What the Economy Needs

We want to briefly comment on the suggestions that the Ukraine – this is to say the government of the Ukraine – allegedly needs to “borrow at least $35 billion”. This has been reported in terms such as these:


“The political crisis has cost Ukraine economically as the country is facing a possible debt default. Ukraine needs approximately $35 billion in aid to improve its economy, according to the country’s finance ministry.”


The last thing a country needs to “improve its economy” is a giant loan to its government. Government equals waste, even if it isn't prone to stealing, which we suspect the new administration in Kiev definitely is. Why should it be any different from the previous 'Orange Revolution' government? It's the same people, only fortified by a bunch of extreme right-wing nationalists this time, who incidentally hold a number of important portfolios, including everything relating to police, defense, national security and even the post of prosecutor general. Germany's news magazine Der Spiegel, which is largely sympathetic to the new government, reports this most recent tidbit from Kiev:


“They [the Maidan activits, ed.] are afraid that the political profiteering of recent years will carry on, just with different beneficiaries.


Their concern appears to be justified. Last Monday, a high-ranking officer from Ukraine's customs administration contacted a newspaper to inform editors of a new deal pertaining to the "internal" allocation of unexpected customs revenues. No longer would confiscated money and valuables be given to Yanukovych's Party of Regions as they had been previously. Rather, they would go to the Fatherland alliance. Timoshenko, the man said, had personally approved the deal. Furthermore, the Communist Party, he said, had been handed the leadership of the customs administration so that it would support Timoshenko in the future.”


(emphasis added)

Just as we suspected a short while ago: meet the new boss, same as the old boss! The US and EU governments have done their tax payers no favors by opening up this new black hole to throw money into. They should have let Russia lend the $15 billion it was prepared to lend to the Ukraine, then their new arch-enemy Putin would be stuck with the bill.

As Ludwig von Mises pointed out:


Investment and lending abroad are only possible if the receiving nations are unconditionally and sincerely committed to the principle of private property and do not plan to expropriate the foreign capitalists at a later date. It was such expropriations that destroyed the international capital market [this was published in 1949 and the destruction of the international capital market Mises refers to has since been largely rescinded, ed.]

Intergovernmental loans are no substitute for the functioning of an international capital market. If they are granted on business terms, they presuppose no less than private loans the full acknowledgment of property rights. If they are granted, as is usually the case, as virtual subsidies without any regard for payment of principal and interest, they impose restrictions upon the debtor nation's sovereignty. In fact such "loans" are for the most part the price paid for military assistance in coming wars. Such military considerations already played an important role in the years in which the European powers prepared the great wars of our age. The outstanding example was provided by the huge sums which the French capitalists, pressed hard by the Government of the Third Republic, lent to Imperial Russia. The Czars used the capital borrowed for armaments, not for an improvement of the Russian apparatus of production. They did not invest it; they consumed a great part of it.”


(emphasis added)

The problem with the Ukraine is precisely that it has so far not adequately protected the property rights of foreign investors. It is all dependent on political whim, and thus far, it has made no difference whether the Western or Eastern Ukrainian parties were in charge. Moreover, as Mises correctly points out, intergovernmental loans are for the most part wasted on consumption and are frequently used for the purchase of war materiel. The economies of the nations concerned cannot possibly be improved this way.

Unless the country develops reliable institutions and rids itself of graft (which is tantamount to the entire political caste resigning – perhaps introducing a lottocracy would help), it will remain an economic backwater, no matter how much money is thrown at its government.


The Conflict Explained by a Single Map

As the title to this post promises, here is a map of the Ukraine that explains best why the EU tried to get its foot into the door and why the US government egged on by the usual suspect neo-con circles financed the revolution. It also explains in one stroke why Russia believes that its vital strategic interests are under threat from the Russo-phobe ultra-nationalists now in charge in Kiev and their Western backers, and why it decided to grab the Crimea (and with it the all-important Sevastopol port) while it still could.

Mind, this does not alter the fact that Putin's moves are legally highly dubious. The excuse that he is merely following Yanukovich's invitation is really quite lame, although it is quite funny as well. Western countries usually don't wait to be invited before they bomb everything to hell in all sorts of places, and their pretexts are usually no less lame. At least the Russians haven't come charging in guns blazing, a difference that is noteworthy. Anyway, we merely want to explain motives, not debate the legal and moral fine points. Clearly, the people of the Ukraine remain way down on everybody's list of priorities anyway, all the sappy pronouncements to the contrary notwithstanding. And here it is – the map that explains everything:




Pipelines and gas fields in the Ukraine, or the map that explains everything (source:BBC)



Obviously, no additional comments are required.





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2 Responses to “Ukraine/Crimea – the Map That Explains Everything”

  • marbls:

    Maybe Ukraine would have been better off with the Putin mob’s $15 billion than with the Western Creditor club mob. At least the $15 billion might have gone into energy projects and not to refinance the Western Banks Ponzi loans.

    Respect for Private Property=that’s a LOL when Ukraine owes all it’s available cash flow to finance the previous governments debts to the Western Banks.

  • No6:

    Just as economists are experts with a ruler, so are politicians. I would hazard a guess that if we were to revisit this map in 5 yrs a nice line from North to south will be drawn commencing at the Belarus border. If they are really clever they may allow the odd bump in the line for river bends.
    Whatever, this is not the Wests business.

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