I won't assume, but you may have read, Paul Krugman's Sunday 'influential' op-ed piece (linked below) so let me cut straight to his main points:
" ... even easy, victorious war - doesn't pay. And this has been true for a long time." What Krugman misses and dismisses is simple human nature. That alone that is a Herculean task which he accomplishes but he summarily dismisses all geopolitical history since the mid-eighteenth century.
In his effort to sound magnanimous in his confusion of human history and the War debate, Krugman opines: "Yet wars keep happening. Why? One answer is that leaders may not understand the arithmetic."
Oh my ... How wrong can one be? It is precisely because leaders understand the arithmetic that we have been in perpetual War(s) for centuries. The building of the War machine(s) alone has been the mainstay of economies like the US, UK, Israel, Russia, China and even North Korea for decades. Strong economies allows those in power to remain there. All of modern economics revolves around Defense spending and Krugman's dismissal of this foundational fact only adds to his diminishing influence.
After all, it was Krugman himself who, while decrying the small size of bailouts, stimuli and QE in 2011, said: "It's very hard to get inflation in a depressed economy ... If we discovered that, you know, space aliens were planning to attack and we needed a massive buildup (Defense) to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months."
Yes, Krugman is just another "Keynesian" who sees Inflation as the savior of economies as discussed here, here and here. Perhaps Krugman forgot his "alien" statement for Defense spending as it made him a laughing stock for months.
Krugman's main point seems to be his assumption that Russia's invasion of Crimea was a miscalculation. Citing Russia's lagging economy, Krugman likens Russia's move to Argentina's invasion of the Falkand Islands as a needed "distraction" from economic stagnation.
This is where listening to Krugman is dangerous as he couldn't be more wrong. While true that Argentina's economy was a mess at the time and the invasion was intended as a distraction, the comparison fails the history test. Most major economies have been faltering since Q4 2008, and until recently Russia was the exception by taking advantage of higher world crude prices (How can an "economist" miss this point?).
More importantly Krugman does not acknowledge NATO's tightening noose around Russia's neck. He ignores the coup of President Viktor Yanukovych and NATO's intention to build bases in the Crimea. He refuses to see that Russia was forced to act to prevent NATO weapons, not just from importing them to Russia's backyard, but on its front lawn as well.
Investors understand the New York Times' goal is to influence the influential. Do we really think that Krugman has no handle on historic realities? No. He understands them perfectly well but is paid to distract (influence) their influential readers. Krugman's last point is to lead readers to think that the Russian government somehow lacks legitimacy:
" ... "authoritarian regimes without deep legitimacy (emphasis mine) ... are tempted to rattle sabers when they can no longer deliver good performance ... ".
It makes one wonder what Krugman's definition of "deep legitimacy" is ... but he has gone to great length's to offhandedly suggest Russia's leadership is "illegitimate." This is a dangerous stance to take.
The facts of history and human nature prove the DEMAND for Metals, Defense, Energy and Food are the only resources valuable enough to wage War for (whether to obtain or retain) and even Krugman, in his odd and failing understanding of history, makes the point for us.
If you want to know more about how the MDEF™ Investing strategy is positioned in this, or other geopolitical possibilities, please contact us directly.