personal apology for the burnings, and the more diffident and muted response to the murder of two people he commands is quite stunning.  The most stern criticism of the killings was delivered by the US commander in Afghanistan, General John Allen.  The Pentagon was highly critical.  But Obama’s response was limited to expressing condolences to Allen, and his flack Jay Carney praised Karzai for his efforts to maintain calm in Afghanistan. (Gag me.)

Two things about this. The first is the signal it sends to Karzai, the ISI, etc. It signals weakness. That Obama is definitely not of the better to be feared than loved school. Which is only an invitation to further, more bold actions.

The second is the signal it sends to the US military.  He hung them out to dry in his rush to make a public apology and to promise that those responsible would be held accountable, an apology that ignored key facts in what led up to the burnings-which if anything only validated the motives of the rioters. The complete lack of any presidential outrage at the assassination of two men under his command, and the buttering up of the already slippery Karzai, hardly sends the message “I’ve got your backs and I’ll stand up for you.” Loyalty has to run both ways, and I am sure that there is considerable dismay and disgust within the military at the perfunctory, almost blasé, presidential reaction to the murder of two men doing their duty under his command.  Maybe we just have to wait until he has another opportunity to give a shout out to Dr. Joe Medicine Crow.

The end game is approaching in Afghanistan. It may not end with helicopters taking out personnel from the American embassy in Kabul, but an ignominious end is looking more likely by the day.

Walter Russell Mead’s excellent blog recently discussed the conflicts over massive natural gas deposits in the eastern Mediterranean:

Naturally, the race to get the gas has reinvigorated old arguments (Cyprus-Turkey) and added fuel to newer disagreements (Israel-Turkey). Israel and Cyprus have been fastest off the blocks, agreeing their common maritime border in 2010 and contracting exploration work to Noble Energy. Turkey, on the other hand, has been slow to react and increasingly confrontational, holding naval exercises and trying to prevent Cyprus from accessing gas that Turkey says belong to Northern Cyprus, which only Ankara recognizes as a country. The confrontation also threatens to further destabilize Israeli relations with Turkey, which appeared to be on the uptick this week when an Israeli delegation arrived in Turkey’s quake-hit Van Province with aid supplies; “You are our true friends” said Van’s vice governor.

The gas reserves in the Levant Basin may be large enough to make Cyprus self-sufficient in energy and turn Israel into a major gas exporter for the next several decades. That, and Israel’s new tilt toward Greece as a way of countering the cold wind in its relations with Turkey, is opening a new era in Israel-Cyprus relations. Netanyahu is on his way to Nicosia this week (the first ever visit of an Israeli PM to the island), and Israel is expected to formally ask to station fighter jets at a southern Cypriot airbase.

Oh joy. Another reason for conflict in a region of the world that counts conflict and strife as its most important export.

Unmentioned in Mead’s post is Russia, the country which has a huge economic stake in the development of a major gas resource right next to its major western European customers.  Eastern Med supplies would far closer to Europe–especially big consumers like Italy–than Russia, and these supplies wouldn’t be subject to the Russian-Ukrainian Punch and Judy routine every winter, or the vicissitudes of Russian domestic considerations.  Meaning that if these resources were developed to their full potential, Gazprom (and Russia) would suffer substantially.  Very substantially.

Which gives Russia a tremendous incentive to foment instability in the region.  Not like that is very hard, either.

It has two major levers in this endeavor.  The first is Cyprus, which is deeply enmeshed with Russia financially and politically.  Russia has been Greek Cyprus’s financial savior, extending it substantial amounts of credit to keep the country from plunging into Greece-like catastrophe.  Even more importantly, Cyprus is the destination or conduit of dirty Russian money, and the location of choice for Russians setting up dodgy shell companies.  (Oh, how entertaining it would be if Cyprus were the target of an invasion by an army of forensic accountants!) (Also recall that the SVR agent who was the money man for the Anna Chapman spy ring miraculously disappeared in Cyprus after being arrested there.)

The second is . . . Syria.  I do not suggest that this is the only for Russian intransigence in that country: that behavior is overdetermined.  But stoking conflict–or standing in the way of resolution of conflict–in Syria does promote Russian interests in the gas business.  Indeed, the economic stakes here are far greater than the oft-cited Russian commercial interests in Syria: some rather shambolic business and infrastructure projects, and arms sales (which appear never to be paid for, at least fully).

Just saying.

The President of the KC Fed, Thomas Hoenig has joined a rather loud chorus clamoring for “Glass Steagall-type” measures to prevent another financial crisis (h/t R). (It should give Mr. Hoenig some pause that LaRouchies are very outspoken advocates of Glass-Steagall, btw.)

I find this nostalgia for Glass-Steagall to be bizarre and disconnected from the realities of Financial Crises I and II. The theory behind Glass-Steagall (and GS-lite measures like the Volcker Rule and the swaps pushout provision of Dodd-Frank) is that banks with insured deposits are subject to moral hazard, and will take on too much risk.  This problem can be reduced by restricting the activities in which banks with insured deposits can undertake.  That is, the problem is deemed to be giving banks too much discretion on the asset side of the balance sheet, when the liability side is insured.

But this bears no relationship to what happened in the 2008 crisis, or the one currently going on.

For starters, most of the major institutions that cratered in 2008 were not universal banks that funded capital market activities (such as underwriting) with insured deposits.  Indeed, the opposite was true.  They were investment banks/broker dealers (Bear, Lehman, Merrill); GSEs (Fannie, Freddie); insurance companies (AIG); commercial or universal banks heavily dependent on wholesale funding; and SIVs (many of which did have connections to commercial banks, admittedly).

Indeed, one could make the case that those who prescribe Son of Glass-Steagall to cure our financial ilss have the diagnosis exactly backwards.  Many of the institutions that cratered–notably the IBs and SIVs–did so precisely because they did not have sticky funding (like insured retail deposits): they relied on short-term, uninsured funding like repo and commercial paper.   Others, like RBS, had some retail deposits, but notably were very dependent on wholesale (uninsured) funding, and that dependence had grown over time.  All of these institutions suffered classic runs.

In this interpretation, it is the concentration of risk in institutions that do not fund primarily through insured deposits that is the problem.  David Murphy has a new paper that looks at Lehman and RBS, and arrives at a similar conclusion.  This would imply that Glass-Steagall is utterly off-point.

The history of banking in the US supports this view as well.  Banking panics occurred throughout the 19th and first-third of the 20th centuries due to funding fragility.  These panics destroyed banks that engaged in traditional banking activities like commercial and real estate lending.  Yes, there were runs on investment houses too (Jay Cooke & Co., Barings) but the point is that it’s the liability side of the balance sheet that matters more than the asset side.  There was tremendous diversity in the asset side of the balance sheets of firms that suffered runs prior to deposit insurance: there was very little diversity on the liability side.  All were funded with short term liabilities that could run at the drop of a hat.

Similarly, S&Ls raped and pillaged deposit insurance even though they were very “narrow banking” institutions with significant restrictions on the asset side of the balance sheet (though those restrictions were eased by Garn-St. Germain in 1984).

As a last point, Financial Crisis II is concentrated in European banks heavily dependent on wholesale funding, and the underlying source of the problem is assets that regulators deemed to be utterly safe for commercial banks–highly rated sovereign debt.  Relatedly, many of the assets that caused commercial and universal banks in the US problems in 2008 were again deemed by regulators to be super-safe, carrying very low (and in some cases zero) capital charges. The assets that are raising/raised questions about the solvency of financial institutions would have been perfectly copacetic even in a Glass-Steagall world.

Which all suggests that the Glass-Steagall focus on the asset side of the balance sheet is completely misguided.  The fragility in the financial system comes from the liability side, and regulators and legislators are terrible at identifying the assets that are “safe” for insured institutions to hold.  Given this, measures to stabilize funding–like deposit insurance, or the existence of a lender of last resort–are key to establishing stability.

Of course this raises moral hazard concerns, but the Friedman-Kraus analysis in Engineering the Financial Crisis convinces me that this was not an important part of Financial Crisis I.  Gorton also argues that the moral hazard effects of deposit insurance have been overstated.  The S&L Crisis was a large part a moral hazard problem, but it occurred in large part because of grossly negligent regulators who (under pressure from Congress) let insolvent thrifts continue to operate rather than shutting them down when their financial condition weakened in the late-70s and early-80s: regulators (and Congress) let readily containable moral hazard flourish.  That crisis also shows that banks have plenty of room to engage in morally hazardous behavior even when they are very narrow institutions with extensive restrictions on the asset side.

Identifying the fragility of liabilities as the true vulnerability of the system of course raises important questions: why do financial institutions routinely rely on run-prone funding, as they have done for centuries? Diamond-Rajan argue that fragile funding plays an important disciplinary role: the threat of a run limits the ability of banks to act opportunistically and expropriate those who lend to them.  This implies that trying to reduce reliability on fragile funding will have a cost: There will be more opportunism.  The hard thing is to design regulations that balance between micro incentives (to control opportunism) and macrostability (arising from the fact that the fragile funding that controls opportunism is vulnerable to jumps to bad coordination game equilibria).

But though I don’t have an answer to what the right balance is, I am pretty confident that it is appropriate to focus more on the liability-side issues as opposed to the asset-side issues.  Which further implies that pining for a return of Glass-Steagall is misguided, and positively dangerous, because it distracts attention from the real problems.

No, not Proud Mary: the hamster wheel from hell that is Putin’s purgatory.

His imminent return as president has sparked a series of stories that highlight the dreary prospects for the Glorious Motherland.

Like this one, from the Telegraph, detailing how as many as 30,000 business people (which, in Russia, really means businessmen) have fled, often without their money, which has been seized by the “law enforcement” authorities:

Russians who have been forced to live overseas also estimate that tens of billions of pounds worth of assets have been illegally seized by the Russian government as Mr Putin has strengthened his powerbase.

According to Andrey Borodin, the former head of the Bank of Moscow, the talent drain will only increase when Mr Putin, currently prime minister, runs for re-election as president in March – a poll he is almost certain to win.

“We call ourselves Putin’s exiles,” he said in an interview with the Daily Telegraph, his first since fleeing Russia last year.

He said Mr Putin and President Dmitry Medvedev, who is set to swap jobs with his mentor, were “using the law to act as gangsters”.

“But unlike gangsters in the West they have one big advantage: they have the police, the prosecutors and the judges on their side,” he said.

Now, you might reply, that these businessmen are just criminals and their fortunes ill-gotten.  First, that’s no doubt true of some of them.  Second, it would hardly be a ringing endorsement of the Russian system, or Russian commercial ethics, would it, if tens of thousands of businessmen in a country notorious for its low rate of business formation were crooks?   Just why couldn’t honest people survive in such a system?  Two possible answers: (a) there aren’t many, and (b) the absence of a rule of law and property rights, and the predation of the  state, mean that honesty isn’t a survival strategy.  Not a great choice, is it?

Indeed, Russia provides the best illustration of Balzac’s statement that “the secret of great fortunes without apparent cause is a crime forgotten, for it was properly done.”  (Sometimes bowdlerized to “behind every fortune there is a great crime.”)  For those of you who doubt that, explain the Abramovich-Berezovsky trial, dissected brilliantly here by my colleague Paul Gregory (an excellent economist and a historian of Stalinist Russia–and the son of an emigre from Chita).

“AHA”, defenders of Putin are likely to say: “That’s all about the ’90s.  That’s exactly what our hero has eliminated.”

But as Paul trenchantly notes, Abramovich did exactly the same as what Khodorkovsky–a current resident of Chita–is alleged to have done: selling oil at below market prices to offshore shadow companies that then sold it at the market price, and then siphoning the profits into foreign bank accounts without paying tax.  Note: Abramovich admits under oath to having done this.  But he is a free man, and Putin has not raised a finger against him.  Indeed, he is in good standing with Putin.

No.  The main difference between the ’90s and now is that corruption and economic crime on a vast scale has been nationalized, and benefits those in the state apparatus and those who pay obeisance to it.

What’s more, it is not just the wealthy or businessmen who are leaving to protect their ill-gotten gains and their precious hides.  It is also the educated, and members of the supposedly burgeoning middle class that differentiates the new Russia from the old (h/t R) who are leaving, or giving the idea serious thought.  There’s even a name for it now: “The Putin Decade Exodus.”  Decade!  What optimists!

There are some murmurs of discontent from those who intend to remain, and some suggest that this could pose political problems for Putin and Putinism.  But the Russian polity is so de-institutionalized, and the populace so atomized, that this is unlikely.  As a Russian participant at the most recent Valdai charade said:

“Because of the Soviet legacy and the 1990s, ordinary Russians don’t trust one another,” adds James Sherr of the Royal Institute of International Affairs. “They don’t combine in collective political activity. They solve their problems independently, with their families and friends. They opt out.”

Add to that the pervasive state control of most Russians’ primary sources of “information” (of which the refusal to permit foreign news broadcasting outlets in Russia that I mentioned earlier today is just one example), and the prospects for change via conventional political means look dim indeed.

In Russia, the lyric “meet the new boss, same as the old boss” is literally true.  The purgatory will persist.  The hamster wheel will keep on spinning.

And the devotees of the personality cult will swoon all the same.  Some of them I can understand. Those who passeth all understanding are the Paulians who channel RT and furiously defend what is really a libertarian dystopia and its overlord.

That is something I really would like to understand.  I would really like to see a non-spittle flecked explanation of the affinity of some Paulians for Putin.  Any takers?

Today marks the 93rd anniversary of the end of WWI, the most epochal event of post-ancient history.  It destroyed a world that had been evolving since the collapse of Rome.  The human, physical, political, and civilizational destruction wrought in four years, three months, and two weeks was unprecedented.  Out of the rubble came the malign forces that shaped the subsequent decades, most notably Bolshevism, Fascism, and Naziism.  World War II and the Cold War and all that followed were the direct consequences of The Great War. Its direct and indirect death toll is arguably in the hundreds of millions.

Its effects plague the world to this day.  The Israeli-Palestinian conflict has its roots in WWI.  Much of the turmoil in the Middle East can be traced to the precipitous collapse of the Ottoman Empire brought on by the war.

As I’ve written before, during a trip to some battlefields in France last spring, the history of the war itself–the campaigns and battles–is dreary and depressing, beyond my poor powers to convey.  A visit to a cold, clammy, dripping, dark and oppressively claustrophobic fort at Verdun for even a few minutes is a soul-sucking experience; what it was like for the poor poilous who inhabited these tombs day after day is beyond imagining.  The Ossuary there is indescribably depressing.

So yes, on 11/11/11  remember the Americans who fought and suffered at St. Mihel and in the Argonne, and in all the conflicts since.  But it’s also worth a moment to recall how in a complex system things that seem small in the scheme of things–like Serbian nationalism–can change everything profoundly in a historical instant.

Dmitri Medvedev announced today his support for Putin’s return to the presidency in 2012.  According to the NYT story, Medvedev made the announcement in a voice cracking with emotion.  His statement touched off uproarious applause: this seems like something out of a Communist Party Congress of Soviet days.

Forcing Medvedev to make the announcement, standing alone before the United Russia party members, was the ultimate humiliation to this rather pathetic figure.  It completes his slow-motion emasculation, and although the process has gone so far it would seem to require microsurgery to finish the job, Putin did it with a figurative chainsaw–just so no one could miss the point.

I admit that I was surprised–wrong–that Putin did not attempt some constitutional judo to remain in the presidency in 2008.  So why the change in 2011?  The answer to the question is overdetermined.  Numerous factors all push in the same direction.

First is Putin’s narcissism and love for power.  I don’t put too much weight on this factor as even as mere Prime Minister he has remained the dominant force in Russian politics, and has been able to work non-stop at building an ego building cult of personality.

Second, there is no constitutional obstacle this time around.  Legitimacy is important, and although the issue could have been finessed in 2008, doing so would have compromised his legitimacy and left him open to challenge on constitutional grounds.  He squared the circle by appointing a cipher to succeed him, all the while retaining an iron grip on the true sources of power in Russia (even though these are formally in the remit of the president).

Third, Russia felt itself to be flying high in 2007-2008.  Oil prices were soaring.  Growth was robust.  The US was reeling from its engagements in Iraq and Afghanistan.  There were no readily apparent threats to stability.  A relaxation of the system of unitary control seemed safe.

But everything changed almost exactly 3 years ago, mere months after Medvedev’s election, with the financial crisis in the West.  Although Putin at first boldly stated that Russia would weather the storm with no difficulty, that turned out to be a wildly inaccurate prediction.  The crisis hit Russia harder than any major country, and shook the country’s economic and political system to the core.  The seemingly inexorable rise of the country proved chimerical: collapse and chaos were serious possibilities.

Although Russia and Putinism survived the crisis, the country–and Putin–were shaken by the experience.  Listen to Putin’s rants against the West generally, and America in particular.  They reveal a control freak who rages against the fact that there are existential things outside of his control.

The country emerged from the crisis–the first crisis–shaken and weakened.  The crisis undermined the flow of rents that keep the natural state together.  Although growth has returned, it is not nearly as strong as in 2006-2007, and is unlikely to reach those levels any time soon.

Thus, whereas Putin probably calculated that circumstances were so favorable in 2007 that the country’s political and economic system could withstand a division of the power vertical, his calculations are doubtless far different now.  A near death experience has a way of concentrating the mind.  The heady visions of 2007 have proved illusory.

And importantly, another crisis looms, a crisis could actually be more shattering than the last.

In brief, it is likely that Putin believes that his system can no longer operate safely with the ambiguities and slippages and potential for conflict and division inherent in a duumvirate.  Hence Medvedev’s public humiliation and Putin’s triumphant return.

A final note on the implications of this for the US.  It is clear that this development puts paid to Obama’s sucker bet–the “Reset.”  The administration foolishly thought it could play divide and conquer, and quite transparently courted Medvedev and treated Putin with disdain.  Indeed, it is hard to express just how self-evidently foolish this was, and harder still to explain how the administration could have possibly thought this would work.

The administration will soon find out that payback is truly a bitch, and that Putin is all about payback.  It is in his DNA.  Expect Russia to become even more truculent, obstructionist, and revanchist in the months to come.  Putin and Obama–and whoever succeeds Obama, either in 2013 or 2017, for Putin will be around that long, health permitting–will not be burger buddies.  But I hear Dmitri has time on his schedule.  (Would that they share their burger in retirement, reminiscing about the old days when they were somebody.  In 2013.)

What happens in the coming months is highly contingent on what happens in Europe.  The EU is teetering on an economic precipice, and I cannot conceive of a plausible scenario which does not involve it plunging over the edge.  In that (likely, IMO) event, the consequences will be shattering worldwide, but especially so in Russia.  The last crisis showed its vulnerability, and a bigger crisis closer to home will subject the system to a daunting test.

The real possibility of such a crisis is exactly why I believe Putin is returning.  Putnism is under threat, and Putin has concluded that it can survive only in its pure, unadulterated form.

Obama repeated his gaffe about the “Intercontinental Railroad.”  I’ve stayed at Intercontinental Hotels.  I regularly fly in or out of Intercontinental Airport.  But I’ve never ridden on the Intercontinental Railroad–nor has anyone else in the US.  The US pioneered the development of intercontinental ballistic missiles and intercontinental air travel.  But the Russians get credit for the first intercontinental railway–the Trans-Siberian.

No, what Obama was referring to was the Transcontinental Railroad, completed in 1869 with the driving of the Golden Spike.  The “Pacific Railroad” (as it was called) was the culmination of a movement that began in the 1840s and reached a fever pitch in the 1850s.  Although Obama invokes the project because of its connection to Lincoln, and hence the Republican Party (due to the fact that the enabling legislation was passed in 1863), the railroad’s most passionate booster was Lincoln’s main rival–Democrat Stephen Douglas.  It was his almost monomaniacal focus on the Pacific Road that spurred Douglas to champion the Kansas-Nebraska Act.  The road was more of a sectional issue, with “westerners” like the Illinoisan Douglas being the main advocates of a northern route contending with slave state legislators advocating a southern route.  The Kansas-Nebraska Act’s elimination of the Missouri Compromise was a way of securing Southern support for Douglas’s dream.

Ironically, the Kansas-Nebraska Act was a major impetus for Lincoln’s return to politics, and was a major subject of the Lincoln-Douglas debates.  So, in a sense, the connection between the railroad and Lincoln is quite a bit more complex than Obama’s set-piece suggests.

The Act was also a major turning point in the nation’s road to dissolution and Civil War.  Talk about your unintended consequences.  But if Obama can’t even get the name right, one shouldn’t be surprised that he’s a little hazy on the checkered history of the “road that spanned the continent.”

One thing that I find fascinating is that Obama harkens back to a time most Americans couldn’t care less about (a huge number of Americans can’t date the Civil War to within several decades).  Yes, the lame, lame, lame WWLD trope is part of it.  But in recent decades, whenever a politician has tried to demonstrate the failing of the current generation to live up to the example of its predecessors, he or she has  quite typically used space exploration as the standard to be met.  “If we can put a man on the moon we can [insert pet project here].”

Although the vision of Neil Armstrong stepping onto the moon is becoming less compelling to most Americans, it is still far more evocative than the image of guys in stovepipe hats shaking hands in front of two trains in Promontory Point, Utah.  So why does Obama invoke events of 140 years ago, than something in living memory?

I think the reason for that is pretty clear.  He’s effectively gutted NASA.  Pretty hard for a guy who has pretty much terminated the manned space program to use the manned space program as an example of what America can achieve when it sets its mind to it.

Truth be told, I am ambivalent about NASA and manned space programs.  Even though I grew up when the race for the moon was a subject of intense national interest, and I have pretty distinct memories of major events (the landing itself, Apollo XIII, the fire on Apollo III, the Christmas Eve orbiting of the moon), I was never all that interested in it: history and things here on earth have always been more intriguing to me.  Moreover, I bring an inherent skepticism to any huge government program.  This is particularly true today, when the country’s financial condition is so fraught.  I understand, intellectually, the arguments about the innovations produced as a result of NASA, but have yet to see a convincing demonstration that the current rate of return on investments in NASA–including the value of any information or innovations that it generates–makes the investment of billions a paying enterprise.

So I am not slamming Obama on slashing NASA.  I don’t know enough about it to make a judgment one way or another.  I just find it very interesting that his slashing has eliminated a common rhetorical trope from his repertoire, and forced him to harken back to a day that no one remembers and very few care the slightest about in order to flog his stimulus proposals.

Via JRL (item #5), this article from Argumenty Nedeli assesses the domestic consequences of Putinism:

But as regards domestic politics and the economy, the situation here is completely different. It is hardly worth talking yet again about the crazy rise in (natural monopoly and municipal services) tariffs and the decline of Russian industry, science, and education. Although the fruits of this decline have become totally tangible. Inscrutable Chubays-type nanotechnologies attempt in front of the television cameras to sell him duff Chinese consumer goods in the shape of the latest e-books for school kids. In the last nine months alone the country has lost six satellites worth a total of 15 billion rubles. Military depots are blowing up, leaky ferry boats are sinking, aircraft are falling out of the skies in droves. The reason for this, analysts say, lies in the flawed model for managing sectors of the national economy. It has either been sold off or handed over not to experts but to “insiders.” It is toward them that Putin’s other face is turned. There are significantly fewer of them, but they control the levers of administration.

For example, our long-suffering civil aviation sector is run from the Trade Ministry (!) by Moscow State University Sociology Department graduate Manturov. It is he who is being described as the main destroyer of leading aircraft firms with a worldwide reputation. It is possible to familiarize yourself with the details at professional forums. Agriculture Minister Skrynnik graduated from the Chelyabinsk Medical Institute. Health Minister Golikova graduated from the Russian Economic University Named for G.V. Plekhanov. Her husband — Trade Minister Khristenko — is a Chelyabinsk Polytechnic graduate specializing in “construction engineering.” Defense Minister Serdyukov is a graduate of the Leningrad Institute of Soviet Trade and recently of the Law Department.

It would be possible to dig even deeper. But everything is clear anyway. According to the laws of nature, people who find themselves in the wrong place first get rid of those who are professionally smarter than they are. This is what is happening in the Health Ministry, the Defense Ministry, and the Agriculture Ministry alike…. And what is the result? In the last 10 years the Caucasus that Putin subjugated has started to consume more money than during the period of military operations. The Yeltsin oligarchs have been replaced by Putin oligarchs. There are more of them. And for understandable reasons they will do everything to ensure that Vladimir Vladimirovich remains in power for as long as possible. It can also be said that V. Putin’s entourage will not allow him to leave power. As members of the Communist Party of the Soviet Union Central Committee Politburo would not allow L. Brezhnev to go in the not-too-distant past. So the only thing left for us to do is to dream that he will nevertheless listen to the opinion of others. And his billionaire friends also have something to think about. As the experience of our neighbors shows, today there is nowhere to run. So it is becoming increasingly dangerous with every passing day to preserve the order of things whereby the country’s economy is run by “cooks.” And it is not even a matter of a possible revolution but of universal apathy.

It is hard to say what scheme might be used to form a new cabinet. But it cannot be done without consulting and taking account of the opinion of at least the establishment opposition represented in the State Duma. The current set of ministers consists totally of rich people. They no longer need anything.

Apart from guarantees against prosecution.

The most interesting aspect of this is the description of the non-entities in charge of various ministries outside of their ken of expertise, such as it is.   This is a natural strategy for someone like Putin: it makes it far less likely that a powerful rival will arise from  within the government.  I also found this sentence amusing: “According to the laws of nature, people who find themselves in the wrong place first get rid of those who are professionally smarter than they are.”  This is in accord with the accounts I’ve heard from people who have worked with Russian companies, especially energy companies, who tell of large operations under the direction of incompetents appointed for their political reliability and whose efforts are concentrated on crushing anyone who knows more than he does (and it is invariably a he)–which means trying to crush just about everybody.  Dilbert goes to Russia, in other words.

The desire of the made men for Putin to stay in control is understandable, and something I’ve discussed in the past years.  The political contingency of property means that no matter how wealthy you are today, that can disappear in an instant when political winds change.  Indeed, you can go from being a billionaire to being a convict in Siberia, or a man without a country (like Luzhkov).  Any political change bears with it the prospect of a reallocation of property.

Stultifying stability is therefore a virtue in this system, especially for the “elite” (where the term  is used loosely when applied to a group that includes a disproportionate number of mouth breathing judo experts).  Putin is the equilibrator, the balancer.  Without him, the balance would almost certainly be lost, sparking the equivalent of a mob war a la the Godfather, the Five Families in New York, or Capone vs. Bugs Moran in Chicago circa 1927.  Like in Tsarist Russia, before the Crimean War, anyways, real change is an anathema.  Only a systemic crisis, or a shattering military reverse, will spark real change.

The latest reporting about the loss of the SEALs in Afghanistan over the weekend is that the men were lost in an ambush, but one that played out differently than how I hypothesized.  These new reports suggest that rather than having the raid tipped off by an inside source, the Taliban had leaked intelligence that a high value target was in a village in Wardak Province, knowing that the US would mount a raid to try to nab or kill him.  The Taliban were lying in wait, and jumped the Ranger unit sent to conduct the raid, knowing that the Americans would launch a rescue mission to extricate the Rangers.  The Taliban further knew that the rescue operation would have to fly down a single, narrow valley, and were in ambush on either side of the flight path, and shot down the helo.

In other words, the Taliban re-enacted a version of the Fetterman Massacre.  In 1866, Indians attacked a woodcutting party outside of Fort Kearny, knowing that soldiers in the fort would sortie to defend the woodcutters.  When the mixed force of cavalry and infantry ventured from the fort, a decoy party of Sioux led by Crazy Horse took off, and the soldiers followed them.   Chasing them over a ridge that took them out of sight of the fort, the soldiers were set upon by a far larger group of Indians, who killed them to the man.

You have to be aggressive in war, but aggressiveness can be turned against you.  This wasn’t the first time that happened, nor will it be the last.

Harvard’s Dmitry Gorenburg (with whom I will be on a panel at this November’s Association for Slavic, East European, and Asian Studies meetings) has an interesting post about the Russian military manpower dilemma at his Russian Military Reform blog.

He posits that Russia has two alternatives to address its problem: (1) increase the use of contract personnel in lieu of draftees, or (2) reduce the size of the military.

In my view, option (1) is a non-starter.  Conscription isn’t working because of the serious demographic problem.  It’s bad now, but will be particularly acute in the next couple of years due to the birth implosion in the early years following the collapse of the USSR.  But that same demographic problem means that the potential pool of kontraktniki is small as well.  Indeed, the shortage of physically fit, reasonably intelligent young men will tend to elevate their wages, thereby making the cost of a predominately volunteer military prohibitively expensive.  This is especially true if Russia plunges ahead with its plan to spend huge sums on new hardware, rather than software.

In other words, changing the means by which Russia obtains soldiers cannot alter its basic constraint: the pronounced lack of men available to serve.  So option (2) is the only realistic one.  And, not surprisingly, one that the government seems singularly uninterested in pursuing.

And if the economic problems in the US and Europe persist, Russia’s budgetary constraints will become even more acute.  Note that oil fell about 4 percent today, and is currently well below the level needed to balance the Russian budget.  And to bring home the point that Russia is a high beta economy, the RTS index fell even more than the S&P and Dow.

My recent reading–Fuller’s Strategy and Power in Russia, 1600-1914–makes plain that manpower problems are a hardy perennial on the steppes.  A good portion of the book details how manpower and recruiting problems have long been a major constraint on Russian strategy.  Serfdom permitted the army to rely on long term–and I mean long term (25 year)–service terms.  This facilitated the development of an experienced soldiery, with great esprit and comradery.  Indeed, the soldiers were effectively dead to their families–who often held mock funerals when they went off to the army.  The army became their family.  The soldiers formed artels–cooperatives–that were their households for life.  Also, since the soldiers were effectively cut off from the wider society, they were largely immune to the social conflicts that rent Russian society.

But this system had its problems.  First, landowners had an incentive to pick the least fit, least intelligent, and least tractable serfs to go into the army.  Second, as the other armies of Europe moved to a system of conscription with short service terms, these countries could accumulate a large force of reserves that could be called up in the event of war.  Russia, in contrast, could not do that.   It tried to work around this, by releasing soldiers who had served for 15 years who could be called back during an emergency.  But these men were outcasts.  They could not return to their villages, where they were strangers and extra mouths to feed to boot.  So many became tramps and bandits–and hence lost to the army.

The problem with military recruitment–made painfully obvious in the Crimean War–was a major factor behind the abolition of serfdom in 1861.  But Russia’s vast distances and economic backwardness made it impossible to create a system that worked like the Prussian/German military.  Moreover, eliminating the long-term service system destroyed the tight bonds between soldiers that made them so formidable in the field.  And making the army more like society, the changes subjected the army to all the frictions, factions, and fissions that characterized Russian society at the time.

In brief: Russia has been looking for a solution to its military manpower problems since the early-19th century.  Back then, it didn’t have the demographic problems it has now.  Which means that it will be looking for solutions–and not finding them–for years to come.

I recommend Fuller’s book more broadly.  It does an excellent job at analyzing the interaction between state capacity, finance/economics, and strategy over the vast sweep of the Romanov dynasty.  I have a greater appreciation for the sources of Russian insecurity, especially post-1856, and especially, especially post-1905.  The analysis of how its pessimism about its strategic situation led to its decision to go to war in 1914, and more importantly, its decisions on how to go to war (by attacking Germany and Austria) is fascinating.

Fuller argues that Russia’s strategy was realistic and well-adapted to its capabilities in the 18th century, but this was no longer true starting with Nicholas I.  Whereas Fuller is highly complimentary of the sagacity of Russian leadership from Catherine II to Alexander I, he is scathing in his assessment of all the Tsars that followed, and their advisors.

Truth be told, I would say that the current leadership has much more in common with the latter lot than the former.

One last thing: today is the anniversary of the beginning of the Russo-Georgian War in 2008.  Which reinforces the last point.