krebscycle

Europe’s weak response to Russian aggression in the Ukraine is the product of short-sighted “free market” and “frugal government” policies loved by Conservatives and their Pet Economists. Free Market Economic Ideology says Russian gas will be delivered to Western Europe at market rates, no matter what. But Vlad Putin is not a believer in the Efficient Market Hypothesis or Real Business Cycle Economics and suddenly Germany’s government understands that he can turn off the heat off if they make him mad enough. And all over Europe, but especially in the UK, the fragility of economies depending on Russian investment capital has also suddenly become clear. If you are depending on politically connected Russian investors to keep your banking system afloat, you do not have the option of imposing capital controls to respond to the Crimean invasion. After centuries of financial domination that followed military domination, Europe is seeing the tables turn and the religious belief that everyone in the world must always play by the market rules that the West has imposed is being shown to be not divinely inspired. 

Imagine that instead of short sighted, vindictive, and highly subsidized extraction of vigorish from Southern Europe to pay back reckless loans by German and French banks, the EU had funded a vast construction project to build solar and wind generation in the sunny states and connect Europe with high efficiency power lines.  The investment would have stimulated manufacturing in Germany and France, created jobs and wealth in the southern rim and reduced European dependence on both Putin’s gas and his blood money. Ah but that kind of policy is hippie dreaming. Hard headed economists know, or think they know, that the price of gas must be set by market demand, not by the actions of strongmen and that investment capital flows to the most efficient use. Thus when Russian billionaires choose to invest in soccer teams and gambling clubs, why what mere government could try to second guess them and direct capital into solar power or wind farms?

Of course, Europe is not the only place where market fundamentalism has replaced common sense. US national security planners, under the influence of market theory, have been operating under the assumption that abject dependence on China for electronics and other technology is not a problem. Because, the Government of China would never interfere with market pricing in order to extend geopolitical power. Of course not.