Last War Brain

On both Russia and inflation, many Americans are stuck in the 2000s.

“When the facts change, I change my mind. What do you do, sir?” — attributed to John Maynard Keynes

In the 2000s, the United States of America made two huge, fateful errors. First, we invaded and occupied Iraq without cause or provocation in 2003. In addition to killing hundreds of thousands of innocent people and costing lots of money, this forfeited much of the international legitimacy and leadership we had built up in the late 20th century, weakened the power of international norms against cross-border aggression, and hastened the decline of the unipolar American-led global order. Second, we allowed financialization to run unchecked in our economy, leading to a global financial crisis and the worst recession since the great depression; we then failed to deploy enough fiscal stimulus to boost us out of the post-crash hangover quickly, deepening that recession and extending it by a couple of years. All of this hastened the U.S.’ economic and industrial decline relative to China.

These were grave mistakes, and we’re still feeling the consequences of both. From these twin self-inflicted disasters, many Americans learned the following two lessons:

• U.S. involvement in foreign conflicts is always driven by the excessive aggression of the foreign policy establishment and the military-industrial complex, and hence we should avoid such entanglements.

• The government should never be afraid of either deficits or inflation, and instead should always push for higher employment.

These lessons seem very reasonable — almost obvious — when you apply them to the Iraq War and the Great Recession. But neither one is true in general. Over a decade later, we now find ourselves facing security challenges and economic challenges that are fundamentally different from the ones we faced in the 2000s. Because we over-learned the lessons of our mistakes then, we risk making equally disastrous but opposite mistakes now.

Winston Churchill once said that “generals are always prepared to fight the last war,” but that human failing isn’t confined to the military brass. The only solution to the problem of Last War Brain is a better understanding of the deeper principles at work, and an accurate and unblinkered assessment of how conditions stand now. Instead of unthinkingly doing the opposite of what we did last time, we must use our faculties of reason.

Russia, Ukraine, and the shadow of Iraq

In recent weeks, Russia has staged a dramatic buildup of its military forces around Ukraine. He may still decide to pull back at the last minute, but the threat of an invasion clearly looms, and both the Ukrainian government and the Ukrainian people are taking it very seriously. (If you’re interested, I’ve made a Twitter list of journalists covering the crisis in real time.)

A Russian invasion would a clear and unambiguous act of aggression. And yet some progressives insist on seeing Russia’s buildup as a reaction to Western aggression. For example, British socialist politician Jeremy Corbyn just released a video blaming the crisis on NATO:

talkRADIO @talkRADIO

Former Labour leader Jeremy Corbyn has said NATO’s “build-up of military personnel” in Eastern Europe is to blame for the current tensions between Ukraine and Russia. The video below was featured in a live stream titled: 'No War in Ukraine: Stop NATO Expansion'.

This is, of course, ridiculous. NATO last expanded in 2009, and though it did float the idea of membership for Ukraine and Georgia, that idea was tabled and has not been brought up in any serious manner in over a decade. When Russia invaded in 2014, Ukraine was thinking about joining the EU, but not NATO — and as of now, neither of those is on the table. Meanwhile, recent U.S. troop deployments to NATO countries in East Europe such as Poland and Romania total fewer than 6,000 — a pittance compared to the 130,000 soldiers Russia has amassed on the Ukraine border, and certainly nowhere near enough to be the basis of military action.

In fact, no one in the U.S. government appears to be even considering going to war with Russia over Ukraine. Biden has explicitly disavowed any possibility of military action to defend Ukraine, and has refused to send U.S. troops to evacuate U.S. citizens from the country. And yet many on the Left are talking as if the U.S. is gearing up for a war with Russia. Bernie Sanders recently claimed that he hears “bellicose rhetoric” and “familiar drumbeats” in Washington:

I am extremely concerned when I hear the familiar drumbeats in Washington, the bellicose rhetoric that gets amplified before every war, demanding that we must “show strength”, “get tough” and not engage in “appeasement”.

Sanders doesn’t offer any specifics as to who or where these drumbeats and rhetoric are coming from.

Meanwhile, Jeer Heer, a writer for The Nation, makes the bizarre claim that Americans’ desire not to go war with Russia “barely registers” among policymakers and politicians:

Jeet Heer @HeerJeet

What's interesting here is that every demography under 65 (i.e. everyone who was born after Eisenhower was president) wants to stay out of the conflict but that position barely registers in media, policy circles & politics.

A.G.G.🇺🇸🇺🇦🦅 @AGG_500

Horrible, horrible, horrible. The future of this country is not looking good rn... https://t.co/JFQXbGoiB8

There is no evidence for this bizarre claim; indeed, to my knowledge there is no major political figure pushing for a war with Russia, and no major news organization has supported a war with Russia. Indeed, Fox News is firmly against any conflict with Russia, consistent with their pro-Russia slant since Trump’s election.

And Michael A. Cohen, writing in The New Republic, spends an entire column arguing against the people who demand that we “do something” on Ukraine, without naming a single name, citing a single article, or providing a single link to the people he claims want to “do something”.

Meanwhile, many on the Right are issuing the exact same denunciations of the exact same straw-man. Sohrab Ahmari writes in the Washington Post:

America can’t, and mustn’t, go to war with Russia over Ukraine. President Biden stated this inescapable truth at his Wednesday news conference — and sent foreign policy hawks into a sputtering rage…

The work-from-home MacArthurs blew a predictable gasket. “Much of that performance was profoundly disturbing,” tweeted National Review’s Rich Lowry, “especially on Russia.” Sen. Ted Cruz (R-Tex.) said the president had “shocked the world by giving Putin a green light to invade Ukraine.” The Wall Street Journal editorial page, where I used to work, linked the West’s failure to deter Vladimir Putin to Biden’s earlier decision to abandon the Afghanistan war after two fruitless decades.

But Rich Lowry explicitly disavows a war with Russia over Ukraine. The WSJ was advocating sanctions and weapons sales, not war. And Ted Cruz’ preferred method of deterrence is cancelling the Nord Stream 2 gas pipeline from Russia. As far as I can tell, none of the people Amhari singles out as “work-from-home MacArthurs” have actually advocated war.

So who on Earth do all these people think they’re arguing against? I can’t find anyone other than a few no-name Twitter cranks pushing for a U.S. war with Russia over Ukraine. These progressives are shadowboxing with a fictitious opponent that exists only in their own minds.

And it’s not hard to see who that opponent is: It’s the Iraq War. Remembering how a hawkish media and foreign policy apparatus helped the Bush administration build support for that disaster, they’re clearly trying to prevent a repeat of the same.

Only the facts have utterly changed between now and then; the two situations look nothing alike. In 2003 it was the U.S. threatening to invade a country that had not threatened it in any way; now it’s Russia threatening to invade a country that has not threatened it in any way. The U.S. actions that are being debated include enhanced sanctions on Russia, sending weapons to help Ukrainians defend themselves, and beefing up U.S. forces in NATO countries to discourage Putin from following up on a Ukraine invasion with an attack on our treaty allies.

All of these are reasonable steps. Writing in Foreign Policy, Terrell Starr explains why progressives should support Ukraine in its quest to not be conquered by Russia. He issues a stern rebuke to the people who have deluded themselves into thinking that America is the only country capable of aggression or imperialism:

Although I respect congressional members who have called for restraint and are against any military action, I fear that they have a healthy critique of U.S. imperialism but little understanding or comment about Russia’s own colonial history and present.

When Sen. Bernie Sanders, for instance, argues that Putin has legitimate concerns about NATO, he ignores the fact that the alliance did not grow unilaterally. The dozen or so ex-Warsaw Pact and former Soviet republics that joined did so because of their experience of being forcefully occupied by Soviet forces—and of being victims of Russian imperialism even before that. And from the Holodomor famine in Ukraine to the Soviet’s crushing Hungary 1956 uprising, imperialist atrocities, led by Moscow, were common in the region…Soviet imperialism in Europe was real from the start, from attempts to reconquer Poland and Finland before the war to the continued occupation of much of Eastern Europe afterward…

The United States isn’t the only imperialist nation out there, and Moscow and Beijing won’t transform into paragons of good behavior with Washington off the scene.

In other words, there is a principle at work here. That principle is the idea that national borders shouldn’t be violated, that countries shouldn’t conquer other countries, and that the community of nations can help support countries under threat of conquest. That principle explains why Iraq was such a disastrous war for the United States, even though we defeated all our opponents and installed a friendly government. We violated the principle that countries shouldn’t attack and invade other countries.

And it is Russia, not the U.S., who is threatening to violate that principle now. That doesn’t mean we should go to war to stop a Russian invasion — indeed, we should not, and nobody serious is suggesting we do. But things like threatening sanctions, and sending weapons to the Ukrainians, seem eminently reasonable as ways to deter Russian conquest.

Inflation, interest rates, and the shadow of austerity

Now let’s shift gears and talk about the economy. In the Great Recession, we were hobbled by fiscal austerity — a stimulus bill that was too small, followed by an ideologically motivated pivot to austerity in 2011. Meanwhile, the Fed’s repeated and unprecedented efforts to boost the economy through unconventional monetary policy were (unsuccessfully) opposed by a bunch of monetary hawks who warmed (wrongly) that QE would lead to runaway inflation.

Today, we find ourselves in a very different situation. Unlike in the sluggish recovery of 2010-12, the real economy is absolutely booming. The economy grew at an eye-popping rate of 6.9% in the last quarter despite the threat of the Omicron variant, and employment is showing a steep, V-shaped recovery:

And now, unlike in the aftermath of the Great Recession, we face substantial inflation, with prices rising at around a 7% rate, more than three times the rate that prevailed a decade ago:

In other words, this looks nothing like the Great Recession. Basic Keynesian economics says that when you have a slow economy and slow inflation, you boost aggregate demand with fiscal stimulus and loose monetary policy. But it says that when you have a booming economy and rapid inflation, you curb aggregate demand with fiscal austerity and tighter monetary policy.

In fact, the fiscal austerity has already been done — with the end of Covid stimulus spending, government deficits are no longer increasing much or at all, even in nominal terms:

So the massive glut of government spending has ended, just as Keynesian theory says it should. Meanwhile, Biden’s Build Back Better bill, which has now stalled in Congress, wouldn’t boost deficits by that much even if it passed. Fiscal policy now represents no inflationary threat.

Monetary policy, however, is a different matter. Some have criticized the Fed for being behind the curve on inflation, believing too strongly in the hope that inflation would quickly go away on its own. The Fed is now pivoting rapidly, and is expected to hike rates up to seven times in 2022.

A number of progressives are arguing vigorously against these rate hikes. Economists at the Roosevelt Institute and some other progressive think tanks are now advancing the dangerous idea of price controls as a better alternative for fighting inflation. And many in the financial press vigorously oppose calls for rate hikes.

Meanwhile, some in the press (though few to no people in positions of power) are still flirting with fringe ideologies like MMT, which urge higher deficits and lower taxes in every situation.

The New York Times’ Neil Irwin correctly identifies all of this as another case of Last War Brain. The Fed needs to hike rates, not to bring inflation immediately back to the 2% target — that will eventually be accomplished by the end of fiscal stimulus, the end of the rotation from services spending to goods spending, and the solving of supply chain constraints — but to keep a lid on inflation expectations and make sure they don’t spiral upward and cause an economically devastating hyperinflation.

So calls for the Fed to end QE in 2010 were strongly counter to prevailing theory and past experience, but calls for the Fed to avoid rate hikes today are playing with fire. The situation has changed, and our response must change with it.

The 2000s are over (and so are the 2010s)

There’s plenty of evidence that people’s views on policy are indelibly shaped by their early experiences. Economists Ulrike Malmendier and Stefan Nagel have found that people who experience inflation tend to expect higher inflation later on, and that people who experience stock market crashes early in their careers tend to take fewer financial risks later in life. Many of the people in positions of influence and power now were young adults back when the U.S. launched an unprovoked invasion Iraq and allowed the Great Recession to persist too long. Those experiences have stayed with us. It takes a strong faculty of reason to understand the reasons why Iraq and the Great Recession were such failures, and to apply these principles to the problems of Russia/Ukraine and inflation in the 2020s.

But nevertheless, we have a duty to the world to be smarter than our instincts. The 2000s are over (and now the 2010s are over too), and many of the truisms that we learned as young people are not nearly so universal as they seemed at the time. We need to leave those decades in the past where they belong — to learn deep principles from those historical episodes, rather than spending the rest of our lives in knee-jerk reactions against anything that superficially resembles the policies of yesteryear. The future is here; we’re standing in it now.

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