Eurasia Press & News
Ukraine has little chance of achieving economic (and democratic) development with an angry and vengeful neighbor spreading disinformation and nurturing discontent and violence, Harold James, a professor of history and international relations at Princeton University, told Project Syndicate in an interview.
As long as Putinism is seen as a viable alternative to liberalism and democracy, it will destabilize the entire world.
You argue that creating a “general framework for the reconstruction of conflict-torn societies”, similar to the post-World War II approach, could help establish a stable peace in Ukraine, not least by showing the Russians that “there are much better alternatives to Putinism.” The implication is that winning the hearts and minds of ordinary Russians is just as important as applying external economic pressure, such as an energy boycott. In building a post-conflict framework capable of shaking the Russians, where should the West begin?
– Thinking about post-conflict stabilization, we need to consider the region as a whole. Ukraine has little chance of achieving economic (and democratic) development with an angry and vengeful neighbor who spreads disinformation and nurtures discontent and violence.
In fact, as long as Putinism is seen as a viable alternative to liberalism and democracy, it will destabilize the entire world.
There is hope that the Russians will see that Vladimir Putin’s tactics — from using conflict to stabilise domestic policy to highlighting hydrocarbon production and exports as the key to economic development — are grossly wrong. He will understand that his military adventures, from Georgia to Syria to Ukraine, are not only inhumane; It costs Russia dearly.
And they will conclude that the old authoritarian model should be replaced by a balanced approach to economics and society.
This perspective across the region must spark discussions on how to rebuild Ukraine’s destroyed infrastructure and housing stock and, potentially, how to extract financial penalties from the main perpetrators of violence and aggression.
For example, while punishing war criminals is an important signal for the future, it also does not place a huge financial burden on the entire Russian population: it was a mistake made with defeated Germany in 1919. If the Russians want to reject Putinism, they must see Putin as a problem, not as a shield to defend them from an aggressive meddling West.
“The current challenges and past failures of economic planning,” you wrote in January, “suggest that we need more market prices, more globalization and more growth, not less” We especially need “fair prices that reliably convey cost information.” Why have markets failed to produce “fair” prices, and what role should politics play in changing that?
– Prices are key signals that shape behavior. If they are too low, excessive consumption occurs. If they are too high, they impede economic development.
Potentially wrong signage – for example, the internet and social media that we assume are free, or cheap clothing that does not reflect externalities (especially the environmental costs of production) – can lead to huge costs and social losses.
The policy can help by eliminating inadequate subsidies, adjusting tax rates (for example, equalizing levies on aviation fuel and other fuels), or breaking “bundles” of goods or services whose prices mislead consumers.
A well-known case worth learning on is the European Union’s 2014 Markets in Financial Instruments Directive, commonly known as MiFID 2, which requires investment firms to disclose to clients whether their investment advice is provided on an independent basis.
MiFID 2 also requires companies that offer a package of products or services to disclose the costs and fees of each component. The impact of this regulatory progress has not yet affected ordinary people.
A more difficult, but ultimately necessary task could be to ensure that consumers are rewarded in cash for the ads they look at and more for those they click on, as well as having (as is the case with some sites) the ability to pay for advertisements – free access to platforms.
Prices in this case would represent a balance of benefits – but also of the costs themselves – of their actions. In this way, they could really see the commercial logic of using the Internet.
*You argued in 2021 that some price increases were doing their job – sending a signal to markets to produce a certain response – and that they didn’t justify “pressing the brakes to recover”. A year later, however, you complained that us President Joe Biden’s administration had pressured the US Federal Reserve to maintain loose monetary policy and warned that central banks had “sown the seeds of wider political and social disintegration.” Where did policymakers go wrong in responding to rising prices, and is today’s inflation still “good”?
-Yes, he is. I believe That I was completely consistent in the assertion that the higher prices that followed the pandemic and, later, the invasion of Ukraine, were needed to encourage less consumption of scarce goods (such as fuel). That response is also essential to help drive the long-term transition from carbon dioxide energy.
Obviously, there was a case for some compensation for temporarily lost income, and states have a well-recognized responsibility to ensure security. Lower-income consumers really need to be supported so they can travel and pay for heating.
The principle of universal support, however, was exaggerated, and the broad stimulus offered exacerbated shortages, as people rushed to buy consumables – especially electronics, from laptops (for working from home) to complex medical equipment – which were lacking .
In the long run, I’m not particularly concerned about the short rise in inflation. We are already seeing major inflation figures falling in many advanced economies. Mentions of relative prices are exactly what produce incentives that change the structure of production and encourage fresh innovation.
As historical experience has shown, perhaps we could even expect an increase in productivity that will be accompanied by a supply shock.
“The experience of history,” you write in your new book, The Seven Crashes: The Economic Crises That Shaped Globalization, “is that some kinds of globalization crises lead to more, not less, globalization: they produce new energy for communication and innovation.” Which historical episodes best portray this dynamic? What conditions make the crisis strengthen (or weaken) interconnectedness?
The crises that clearly and unequivocally led to greater globalization were those that occurred in the 1840s and 1970s. In both cases, negative supply shocks — the food shortages of the 1840s as a result of a failed harvest and energy shortages in the 1970s caused by geopolitical changes and two oil price shocks — called economic, social and political stability into question. The shortages of the 1840s led to the overthrow of governments across Europe.
In the 1970s, industrialized democracies were gripped by fears of imminent government collapse — then called inability to govern.
In both cases (as now), efforts to adapt to shortages led to a rise in inflation — short-lived in the nineteenth century, but stubbornly long-lasting in the twentieth. The latter ultimately required painful disinflation processes in the hardest hit countries, such as the United States and the United Kingdom.
Governments initially tried to find national solutions to both crises, but voters eventually forced them to change course and open up. The opening involved the use of new technologies: steam engines in the mid-nineteenth century and container ship in the 1970s.
Increased trade offered a way out of scarcity: it meant providing more goods at lower prices for more citizens. So scarcity and cost drove innovation. I hope that they will do so today, especially in the case of medicine and education, which are very expensive and could be traded much more across borders.
“In retrospect,” you write in Seven Crashes, “the collapse of 2007-08 looks like a debt crisis,” as consumers bought assets on the assumption that their value would increase indefinitely, making debt more affordable. Instead of bailing out banks, it could be said that governments could have worked to reduce “unsustainably high debt” for U.S. households (or highly indebted countries like Greece). Fears of infecting the market discouraged this approach at the time. But with the world economy burdened by debt, is it worth reconsidering? Besides debt write-offs, are there other multilateral responses that could mitigate the risk of another global financial crisis?
We have to perform a delicate act of balancing. The non-discriminatory accumulation of government debt risks increasing our debt and challenging market reactions that will lead to greater volatility and, potentially, a sudden plunge into debt unsustainability.
A promise — or even a prospect — that the debt would be written off in the future would create an incentive not only for governments to continue borrowing, but also for investors to leave.
The existence of large debt owned by China makes debt restructuring even more difficult for many countries, although Ghana’s recent agreement with China and the International Monetary Fund shows the way forward. Reforming the governance structure of international financial institutions will be complex, but should facilitate the task of managing debt.
However, in the end, growth is the safest – and least destructive – way to achieve debt sustainability. Higher growth depends on countries using carefully targeted spending to take advantage of technological opportunities and overcome barriers such as trade barriers.
You’ve noticed recently that the 2008 crisis has led to a greater interest in economic history. At the same time, one of the “seven lessons from the seven crises” that you highlight in your book is that “the lessons learned from a previous crisis often stand in the way of generating effective solutions to a new problem.” As an economic historian, how do you navigate this tension, ensuring that our understanding of the past helps, not hinders, our efforts to find solutions to today’s problems?
HJ: A striking feature in 2008 was that for the first time in a long time a repeat of the Great Depression seemed possible. The Great Depression was primarily a demand shock, caused mainly by infectious financial crises. With this in mind, the view that governments have a responsibility to stabilize aggregate demand through fiscal spending makes sense. As well as the view, expressed in the 1960s by Milton Friedman, that it is necessary to stabilize the money supply.
Both Keynesian and Friedman recommendations were very useful in dealing with the 2008 financial crisis. In fiscal policy circles, Keynes was reborn: it was the “return of the master,” as Keynes’ great biographer Robert Skidelsky put it.
As for monetary policy, then-Federal Reserve Chairman Ben Bernanke promised to apply the lessons of Friedman’s study on the Great Depression.
This was the case that we learned the right lesson from the previous collision, but sometimes we also learn the wrong lessons. Both mechanisms — stabilizing fiscal demand and preventing the collapse of the money supply — seemed too easy, too obviously available as solutions.
And they have been largely misplaced in response to the negative supply shock caused by the COVID-19 pandemic. Monetary stimulus, in particular, has fueled the asset price boom, which has exacerbated inequality.
Now we have a fairly different set of problems, and the solutions to the last crisis are exactly the wrong way to solve them.
In my book, I suggest that we need more microeconomic analysis – more use of big data in the style of Harvard economist Raj Chetti – if we are to address social problems, especially inequality, that are triggered by both domestic political tensions and increasingly obvious geopolitical fractures.
