#117 Economic Sanctions

the christian economist dave arnott

#117 Economic Sanctions

 

Economic sanctions can be used for good, as they are against Russia, or Ill, as they were against Canadian truckers. 

 

Christian Worldview

I’m beginning today’s podcast by citing three books that made the same prediction. 

First: The Commanding Heights by Yergin and Stanislav tell the history of economics and politics throughout the 20th century.  The story begins in 1900 with most of the world enjoying free-market capitalism.  In the mid-century, many countries moved to a more socialist economy.  By 2000, they had mostly moved back to free-market economies.  The book was made into a three-part video series in 2002.  When the story closes, they re-assure the viewer that the world has established free-market capitalism that will probably endure.  Then the very last line is an eerie predictor of the events of the last few days of February 2022.  

Second: In The World is Flat, Thomas Friedman makes the same assumption in 2005: That the world has become Flat, and that individuals trading across the globe will make all of us richer. 

History tells us when one country knocked off its neighbor, to extend the border of the victorious country.  In our third book The End of History and the Last Man, Francis Fukuyama observed in 2006 that the world had moved almost exclusively to political democracies and economic free-market capitalist systems.  Thus, he predicted there would be no more wars because they interrupt economic growth.  Mr. Fukuyama did not consider the Christian Worldview.  People are still fallen, and while there was a very nice period of relative peace in the world, the war would return.  And now, it has. 

Back to that first book I mentioned.  In the video version, the voice-over is done by David Ogden Stiers who my generation remembers as Doctor Winchester in the TV series MASH.  With the world safely ensconced in political democracies and economic free-market capitalism, in the very last line of the video program, he leans into the microphone and asks, “But no one knows what will happen, come economic hardship, or a world war.”  Now we know.  The world did NOT remain solidly in the free-market capitalist category.  

Russia’s invasion of Ukraine stunned much of the world.  But not those of us who understand the Christian Worldview.  Because, when we read The Commanding Heights in 2002 and The World is Flat in 2005, and The End of History in 2006, we knew those authors were not looking at the world through the lens of reality.  In economics, we call their view “normative,” which means, the way they wanted the world to be.  Christian Economists see the world as it is, and that’s fallen.  We call that “positive” economics.  

 

The Cold War

We won the cold war via economics.  Referring to Commanding Heights again by Yergin and Stanislav, they tell the fascinating story of Oleg Gordievsky, a double-agent who was squired out of Russia in the trunk of a car across the Finish border.  The next day in London, when agents asked him about military power, he directed their attention to the economy, which was cratering under Socialism, as all economies do.  This message was sent to President Reagan, who cooked up a wild idea about called “star wars.”  He talked about an idea to put satellites into space that would shoot down any missile launched on the earth.  But he never planned to build it.  He knew the Russian economy had dealt them a bad hand, and he was playing poker, using the pile of chips produced by the free-market capitalist economy in the US.  He also sent his vice-president, George HW Bush, to ask the Saudis to flood the world market with oil, driving down the price.  That’s how we won the cold war: By decreasing Soviet income from oil, and increasing their expenditures on the military.  Reagan won the poker game.  The poker chips he used were produced by the parents and grandparents of my DBU students, who went to work every day and out-produced the Russians.  

 

Russia

The Biden administration made a strategic economic mistake by approving the NordStream 2 pipeline that ships natural gas from Russia to Germany.  Russia provides 10% of the fuel consumed by the EU as a whole, and 30% that’s consumed by Germany.  It was pretty easy to see that becoming dependent on your hostile neighbor is not a good idea. 

I’ve been teaching in Lithuania each summer for the last eight years.  This little country of fewer than three million people took the opposite approach from Germany.  They built a liquified natural gas terminal in the Baltic port city of Klaipeda, which receives LNG from the US.  One of my former students is the operations manager.  In retaliation, Russia diverted train traffic from the port of Klaipeda to St. Petersburg to economically punish the Lithuanians.  Now, the Russians ship their goods about 200 miles further north by train to the port of St. Petersburg,  where they have to use massive ice-breakers to keep the port open in the winter.  That means an increase in cost for the Russians and a decrease in economic activity for the Lithuanians.  Today, that decision seems pretty insightful and forward-looking by the Lithuanians.  

 

Canada

The economic sanctions that are being enacted this week against the Russian economy provide an example of the power of economics to keep world peace.  I unpack more historical details in podcast #47 titled, Economics and World Peace

There’s another kind of sanction going on in Canada.  It is carefully explained by Jeffrey Tucker, writing in The Epoch Times.

The truckers in Canada deployed the crowd-funding platform GoFundMe and raised $9 million, but then the platform said that it wouldn’t distribute the money, pending the release of a clear plan on what the truckers were going to do with it.

A few days later, GoFundMe announced that it wouldn’t give the money to the truckers, but rather to other charities of its choosing. In other words, it would steal the money. That outraged many people, among them Elon Musk, and the internet blew up in fury. At that point, GoFundMe returned all the money to the donors.

In the next act of this drama, the truckers went to GiveSendGo, a platform that seems more independent and that pledged to give the money to the truckers. 

The data on donors was leaked to the government and then to the Canadian Broadcasting Corp, and handed over to the Canadian government, where the Minister of Finance declared that anyone using these to provide funding to the truckers was engaging in illicit activity—essentially, terrorism. Without missing a beat, the minister of justice for Prime Minister Justin Trudeau went further to declare that anyone who has given large figures through these platforms “should be worried” about having their bank accounts frozen.

So there we have it on record: The Canadian government has declared that it can freeze anyone’s bank account and seize the contents based on their political views or charitable actions. 

The point is: Economic sanctions can be used for good, as the Russian example, or for ill, as in the Canadian example.  That does not surprise Christian Economists, because we have assumed all along that anything God created for good can be twisted and used for ill by humans.  We’re seeing both examples this week.   

Adam Smith wrote about specialization in The Wealth of Nations in 1776.  Yes, that guy.  He got his face on the back of the 20-pound note in the UK for that contribution.  A recent video series is by one of my favorite economists, Johan Norberg.  The title is “The Real Adam Smith: Ideas that Changed the World.”  In the introduction, Norberg says, “A man who lived in an era of sailing ships and horse-drawn carriages, imagined our world today.”  He did.  Norberg is right.  We’re all richer because of specialization.  It’s gone global.

I was visiting with an executive from Toyota last week, who explained that the reason for the shortage of computer chips for cars goes all the way back to Adam Smith.  Because chip-making has specialized, there are only three manufacturers that supply all the auto-makers.  When something goes wrong with their supply chain, all the auto-makers are put on hold.  

EU Founding

The European Union began as a coal and steel trading union, whose purpose was to avoid World War III.  In 1951, the founders, and I credit Robert Schuman of France, looked back at two world wars that have decimated the continent, and tried to lay a plan to avoid the next one.  They started with coal and steel because that’s what is used to make the weapons of war.  I think future wars will be more based on economics and cyberattacks, but that’s not my subject today.  The point is: The EU worked.  None of its 27 members have attacked each other.  That’s mostly because Germany, which started both World Wars in the 20th century, produces 30% of the GDP of the EU, and they are greatly enriched by their successful export economy, which sends mostly machine products to the other 26. 

I will close by returning to my first subject: The Christian Worldview.  We believe that humans are fallen, and will continue to be.  So, our quest is to find a way to channel fallen activity in a way that grows economies and extends peace.  International trade via free-market capitalism is the answer.  Until the Lord returns.  

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