He who places his hope on thee, O Virgin all-glorious, will prosper in all he does.

Inscription on Byzantine coin during reign of Romanus III

Wednesday, September 03, 2008

Russian Paper Tiger, II

When Judy Shelton speaks, I listen. Her article, "The Market Will Punish Putinism," in today's Wall Street Journal dealt with Russia's positioning itself for another financial failure. Let's see: the seizure of foreign business interests, the outflow of international capital, the threat to withhold natural resources from Western supporters of Georgia, and so on.

Commenting on another blog, I asserted that Canada's reliance on prosperity through selling natural resources made its economy a one-trick pony. Magnify that reliance, and you'll have an idea about how desperately Russia relies on high commodity prices. The recent run-up in those prices and the concomitant increase in revenue put some spring in Putin's noisy step. As Shelton notes, "Today, oil revenues ostensibly provide a bulwark against economic losses caused by government misjudgments".

Unfortunately, for Putin, we're seeing a reversal of fortune as prices slide with the global economic slowdown. Much as I hope that a poorer Putin will lower his grumbling volume, I suspect that he'll increase it.

You know, I used to think that, perhaps, Putin's grievances had merit. It's kind of hard, however, to take any of his protestations seriously when his smoking gun proving Western complicity in the Georgian affair is an American passport that's been canceled for three years.

I love free capital flows. Capital seeks opportunity and flees tyranny. Capital seeks property right protections and flees legal whimsy. Putin's about to find out that his fiat doesn't extend to eradicating economic laws.

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