Talking Sanctions, Commodity Disruption and Global Growth Risks

In late January, I was delighted to chat with the hosts of the Doorstep podcast. we covered what’s likely in terms of sanctions, how effective they might be, what risks of commodity disruption (energy, grains and fertilizer) and why I’m concerned more about a growth crisis than a debt crisis as the policy mix shifts from a very supportive one.

See the full interview and transcript here

On Russia and sanctions: Personal sanctions would be targeting the personal assets of Vladimir Putin, as with any official. The challenge with Putin is that it’s hard to know exactly what he owns. Some of it is the same issues with any powerful leader in an autocratic or semi-autocratic state—they can have their hands in a variety of pies—but it is particularly so with Putin because there are question marks about which of the energy companies he might have stakes in or other things.

I have definitely not followed all the money where Putin personally is concerned—I tend to track more the Russian state apparatus—but I think President Biden’s comments are part of the whole debate in Washington and in European capitals about what are the measures that would influence Russia.

There was a view some years ago, “Hit the oligarchs and they will influence Putin and change the story.” I have always been a little bit skeptical of the effectiveness because I think we tend to see sanctions often concentrate power structures in societies like Russia that are set up to be defensive and where they think the goals are on their side.

To your bigger question, are sanctions at play and should they be at play, I think it is very difficult to craft a sanctions package that we know would lead to policy change. It is much easier—and I say this as an economist—to sit here and say how you craft a package that would hurt Russia economically, that would hurt certain interests. It is much harder to say that that leads to the kind of policy change we want, which is not only pulling back the troops from near Ukraine, it’s a whole set of activities.

One of the things that has concerned me for some time where Russia is concerned has been that we have increasingly grouped sanctions for a whole set of what we call “malign activity,” so it would be hard to imagine—even if policy started to change around disinformation, cyberhacking, and the whole long list you guys talk about all the time—how would we lift this sanction but not that sanction.

I don’t mean to say that we should be doing nothing because there is a lot here at stake, there are a lot of slippery slopes that are going on, but just to say that imposing a lot of economic cost doesn’t necessarily lead to policy change.

I tend to think sanctions are most effective when there is a really clear goal and a clear strategy, that it is not just about sanctions and coercive economic tools, but also in this case military deterrence and a variety of other things. In an ideal world we wouldn’t have been at this point, we would have maybe had a set of policies that might give Russian elites and might give even Putin an interest in a different policy path. Sometimes I feel a little Pollyannaish when I talk about that, but I do think it is a conversation worth having.

This is unique. This is one of the first times I have ever seen a U.S. administration lay out, “Here’s all the things we’re thinking about.” They are almost negotiating in public.

Part of that I think is because they want to show they are as united as they can be with Europe—which is hard to do—but also because they are hoping that laying those things out has a deterrence element to it. We’ll see what happens. I don’t think anyone wants to see a circumstance where some of these strong economic measures have to be used, because they would be painful for the global economy, but so too would invasion and disrespect of national sovereignty.

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