Senate Republican leader Mitch McConnell opposes the Build Back Better bill because it’s too inflationary, especially for the energy sector. It “would spend hundreds of billions of dollars on Green New Deal–type policies that would saddle families with even higher prices” for oil, he complained in November.
What do these two statements have in common? They both concern policies expected to contribute to inflation. In the first, McConnell cites inflation as a reason to oppose the policy, which would benefit a lot of Americans. In the second, McConnell ignores the inflationary impact of the policy, which would benefit a lot of Ukrainians.
The inflationary effect of the Build Back Better bill, it’s widely agreed, would be modest. Even the conservative Tax Foundation says it “may be quite small.” But the inflationary effect of leveling economic sanctions against Russia is expected to be considerable. It’s worth doing anyway, but it’s probably going to drive up the price of oil.
The conservative mind fixates on the smaller inflation risk and ignores the much larger one because in matters of foreign policy cost considerations are considered vulgar. You can put a price on clean energy and child tax credits and universal pre-kindergarten and tax collection and paid leave, but you can’t put a price on freedom. Even when the freedom belongs to somebody else.
The fattest target for U.S. sanctions is Russia’s oil industry, which accounts for 45 percent of the country’s exports. If the United States really wants to get tough, it will halt the import of Russian oil. That would be devastating economically to Russia, which is basically just a petrostate with a whole lot of nukes. But it would also be costly to the U.S., which these days imports more oil from Russia than from Saudi Arabia; as of October, the only countries from which we imported more oil were Canada and Mexico.
Even if the U.S. doesn’t target Russian oil, Russia will very likely, in retaliation to any U.S. sanctions, cut off oil and natural gas exports to Europe. Europe is considerably more dependent on Russian imports; about 40 percent of the European Union’s oil and gas come from Russia. If Russia turns off the spigot to Europe, that’s going to hurt.
Well, that’s Europe’s problem, you might say. But if the U.S. wants to target Russian banks and/or technology, as seems its likeliest bet, then it will need European cooperation. The price the U.S. will have to pay to Europe for that cooperation is to ease any energy shortfall Europe suffers from Russian counter-sanctions. And anyway, the oil market is global. Reduce supply anywhere, and you raise the price of oil everywhere. Gita Gopinath, first deputy managing director of the International Monetary Fund, told Reuters earlier this week that sanctions and counter-sanctions would keep inflation “much more elevated for longer.”
The inflationary effect would be especially brutal, ironically, on Russia itself, which already is suffering from 8.4 percent inflation. That’s higher than the 7 percent rate in the U.S. Which raises the question of why Vladimir Putin wants to engage in this costly conflict in the first place. I don’t pretend to know.
If Putin invades Ukraine, as it appears he will, the U.S. should impose severe nonmilitary sanctions, and damn the cost, because such aggression mustn’t go unpunished. McConnell and most Republican politicians would agree (though some are apparently hearing the siren call of Tucker Carlson, who is anti-Ukraine and pro-invasion in support of the creepy cult of international nationalism that Kathryn Joyce wrote about earlier this month in TNR). “Ukraine is a democracy,” Representative Michael R. Turner, the highest-ranking Republican on the Intelligence Committee, explained to Carlson in November. “Russia is an authoritarian regime that is seeking to impose its will upon a validly elected democracy in Ukraine, and we’re on the side of democracy.” Damn right!
But Turner wasn’t willing, back in November, to say damn the torpedoes, full speed ahead when the House took up the Build Back Better bill. He voted “nay.” “One of my biggest concerns about our economy is inflation,” Turner said earlier this month, “and I’ll certainly be working to oppose nondefense spending that could have inflationary impacts and then of course, you know, that comes right out of the pockets of every family member as they see increased prices at the grocery store, at the store, and at the gas pump.” Never mind the inflationary impact of defense spending, which accounts for 11 percent of all federal spending, or of nonmilitary sanctions against Russia. Those don’t count!
I don’t wish to give aid and comfort to the Carlsonite brownshirts. But if you favor penalizing Russia for a Ukraine invasion, then you’re willing to live with higher inflation. You just are. It’s no use pretending that the defense of freedom comes free. Twenty years ago, Lawrence Lindsey, chairman of President George W. Bush’s National Economic Council, blurted out to Bob Davis of The Wall Street Journal that the Iraq War might cost $100–$200 billion. Because the official line was that the war would cost $50–$60 billion, Lindsey was shown the door. But Lindsey really should have gotten fired for lowballing. The real cost ended up being more than $3 trillion, according to a rigorous calculation by Nobel laureate Joseph Stiglitz and Linda Bilmes of Harvard’s Kennedy School. Lindsey’s forecast was off by $2.8 trillion.
Punishing Russia for invading Ukraine won’t be as costly as deposing Saddam Hussein. The price this time will involve no blood and a lot less treasure. But sanctions will impose an inflation tax much higher than anything threatened by the Build Back Better bill. That’s a tax I’m willing to pay, but one that saber-rattling Republicans like McConnell and Turner won’t acknowledge, to assist a nation that lies 5,000 miles away. Let’s help the Ukrainians as best we can. But let’s help ourselves, too.