In this age of misinformation and sound bites, one lesson
should be entrenched by now. It takes hard work to be a well-informed citizen,
capable of interacting with other well-informed citizens, who wish to discuss
the important issues of the day. Communications from elected leaders and
political parties must be fact-checked. Disclosures from individuals with
impeccable professional standing and high journalistic standards are not
sacrosanct. Their analysis and conclusions do not give us the green light to
accept factual statements as true. It is up to each of us, who wish to make
sense of the world, to avoid the emotional bliss associated with confirmation
bias when someone tells us our beliefs were correct.
Many of the issues screaming from the headlines have
profound effects on our financial and emotional well-being. We hope there are
simple answers to these problems so that we can comfortably agree with those we
admire and respect. Unfortunately, many of the important issues we confront are
complex and not explained by superficial descriptions of right and wrong.
Sometimes, the information sources we rely on are reliable. At
other times, the sources have taken liberties with the facts to support a predetermined
result and to keep us in blissful ignorance. If the reader of this commentary
cares more about results and supporting a particular agenda than understanding issues, please turn to the
sports page or comics and enjoy.
To make my point I have chosen two topics that are on the
minds of many Americans: inflation and the Ukrainian conflict. I have no
political agenda or position to support. My sole purpose is to ask readers to consider diving
deeper into the vast amount of information available to them before drawing
conclusions.
Inflation. The
onset of the highest inflation rate in 40 years is too complex to place blame
on any single factor. The combined development of pandemic-induced, supply-chain
issues and strong consumer demand was unanticipated by economists of all
political persuasions. Moreover, pandemic induced worker shortages has led to
higher wages.
The Federal Reserve is powerless against the lack of supply
of everything from computer chips to housing. Over time, chip production will
increase as the pandemic winds down, and the housing market will cool off as
interest rates return to a more normal level. American oil/gas producers have
been reluctant to increase production, even with higher prices. Many drilling
companies promised their investors that profits and dividends would take
precedence over plowing earnings back into more infrastructure.
Increasing
interest rates in order to get a lid on prices will lower inflation. However, if
the Fed moves to hike interest rates and tighten credit too aggressively, it
risks tanking the economy into a recession with negative effects on the stock
market.
Ukraine. The
media has painted the Ukrainian conflict as a classic battle of good vs. evil
and largely ignored the geopolitical background leading up to the war. Since the Soviet Union dissolved, America has set out to enlarge the NATO military alliance to include nearly
every nation in Central and Eastern Europe that had been a vassal of the Kremlin
for the previous half-century. To many Russian scholars, Putin’s initial attack
came as little surprise. In a sense, it was a Russian backlash waiting to
happen. Going back to 1995, George Kennan, the dean of Russia experts and the
architect of America’s cold war containment policy castigated NATO enlargement
as “the most fateful error of American policy in the entire post-cold-war era.”
The war has compelled
Washington to make new concessions to autocratic regimes in Saudi Arabia and
Iran to compel them to pump more oil. Doing so will provide a financial windfall
to both countries. Moreover, both countries will have more resources to fund
their deadly proxy war in Yemen where the death toll has reached 400,000
non-combatants (10,000 children).
Ukraine is a major
world exporter of wheat and other grains to the world. The war has shut down
exports of existing grain production and may make it difficult to plant the
spring crop. The United
Nations has warned that the Russian invasion could trigger global famine,
as Moscow’s Black Sea blockade delays important grain exports. The conflict has
stoked fears of a deepening hunger crisis in countries already facing famine
conditions.
Ukraine’s
combined wheat exports are crucial to a number of countries, including Egypt, Turkey,
Bangladesh and Iran, who get 60% of their grain imports from the region.
Without food security, many third world countries will be subject to military
conflict. On another front,
important to the West, Russia and Ukraine both supply raw materials critical to
chip production, which is undergoing a worldwide supply shortage (see inflation
above).
On the positive side, Western
Europe could increase its commitment to renewable energy to lessen dependence on
Russian oil and gas. This would be a boon for the climate, not unlike the
pandemic crisis when energy usage shrank by half.
When it comes to complicated
economic and geopolitical issues, very little can be explained in a brief
commentary. For individuals seeking to broaden their understanding the
RealClear array of news, opinion and innovative research (see
realclearpolicy.com and related sites) covers all angles and is a reasonable
place to start. The more we understand, the less likely we are to claim the
only “right” answer in our social interactions.
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