Iran and the Bomb

 Iran has had nuclear ambitions for a while now.  Specifically, they have expended a lot of blood, sweat, and tears in an effort to get into a position where they could build an atomic bomb.  They claim that they don't want to build a bomb.  They just want to ramp up their capabilities in the area.  Others say, "they want to build a bomb".

We won't know who is correct until they either abandon their current efforts or succeed in building a bomb.  But does it really matter if they build a bomb?  There is a widespread belief that the answer as a resounding "yes".  That is a belief I subscribed to for a longtime.  But recent events have caused me to revise my thinking.

Conventional analysis says that the Iranians are bad people, they are a "rogue state" capable of much mischief.  Topping the list of what mischief Iran might get up to is that they might nuke somebody.  Israel thinks that they are the most likely target, so they are adamantly opposed to Iran getting the bomb.

A less extreme concern is that of "the domino theory of proliferation".  If Iran gets the bomb, then its neighbors will be forced to "keep up with the Jonses" and launch bomb building programs of their own.  So, who are Iran's neighbors?  It turns out that Iran has a lot of neighbors.

One of them is Pakistan.  But Pakistan already has the bomb.  Then there's Afghanistan.  It is too poor, both financially and intellectually to build a bomb.  The same is true of Turkmenistan, Azerbaijan and Armenia.  There are some gulf states, but I think we can discount them too.

That leaves the big three, Turkey, Iraq, and Saudi Arabia.  Any one of them might decide to start a bomb building program.  But they might do that regardless of what Iran does.  All have aspirations to be seen as major powers.  Nothing says "major power" like "we have the bomb", or so conventional wisdom would have it.

Underneath all this is something more basic and fundamental.  The world has been living with the existence of nuclear weapons for more than seventy-five years.  One way it has done this is by dividing nuclear powers into two groups, the responsible countries and the irresponsible ones.  The danger, we are told, stems from the irresponsible ones.

The list of responsible powers starts with the U.S., Britain, and France.  At least the list that is created by Americans and Europeans does.  To this are normally added Russia and China.  And the same cabal that assumes that the U.S., Britain, and France are responsible powers assumes that Iran would be an irresponsible one.  But this whole responsible/irresponsible dichotomy quickly breaks down.

The first atomic bomb was created by a joint effort between the U.S. and Britain.  The U.S. is the only country that has used an atomic bomb as an instrument of war.  We dropped two of them on Japan at the end of World War II.

The initial plan was to keep the nuclear club at two members.  But Russia, then the U.S.S.R., using a combination of smarts, spying, and a herculean effort, initially succeeded in building one bomb.  Later they built lots of bombs, far more than they could conceivably need.

This was the first instance of nuclear proliferation.  It would be far from the last one.  As a favor to France, a wartime ally who suffered grievously, France was let into the club.  Perhaps in an effort at balance, Russia helped China to get the bomb.

At this point the club had five members, all substantial powers at the time they got the bomb.  But proliferation continued.  Israel is not officially a member of the club.  But the story goes that at some point the U.S. decided to help them out.

So, although they are not officially a member of the nuclear club, pretty much everyone believes that they have a small number of bombs.  Of course, this all speculation.  Israel has never admitted they have the bomb.  And they have never tested one.

Then there's China.  They decided to actively support proliferation.  In particular, they helped Pakistan get the bomb.  India got the bomb a decade after China did and over two decades before Pakistan did.  And the newest member of the nuclear club is North Korea.

The responsible/irresponsible division perhaps made some sense a few decades ago.  But there is a case to be made that it never really did.  And relatively recent events call it even further into question.  The first one is the addition of North Korea to the list of nuclear powers in 2006.  North Korea is not by any stretch of imagination a responsible country.  But it is a nuclear power and life goes on.

And there has been no rush by other countries to join the nuclear club as a result of North Korea's admission.  South Korea would be the obvious candidate.  They are an economically and technologically advanced country.  If they wanted to, I have no doubt they could join the club.  But they have chosen not to make the attempt.

Then there is the second member to join the club, Russia.  Earlier this year Russia invaded Ukraine.  Things have not been going well.  That has caused Putin, Russia's leader, to make all kinds of dire threats of a nuclear nature.  These threats are completely irresponsible.

So, the question needs to be asked.  Would Iran behave more irresponsibly than Russia or North Korea?  I don't think so.  Culturally, Iran is Persian.  That makes them one of the oldest civilizations on the planet.  They know in their bones what proper governance looks like.  That doesn't stop them from doing reprehensible things.

But then all countries that have the capability do reprehensible things.  We invaded Iraq.  The justification for the invasion turned out to be completely false.  So, there are no countries who are without sin.

Is Iran somehow more sinful than other countries in the region or the world?  Not that long ago Iraq invaded Iran.  Turkey under Erdogan has not shown itself to be a bastion of probity.  I could go on.

A key question to ask is "will a nuclear Iran behave differently and worse than an Iran without the bomb?"  Bluntly, will Iran behave more badly than North Korea or Russia?  I tend to think not.  After all, the behavior necessary to pass that test would have to be pretty extreme.

So, given that, is it worth the effort to continue to try to block Iran from getting the capability to build an atomic bomb?  I don't think so.  This is especially true because successfully blocking Iran from continuing their nuclear program depends critically on Russia cooperating.

And that leads to another question:  If we stopped trying to block their nuclear aspirations could Iran be turned into a partner who is more reliable and helpful than some of our current partners and allies in the region?

This is one of those "low bar" questions.  Nominally, Turkey and Saudi Arabia are our partners and allies.  But neither is a bastion of virtue.  If we reversed our position and told Iran, "go for it" when it comes to their nuclear program then many things immediately become possible.

We currently have an oil shortage due to Russian bad behavior.  Iran has stated that, if encouraged, they could ramp oil production up substantially.   Turkey is making mischief.  They are talking about blocking the admission of Sweden and Finland into NATO.  They were less than completely helpful in dealing with Syria, under Assad a very irresponsible country.

Turkey has great power aspirations.  In other words, they want to throw their weight around in order to get what they want.  Iran can counterbalance that.

Another country that likes to throw its weight around, and not in a good way, is Saudi Arabia.  To say that they have a repressive society that is deeply corrupt and has a terrible human rights record is to understate the situation.  Again, Iran can function as a counterbalance.

Would Iran be a better partner on the world stage than Russians has turned out to be?  They would be hard pressed to do worse.

So, my suggestion is to rethink our whole strategy of opposing Iran's nuclear program.  Getting into the nuclear club just isn't as rewarding as it used to be.  Trading away what are now very damaged goods in exchange for much more useful benefits in other areas sounds like a more productive course to embark on to me.

Inflation and the Fed

We are now going through a period of high inflation.  Until a few months ago the only thing a lot of people remembered experiencing was low inflation.  Now that inflation has spiked up everyone is tearing their hair out and spouting the economics equivalent of "we are all going to die".  We are not all going to die.

What has thrown people's expectations off is the extended period of low inflation that, up until recently, we have all been living through.  Many think that what we are now experiencing (high inflation) is unprecedented.  And, therefore, there is nothing that can be done.  It is going to continue on forever.  But this is a situation where history can be a very accurate guide.  We have been here before.

And there is a second factor.  That's the current position the Fed finds itself in.  (Queue the segue into historical mode.)  I have been following the general state of the U.S. economy for decades.  I am familiar with the Fed.  I know what it is about.  I have investigated how it works (or doesn't) across a period spanning an even longer period.  Let's start with the pre-Fed era.

In the 1800s, and especially in the late 1800s, the U.S. went through a series of "panics".  That's what they were called, and for good reason.  The way banks work is that they take deposits.  They then put most of the money back out in the form of loans.  The interest and fees the loan portfolio generates allows the bank to make a profit, and perhaps pay a little something back to the depositors for the use of their money.

But every once-in-a-while a rumor would start circulating that a particular bank was in trouble.  Sometimes it was true.  Sometimes it was not.  But once a significant number of people believed that the rumor was true, or even only believed that it only might be true, they moved immediately to pull all of their money out of the bank.  This was perfectly sensible.  If the bank went under, they stood to lose all or most of any money still held by the bank.

This behavior was called a "bank run".  If too many people withdrew their money, then the bank got into trouble.  They had enough money around, assuming they were sound, to cover the normal in and out of daily business.  But they didn't have enough money to pay off a significant percentage of the funds on deposit.  It was out in the form of loans.  As a result, few banks survived a run.

And this turned into a self-fulfilling prophecy as more and more people learned how bank runs worked.  And that meant more rumors.  And that meant more bank runs.  And that meant more bank failures.  If a number of banks got into trouble people panicked and started pulling money out of all banks.  By late in the century panics, periods when there were runs on a lot of banks at the same time, happened once every five to ten years.

This was very destructive to the economy.  Banks failed.  Business was disrupted.  Individuals and companies lost lots of money.  Pressure built to do something about it.  The result was the establishment of the Federal Reserve, or "Fed" for short, in 1914.  It was supposed to regulate banks.  That was supposed to reassure depositors and put an end to panics.

It wasn't enough.  Until the FDIC, the Federal Deposit Insurance Corporation, was created in response to the start of the Great Depression, panics continued.  The FDIC insured banks that the Fed blessed.  It had enough money to pay depositors in the event of a run.  So sound banks stopped going under and we stopped having financial panics.

But remember, the Fed's job is to be a regulator.  Besides making sure that banks are sound they are responsible for the general state of the economy.  They are supposed to manage the banking system so that the economy grows steadily, unemployment remains low, and inflation does not get out of control.

For a long time, the Fed was able to do a good job.  Banks were sound because the Fed forced them to be conservatively run.  Essentially from the end of World War II the Fed was able to keep the economy growing, the unemployment rate relatively low, and inflation under control.  I can put numbers to these goals.

The magic number for economic growth was 3.8%.  For a long time, if the economy grew at or above a 3.8% rate the incumbent political party retained control at the Federal level.  If it fell below 3.8%, we saw a change in which party was in control.  The target for unemployment was 3-5%.   It was believed that it was impossible to go below 3%.  But anything under 5% was considered good.

The target for inflation was 2%.  Why not 0%?  It turns out that it is hard for businesses to lower prices in a healthy economy.  The reasons are complex, and I am not going to get into them.  But if the general rate of increase in prices is 2% then some companies will not be able to raise prices that fast.  Relative to the rest of the economy, their prices will deflate without the necessity of them actually cutting prices.  So, an inflation rate of 2% was considered the Goldilocks spot.

The Fed missed one or more of these targets regularly.  But they were generally able to steer the economy back into the sweet spot.  But the Fed was a victim of its own success.  After a few decades of things working great for everybody, people (the banks and big business) decided that keeping things locked down so tight was not justified.  So, a push, led primarily by Republicans, gathered steam to "deregulate".

A Democrat, President Carter, was the first to actually start deregulating things.  He didn't deregulate banks.  That came later.  But the deregulation bandwagon gained so much momentum that it ground on for more than a half century.  So, after a period of both incredible economic growth and economic stability, we have gone back to the bad old panic days.

We had the Savings and Loan scandal of the '90s.  (Don't ask - everybody has forgotten about it by now.)  We had the "Dot Com Bomb" of the early 2000's.  We had the Wall Street meltdown just before 2010.  And now we have the economic disruption attributed to COVID.  The latest sub-phase is the inflation spike that has been all over the news for the last few months.

Truth be told, it was more than deregulation that has been a problem for the Fed.  Historically, the main tool the Fed has used was its ability to manipulate interest rates.  If the Fed forced raised interest rates, then business would pull back.  They would borrow less.  That left them with less money with which to grow.  Or so the theory went.  This pullback would cause the economy to shrink.  This caused inflation to decline, but economic growth was hurt, and unemployment went up.  This was all to the good if the economy was "overheated".

On the other hand, a lowering of interest rates would cause business to borrow more.  That's the theory, anyhow.  Businesses would use the increased borrowing to grow and expand.  That made economy as a whole grow more quickly.  Unemployment would go down, but inflation would go up.  This is all to the good if the economy is underperforming, if it is "stalled".  And practice matched theory for a long time.

The interest rate tool is often equated to the rudder on a supertanker.  A slow turn will result in a large change in direction, if it is allowed to go on for long enough.  That is good enough, so supertankers are notorious for having small rudders in comparison to their total size.  A small rudder is no problem if it gets the job done.

But what if a supertanker encounters a big storm?  The wind can push the supertanker around.  After all, it has these giant flat sides.  Similarly, a supertanker is big.  That means that small waves don't affect it much.  But big waves, waves generated by a large storm, do.  Supertankers are careful to stay away from storms because of this.

The economy can also be subjected to large and powerful storm-like events.  And, if that's what is happening, then the small interest rate "rudder" the Fed uses to put the economy back on course, gets overwhelmed.  That's what happened in the Wall Street meltdown.  By itself, the interest rate rudder was too small to get the economy back on course.

And then there's the trade-off.  The economy is supposed to have either high growth and high inflation or low growth and low inflation.  That allows the Fed to play growth off against inflation to move the economy in the right direction to get it back on track.

But the economic theory that predicted that it was impossible to have slow growth and high inflation at the same time proved to be wrong.  It happened late in the Nixon/Ford administration.  President Carter got growth going, but at the cost of super-high inflation.  President Reagan got inflation back under control by forcing a short recession.  After that, the standard trade-off was back on.

But the side effect of the Reagan move was to permanently depress economic growth.  We have had periods of high employment since.  We have had periods of low employment since.  But we haven't had a period of sustained high growth since.  Experts are now satisfied with a growth rate in the 1-2% range.  This is fine for Wall Street.  They have figured out how to make money in a low growth environment.  But it has been bad for main street and for workers.

So, we have been living in this low growth, low inflation regime for a long time.  It looks a lot like stagflation.  But, since the stock market has been doing great, the poor state of the underlying economy, and the poor state of household wealth and income (if you exclude the top 1%), gets consistently ignored.

But then things changed drastically a few months ago.  The Biden Administration has put a lot of money into the pockets of ordinary Americans.  For a while, COVID made it hard for them to spend it.  But the response to COVID has evolved and it became easier and easier for people to spend, spend, spend.  And they did.

And they spent on goods, not services.  Early in the pandemic they spent on services like Netflix.  But by the second half of 2021 they were spending heavily on goods like Pelotons.  The problem was that the economy was totally unprepared.

The Reagan Administration made it easier for companies to offshore manufacturing jobs, initially to China, but later to all over.  The U.S. economy gradually transitioned from being manufacturing based to being service based.  We no longer make much in the U.S.A.  Instead, we import it.

And COVID screwed that up.  Manufacturing was disrupted by the Chinese "zero tolerance" approach to COVID.  Shipping was disrupted due to a shortage of longshoremen at the ports and truckers further inland.

The first introduction to this for most of the public was the lack of facemasks.  When demand skyrocketed it turned out that the only real mass producer was China.  And initially China needed all the masks it could make for domestic use.

Since, then we have been introduced to a variant of the mask story in commodity after commodity after commodity.  And it turned out that the U.S. had little or no capability to manufacture masks, or pretty much anything else, domestically.

It is important to understand that the underlying cause of a lot of these problems was a side effect of demand rising sharply.  Demand for masks certainly soared almost overnight.  Demand for other goods didn't rise as dramatically as the demand for masks did.  But demand went up pretty dramatically for many goods at the same time.

In recent years the world economy had gotten used to producing a certain amount of goods.  It has also gotten used to the demand for goods growing only slowly.  That's a side effect of the slow-growth regime that we have all gotten used to.  When an across-the-board spike in demand for goods of all kinds hit, the world system for production and distribution got overwhelmed.

So, we saw bottlenecks everywhere.  They happened at the manufacturing level.  They happened at the shipping level.  They happened at the warehousing and retailing level.  Volumes in all these areas shot up and none of them were prepared to handle the increase.  Chaos ensued.

The size and breadth of the increase in economic activity is best demonstrated by the fact that in 2021 U.S. GDP shot up by 5.7%.  Remember, the old "good" number was 3.8%.  It turns out that you have to go back to the Reagan Presidency to find a year in which U.S. GDP grew by a comparable amount.  And, with the notable exception of China, GDP went up substantially pretty much everywhere.  It was not just a U.S. phenomenon.

The obvious and expected side effect of this is inflation.  If there is a shortage of goods, and people will continue buying them even after the price goes up, then prices are bound to go up.  But it is important to note that this is happening in a surprising environment.  Unemployment is way down.  And wages are up.  Owners are finding it hard to hire and retain employees even after raising wages by historically large amounts.

The law of supply and demand predicts that, if an employer raises wages, more people will apply for a job.  But that hasn't happened.  It has particularly not happened in traditionally low wage sectors of the economy like hospitality and retailing.  This difficulty in filling jobs is one of several contributors to the widespread "we are all going to die" sentiment.

I am now going to focus on the Fed.  It is part of the Fed's remit to worry about this sort of thing.  And they do.  If we go back a few years, there was this long period of time where the general consensus was that the Fed was not up to the task.  It was the whole "rudder on the supertanker" problem.  The Fed saw the economy getting deeper and deeper into trouble.

The Fed needed to apply stimulus.  So, they did.  The kept lowering and lowering and lowering interest rates, trying to get the economy to improve.  It didn't, at least not by enough.  Eventually the Fed lowered interest rates all the way to zero.  If that doesn't work, what's the next move?

Some central banks (the term applies to the Fed equivalents in other countries) managed to find a way to drive interest rates negative.  That was supposed to be impossible, but they found a way.  But even negative interest rates didn't work.

This all happened during the Wall Street meltdown.  By itself, right full rudder was not enough to turn the supertanker.  The Fed, staring into the economic abyss and aware of its own history, decided to do more.  Specifically, they turned to what became known as "extraordinary measures".  One measure went by the name "quantitative easing".  Mostly what they did, however, was to buy lots of investment securities.  Eventually that worked and the hemorrhaging stopped.  And the economy began to slowly recover.

After it became apparent that the economy was on the mend, the Fed stopped all the extraordinary measures except its program of purchasing investment securities.  That it continued, but at a reduced rate.  Many, but not all experts argue that one reason the recovery was so slow was because the Fed dialed back prematurely.  In their defense, they never completely stopped, and opinions on the matter differ.  After a few years they also moved interest rates up slightly.

They went back to zero interest rates and increased the amount of investment securities they were purchasing at the insistence of President Trump.  Both of these steps were highly stimulative.  The changes forced by Trump were, in my opinion, unnecessary.  But he wanted the economy to do as well as possible on the theory that it would help with his reelection.  He did not care whether or not it was the right policy for the economy.

The point of all this is to make it crystal clear that the Fed is currently stimulating the hell out of the economy.  They have effectively had the interest rate rudder jammed all the way over to the right for many years now.  That means that, if they shift the rudder to the left by forcing interest rates up, they have a rudder that is effectively twice as big as it ordinarily would be.

But wait.  There's more.  They are also still buying lots of investment securities every month.  That also stimulates the hell out of the economy.  In the years immediately after the Wall Street meltdown they had the "stimulate the economy" knob turned way up.  They have since dialed it back down some.  Then Trump made them dial it back up.  It is not dialed as high as it was in the early days.  Still, it is still dialed high enough to produce a strong stimulative effect.

If we return to our supertanker analogy, think of the securities purchase program as a second rudder, a really big one.  For a while it too was jammed far to the right.  Then it was moved more toward the center.  Then it was moved right, but not so much that it is now jammed all the way over.

The result of all this is that the Fed is in a great position to get inflation under control.  They can do the usual "move the rudder left " thing by increasing interest rates.  FYI, a typical range for 10-year government bonds is 3-5%.  Today, the rate is 1.8%, and that's up considerably from where it was a couple of months ago.

Historically, a normal range for mortgages would be in the 4-6% range.  But it has been a long time since people expected to pay 5% for a mortgage.  For contrast, I paid 8.5% in the '80s for my mortgage.

Moving interest rates to the range that used to be considered normal would take some steam out of the economy.  The Fed has recently signaled that it intends to do so.  That was enough to drive the "big three" (the Dow Jones Industrial Average, the S&P 500, and the NASDAQ) stock indexes down sharply.  (They have all recovered somewhat in the past few days.)

But that's not even the modern Fed's big gun.  The Fed now has what is described as an "inflated balance sheet".  The Fed literally owns a lot of investment securities.  And, as part of its extraordinary measures it has been buying more because that's what Trump pressured it to do.

At a minimum it could shut down its program for buying securities.  The current plan is for it to "taper", to lower the total amount of securities it purchases each month.  Eventually the amount would get to zero.  That would move the effect of the extraordinary measures to neutral.

The Fed can go even further, if it decides it needs to.  It can raise interest rates to a level that is above historic norms.  It could also begin selling off its large portfolio of investment securities.  It has complete control over how fast it sells them.  It can go with whatever rate is necessary to get the economy back to where it needs to be. 

So, the Fed is in a position to exert however much pressure is necessary in order to bring inflation down.  But that's not all.  COVID is still gumming up the works.  But it may be that Omicron will be the last wave.  And Omicron is likely to decline nearly as fast as it increased.  The economy may soon no longer have COVID holding it back.

Doing almost anything is hard now, due to COVID.  The movie and TV production business has responded to the threat COVID represents by saddling itself with a long list of safety protocols.  They slow things down and make it harder and more expensive to do a show.  We see this play out in the way new content is currently being released in dribs and drabs.

If COVID is in our rear-view mirror, TV and movie production can ramp back up to where it was in the before times.  It could even expand.  And the same is true, usually to a lesser extent, in industry after industry.

For instance, it will be easier to unsnarl shipping delays by adding capacity when COVID is no longer an issue.  And then there is the hospitality business.  Cruise ships are a mess.  The COVID inspired rules and regulations add to costs and diminish the cruising experience.

In spite of all the new rules and procedures there have been multiple instances of large COVID outbreaks on ships.  Adding to their problems is the fact that this has got to be keeping some cruisers away.  That's bad for business.  It also gets in the way of efforts to increase business.

Cruise ships are run by large companies.  Their size gives them access to a lot of resources.  Consider the plight of a small business like a restaurant.  They don't have the same access.  But that doesn't stop them from having the same kinds of problems.  People have to be staying away because of COVID concerns.

Unfortunately, so have the people who work at restaurants.  Restaurants have been having awful problems getting and retaining staff.  This is true even after wages have been raised substantially.  No doubt, some people don't want to take the risk.  But also consider the hassle.

When it comes to dealing with COVID, restaurants have a number of approaches to choose from.  But the only one that is totally hassle free is choosing to close.  If they decide to stay open instead, no matter what approach they decide on, some group or another is going to be mad at them.

That anger translates into more unruly patrons, and patrons who, when the get out of line, get much further out of line than they used to.  Who wants to work a dead-end job with shitty pay and then have to deal with asshole patrons?

If COVID goes away, then restaurant employees will no longer be worried about their health.  They will also no longer be expected to be the COVID police.  That is going to result in fewer irate patrons.  That should translate into happier employees and more business.

If there are more restaurants chasing the diner's dollar, that should put pressure on restaurants to keep their prices down.  And that should translate to less inflation.  A similar analysis can be applied to many other industries.

So, there are many reasons to believe that our current bout of inflation will be a transient one.  Does that mean that it will be gone in a month or three?  No!  But we are already seeing signs that inflation is starting to moderate.  It will take a while, but we will get there.

The press will still be able to come up with scary inflation stories for a few more months.  As long as they can compare the current situation to how things were early last year, the current numbers will look bad by comparison.  But that ploy will stop working at some point.  And when it does, the stories will disappear, as if by magic.

The Fed is in a better position to deal with the inflation problem than at any other time I am aware of.  And, as I said, I have studied many decades of Fed policy and how well it has or hasn't worked.   They have the tools, and they know how to use them.  We will be fine as long as they are allowed to do so.

And the Fed won't be going it alone.  There are other forces in play that will also be pushing in the direction of inflation moderating.

Good news.

Ukraine May Just Fizzle Out

There is some serious shit happening in Ukraine right now.  But the press has fallen back on its tried and true "we are all going to die" approach to the situation.  Things are more complicated than the "it's a done deal that Putin is going to invade" line they are pushing.  So, let's take a more nuanced view of the proceedings.  Let's start with a thumbnail history lesson.

Ukraine has been within the Russian sphere of influence for so long that it's not worth considering a time when it wasn't.  Russia suffered horribly in World War I, and a hundred years before that, in the Napoleonic Wars.  The communists that successfully engineered a takeover of the government late in the War were painfully aware of that history.  When they consolidated power, they set out to do something about it.

The standard method for dealing with this particular problem is to assemble a group of buffer states, all the countries that surround you.  That's what Lenin and the rest of the leaders of Russia did.  They created something called the USSR - the Union of Soviet Socialist Republics.  On paper it was similar to the modern European Union, a bunch of countries with shared interests that banded together.  Yet each country within the union remained a sovereign state.

But, unlike with the European Union, with the USSR, the appearance that it operated in a similar manner was a not so carefully maintained fiction.  In reality, Russia ran the show, and the rest of the "independent" states were just vassals who took their marching orders from Moscow.  This was apparent to anyone who made the least effort to investigate.  What's important for the matter at hand is that Ukraine was one of those vassals.

Then World War II came along.  It proved that Russia needed buffer states.  But the buffer state strategy was ineffective at stopping the Nazis, or even slowing them down significantly.  So, from a Russian security perspective, the whole plan was an utter failure.  But the plan conferred other benefits upon Russia, so they stuck with it after the War.  In fact, they stuck with it for as long as they could.

But let's stick with the World War II period for a bit longer.  In Europe there was the "western" front and the "eastern" front.  Most people in the west think the western front was where all the important action occurred.  That gets it backwards.  It was 60-40 or 70-30, with the eastern front seeing the largest and ultimately most decisive fighting.  The largest tank battle in history was fought on the eastern front.

The activities of Nazi General Rommel and his "Afrika Corps" are much more familiar to people who live in the west than anything that happened on the eastern front.  And the battle for control of north Africa involved several tank battles that are usually described by western experts as both as large and as critical to the successful prosecution of the War.

But the number of tanks involved on both sides were a small fraction of those active on either side of several clashes that took place on the eastern front.  Ukraine's position between Germany and Russia put it smack dab in the middle of the eastern front.  And smack dab in the middle of the fighting.

Russia was on the winning side of the War, so the USSR emerged intact.  And Ukraine and the other non-Russian members of the USSR remained vassals beholden to their masters in Moscow.  The situation, however, did not remain static forever.  Russia eventually declined and became unable to hold the USSR together.  It fell apart in the late 1980s.  And the internet became a big thing shortly thereafter.

The fall of Russia and the advent of the internet allowed Ukrainians to get a good look at the west for the first time in generations.  Ukrainians decided that they liked what they saw much better than continuing to be bound to the Russian orbit.  But for a while longer that didn't matter.  Russia managed to engineer a series of pro-Russia governments in Kiev, the capital of Ukraine.  Then they put an especially inept and corrupt figurehead in place.

The Ukrainians decided enough was enough and got rid of him.  By 2014 a new, democratically elected government was in power.  But it was weak because it was new, and because it hadn't had much time to throw out many of the holdover crooks and incompetents.  Putin, who spent decades as a KGB agent, saw his chance and took it.

He annexed a part of Ukraine called Crimea.  Geography made it relatively easy for Russia to invade, and hard for Ukraine to defend.  The whole thing took less than a week.  After that Ukraine had no practical chance of getting it back.  "That went very well", was Putin's thinking.  The whole invasion had been practically bloodless.  It hadn't cost Russia much treasure either.  The west had no real way to help, so they were forced to accept it as a fait accompli.

That encouraged Putin.  So, he picked out a part of Ukraine that bordered Russia and that contained a high percentage of Russian speaking people.  As a result of the language commonality, and other factors, many, but not all, of the residents of that region had strong cultural ties to Russia.

Putin set about manufacturing an "independent" army.  It consisted almost entirely of Russian troops.  But this was disguised by having the soldiers strip all Russian insignias, and other identifying devices, off of their uniforms.  Theoretically, their affiliation could no longer be determined.  This "independent army" invaded and was able to capture a significant amount of territory.  When asked, Pusin said "not us - we had nothing to do with it".

This is what used to be called "plausible deniability".  The denial is really not plausible.  But supporters can latch on to it and pretend they believe it.  From a practical point of view, Ukraine was still too weak to push them out.  And again, the west was not in a position to do much, so the Russians are still there.  Sporadic low-level fighting continues in the area to this day.

And that brings us to the present, actually a few months ago.  I am not expert enough to be able to say with any degree of certainty why Putin decided it was time to attempt his next move against Ukraine. But we all now know that he decided the time was ripe to try to get away with something.

He started by slowly massing what is usually reported as "100,000 or more" Russian soldiers near the border to Ukraine.  They are equipped with tanks, airplanes, and the rest of the usual accoutrements of a modern first-class military force.  No secret has been made of their presence.  A force that large cannot be hidden from satellites.

The satellite photos were leaked to the usual cast of characters in the press.  They got the word out and extensive press coverage commenced.  Press and public interest has remained high since.  The unanimous opinion of the "experts" the press uses is that "Putin can invade at any time and there is nothing we can do to stop it."  So, the press breathlessly tells us to "be afraid - be very afraid".

The press loves a "war is about to break out" story.  They have lots of experience covering it, and it is good for ratings.  So, beyond interminably rehashing the few actual facts, they trot out "expert" after "expert".

These "experts" know that they will receive more follow-on bookings if they push the "it's bad - very, very bad" narrative.  That narrative inevitably leads to a "the Administration is screwing it up" narrative.  The fact that the expert du jour is not in charge can allow for no other possible conclusion.

And, of course, they can choose between the "he's not doing enough" and the "he's doing too much" narratives.  You can get "dramatic" TV (i.e. good ratings) by pitting an "expert" from one camp against an "expert" from the other camp.  They start from their shared belief that the administration is getting it all wrong and go from there.  As entertainment, that's great.  As a way of informing the public, it's terrible.

The one thing they do get right is that Putin is the key player in all of this.  He longs for the good old days when Russia was the USSR.  And, more importantly, for the time when Russia was one of only two superpowers.

For decades Russia was able to successfully masquerade as a superpower without actually being one.  It never had the economic base necessary to move from perception to reality.  It was always faking it.  It had a lot of success faking it.  But eventually economic reality caught up with it.  As the '80s played out, it lost the ability to maintain the fiction.  Shortly thereafter, the facade came tumbling down.

Currently, the big-three economic powers are the USA, China, and India.  Russia is Saudi Arabia with more land and a much larger population.  They do have an educated populace and a large economic base.  But only if you compare Russia to Saudi Arabia and not to India or China.

Just creating and maintaining the fiction that Russia is a great power takes money.  Russia does well when the price of oil is high and badly when it is low.  COVID drove down economic activity worldwide.  That drove the demand for oil down.  That drove the price of oil down.  That starved Russia of the resources necessary to fund Putin's ambition.

But Russia does have a few things going for it.  The biggest one is the fact that it supplies much of the oil and natural gas that Europe consumes.  That money fuels Putin's ambitions.  It also gives Putin leverage.  He can threaten to cut off the flow of the large amount of oil and natural gas that Russia exports.

Putin is smart.  But he is also an opportunist and a bully.  If he sees an opportunity, he will take it.  He actually cut off Ukraine's access to natural gas for a while a few years ago.  He saw the opportunity to bully Ukraine and took it.  The cut off allowed him to extract significant concessions from Ukraine.  While he is constantly on the hunt for opportunities, he is also no fool.  He only goes forward if he is confident of success.

He has decided for a number of reasons that now is the time to try to make another move on Ukraine.   It is right next door.  And, besides the gas cutoff ploy, in 2014 he got away with two other ploys aimed at Ukraine.  Now might be a good time, his thinking goes, to pull off another 2014 and take another bite out of Ukraine.

If he succeeds it makes him look strong and like someone who is a powerful player on the world stage.  And, who knows.  Maybe he can take over the entire country of Ukraine.  Even if he only succeeds in installing a puppet government in Kiev, or taking another small bite out of Ukraine, either would count as a win.

In any case, he decided to find out just how much he can now get away with.  If you listen to much of the U.S. press, it will be a slam dunk, an easy win for him.  And they may be right.  But I think there is a significant chance that they are wrong.  The basic reason is that conditions have changed.

The most important change is the one that has taken place in Ukraine.  During the USSR period a case could be made that, as a practical matter, Ukraine didn't even exist.  People living in what is now Ukraine knew they might as well have been living in Russia.  There was a Ukrainian government, but it existed in name only.  Under those circumstances, thinking of yourself as a Ukrainian because you lived in Ukraine didn't mean much.

But in the period since 2014, Ukrainians have been seeing what a home-grown independent government looks like and acts like.  They like what they see.  They like being Ukrainians, an entirely distinct species from Russians.  And whatever pre-existing ire there was toward Russia has only increased in recent years.  Besides being home-grown, the Ukrainian government has shown itself to be both trustworthy and reasonably competent.

A big part of that is thanks to the Ukrainian military.  The continuous military pressure that Russia has exerted on the country has had the perverse, from the Russian perspective, result of forcing Ukraine to develop and field a top-quality military.

Anything less would have allowed the Russians to run rough shod over them.  Ukraine had no real military capability when Russia made its moves in 2014.  That is no longer true.  The important question is, does Putin know this?  I think he does.

Next, the west was caught flat footed in 2014.  Putin's moves were entirely unexpected.  Western intelligence and military people are not making that mistake this time around.  Let's say Putin had snuck his force up to the Ukrainian border and launched a blitzkrieg before anyone caught on.  Then the west would again be confronted with a fait accompli.

But, for whatever reason, the buildup was slow enough that it showed up on threat boards all over the west well before Putin could put it to use.  It may be that it just takes more time to assemble a force this large.  It may also be that since 2014 western intelligence agencies have been on high alert and, therefore, watching the region closely.  Whatever move Putin makes this time around will be one that the whole world will be on the lookout for.

The military experts agree that, if Putin is willing to pay the price, he has the military capability to invade the country and seize control of all of it.  I am not sure that is true.  The conclusion is based on the usual military analysis.  You take a head count of the two forces, the Ukrainian military and the force that Putin has assembled.  Then you look at the equipment of the two forces.  The Russians have more equipment and more capable equipment.

Finally, you do the military math.  All the experts say the result is that Putin wins.  The people performing the calculation are competent.  If they say that's what should happen, then I trust their math.  But there is an implicit assumption that the experts are making.  And I am not sure that implicit assumption is justified.

There is a term of art called a "Potemkin Village".  It comes from Russian history.  In this particular instance Russia needed to look strong when it was actually weak.  It didn't have the resources to build up its strength.  Instead, it built a bunch of what appeared to be villages.  If the villages had been real, then Russia might indeed have been formidable.   But, until the villages were exposed as fakes, which they eventually were, the ploy worked.  At a minimum, the ploy bought Russia time it otherwise wouldn't have had.

Russians have been making their military look larger and more powerful than it actually is forever.  In the USSR era they would have a few airplanes fly in a circle so that they could overfly Red Square repeatedly during the annual May Day parade.  Western observers would then overestimate the number of top-of-the-line planes Russia possessed.  And it wasn't just planes.  They used the same trick with other types of equipment.

One of the things we found out about the Russian military after the USSR fell apart, was how much Potemkin Village-ing had been going on.  All kinds of forces that looked ready to go in the satellite images, were actually in deplorable shape.  They were not really capable of doing anything beyond looking formidable to a camera located hundreds of miles above them.

We know that there are a lot of Russian soldiers near the Ukrainian border.  We know that there is a lot of what looks like first class Russian equipment positioned near the Ukranian border.  But what kind of shape are either really in?

One thing that I find interesting is that the press routinely shows us a mixture of training video that Russia has released and satellite photos of large numbers of parked vehicles.  But when it comes to the videos, all Russia needs to make them is a few first-class units.  As to the satellite shots, see above.  And then there is this.

Satellite imagery allows western experts to count vehicles.  But I noticed that some of the recent satellite photos of the Russian buildup feature hundreds of vehicles covered in snow.  If they are ready to go at a moment's notice, why are they covered in snow?

Let me be clear.  I don't know what the state of readiness of the Russian forces is.  It might be high.  Or it might not be.  U.S. and allied intelligence agencies might know the answer.  Putin should know the answer.  It is a failing in the press coverage to not consider the possibility that there is a considerable amount of Russian fakery going on.

So, where are we?  The Ukrainians are a tougher nut to crack now than they were in 2014.  The western powers are on the alert.  It can be argued that they should be providing more military equipment, and more capable military equipment to the Ukrainians than they are.  But they are providing substantial amounts of military equipment.  And the Russians may be far less capable than western experts give them credit for.

But wait, there's more.  His KGB training inclines Putin toward indirect means.  How about a propaganda offensive?  How about sowing division behind enemy lines?  How about Cyber?  How about any number of other techniques for reducing the cost and increasing the chance of success?

This is an area where the press is doing a good job.  We have seen all kinds of stories about these, and other possible dirty tricks.  Some have come out of the U.S.  Some have come out of the U.K.  I believe one of them even came out of France.

This is a case of "forewarned is forearmed".  Putin might come up with something no one has thought of.  But many of the plays in the KGB playbook have received widespread coverage in the western press.  That doesn't render them impotent.  But it does reduce their effectiveness.

Finally, it is important to understand that Putin is getting something he values highly right now.  At the moment he is viewed as a powerful player on the world stage.  People are paying attention to what he is saying.  People are seriously concerned about what he is doing or what he might do in the future.

They are saying that what he might do will have wide ranging repercussions.  In other words, for the moment he is getting the kind of attention that leaders of major powers capable of taking consequential actions get.  That, he values highly.

The whole Ukraine game is about affecting Putin's thinking.  If he thinks he can achieve success at low cost and low risk, he will move.  Why wouldn't he?  What the Biden Administration needs to do is reduce his estimation of his chances of success.  Or they need to increase his estimation of the likely cost.  Or both.  They are doing a good job of that.  If they are successful enough then Putin will slink away into the night.

If he ultimately ends up doing nothing, he will try to blur and obfuscate what he is doing.   Do not expect the Russians to announce one day that they are packing up and leaving.  Instead, expect diplomatic efforts to drag on ineffectually before slowly and quietly grinding to a halt.  He will also make military and diplomatic moves designed to obscure what is really going on.

Eventually, he will need to do something definitive like withdraw lots of troops from Ukraine's border.  He will try to find a time when the world is distracted by some event happening somewhere far distant from Ukraine and then do it.  The whole crisis will end not with a bang but with a whimper.

In the meantime, Putin is getting what he wants.  He is being treated as if he is a BFD.  And, on his scorecard, that counts as a win, a big win.