Nobel Prize-winning economist Paul Crookman analyzes the mistakes made by Russian President Vladimir Putin during the invasion of Ukraine in the New York Times.
Krugman generally says in his article, “It is clear that Vladimir Putin has made a big miscalculation.
“On the contrary, the initial move was thwarted, and then the attack with tanks and artillery into the swamp. In some cases, the mud is now widespread over much of Ukraine.”
He added that the Russian president believed that the country could “easily deal with the economic consequences of its war.” Well, he thought, the West could impose some sanctions, but Europe needed Russian gas and oil. “He created a huge battle chest with foreign exchange reserves that should protect him until things calm down.”
The Nobel Prize-winning economist says political thinking is “absolutely not wrong.”
“Western sanctions have barred the sale of fossil fuels, which account for the bulk of Russia’s exports.” Said.
Historically, he says, sanctions can overcome countries that find solutions and reduce their effectiveness.
But something strange happened in this case, says Krugman. So far, economic pressure on Russia seems to be very effective, restricting Russian trade even to goods that are not formally allowed. Economic restrictions already in place have barred trade with Russia, even in the oil market.
Fears of future sanctions, as well as a general sense that Western institutions believed to support Putin’s regime would be severely cracked down on by regulators, disrupted even officially sanctioned trade and led to widespread “self-sanctions.”
He went on to say that if we see mass civilian casualties and terrorism in the coming weeks, the result will be “isolating Russia from the rest of the world economy.”
Economists have an eerie word for this kind of isolation: “self-sufficiency.” And they are very harmful.
If events lead to a cut in the bulk of a country’s international trade, the economist says, the domestic economy will lose access not only to cheap goods, but to absolutely essential commodities.
He says there are historical examples of what can happen if a business nation is pushed to self-sufficiency. Not much, precisely because it is a serious phenomenon. You could say that something like this happened in Japan during World War II, especially after the US occupation of Siphon and Guam in 1944.
But what about self-sufficiency in a country that does not accept direct military attack? Asked for an example from American history, he quotes: “The United States was not directly involved in the Napoleonic Wars. They tried to crush their enemy with half-barriers. “
Asked how the effects of Russian isolation compare with this experience, he said: “Russia is more exposed to foreign trade in 2022 than the US in 1807: US exports accounted for only 13% of GDP, while” Russian exports were twice as much as before the invasion. “
“Economies are more complex than they were two centuries ago,” he concludes. At that time, production did not depend on complex supply chains that were terminated due to the absence of certain vital components such as chips and spare parts. It now depends on countries like Russia, which mainly exports raw materials rather than industrial products. Thus, the consequences of almost self-sufficiency may be worse than Russia’s massive dependence on trade.
This time, in other words, it seems that Putin has made a double miscalculation. The plan for a brief successful war turns into a bloody storm that has angered the world and its glorious “Russia fortress” economy is heading for a 1929-type recession.
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