Russia’s full-scale invasion of Ukraine and Ukrainian resistance to that invasion remains the most significant international event of 2022. Beyond the military implications, the invasion has created millions of Ukrainian refugees, caused many men of military-age to leave Russia, affected food and energy supplies and changed the Russian economy.
In March 2022, I interviewed Brian D. Taylor, a professor of political science at Syracuse University and author of the highly acclaimed book The Code of Putinism. To gain his insights on the events of the past ten months, I asked Professor Taylor, who responded in writing, what the future holds for Russia. He discusses the war’s progress, the state of the Russian economy, Russian attacks on Ukrainian infrastructure, Vladimir Putin’s view of Ukrainian sovereignty and other topics.
Stuart Anderson: How do you think Vladimir Putin and those around him view the progress of the war in Ukraine since the widescale invasion began in February 2022?
Brian D. Taylor: Putin and his team certainly understand that the war has not gone according to plan. Two key moments stand out: the decision to withdraw units attacking Kyiv in March and April and the decision to announce a so-called “partial mobilization” in September. In the first case, Putin had to give up on his goal of quickly toppling the Ukrainian government. In the second case, he had to acknowledge that Russian casualties (killed and wounded) were so immense in the first seven months of the war that Russia needed hundreds of thousands of new troops to stabilize the front.
That said, I think Putin and his military and security elites—known collectively as the siloviki—still do not believe that Russia has lost the war. They hope to outlast Ukraine and the West by mobilizing more troops, inflicting enormous suffering during the winter on the Ukrainian population by targeting civilian infrastructure, and waiting for collective Western support for Ukraine to splinter and fall apart.
Anderson: You have pointed out the Russian economy stagnated even before the sanctions imposed in 2022. What are the biggest economic problems Russia and Russians face today and in the coming years?
Taylor: The biggest economic problem that Russia and Russians face today is, of course, the war. Instead of an expected growth of around 4% for 2022-2023, Russia’s economy is expected to decline by 8% over those two years. Sanctions have hit production in key sectors very hard, and the effects will continue to mount. The government is shifting to a wartime economy, which means even more state control and military spending and less investment in human capital such as education and health care.
Hundreds of thousands of educated, young workers have left the country, and several hundred thousand more Russian citizens have been mobilized for war rather than productive pursuits—not to mention the roughly 100,000 casualties so far. Living standards will continue to fall, and an increase in wage arrears and unemployment seems inevitable as well. Longer term, the Western shift away from Russian oil and gas brought on by the war will undermine Russia’s most important economic sector.
The Russian economy has been underperforming for 15 years due to poor institutions—weak rule of law, poor protection of property rights, corruption—and consequentially relatively low domestic and foreign investment. Now due to the war, Russian economic prospects have gone from lackluster to dreadful.
Anderson: Russia has openly broadcast on TV that it is taking Ukrainian children to Russia, which many people consider kidnapping. Can you explain Russian boasting about what appears to be a violation of human rights and war crimes on a mass scale?
Taylor: I think these actions, although obviously deplorable, are perfectly consistent with Kremlin messaging about the war. In Putin’s own words, Russians and Ukrainians are “one people.” Putin cannot even imagine that Ukraine would choose to align with the West unless it was somehow tricked or coerced into doing so.
When he launched the February invasion, he asserted that Ukraine was ruled by a “neo-Nazi” government that was committing “genocide” against its own people. Thus, the Russian state portrays these kidnappings not as a war crime but as a benevolent act to rescue endangered children from an evil illegitimate government in Kyiv. It’s nonsense, of course, but that doesn’t mean the views are not seriously held by both Russian state officials and the Russian families who say they are “adopting” these children.
Anderson: One notices the use of Soviet flags and symbols by the Russian Army in Ukraine and still see statues of Lenin in Russia. Since Christianity is now supposed to be an important part of Russia’s identity, why does the government continue to promote Soviet symbols and Lenin?
Taylor: Putin’s Russia promotes a weird mishmash of symbols and identities. In his long speech justifying the February invasion, Putin bitterly denounced Lenin for creating the Soviet Republic of Ukraine, which he considers an artificial construction. Yet, as you note, in other settings and circumstances, Putin fully embraces Soviet history and symbols. I think the way to make sense of this is to understand Putin as someone who believes in the imperial Russian myth of 1,000 years of continuous Russian history. For him, pre-revolutionary Tsarist Russia, the Soviet Union, and post-Soviet Russia are all part of a single story of “historic Russia” and its rightful status as a Great Power.
Of course, Russia is not the only country that tells a story about itself that is at odds with a much more complicated historical reality. This war is a tragic reminder of the potential dangers when myths of imperial greatness serve as a guide to contemporary foreign policy.
Anderson: A Russian commentator raised an obvious contradiction in the rhetoric about Russians and Ukrainians being one people and post-Soviet peoples belong together, arguing if Russians would not surrender because they lost heat or electricity during the winter, why should anyone expect Ukrainians to do so. What do you think?
Taylor: I can’t but agree with the commentator you mention. I refer once again to Putin’s February 21 speech, in which he said about Ukrainians: “These are our comrades, those dearest to us . . . colleagues, friends . . . but also relatives, people bound by blood, by family ties.” Yet the actions of Russia for the last nine months shows that Putin sees no problem with the murder and torture of those he refers to as comrades, friends, and relatives.
It’s not surprising that Ukrainians see his statements as empty words and have become even more determined to hold on to their sovereignty and freedom in the face of Russian efforts to inflict immense suffering on civilians through these bombing campaigns against civilian infrastructure.
Anderson: The Institute of the Study of War said recently that Putin “continues to reject the idea of Ukrainian sovereignty in a way that is fundamentally incompatible with serious negotiations.” Do you agree?
Taylor: One hundred percent. Putin has made clear for many years that he does not think Ukraine is “even a state,” as he told George W. Bush in 2008. This war—which goes back to 2014, when Russia annexed Crimea—stems directly from Putin’s refusal to see Ukraine as a sovereign state with the freedom to make its own political and foreign policy decisions.
In his view, Ukraine must be in Russia’s “sphere of control,” as Fiona Hill and Angela Stent put it. Just two months ago, Putin forcibly asserted that he was annexing four regions of Ukraine that, according to international law and multiple agreements between Russia and Ukraine, are legitimately part of Ukraine. If Putin wanted to end the war, there is nothing stopping him from pulling Russian forces back to Russia’s legitimate international borders.
US inflation and consumer spending cooled in December – Al Jazeera English
The Federal Reserve’s preferred inflation gauge eased further in December, and consumer spending fell – the latest evidence that the Fed’s series of interest rate rises are slowing the economy.
Friday’s report from the US Department of Commerce showed that prices rose 5 percent last month from a year earlier, down from a 5.5 percent year-over-year increase in November. It was the third straight drop.
Consumer spending fell 0.2 percent from November to December and was revised lower to show a drop of 0.1 percent from October to November. Last year’s holiday sales were sluggish for many retailers, and the overall spending figures for the final two months of 2022 were the weakest in two years.
The pullback in consumer spending will likely be welcomed by Fed officials, who are seeking to cool the economy by making lending increasingly expensive. A slower pace of spending could boost their confidence that inflation is steadily easing. Still, the decline in year-over-year inflation matched the Fed’s outlook and is not likely to alter expectations that it will raise its key rate by a quarter-point next week.
On a monthly basis, inflation ticked up just 0.1 percent from November to December for a second straight month. Energy prices plunged 5.1 percent, and the overall cost of goods also fell.
“Core” prices, which exclude volatile food and energy costs, rose 0.3 percent from November to December and 4.4 percent from a year earlier. The year-over-year figure was down from 4.7 percent in November, though still well above the Fed’s 2 percent target.
Falling prices for oil, gas, copper, lumber, wheat and other commodities, along with the unclogging of supply chains, have helped slow the retail costs of cars, furniture and clothes, among other items.
Price increases, though, have remained persistently high for some goods and services, including eggs, which skyrocketed 60 percent last month compared with a year ago. Egg prices rose 11.1 percent just in December, inflated by an outbreak of avian flu that has led to a culling of herds and higher feed costs.
Car rental prices have also soared nearly 27 percent from a year ago and rose 1.6 percent just in December.
But for many other items, inflation is easing. Coffee prices, though up nearly 14 percent in the past year, rose just 0.2 percent last month. And the cost of clothes and shoes rose just 3 percent in the past year and 0.3 percent last month.
Friday’s figures are separate from the better-known inflation data that comes from the consumer price index. The CPI, which was released earlier this month, has also shown a steady deceleration.
“The latest data offer the first tangible signs that the economy’s main engine is slowing,” said Oren Klachkin, lead US economist at Oxford Economics, referring to consumers, whose spending accounts for about 70 percent of economic activity.
The Fed has been seeking to slow spending, growth and the surging prices that have bedevilled the nation for nearly two years. Its key rate, which affects many consumer and business loans, is now in a range of 4.25 percent to 4.5 percent, up from near zero last March. Though inflation has been decelerating, most economists said they think the Fed’s harsh medicine will tip the economy into a recession sometime this year.
“We continue to see the US economy experiencing a mild recession this year,” said Lydia Boussour, senior economist at EY Parthenon.
Low levels of unemployment
A recession typically causes widespread layoffs and higher unemployment. But for now, US employers are adding workers, and the unemployment rate remains at a half-century low of 3.5 percent.
Should job losses, which are occurring at many finance and tech companies, drive up unemployment, a recession could eventually be declared by a group of economists at the National Bureau of Economic Research, a nonprofit that officially determines when recessions occur. The economists at the NBER typically make such an announcement well after a recession has actually begun.
For now, the number of people seeking unemployment benefits – a proxy for layoffs – declined last week to 186,000, a very low level historically. And Walmart, the nation’s largest employer, said it would raise its minimum wage, from $12 to $14 an hour, to help it keep and attract workers.
The Fed is in an increasingly delicate position. Chairman Jerome Powell has emphasised that the central bank planned to keep boosting its key rate and to keep it elevated, potentially until the end of the year. Yet that policy may become untenable if a sharp recession takes hold.
On Thursday, the government reported that the economy grew at a healthy clip in the final three months of last year but with much of the expansion driven by one-time factors: Companies restocked their depleted inventories as supply chain snarls unravelled, and the nation’s trade deficit shrank.
By contrast, consumer spending in the October-December quarter as a whole weakened from the previous quarter, and business investment dropped off sharply. Overall, the economy expanded at a 2.9 percent annual rate in the October-December quarter, down slightly from a 3.2 percent pace in the previous quarter.
If consumers remain less willing to boost their spending, companies’ profit margins will shrink, and many may cut expenses. That trend could lead eventually to waves of layoffs. Economists at Bank of America have forecast that the economy will grow slightly in the first three months of this year – but then shrink in the following three quarters.
More frugal consumers would threaten to send the economy into a recession. But they can also help reduce inflation. Companies cannot keep raising prices if Americans will not pay the higher prices.
Last week, the Federal Reserve’s beige book, a gathering of anecdotal reports from businesses around the country, said, “Many retailers noted increased difficulty in passing through cost increases, suggesting greater price sensitivity on the part of consumers.”
Your Weekend Reading: Nobody Knows Where the US Economy Will Land – Bloomberg
The US Economy Slows Down
The Federal Reserve must be pleased with the top-line numbers in Thursday’s fourth-quarter GDP report, which showed the U.S. economy grew by a solid 2.9% while its preferred price index slowed to 3.2%. But drill down, and the economy looks to be losing momentum.
Maybe the best news from the report is that consumer spending continued to increase at a steady 2.1% and contributed about half of the GDP growth. It appears that rising interest rates haven’t yet caused consumers to pull back, though the December retail sales report showed a sharp drop in spending and could augur a slowdown.
The shift in spending toward services that began as lockdowns eased continued. Services contributed 1.16% to the consumption increase, with motor vehicle and parts chipping in 0.20%. End-of-year discounts may have moved forward purchases, and auto analysts are forecasting weak growth this year.
Businesses also restocked inventories as supply chains eased, which accounted for 1.46% of the GDP growth. Net exports also added 0.56%. But neither is likely to be sustained going forward. The other big lift to GDP came from government spending, which increased 3.7% and contributed 0.64%. Most of this was transfer payments and salaries rather than defense or public works.
The biggest cause for concern was the 6.7% fall in fixed private investment. Much of that was housing (-26.7%), owing to the sharp increase in interest rates. What the Fed giveth, it now taketh away. Capital expenditures also fell 3.7%, which signals that businesses are getting nervous and spending less on equipment that can boost worker productivity.
Intellectual property investment is holding up better, but research and development declined last quarter. One culprit may be last year’s expiration of the immediate expensing for R&D. The pullback in business investment amid higher interest rates and economic uncertainty has been evident in the ISM purchasing managers index for some time.
The economy can’t live on consumption alone, and the sharp decline in the savings rate—2.9% in the fourth quarter compared to 7.3% a year earlier—suggests that consumers may be running up credit cards to make ends meet or take the vacation they couldn’t during the pandemic. But as savings decline, so may consumer spending.
Perhaps the best news for the Fed is that real disposable personal income grew 3.3% as the personal consumption expenditure price index eased to 3.2%, down from 4.3% in the third quarter and 7.5% in the first. This suggests that its monetary medicine may be starting to work, and it might not have to raise interest rates as high as some expected a few months ago.
Recent job and unemployment claim reports also indicate that the labor market is holding up well, even as many large companies announce layoffs. Small businesses are still hiring, and China’s abandonment of zero-Covid policies will help global growth.
The biggest risks to the U.S. economy other than higher interest rates this year are probably the tax increases in the Inflation Reduction Act and a regulatory onslaught that are compounding business uncertainty. President Biden has a growing economy, and let’s hope he can keep it.
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