How Game Theory Explains Why We Have to Sanction Putin — Even If It’s Costly

“The point of sanctioning is that, if we don’t, the norm against territorial incursions will collapse. Preserving this norm — and working to prevent similar abuses in the future — is worth the cost of sanctioning. But why is norm collapse an inexorable consequence of failing to sanction? Fortunately, a bit of game theory can help us answer this question.

Let’s call this the Repeated Sanctions Game, which has two players. In each round of the game, Player 1 (i.e., an adversary such as Putin) chooses whether to transgress, then Player 2 (i.e., NATO) chooses whether to sanction. Transgressing benefits Player 1 (Putin would like to annex Ukraine) but costs Player 2 (NATO would prefer that Ukraine be free). As in real life, sanctioning is costly not just to Player 1 but also to Player 2, who might prefer not to, for example, suffer higher prices or lose revenue from Player 1’s products and businesses as a result. Then Player 2 plays the game again and again — perhaps with the same Player 1, perhaps with another (Putin now, maybe Xi next time).

For Player 2 to deter future transgressions in this game, she would have to threaten to sanction Player 1 whenever he transgresses. This threat has to be credible, otherwise Player 1 will simply call Player 2’s bluff. Player 2 must, if called upon, reliably follow through on her threat.

How can this be worth it for Player 2, given that, as already acknowledged, sanctioning is costly? To see, we must factor future expectations into the cost-benefit calculation. When a transgression isn’t met with sanctions, everyone would reasonably expect that future transgressions may also go unpunished. This is the norm collapsing. So long as Player 2 cares enough about the costs of all those future transgressions, she’ll prefer the collateral costs of punishing the transgressor today to increasing the likelihood of future transgressions. It’s not preventing or stopping the current transgression that’s motivating Player 2 to sanction, it’s the fact that without sanctions as a response, there will inevitably be more transgressions.”

“what the international community is really trying to avoid is other, more rational actors, such as Putin’s eventual successor or Xi, inferring that future invasions will not be punished.”

“So, yes, it’s true that sanctions will hurt our economy, and it’s true that they may even push Putin to further escalate Russia’s aggression against Ukraine. That’s all really bad, but it’s not as bad as a future where national sovereignty is not respected. For the norm against territorial incursion to survive, everyone must forever know that we are willing to pay the cost to sanction.”

Are sanctions against Russia working?

“The United States and its allies imposed unprecedented economic sanctions on Russia in the wake of its full-scale invasion of Ukraine. The swiftness and intensity of the penalties crashed the ruble, forced the Russian stock market to close, and sent Russians to line up at ATMs to withdraw dollars from their bank accounts.

The Russian economy was in free fall. Until it wasn’t, exactly.

The country’s central bank responded by sharply hiking interest rates to 20 percent and imposing strict capital controls. Those interventions, along with Russia’s still-intact ability to sell its oil and gas abroad, helped create a buffer against the economic chaos after the initial sanctions shock. The measures were “straight out of the country’s economic crisis playbook,” said Adam Smith, a partner at Gibson, Dunn & Crutcher, who worked on sanctions during the Obama administration.

The economic crisis playbook did its job, and calmed the immediate crisis. The ruble stabilized. That allowed Russia to declare victory over the sanctions onslaught. “The strategy of the economic blitz has failed,” Russian President Vladimir Putin said in April.

At least, that is what Russia would like to claim. Russia’s efforts to shore up its currency mask the profound economic disruptions and transformations that sanctions are unleashing within Russia right now. The West’s sanctions are isolating Russia, cutting it off from key imports that it needs for commercial goods and its own manufacturing to make its economy work. That means high-tech imports like microchips, to develop advanced weaponry. But it also means buttons for shirts.

Right now, there is “this false sense of stability,” said Maria Shagina, a visiting fellow at the Finnish Institute of International Affairs.

Russia is facing a deep recession, one the Bank of Russia says will be “of a transformational, structural nature.” The Finance Ministry has predicted the Russian GDP will shrink by about 8.8 percent in 2022. Inflation is expected to clock in as high as 23 percent this year. Russia is looking at a looming debt default. All of this will mean hardship for ordinary Russians, who are already seeing their real incomes shrink. Some tens of thousands have tried to flee, especially those in tech, prompting a potential “brain drain.” And these are the things we know; Russia will cease publishing a lot of economic data, a tactic, experts said, Moscow has used before to obscure the effects of sanctions.

These sanctions, said Yakov Feygin, a political economy expert at the Berggruen Institute, are pushing Russia — a modern economy, integrated around the globe — back decades and decades.

“They’ve stabilized it, they’ve taken emergency measures. That was to be expected. But that’s not going to help them in the long run,” Feygin said of Russia. “You’re not going to see people queuing for food for quite a bit. But with the current course of things, it’s still very possible.”

The US and European allies have continued to pile on more penalties, refining and sharpening the sanctions, all in an effort to ratchet up the pressure on Moscow. The EU has proposed a phase-out of Russian oil products, and depending on the final details, that might further erode the Kremlin’s lifeline. And the US could take additional steps, like threatening secondary sanctions that go after countries like China or India, to deter them from buying cheap Russian energy. That comes at a cost, and not just for Russia.

Even without more escalation, the sanctions regime against Russia is one of the most aggressive in history, untested on an economy of Russia’s size and as entangled in the global financial system.

Whether the sanctions are “working,” then, depends on what they are intended to achieve. One thing is clear: Over time, these sanctions will likely make it harder for Russia to rebuild its tanks, manufacture cruise missiles, and finance a war. It will also make it harder to produce food and make cars. And it still may not stop Russia from pursuing its campaign against Ukraine, all with unpredictable consequences for the rest of the world.”

US, UK, Australia team up on hypersonic weapons with eye on Russia and China

“The U.S., the U.K. and Australia will start joint work on hypersonic missile technology and electronic warfare capabilities under the umbrella of the AUKUS security pact.

The decision, announced Tuesday by the leaders of the three governments, is the latest move in an international race for hypersonic weapons, which can travel up to 10 times the speed of sound, making them much harder to detect.

It is also a further example of the deepening security partnership between the U.S., Britain and Australia, after their creation of AUKUS last September scuppered a mega submarine deal for France, souring relations between Washington and Paris. Developing hypersonic missiles represents a long-term aim for Canberra, which is seeking to step up the long-range strike capabilities of the Australian Defence Force.”

“In March, Russia said it had used a hypersonic missile to strike an ammunition warehouse in western Ukraine. Last year, China reportedly tested two hypersonic weapons, causing alarm at the Pentagon.

The U.S. successfully tested a hypersonic missile in mid-March but did not announce it for two weeks to avoid increasing tensions with Russia, according to media reports.”

US delivers ‘Phoenix Ghost’ drone designed by US Air Force specifically for Ukrainian ‘needs’: DOD

https://www.yahoo.com/news/us-delivers-phoenix-ghost-drone-170432101.html

Are Americans Unhappy?

“The economic fallout from the pandemic and attendant shutdowns and disruptions has widened a divide between low-wage workers — who have been forced to keep working in person, leaving them vulnerable to the virus and financial troubles — and high-wage workers. Behind all of this, climate change has caused more flooding in Gulf Coast states, wildfires in the West and other problems worldwide. Now, Russia’s invasion of Ukraine feels even more destabilizing.
So given all of this, how are Americans doing?

The answer is, surprisingly, kind of OK. People in general are resilient and optimistic and can find ways to thrive even in the worst of times. But that doesn’t mean that Americans are optimistic about the direction of the country. This was hinted at in a January Gallup poll in which a full 85 percent of respondents said they were satisfied with their own lives, while only 17 percent were satisfied with the direction of the country. That disconnect, though, isn’t unusual. Since Gallup began asking that question in the 1980s, the share of Americans who say they’re “somewhat” or “very” satisfied with their personal lives has been fairly stable, ranging anywhere from 73 percent to 90 percent, while satisfaction in the direction of the country has generally been lower and less stable.”

Economic Penalties for Putin’s Aggression Threaten To Impoverish the World

“two consecutive presidents, first Donald Trump and then Joe Biden, wedded to economic nationalism. “When we use taxpayers’ dollars to rebuild America, we are going to do it by buying American: buy American products, support American jobs,” Biden vowed in the recent State of the Union address. He’s unlikely to get much pushback from the public; while support for free trade rose under Trump it has since declined, according to Gallup. More Americans (61 percent) see trade as good for economic growth than see it as a threat (35 percent), but the numbers swing more as a matter of partisan politics than according to principled commitment.

That’s a shame because free-trade advocates are correct. While a strong case can be made that free trade is a basic human right involving consensual relations among individuals, it’s also a miraculous cure for misery. Over the last half-century or so, economists have rediscovered comparative advantage and that “trade openness is a necessary—even if not sufficient—condition for economic growth and reducing poverty,” as Pierre Lemieux wrote for the Cato Institute’s Regulation in 2020.”

“Economic and financial sanctions may cause Russia pain and add to the cost of invading Ukraine. But as governments around the world raise barriers and try to insulate themselves from future uses of weaponized trade and finance, the result is certain to be a world that is poorer and less free.”

Russia may do Biden a favor by killing the Iran deal

“The original deal was reached during Barack Obama’s presidency, after years of talks among Iran, the United States and other leading countries, including Russia and China. It lifted an array of nuclear sanctions on Iran in exchange for severe curbs on its atomic program. The deal had limits, however, including provisions that would expire over time, technically starting within the next three years. (Supporters of restoring the deal argue that the most important provisions won’t expire for several more years and some elements last in perpetuity.)”

“the original Iran nuclear deal involves the Russians taking special roles in helping Iran implement the agreement, such as shipping out Iran’s excess enriched uranium. If Russia refuses to play that role, the deal is once again undermined.”

To Beat Putin, Europe Needs America’s Clean Energy

“The European Union is dependent on Russia for almost half of its natural gas and a quarter of its oil. Germany alone imports 55 percent of the gas it consumes from Putin’s petro-state. As part of its invasion strategy, Russia thought it could use its natural gas and oil to blackmail Europe into passivity. Europe is belatedly beginning to shut off the Russian spigot, but it will pay a heavy economic price for the delay.

And for Europe’s energy switch to succeed, the United States must step up.

Just as we were the Arsenal of Democracy when fascism threatened Europe 80 years ago, today we must become the Arsenal of Clean Energy. That means we should finance and export clean energy to Europe in large quantities as quickly as possible. This approach would help protect our own security and economic interests, as well as the sovereignty, democracies, and economies of Europe, all while working to combat climate change.

Our goals should be: 1) make European energy secure; 2) help shift European countries to cleaner energy; and 3) create a massive clean energy market that strengthens supply chains and job creation in the U.S.”

“starts with an energy version of the “Candy Bombers” who supplied Berlin during the Soviet Union’s blockade in 1948. In this case, we could provide a temporary natural gas lifeline to Europe as they wean themselves off Russian energy. America has some additional capacity, and more coming online very soon, to send liquefied natural gas to Europe. We should combine a near-term increase in U.S. gas production and exports to Europe with assistance for European countries to, over the medium-term, reduce their reliance on natural gas by switching to other, lower-carbon fuels and increased energy efficiency.

Second, to ensure this lifeline leads Europe to a safe and sustainable future, the United States needs to create an American clean energy sovereignty fund. We should commit to $10 billion per year for the next decade to finance the export of U.S. hydrogen, nuclear, and carbon capture technology that can be deployed across Europe. The new technologies should be supported by both U.S. and European supply chains and workers to ensure economic growth across both continents. This government-backed entity would provide a significant cost-share for countries importing U.S. clean energy, particularly technologies that will be primarily made in and exported from the U.S.

As we are seeing now with Germany’s reconsideration of its decision to close its nuclear plants, even renewable-heavy countries need firm clean energy provided by technologies like nuclear power. This is even more important in industrial areas of Eastern Europe that need both the steady electricity and high heat that nuclear, or hydrogen, can provide.

Finally, as all of Washington knows by now, personnel is policy. To underscore the urgency of this mission, the Biden administration should create a new, senior position at the National Security Council to manage clean, firm energy and coordinate the alphabet soup of agencies involved. This position would oversee a new “Team Energy” of public and private sector experts who can cut through the bureaucracy.”

The Chinese Threat No One Is Talking About — And How to Counter It

“a steady stream of official U.S. estimates suggests that within a decade, China will possess enough warships to dominate the Indian Ocean region if it chooses. The Office of Naval Intelligence estimated China would build 67 new major surface combatants and 12 new nuclear-powered submarines by 2030. The Pentagon’s most recent report on China’s military power raised those projections even further. Given that China already has formidable capabilities for defending itself in the east — and the heightened range and survivability of these new ships — it seems China plans to operate them far from its shores. The Pentagon also observes that China is developing the capabilities to conduct “offensive operations” deep in the Indian Ocean, presumably including naval blockades, bombardment of enemy targets, or even a combination assault by land and sea.”

“What exactly does China want in the Indian Ocean? In the near term, it wants to protect its Middle East oil supplies, the hundreds of thousands of Chinese migrant laborers working abroad and its overseas investments. Looking ahead, however, China has laid the groundwork to bring considerable military might to the Indian Ocean if it needs to.

With an unchecked fleet able to exercise control in the Indian Ocean — even if for legitimate purposes to protect trade and investments — China could intimidate states militarily and economically, just as it has done in the South China Sea for years, and more recently with Bangladesh, the Maldives and Indonesia. It could engage in unsafe conduct close to ships and planes, harass commercial or naval vessels, and enter other countries’ waters and airspace. Vulnerability to such coercion could compel smaller countries to side with China on issues like freedom of navigation and overflight, territorial disputes, trade negotiations, military agreements with the U.S. or its partners, human rights or relations with Taiwan.

In a military conflict, a Chinese Indian Ocean fleet would be even more threatening. It could disrupt trade flows in the Indian Ocean for the U.S. or its allies or impede American military access. China could also attack U.S. or allied forces swinging from the Mediterranean, or Middle East, or Diego Garcia, to the Pacific.

Part of the reason the Indian Ocean hasn’t received as much attention as it should is that many U.S. defense experts assume or hope they can rely on India to automatically be a “counterweight” to China in this region. For over two decades, Washington has been enamored with the idea that India, at one point exceeding 8 percent economic growth annually, would become a military powerhouse that could “frustrate China’s hegemonic ambitions.” The U.S. Indo-Pacific Strategy released in February counts on India to be “a net security provider,” just as previous administrations officially banked on the Indian Navy taking a “leading role in maintaining Indian Ocean security.” Some former Trump administration officials even want to formalize a Japan-style alliance.

But India’s ability to play this role is in serious doubt.”