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The Kamikaze Economics and Politics of Forcing Austerity on the Ukraine

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From http://www.flickr.com/photos/58993040@N07/13306584815/: U.S. Under Secretary of State for Political Affairs Wendy Sherman visit to Ukraine, March 20-21, 2014
U.S. Under Secretary of State for Political Affairs Wendy Sherman visit to Ukraine, March 20-21, 2014
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Reprinted from neweconomicperspectives.org

We all understand why Russia is waging economic war on the Ukraine, but why is Obama doing so?  The New York Time' web site has posted a remarkable Reuters story (dated April 5, 2014) entitled "Ukraine PM Says Will Stick to Austerity Despite Moscow Pressure."

"The Kiev government will stick to unpopular austerity measures 'as the price of independence' as Russia steps up pressure on Ukraine to destabilise it, including by raising the price of gas, Prime Minister Arseny Yatseniuk told Reuters."

"Unpopular austerity measures" are, of course, among the best things Ukraine can do to aid Russia's effort to "destabilize" the Ukraine.  Indeed, Yatseniuk admits this point later in the article.

"The subtext of Russia's message to Ukraine's Russian-speaking population, he said, was that they would enjoy higher living standards in Russia, with higher wages and better pensions and without the austerity that the Kiev government was now offering.

The subtext of Russia's message to Ukraine's Russian-speaking population, he said, was that they would enjoy higher living standards in Russia, with higher wages and better pensions and without the austerity that the Kiev government was now offering.

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'They're saying: if you go to Russia, you'll be happy, smiling, and not living in a Western hell,' he said.

'They (the Russians) are trying to compensate (for the Western sanctions). But we can pay the price of independence,' he said, with financial support from the West."

So, our strategy is to play into Putin's hands by inflicting austerity and turning the Ukraine into "a Western hell."  Not to worry says our man in Kiev, because he's sure that ten million ethnically-Russian citizens of Ukraine will gladly "pay the price of independence" to live in "a Western hell."  That strategy seems suicidal.  Indeed, Yatseiuk emphasizes that he knows the strategy he is following is suicidal.

 "[Yatseiuk] has called himself the leader of a 'kamikaze' government, doomed by unpopular austerity measures it must take, but he said Ukraine would stick to the measures, which include doubling gas prices for domestic consumers from May 1 and holding down state pensions and salaries against a background of a 3 percent contraction of the economy and double-digit inflation.

IMF support -- a $14-18 billion financial lifeline in return for tough economic reforms -- would be a "tremendous step forward", he said.

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'We will regain trust and credibility from foreign investors. This is the roadmap for Ukraine,' he added.

The Kiev government has said that without the IMF-mandated austerity measures, the economy could shrink by up to 10 percent this year."

Six Degrees of Crazy

The Reuters article presents a stream of incoherent odes to the supposed benefits of financial and political suicide (kamikaze economics and politics).  It was at this juncture in reading the article that I began to have a sick suspicion about Yatseiuk's ideological dogmas and likely background.  Sure enough, the article soon confirmed my worst fears:  "Yatseniuk [is] a former economy minister, lawyer, and economist by education."  Another theoclassical economics acolyte is eager to sacrifice his economy and his fellow-citizens on the altar of austerity.

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http://neweconomicperspectives.org/
William K Black , J.D., Ph.D. is Associate Professor of Law and Economics at the University of Missouri-Kansas City. Bill Black has testified before the Senate Agricultural Committee on the regulation of financial derivatives and House (more...)
 

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