A reader, James McFadden, with whom I exchange views on occasion, recently asked me some astute questions about the bigger picture behind the war in Ukraine. Why is it, he asked, Europe seems to be going along with US war and economic policies associated with Russian sanctions and War in Ukraine when it is obvious Europeans will pay a heavy price in terms of inflation and economic instability, most likely another recession? Does the European billionaire class see a new economic opportunity from allowing an economic crisis in Europe to occur from the outcome of sanctions and war?
In reply to James, I offered my analysis of the answer to that question, as well as some broader reflections of what’s behind the war and sanctions from both a US capitalist vs. US neocons perspective. The war and sanctions are best understood in a broader context of 21st century Neoliberal capitalism resorting to increasingly aggressive policies in order to ensure not only US global imperial hegemony but also to ensure an ever increasing accumulation of wealth by certain sectors of the US economic capitalist class. In short, it’s not simply a question of nations in conflict; only a class analysis in each of the major players (US, Europe, Russia) can reveal what’s going on behind the war.
Here’s James’s question (followed by my reply)
Jack,
I’ve been pondering the following question. Why is the EU (Brussels) backing the pro-war “isolate Russia expand-NATO play” when it is clearly against Europe’s self interest – especially its economic interest?
They must understand that invasions and occupations don’t really work – that Russia can’t mount invasions of other EU countries and can barely manage this annexation/support of the Donbas region.
They must understand that Ukraine is a corrupt basket case economy run by even more corrupt oligarchs.
They must know that the cut-off of cheap Russian oil/gas will crash the European economy and make them even more dependent on, and under the control of, the US.
Is Brussels so controlled by the US that it is no longer capable of rejecting the policies imposed by the US?
Or is Brussels real constituency the billionaire class, and the billionaires see an EU economic crash as a positive development — like the 2008 US crash — a chance to bailout and create a massive wealth transfer?
After a reading some articles recently, I was reminded that Brussels, like all neoliberal organizations, probably answers to the billionaires – the Davos crowd – transnational corporations, bankers and billionaires. These organizations and rich elites don’t give a crap about Ukraine, and know Russia is incapable of invading any other NATO country. So why is the EU (Brussels) pressuring European leaders to implement sanctions on Russia against Europe’s self interest? I don’t think it is just that the US controls Brussels — there must be some alignment of interests. And I suspect the answer is this is a planned crash of the Europe economy, which was already struggling under Covid. The billionaire class is sitting on $20 trillion with nowhere to invest and a failing EU economy headed into recession. So a war and economy crash can be blamed on Russia (rather than EU austerity policies), justify wasteful military spending that is profitable, and justify bailouts which mainly go to the rich and multi-national corporations. Most average Europeans will go bankrupt and lose what little assets they have which will be bought up with that $20 trillion on the cheap. Is this is a play to duplicate the 2008 bailout-buyout to create a neoliberal rentier economy in Europe. Neoliberal austerity needs a crisis to push through its policies to support the rentier/banker class at the expense of the working class Europeans. It seems this war is not just about US self interest (which clearly exists in oil, gas, agriculture, and military profits), not just about US/NATO pressuring Europe to conform and firming up US hegemony, not just about the threat of a Russian invasion of NATO (which all the leaders know is nonsense). Brussels is pressuring European leaders to support sanctions in order to benefit the Davos crowd — create a crash, justify a bailout, and implement a neoliberal rentier economy that serves the transnational corporations and their billionaire owners. And it seems likely the planning for this has been going on for years.
I’d be interested in your thoughts.
James
My Reply to James
In answer to your first paragraph: three possibilities apply, I think.
First, Europe really doesn’t have any independent foreign policy, in its own interest: it hasn’t for quite some time. It is comfortable letting the USA determine that. It also finds it economically useful to let US pay most of its defense bill. That allows EU elites to provide social benefits to their non-elite classes that allows them to stay in power. The EU could not ‘take away’ those benefits now after decades. It would seriously destabilize their societies if they tried.
Second, it will eventually be revealed the US has likely made some very generous economic promises to the EU if they go along with driving Russia out of the EU economy. It’s not just about gas or oil; it’s about the USA wanting Russia out of Europe’s economy completely. Why? So US capitalists can move in and replace them. That’s a very big new profit center for US capital in many industries.
Third, there’s a massive capitalist economic windfall to the US sanctions, in which Europe will participate. EU gets to keep its share of the seizure of Russian assets. That’s $300 billion in liquid assets globally just in banks and central banks. And who knows how much more windfall will come from sales of Russian physical assets in Europe. Asset seizure is a form of economic piracy. The US has discovered that sanctions in the recent past are very profitable. The cases of just Iran and Venezuela come to mind, but before that Iraq, Libya, etc. But seizure of Russian assets takes the piracy to a new level. Europe finance capitalists will benefit especially greatly. Given their recent chronic losses I’m sure they find wealth accumulation by asset seizure enticing.
I’d add that inflation from the war is also very profitable for capitalists in general and will be no less so for European capitalists. Inflation ravages wages and fixed incomes. But for finance capitalists it means interest rates will rise and with that so too will the net interest income of bankers and finance capitalists. The working classes and small businesses that need to borrow regularly to keep afloat will pay the price. But big capital likes inflation. It also means their competitors, who fail to weather the coming inflation storm can be bought out cheap as their businesses face default. Not least, inflation may lead to stocks and financial markets price deflation. But that’s followed typically by major financial asset buying on the cheap and asset price speculation that yields great profits in the longer run. So don’t think inflation from the war and supply crises means bad times for everyone; for certain capitalist sectors it means great profit opportunities.
In reply to your second paragraph and your point that invasions and occupations don’t really work I would say, Ah, but they do…for certain economic interests. Especially for oil, war-defense producers, big agriculture and others that benefit from escalating war spending by governments. And it doesn’t matter if after years the military conflict is not decisive, or even if the US has to retreat, leaving chaos in its military wake (as it did throughout middle east). War for capitalists is not about ‘winning’ militarily; it’s about ‘winning’ economically and even failed wars can be very profitable. Remember Vietnam?
The tendency is to view wars as conflicts between nations. True. But to understand them deeper, it’s necessary to dissect ‘the nation’ and explore which segments within a class benefit the most, the least, or don’t benefit and pay the cost of war.
As for your comment that Russia can’t mount a complete invasion of Ukraine, you’re right. It simply doesn’t have the military forces. It ‘invaded’ with only 75k combat troops on four fronts. That violates the number one principal rule of war: concentration of forces. Putin and his advisers probably thought originally the Zelensky govt. would capitulate if they encircled the big cities in a show of military force. That’s probably what Putin’s advisers told him (and why he probably sacked 100 of them recently). Russia intelligence isn’t any better than the US’s when it comes to predicting these matters. Putin also underestimated, I believe, the eight years since 2014 which the US had to retrain, equip, and supply the Ukrainian army.
And he likely didn’t foresee the role US satellite, cyber, and other tech means could play assisting the Ukrainians in combat. (How else could 22 Russian generals be targeted and killed, except by US surveillance and cyber detection of Russian communications). And how could a US neptune missile sink the Russian Moskva cruiser without US direct operation assistance). Also, I think the Russians entered the conflict thinking the strategy would be more like world war II and massed armor attacks. However, that kind of warfare is gone for good given the new technologies. It’s now a war of intelligence, cyber interdiction and distraction, long range smart missiles, drones, long artillery, and infantry entering after long range duels just to mop up an area. Tanks and heavy armor are now just slow moving, sitting ducks for satellites, drones, and smart missiles. Ditto for slow moving sea going warships. We’ll never see massive tank battles or ship to ship confrontations again. Neptune, javelin, Nlaw, stinger, weaponized drones, and other missiles render them all outmoded tactically.
Russia erred in dividing its limited resources along four fronts when it first invaded. Encircling Kyiv and Kharkhiv with tank battalions only made them easy targets. I don’t think Russia ever intended to assault and try to take Kyiv or Kharkiv. Typically such assaults in concentrated urban environments requires a ratio of 4 offensive battalions to 1 defensive. Russia just didn’t have the forces to assault big cities and it knew it from the beginning. After a symbolic attempt to intimidate Ukraine into capitulation failed (the US would never allow Zelensky to do it), Russia properly refocused (i.e. turned to concentration of forces) on the Russian held areas in east and southern Ukraine. That is, it finally concentrated its forces instead of dissipating them along four fronts.
Mariupol was a major victory for Russia and it has shaken Zelensky as well as US. Should Russia encircle now Ukrainian forces around Severodonetsk and Lysychansk, as appears now likely, it will mean another significant military defeat for Ukraine. Whether Russia thereafter tries another encirclement targeting Slovyansk remains to be seen. Or goes on after that to take cities Dnipro and Zaparozhia. Ukraine and US media trumpet the Russian withdrawal from Kyiv as a ‘defeat’. But it is unclear if Ukraine forces drove them out or they just withdrew to the east. To some extent, the same can be said for Kharkhiv. Russia doesn’t have the forces to assault a large city. In any event, it would mean razing it to the ground, creating a negative international spectacle and making any armistice difficult at some point.
In just the past week we’ve seen the NY times editorial questioning whether further escalation is wise for the US. Certainly the trend has been in that direction, given dumb statements by Biden, Pelosi and Austin. I believe the neocons in the US, who have been driving 23 years of military adventures by the US, are firmly pushing a very malleable Biden and Democrats in that direction. The neocons have been aided in escalation by rabid anti-Russia NATO latecomers in the Baltics and Poland who just want the US to station big divisions and latest tech weaponry on their eastern borders. The US $ influx that comes with that is welcomed as well, of course. Elites in Poland and Baltics know there’s great opportunities to skim off fortunes from the US aid (as there has been in Ukraine the last 8 years).
The US finance capitalists flooded into Ukraine after 2014 (enabled by Victoria Nuland–a former US hedge fund CEO who entered US government as an undersecretary of State for east Europe–who had herself appointed economic czar by Ukraine’s government right after the 2014 coup). On Nuland’s coattails, US capitalists descended on Ukraine and have in last 8 years deeply penetrated Ukraine’s economy. US military, advisers, trainers, field officers in turn followed. As did family members of several of the US elite (Bidens, Pelosi, et. al.) So the US is now deeply embedded in Ukraine’s economy and pulls a big string in its political and military decisions. Given this penetration, the US may allow Russia to chip off some eastern and southern provinces but it will never permit a defeat of Ukraine that will drive them out of the country altogether. The most likely outcome of the war therefore is some kind of partition of the country, likely along Russian speaking population lines in the east and south.
It’s interesting to watch the follow up debate emerging among US elites, that is now underway, to the recent NY Times editorially, which questioned whether a deeper and more direct conflict with Russia in Ukraine was worth US capitalism’s interests. A growing segment of US Capital and political elites are now publicly raising the former taboo question that a deeper and more direct conflict with Russia is not in US interests.
I suspect US capitalists increasingly now believe they have ‘won’ the economic war: they’ve been able to seize $300 billion of liquid assets of Russia in banks around the world; they’re going to seize hundreds of billions more of Russian physical assets; they’re driving Russia out of Europe’s economy opening lucrative long term further profit opportunities; the war has stopped climate investment alternatives in its tracks to the great satisfaction of US oil interests; energy and commodity shortages from sanctions that continue will mean profits for oil & other US industries from price hikes for some time to come now; US bankers will get their higher net interest income from rate hikes and will get a nice piece of the Europe merger and acquisition funding action; etc. etc.
US capital has ensured it will reap super windfall profits from the conflict. They may be ready to say that’s enough, let’s not ruin it all by going to direct war with Russia.
But it will be interesting to see which capitalist segment in US prevails: the neocons and political octogenarians like Biden, Pelosi, etc. who think they’re fighting the 1960s cold war with the USSR again—or the big capitalists who are willing to pocket their winnings to date and want to leave the betting table (Ukraine) in a kind of chaos and stasis (just like they left the middle east from Libya to Afghanistan).
With the exception perhaps of Vietnam, US imperialists have never fundamentally lost a war: Some wars of invasion they win outright (Panama, Grenada, Serbia, Libya, Iraq, Isis, etc.). If they don’t militarily prevail, they either leave the area in shambles (Afghanistan, Syria, Lebanon, Somalia) for decades to come so its no longer a threat or an economic opportunity; or they regroup a decade after war and offer them a trade carrot (e.g. Vietnam).
To answer your specific point about Brussels, I think Brussels/EU believes the US will follow up on its many (yet unknown) promises to make good what the EU loses from Russia’s European withdrawal. EU/UK capitalists see money to be made from the crisis now emerging, and in the eventual recovery as well. Yes it’s about wealth transfer, like 2008-10 (and EU’s double recession 2011-13). By the way, I agree we should think in terms of classes within the EU and US in analyzing ‘who benefits’ and how. Thinking just in terms of nations in conflict obfuscates what’s really going on at a class level within each of these nations or regions. Nations don’t go to war; capitalists and their political elites go to war.
I suspect you’re right about the capitalist economies of US, EU, North Asia being in deep trouble after Covid (which hasn’t ended by the way). The question of war can’t be separated from the shock of the Covid on the economies.
The 2008-15 crash left Neoliberal policies increasingly ineffective. It never naturally or fully recovered fully from that crash. That’s why post 2009 (and 2013 in EU) we saw the capitalist state in US, EU, Japan engage in massive income redistribution via tax and central bank QE/interest rate (free money to capitalists) policies. The US gave investors, corporations & wealthy speculators a $4.5 trillion tax cut starting in 2018. And that was after Bush & Obama had previously given them $11 trillion before 2018. The Fed also ensured bankers and investors $4 trillion in QE and low rates until 2017. All that liquidity flowing to investors fueled financial market speculation 2010-2019 that made capitalists even richer.
In short, the capitalist state not only bailed them out, it institutionalized the bailout without end after 2010. The free money and tax cuts just kept coming. Financial markets boomed the entire decade after 2010 while wage incomes stagnated and fell in real terms. In the US alone, stock buybacks and dividend payouts by just the Fortune 500 averaged $800 billion a year under Obama from 2011 to 2016. It then rose to $1.3T a year under Trump 2017-19. Now under Biden, in 2021 it was $1.5 trillion. And that’s just the Fortune 500.
Now that the stock markets are correcting here in 2022, wealthy US investors and institutionals are protecting their gains by parking $2 trillion in cash with the Fed (which will pay them 0.25% just to hold their cash). In other words, the capitalist state under late Neoliberalism has become a massive income redistribution machine, fueled by policies from both Congress and the Fed.
We should think of inflation as the indirect form of Austerity policy. No need to reverse the stimulus of Covid years March 2020-March 2021. Just cut off the social spending spigot before it was supposed to end (which Biden and Dems did last fall 2021). Make sure no new spending occurs (i.e. bury Build Back Better) which Biden-Pelosi (with the help of Manchin-Sinema) did. And let inflation in 2021-22 ‘take back’ the money income given to working classes and small businesses in the form of the checks, unemployment benefits, child care, grants, etc. during the crisis.
In my most recent Alternative Visions radio show I explained the actual ‘Anatomy of Inflation’. It starts with reopening of the US economy in summer 2021 and a relatively minor Demand inflation. But inflation only really takes off at end of summer 2021 due to supply chain (global and domestic) issues. Those real Supply issues were followed by largely fabricated claims of supply shortages by big monopolistic corporations. They either had no supply issues (oil corps, meat, bakery corps) or they engineered shortages themselves (most recent, baby formula crisis created by Abbot Labs, etc.).
After the legitimate and illegitimate supply causes of inflation, the war in Ukraine followed causing surging oil, gas, and various industrial metals and agricultural (wheat, cooking oils, fertilizer) prices. Even before the actual shortages appeared, global commodity futures speculators drove up the prices in anticipation of the supply problems.
Now, most recently, there’s new forces emerging to keep prices rising. First, there’s collapsing US productivity in general, that’s pushing up business unit labor costs everywhere, that will be passed on to consumers across industries. And soon this summer we’ll see inflationary expectations playing a greater role that will generate both consumer prices and business producer prices. It’s an inflation ‘perfect storm’ brewing that’s not likely to end soon.
And what’s the politicians’ and capitalists’ solution to the chronic inflation: have the Fed jack up interest rates at a record pace that will almost certainly mean recession soon. It’s 1981-82 recession all over again, except it won’t take interest rates of 18% levels that occurred in 1981-82. I predict current Fed monetary policy will provoke recession before benchmark 10 yr. Treasuries hit 5-6%, due to the many changes in the US and global capitalist economies that have occurred the last 40 years.
The 21st century capitalist economy is highly sensitive (negatively ‘elastic’ as economists like to say) to interest rate hikes. It doesn’t take much to throw the economy into contraction (and don’t forget US GDP first quarter 2022 this year has already contracted -1.4%). But the Fed and US capitalists have decided not to slow inflation by raising taxes. Nor will they cut defense spending which has already risen $54 billion for Ukraine and Biden’s Pentagon budget to rise another $85 billion. With social programs already gutted, it’s not likely more cuts there.
So the only inflation control game is the Fed and monetary policy.
The problem with the Fed as the only inflation control game in town is it means US elites have decided that destroying consumer Demand is the policy. When the problem is largely Supply and monopolistic price gouging and War sanctions! In other words, the decision has been made to take it out on the backs of the households and consumers Demand. That’s the strategy—which is not unlike what US capitalists under Reagan in 1981 decided to do, with the result a major recession.
This general economic scenario shows a capitalism in 21st century, and American economic empire leading it, running out of easy solutions. It’s a capitalism where its former ‘tools of economic stabilization’—i.e. fiscal and monetary policy—are no longer used for that purpose. Instead they are used to ensure that capitalist wealth is guaranteed, promoted as never before by the capitalist state.
War in Ukraine and US perpetual wars of 21st century should therefore be understood as an essential element of by which capitalist political elites and the capitalist state ensure wealth continues to redistribute and grow. As the Neoliberal capitalist state increasingly redistributes income to Capital by means of various fiscal and monetary policies, it also continues war promotion to enable the same. War is just another means of income redistribution, just like tax cuts for capitalists and free money from the central bank.
Capitalism is a cannibal. It’s a Moloch that has to eat its own children. Europe has decided it’s better to take a seat at the table with the American glutton than to become just another meal. So for now, Capitalism is trying to carve up its weak eastern neighbor, Russia. After that first course, it will eventually find some way to try to devour China, the main dish. The question is can it digest these larger meals? Smaller bites out of middle east, Latin American, and African countries are easier to digest. But these larger meals may force it to regurgitate.
We should see US empire’s prosecution of the proxy war in Ukraine as a meal in which US Capital has already well stuffed itself. Certain US capitalist sectors now want to leave the table with their economic bellies full. Others (neocons, Military Industrial Complex, some bankers) are not yet satiated. They want to continue to chomp down on larger helpings of Russia. But they just may try to take too large a bite and end up choking on it.
The US current prevailing strategy is what I call its ‘Brezezinski 2.0’ doctrine. That is, Zbigniew Brezezinski’s, national security adviser under Carter, formulated a strategy to drain Russia (then USSR) in Afghanistan in the 1980s in order to weaken it to a point it leads to economic and political instability. That strategy was to arm the Afghans to resist Russia with the then latest US weapons. It proved successful. By 1986 the USSR had to retreat and leave. Domestic political instability followed until USSR imploded in 1991.
The neocons see a possible repeat strategy in Ukraine. Hence the ‘2.0’. Democrat politicians today also like the idea since they believe (incorrectly) it will give them an issue in 2022 and 2024. They have no other message except to raise the bogeyman of Trump. They have failed miserably with the post-Covid economic recovery, with broken promises made during the election of 2020, with surging Inflation, with failure to enact immigration reform, deliver student debt forgiveness, police reform, and deepening social alienation occurring across wider segments of the US population today. Biden’s not the first politician to promote war in order to divert attention from domestic policy failures.
Jack Rasmus
May 24, 2022
Dr. Jack Rasmus @drjackrasmus
Jack Rasmus 