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Update

I'm not dead; I'm just busy with Saturns Children and suffering from a summer cold. The combination of trying to batter a novel-length plot into submission (I'm about halfway through nailing a stake through its heart writing it, and it's still fighting back) and trying not to die of a runny nose tends to be profoundly demotivational vis-a-vis blog writing.

Meanwhile, back in the real world, Yegor Gaidar, Prime Minister of Russia under Boris Yeltsin, has an interesting paper out, in which he gives a Kremlin's eye view of the real reason the Warsaw Pact, and then the USSR, collapsed. Surprise — the Reagan era arms build-up, while a contributory factor (it deterred the Politburo from trying to balance their books by reducing military spending), was less important than the Saudi royal family, and Deutsche Bank. Gaidar's theory may not be the whole truth, but it gets us usefully away from the "man on a white horse" theory advanced by western conservatives, and gives us an economic explanation; it also raises the spectre of what's going to happen next, now that the Russian economy has begun to substantially restructure and recover, and the price of oil has risen sharply.

(A secondary, somewhat ironic, possibility is that we may owe the collapse of the USSR to Saddam Hussein. If he hadn't invaded Iran in 1981, leading to the Iran-Iraq war of attrition, it's possible that both Iraq and Iran would have held their oil production to 1970s levels for much longer, in turn maintaining prices at a high enough level that the Soviet oil exports would have covered their deficit. But that's another matter ...)

The USSR isn't the only superpower to have problems squaring the circle of high military spending, a mushrooming deficit due to imports exceeding exports, and — oh, what's the use? Unlike the USSR, the USA runs one of the two most solid currencies on the planet, and that buys a lot of credit that wouldn't be available if, for example, raw materials were priced in Euros instead of dollars. And I suspect it may be thinking along these lines that explains why Vladimir Putin is trying to channel the ghost of Leonid Brezhnev these days. He's not looking for a new cold war so much as he's betting that the US is close to the limits of imperial — and fiscal — overstretch, and if he just pushes a little bit harder, sooner or later something's going to break.

Personally, I find this whole topic depressing ... not to mention difficult to reach any definite conclusions on. That's the trouble with abandoning the Great Man theory of history: the underlying economic forces aren't necessarily obvious at the time. So as a footnote, I'd just like to leave you with VivOleum, the real future of the oil energy.

26 Comments

1:

Yeah, I love the New York Times headline, "Fuel Prices Aside, Inflation is Tame." Fuel, you know the stuff that is the underpinning of everything we do, nothing important. Hilarious.

2:

There's inflation, and then there's "core inflation", and if we just focus really hard on the core stuff we can deny that anything's happening to the economy because of the price of energy. Other than the Long Boom Phase II, of course (stock bubbles, anyone?).

Charlie, if Putin manages to push the US over the edge (not likely, Bush hasn't succeeded yet, despite 7 years of trying), what makes him think the USSR will be in any better shape in the resulting vortex of ecoonomic chaos? How many countries were immune to the wake of the Great Depression? My guess is he's not that sophisticated in economic theory, that what he's really after is simply a return of Russia's imperial expansion. Maybe not Soviet-style, but more like old Imperial Russia, with Putin as Czar-Elect. And he figures that if he can keep things in the old East Bloc stirred up enough he may at least get back some of the old pieces nearest his current borders before they can cement new ties to the EU or Nato.

3:

re: VivOleum

Thermal depolymerization could convert biological waste such as corpses into fuel. Not that we would, but if Changing World Technologies develops their plants further you could in theory. It's morbid, but not silly.

4:

...what makes him think the USSR will be in any better shape in the resulting vortex of ecoonomic chaos?

Remember the old joke about the two hunters? "I don't have to outrun the lion; I just have to outrun you." Even if a hypothetical world crash does leave everyone worse off, some people might argue that it will still leave Russia in a better position relative to the US than it is now, and some people might also argue that this would be a net win from their point of view.

(This assumes that adding a few more straws to the US camel's back is in fact Putin's main motive in his current sabre rattling, something I'm not all that convinced of.)

5:

Charlie,

You must really be ill if you're citing something from the American Enterprise Institute. Well, maybe it's a sign that you're recovering. :-)

U.S. defense spending consumes a lot in dollars, but as a percentage of GDP it's never been near where the Soviet Union was. In those terms, we're still pretty low compared to the Cold War years.

6:

Randy: sure I'm ill. (Nasty chest bug.) And you'll note that Gaidar's tenure in the Russian PM's slot was not auspicious. He was one of the "privatize everything" types who took somewhat disastrous advice from western economists and managed to trash the Russian economy even further under Yeltsin; if he was offering up a proposal for where to go next, I'd dine from that bowl with a very long spoon indeed. On the other hand, his analysis of events that occurred before he had any significant reputation at stake may be useful simply for the divergent perspective it brings to bear on the question of why a superpower evaporated in two years flat.

As for US defense spending being a low percentage of GDP, have you seen what it's been doing lately? It's currently at double the peak Cold War level, believe it or not -- that's the whole point I'm getting at.

I'm beginning to suspect that the true significance of the Bush Doctrine ("fuck everyone else, we're number one: we can go it alone!") is that by reducing reliance on allies and increasing active involvement overseas, it's got the US Treasury into a situation where it's funding not only a bunch of overseas wars but a whole lot of stuff that other folks used to do for the USA for free, gratis: and there's not a lot of fiscal slack in the system. Long term, what usually seems to kill empires is money or demographics, and these policies lay the ground for a crash of monumental proportions. I don't think it's inevitable -- W's only got 18 months to go, then presumably the next President will have their work cut out going into full-on damage control mode -- but another crisis of the scale of 9/11 or Hurricane Katrina could have some very big side-effects.

(You've seen what happened to New Orleans. What do you suppose would be the effectiveness of the Federal response if, say, the San Andreas fault dropped a 7.5 earthquake tomorrow? All the geologists reckon it's pretty much inevitable some time in the next 25 years or so; when it happens, that's when you're really going to learn what kind of shape the Federal government is in.)

7:

I'm surprised at you, Charlie! "problems squaring the circle" indeed...

As you undoubtedly know, squaring the circle is impossible in principle. I've seen the same solecism in The Times (twice in one issue, including an editorial and an article by Philip Howard). Nevertheless, those who are numerate should set a good example to others.

8:

Tom, what makes you think I was committing a solecism?

(Hint: maybe I was suggesting that what they were trying to do is, in the long run, impossible ...)

9:

I wonder if peak oil means the situation now is significantly different from 20 years ago and that Russia can perhaps rely more on high fuel prices continuing...

10:

Charlie: Regarding a major natural disaster in the US, a lot will depend on state and local prepardness and responses if one happens. Primary responsibility lies with the state governments, they have to declare an emergency and request help before the Federal government does anything. Part of the reason Katrina was so bad in New Orleans was that both the city and state governments made a mess of things even before the Feds came in. Parts of Alabama and Mississippi were hit just as hard, but they were more prepared and so we didn't hear about them.

11:

Charlie,

I don't know where you're hearing that. As either a percentage of GDP, or percent of the federal budget, I don't really see us at the Cold War minimums, let alone the peak.

You can find the data here:
www.whitehouse.gov/omb/budget/fy2007/hist.html

1991's DoD budget was 19.8% of the federal budget (not GDP). It was 19.2% in 2005. I think you can see I'm not cherry picking by using those years. Reagan's peak was 27.3% and you can find much higher numbers in earlier decades:

www.whitehouse.gov/omb/budget/fy2007/sheets/hist04z2.xls
(Note that's a .XLS file.)

I'll grant the possibility of shenanigans, but it won't make too much of a difference here. I don't have figures for the Soviet Union but I recall their military spending at 15% of GDP when ours was still around 6%.

Federal debt is on those same pages. We're higher than we were in the late 1990s but it's coming down. A case can be made that Europe is in worse shape than we are.

12:

Correction: When I said federal debt is coming down, I meant the budget deficit, not the debt itself.

13:

"Good news! I'm running up less debt this year than I did last year! If this goes on, some year real soon now I can begin paying off the interest! Then I'll take a crack at the capital!"

Randy, speaking as a citizen of one of the nations y'all owe a metric shitload of money to, I hope you can understand why I'm not terribly enthused by this?

14:

I'm sure British citizens had good reason to loan us that money rather than investing it at home. But it's interesting to see that the problem, if there is one, is really yours.

BTW: The last I checked, it appears that the U.S. budget could be in surplus next year. I expect productivity to increase, even if there is no singularity, and that will make payments get smaller as the years roll by.

There are many ways things could go south, but every doomsday scenario I see leads me to be glad I'm over here. Those doomsday scenarios mean real trouble in your end of the world. Maybe that explains part of the reason for investment in the U.S.

15:

Keep smoking that weed, Randy. Be interesting to compare notes in a decades time!

16:

Charlie,

Yes, a couple of decades will change everything radically.

We'll either be arguing this stuff holographically, or via Morse code.

18:

If we still have mobile phones. I was offering an alternate scenario to the holographic internet we may be using on this side of the Singularity. Morse code was the worst I could think of that still allows communications across the simmering Atlantic after World War VI.

That link is incredible in so many ways.

19:

I always considered it more like potlatch than "man on a white horse"...

The really scary thing is that the southern segment of the San Andreas Fault hasn’t had a Big One in 300 years; it’s got about 7–10 meters of slippage to catch up on. I would not invest in property near San Diego any time soon.

20:

It is worth pointing out that if it were not for the USA maintaining its credible military threat then the banks would not have had such leverage over the Kremlin. Without the US presence in Germany the Soviet union could have solved the "Deutsche Bank is being stroppy" problem by invading Germany...

Given that Euros and Dollars are freely convertible the fact the commodities are priced in dollars is nothing more than a demonstration that the US dollar has been a historically been reasonably stable. If people start pricing oil (or gold or ...) in Euros that will make no difference to anything.

Oh and WRT the USA indebtedness. The country is far far more healthy than Europe. US debt as a proportion of GDP is around 50% Most of Europe (includign IIRC the UK) is at 60% plus and some countries (e.g. Belgium, Italy) are closer to 90%. The place where the US has problems is not with the transatlantic relationship but the transpacific one with enormous trade deficits with China, Japan, Taiwan, Korea etc.

21:

Somebody over on theoildrum.com was telling us that the best job post Russian collapse was security guard. After the company shut down, the company premises, computers, copper pipe, etc, belonged to the security guard. He was speaking as a Russian native with relatives in the old country.

22:

> I would not invest in property near San Diego any time soon.

Uh-oh.

Mitch "lives in a home he owns, about a 10-minute walk from the San Diego city limits sign" Wagner

23:

re: squaring the circle. OK Charlie, it's a fair cop. I apologize!

One gets so used to reading really unintelligent comment that a danger arises of underestimating the occasional intelligent (and mischievous) writer.

24:

The "man on a white horse" Reagan administration doesn't claim that "the Reagan era arms build-up" defense expenditures alone toppled the Soviets, they claim they had an active strategy for A) convincing the Saudis it was in their interests to drop prices and B) convincing US/European bankers to reduce credits to the Soviets, C) slowing/disrupting oil/gas pipeline building that would have increased Russian oil/gas exports, and D) trying to bleed the Soviets in Afghanistan. This apologia is laid out in the book Victory by Peter Schweizer.

Personally, I wonder whether the fruits of Soviet collapse-- ie West German control of East Germany-- were ever dangled or considered by Deutsche Bank or the West German state. I've never seen claims or actual evidence for this but it's a good rationale in hindsight for West German state/banking cooperation.

25:

Bonner and Wiggin's "Empire of Debt" is a good read.

26:

Bruce: "My guess is he's not that sophisticated in economic theory, that what he's really after is simply a return of Russia's imperial expansion."

There are probably multiple layers. I'd assume that a defensive reaction is pretty popular in many of the circles of Russia's elites. They'd probably like to keep the USA at bay. If the USA had suffered anything like what happened to the USSR in the past decade and a half, a lot of USA elites would be pushing for anything which hurt the USSR, on the grounds that the USA would be far too close to dismemberment.

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This page contains a single entry by Charlie Stross published on June 15, 2007 10:50 PM.

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