To start us off this week, we have a text wall, but one that really embodies the moment we - and especially Europe - are in.

Will Europe Go Down to Defeat Before Ukraine? Naked Capitalism

During the runup to the financial crisis, your humble blogger pointed out that financial time moved faster than political time. Market players often had better and more comprehensive access to important information than officials did and had strong incentives to act on it.

By contrast, regulated entities were motivated to shuffle their feet and mumble until problems became undeniable…and then the regulators themselves would too often hope gunshot wounds would magically heal themselves, rather than risk having to answer embarrassing questions by going into emergency response mode.

Compounding these institutional and behavioral issues was the fact that decades of deregulation had produced a financial system that was tightly coupled. That means, in layperson-speak, that when a problem starts, it propagates thorough the system too quickly to be stopped. There aren’t enough natural or man-made firewalls to arrest the cascade.

With the Ukraine conflict, commentators have fixated on the timetable for prosecuting the war, trying to argue that the fact that Russia has not already “won” (whatever “won” means) implies Russia is losing, despite Russia and its allies having taken over 20% of Ukraine and continuing to gain ground with a mere peacetime expeditionary force. Russian officials have also made clear that they aren’t following a timetable. Some analysts have even argued that the seemingly slow pace is to Russia’s advantage. It does not merely allow them to continue the conflict without resorting to a general mobilization. It also appears to lead Ukraine to bring the war to the Russian front line, facilitating the destruction of the Ukraine army and equipment away from major cities, where civilian casualties would be greater. And the front line is not all that far from Russia, facilitating resupply.

However, there is also a big difference between when a war is won or lost versus when the vanquished is finally prostrated. For instance, Germany’s World War II fate was sealed in the Battle of Kursk, but it was nearly two full years more before Germany surrendered.

Some Western military experts have argued that Ukraine lost within weeks of the start of the Russian forces’ attack. For instance, Larry Johnson contended Ukraine was a goner as soon as Russia took out its radar, air force command and control, and most of its fixed wing aircraft. Ukraine could not mount a counter-offensive against a military using a combined arms operation when it lacked air support. Colonel Douglas Macgregor also stated publicly that Ukraine had lost a month into the conflict; the only open question to him was how long we kept the fighting going to try to weaken Russia.

In other words, while officials, armchair generals, and the press have been paying at least intermittent attention to the calendar for the military campaign, they’ve not paid much heed to the timeline for the economic war.

We will be so bold as to posit that not only has the sanctions war against Russia backfired spectacularly, but the damage to the West, most of all Europe, is accelerating rapidly. And this is not the result of Russia taking active measures but the costs of the loss or reduction of key Russian resources compounding over time.

So due to the intensity of the energy shock, the economic timetable is moving faster than the military. Unless Europe engages in a major course correction, and we don’t see how this can happen, the European economic crisis looks set to become devastating before Ukraine is formally defeated.

Now that European leaders are returning from summer holidays, it appears only now to be dawning on them that Europe is entering a severe and almost certainly protracted economic crisis.

Mind you, they were worried enough in late July to Do Something in the form of agreeing to 15% voluntary energy use cuts starting August 1. The lack of any planning or implementation time, even before getting to the “voluntary” uselessness, confirmed that this measure was a handwave.

Emmanuel Macron rattled pundits last week by telling France it faced the “end of abundance,” as in they need to accept a permanent reduction in their standard of living. As Agence France-Presse translated it:

“This overview that I’m giving – the end of abundance, the end of insouciance, the end of assumptions – it’s ultimately a tipping point that we are going through that can lead our citizens to feel a lot of anxiety. Faced with this, we have duties, the first of which is to speak frankly and very clearly without doom-mongering.”

Frankly, more doom-mongering is in order. Despite spot market electricity prices sending a dire warning of the consequences of reduced supplies of Russian gas, and citizen and business desperation over recent and expected near-term energy price increases, Macron depicts that as something voters should accept because Ukraine. And that’s before getting to the other stressor that Macron mentioned, food price increases due to droughts and fires.

We’ll stick to the energy crisis for now. As we’ll explain, this shock will be so severe if nothing is done (and as we’ll explain, it’s hard to see anything meaningful enough being done), that the result will be not a recession, but a depression in Europe.

The 1970s oil embargo produced a rapid four-fold increase in US prices, which led to both a serious recession and inflation, the now-infamous stagflation. By contrast, at the end of last week, the one-year forward contacts for electricity in France and Germany were more than ten times higher than a year ago. And that was with the underlying inflation rate in EU countries already being high (9.8% year to year as of July for the European Union) […]

Note that most prices subsidies and limits on increases are for households. Even so, there’s already fear and anger over some pending residential price increases. UK homes will see an 80% rise in their combined energy and gas rate cap come October 1 with that rate set to increase again in January. Mind you, this follows a 57% increase earlier this year.

Businesses in normal times pay full freight. As a result, there will be large scale company failures.

We are already seeing early signs of distress, like aluminum smelters cutting output or shuttering facilities. From Reuters on August 25 (visit original story to see full detail on chart):

“Europe’s aluminium output capacity is around 4.5 million tonnes. Of that, about 1 million tonnes has been taken offline since 2021 and another 500,000 tonnes is under threat, analysts at Citi say.”

Aluminum smelters are not the only early casualty. From France24:

“Industries are also affected by the soaring energy prices. Factories that produce ammonia — an ingredient to make fertiliser — announced the suspension of their operations in Poland, Italy, Hungary and Norway this week.”

And while those losses can happen quickly, it takes a long time to rebuild.

In theory, Europe can cap or subsidize prices. But high prices serve as a rationing mechanism. Subsidizing prices means other forms of rationing will take place instead. Blackouts? Brownouts? Which businesses and homes will be preferred and which will be sacrificed?

Save the euro weakening against the dollar, the EU has not faced much pressure in recent months on the oil price front. But things could get worse there too, albeit not to the same degree as with gas and electricity. Many experts think that oil prices moderating wa s due in large degree to lower demand from China, first from off and on Covid lockdowns hitting production, and now from heat waves doing the same. If China’s demand perks up, so to will oil prices. And if they don’t, the Saudis are threatening to cut output.

With its notorious democratic deficit plus Europeans being more inclined to take to the streets when things get bad than Americans, it’s not hard to imagine that unions and consumers will protest…particularly since they’ve already planning to do just that. From the Guardian:

“Britain is facing a wave of coordinated industrial action by striking unions this autumn in protest at the escalating cost of living crisis, the Observer can reveal. A series of motions tabled by the country’s biggest unions ahead of the TUC congress next month demand that they work closely together to maximise their impact and “win” the fight for inflation-related pay rises.”

“The move, which includes the two biggest unions, Unison and Unite, comes amid growing anger at the government’s failure to agree a detailed package of help for families following Friday’s announcement that average gas and electricity bills are to rise by 80%. While coordinated action would be short of a “general strike” floated by some union leaders, Unite’s motion would give the TUC the task of ensuring that walkouts are synchronised or deliberately staggered to deliver the greatest impact.”

If UK corporate profit share as a percentage of GDP is anything like that of the US, companies have a fair bit of room to increase pay levels without raising prices or cutting output. But given deeply held neoliberal views and the lack of a government willing to browbeat CEOs into living with less (starting with cutting executive pay and bonuses), we’re likely instead to get whinging and more price gouging.

If labor actions become common across Europe, expect a new version of the early 1970s capitalist complaint about the US, that it’s become “ungovernable”.

Stop Calling Everything You Disagree With ‘Anti-Democratic’ Bloomberg

This article is a complete mess. You know how cigarette packs get “smoking kills” signs put on them to advise people of the dangers of smoking? I think this article should be put on the backs of liberal political theory books, like Harry Potter, for a similar purpose.

One of the most disturbing trends in current discourse is the misuse of the term “anti-democratic.” It has become a kind of all-purpose insult, used as a cudgel to criticize political and intellectual opponents. Not only is this practice intellectually lazy, but it threatens to distort the meaning and obscure the value of democracy.

The advantages of democracy are obvious, at least to me, and deserve greater emphasis:

Democracy helps produce higher rates of prosperity and economic growth.

Democratic governments are more likely to protect human rights and basic civil liberties.

As philosopher Karl Popper stressed, democracy helps societies escape the very worst rulers, by voting them out of office and in the meantime constraining them with checks and balances.

Of course democracy is not perfect. First, a lot of individual democratic decisions are not very good. (In fact, relative to scientific or technocratic ideals, most democratic decisions are not very good, though I would argue that technocrats cannot be completely trusted, either.) Second, there are periods when some countries might do better as non-democracies, even though democracy is better on average.

Too much commentary ignores these nuances. For example, the New York Times recently published an opinion piece with the headline, “Modi’s India Is Where Global Democracy Dies.” Many of its criticisms of Prime Minister Narendra Modi are valid — but the regime is not anti-democratic. Modi has been elected twice by comfortable margins, and he is favored to win another term. It is instead a case of a democracy making the wrong choices, as they often do.

Or consider the criticisms of Poland when that regime limited the powers of its independent judiciary several years ago. That was a mistake, as it undermines the system of checks and balances that help strengthen democracy. Yet the move was not part of an “anti-democratic” agenda, as some commentators said at the time. Limiting the judiciary typically makes a government more democratic, as it did in Poland. (By the way, there are Polish elections scheduled for 2023; I see no signs they will be canceled.)

The danger is that “stuff I agree with” will increasingly be labeled as “democratic,” while anything someone opposes will be called “anti-democratic.” Democracy thus comes to be seen as a way to enact a series of personal preferences rather than a (mostly) beneficial impersonal mechanism for making collective decisions.

Closer to home and more controversially, many on the political left in the US have made the charge that the Supreme Court’s decision to overturn Roe v. Wade was “anti-democratic.” It is fine to call Dobbs a bad decision, but in fact the ruling puts abortion law into the hands of state legislatures. If aliens were visiting from Mars, they simply would not see that move as anti-democratic.

Yes, the American system of government has many non-democratic (or imperfectly democratic) elements at its heart — the Supreme Court itself, for example, or the Senate, which gives less populous states outsized influence. Yet those same descriptions would apply to the court that decided Roe v. Wade as well as the court that overturned it.

(An aside: My qualms about the term “non-democratic,” as opposed to “anti-democratic,” are separate but related. Not every aspect of a democracy can or should be democratic; there is a strong case for appointing sheriffs and dogcatchers. But if “non-democratic” is used as a normative insult, people may begin to wonder if their loyalties should be to small-d democracy after all.)

It is also harmful to call the Dobbs decision anti-democratic when what you’re really arguing for is greater involvement by the federal government in abortion policy — a defensible view. No one says the Swiss government is “anti-democratic” because it puts so many decisions (for better or worse) into the hands of the cantons. And pointing out that many US state governments are not as democratic as you might prefer does not overturn this logic.

It would be more honest, and more accurate, simply to note that court put the decision into the hands of (imperfectly) democratic state governments, and that you disagree with the decisions of those governments.

By conflating “what’s right” with “what’s democratic,” you may end up fooling yourself about the popularity of your own views. If you attribute the failure of your views to prevail to “non-democratic” or “anti-democratic” forces, you might conclude the world simply needs more majoritarianism, more referenda, more voting.

Those may or may not be correct conclusions. But they should be judged empirically, rather than following from people’s idiosyncratic terminology about what they mean by “democracy” — and, by extension, “anti-democratic.”

• Russia’s economy hasn’t cratered since Putin ordered the invasion of Ukraine — even though Wall Street thought it was inevitable. Here’s what to know. Business Insider

Let’s all have a group cheer for us all having the correct prediction of what would happen. To the immortal science of Marxism!

It’s not easy to get a prediction dead wrong — especially on a matter of global importance — but in this case, a whole handful of banks called it wrong on the trajectory for Russia’s economy.

Wall Street giants had predicted Russia’s economy to resemble a trainwreck in the aftermath of Western sanctions.

That isn’t quite what happened. In fact, some data actually point to strength emerging from Moscow’s economy.

Top investment banks rushed to predict Russia’s economic downfall when Vladimir Putin first ordered the invasion of Ukraine six months ago, but analysts have since had to walk back some of their forecasts.

The current data coming out of Moscow “does not point to an abrupt plunge in activity,” JPMorgan strategists wrote in note.

The firm changed its tune recently after it had forecast in March that Russia’s GDP would drop 35% in the second quarter:

“The GDP profile, therefore, looks increasingly likely to be consistent with a drawn-out, but not very sharp recession.”

Soaring crude exports and high prices have been a boon for the Russian economy, and the IMF said the Kremlin’s program to keep unemployment low has been effective so far.

Moscow’s ability to pivot toward Asian customers for exports has also helped insulate it from Western sanctions that were expected to crush the economy.

Goldman Sachs had said five months earlier that Russia would struggle to find new trading partners amid war — but China and India, among others, have emerged as big buyers of Russian energy commodities.

India alone has seen a 900% increase in those supplies since February.

All the while, the EU still hauls in 2.8 million barrels a day despite its own sanctions on Moscow, Bloomberg data shows.

And factory and services data, too, show the Russian economy is chugging along at a steady clip.

Strategists at Goldman previously highlighted that Russia’s composite Purchasing Managers Index suggested steep economic declines loomed.

Immediately after the invasion, that figure slid from 50.8 in February to 37.7 in March.

But later, the same data returned to growth territory.

The most recent number came in at 52.2 — one more signal of a strong economy that stands in stark contrast to Wall Street’s expectations.

According to Ukrainian sources as well as their stenographers in the free independent western media, the long-awaited Kherson counter-offensive has finally started. Allegedly Ukrainian forces managed to breach the first Russian line of defence and take a few small villages.

The citizens of Novaya Khakova were forced to evacuate to bomb shelters as the Ukrainians bombarded the city heavily.

Russian sources claim that the counter-offensive is much smaller in scale than Ukraine would have us believe and some claim it has already ended with no lasting territorial gains and heavy losses, including several planes, tanks and a helicopter for Ukraine.

The Ukrainian tweet officially announcing the counter-offensive was deleted a few hours after it was posted.

This could be Ukraine finally rising to cast the foreign invading orcs out of their homeland but it is much more likely to be a set of small disasterous skirmishes meant to demonstrate fighting spirit to the westoid imperial nations who foot the bills for the Urkainian state and to strike terror in civilians and cause chaos in Russian-controlled cities.

interesting that this long talked about but never materializing “counter-offensive” officially begins right as the watchdog inspectors are on their way to the nuclear power plant 🤔