The alarming spread of fascism in Putin’s Russia

Soviet-style propaganda and a personality cult for Putin are only two of the signs that Russia is ed

One key concern arising from the recent spat with Russia is this awakening superpower is drifting into the foothills of fascism domestically. The simple defence Russians have offered in recent weeks is that Russians are by nature fiercely patriotic. I knew a Russian who, when the train stopped on the Russian border, picked up handfuls of Russian soil and started to sob.

The loss of their empire – the USSR - is keenly felt. Vladimir Putin, for example, described the end of the USSR as the greatest tragedy of the 20th century. It would have been more appropriate if he had given this title to the Ukrainian terror-famine of 1929-33 where the Russian occupier diverted all food from the collectivized peasants to the rest of the USSR. This terror-famine resulted in more deaths than all countries in the First World War. Russians refuse to apologise for the famine and still talk of Ukrainians in the same derogatory terms that some English used to use about the Welsh and Irish.

Putin is keen to maintain influence in the former Soviet satellite states and this is increasingly causing conflict. The key turning point was the Orange revolution in 2004 which discarded the Kremlin’s favoured candidate in Ukraine to bring in a pro-Western President with dreams of EU and NATO membership. The idea of losing “Little Russia”, the dearest of the CIS satellite states, to NATO shocked many Russians including Putin and ushered in more authoritarian tactics. The most worrying of these tactics was the politicised use of energy supplies. Ukraine had its gas cut-off shortly after its drift westward in 2004, and more recently Estonia has had oil supplies to its port disrupted by Russia during the statue crisis.

Putin is concerned that the loss of influence in the satellite states will threaten Russia's power along its borders by its old adversary NATO. He blamed the Orange Revolution in part on the unchecked rise of a democratic youth movement in Ukraine called PORA, who opposed the authoritarian government.

To prevent a similar group being established in Russia, Putin created his own youth movement “Nashi”. The official line was that this group were supposed to counter the rise of fascism, in the National Boshevik party. However, it soon became apparent that Nashi’s true function was as a personality cult for Putin whose job was intimidate, bully and harass his opponents.

In the recent Estonia crisis, thugs from Nashi terrorized the Estonian Embassy forcing the ambassador into hiding. In the protests one person was killed and 99 injured. Similarly, the UK ambassador in Moscow was intimidated by Nashi thugs merely for attending an opposition conference. The 120,000 Nashi members must show total devotion to the president. Their young leaders meet Putin himself in training camps and have an audience with his potential successor, First Deputy Prime Minister Sergie Ivanov. Nashi actions are well-organised, they wear distinct red uniforms, have their own buses, power supply and well-financed phone-in campaigns. The comparison with Hitler Youth is beginning to be made more and more often.

The most sinister aspect of Nashi is the revival of Soviet-style propaganda. In the official manifesto, Nashi recruits are subjected to Soviet-style prejudices of xenophobia and anti-Americanism that existed in the Cold War. The domain name for the Nashi website is www.nashi.su, opting for the “.su” of the non-existant Soviet Union, rather than “.ru” for Russia. The manifesto calls on Nashi members to stamp out any colour revolution as this would represent “a loss of sovereignty to external influences”. A flashing banner on the Estonia crisis declares: “It’s our history, it’s our war, it’s our soldier!” A poster at a recent rally criticised the number of adoptions of Russian children to the US. The members of Nashi, aged 17-25, who could essentially hold progressive views, are being indoctrinated with anti-European and anti-American sentiment.

The opposition groups in Russia are denied the right to hold protest and not allowed access to any of the state-controlled media. Nashi, however, are allowed to hold marches, which are covered favourably on state television. Financing for Nashi comes from Gazprom, the Kremlin-controlled gas giant. Similar to Hitler Youth, the group undergoes paramilitary training and have been implicated in the attacks on opposition groups like the banned National Bolshevik Party, led by Limonov and the Estonian ambassador. Their actions mirror more widespread of violent intimidation towards opposition groups, human rights activists and the free press.

Since Putin came to power, 15 journalists have been murdered by contract killers. Marina Litvinovich, the chief political adviser to opposition leader Garry Kasparov, was beaten up so badly she lost two front teeth. Lidia Yuspova, a human rights campaigner based in Chechnya, was nominated for the Nobel Peace Prize, only to receive and anonymous call warning her she would not live to receive it. Groups of black-shirted skinheads have been responsible for assaults and murders directed at immigrants from the Caucasus.

Putin’s popularity ratings run at 80 per cent, showing that his grip on the state-media has effectively kept Russians in an information vacuum. He has exploited the fierce national pride of his people and reinforced prejudices by accusing the US of hegemony and speaking of the NATO presence along the borders.

Social instability and health problems run rampant throughout the country. A 20-year-old Russian has less than a 50 per cent chance of reaching the age 65 (compared to 80 per cent for an American). Russia has three million drug users, with as many as two million may be HIV-infected. Its prisons are rife with tuberculosis and hold 1.3m people many of them young homeless boys. By effectively integrating an immigrant population Russia could help to swell its workforce but current immigration stands at zero. Russia is more than just the Nashi movement, state-controlled media and murdered journalists, but Putin's legacy will be determined by how legitimately he can justify his people's patriotism by improving the quality of living.

Gavin Knight has written for the Guardian, Times, Newsweek, Prospect and Evening Standard. He also has appeared on CNN, Sky, BBC and ITN. He spent two years with frontline police units and dozens of gang members researching his non-fiction book on inner city crime, Hood Rat, published by Picador.
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The new Brexit economics

George Osborne’s austerity plan – now abandoned by the Tories – was the most costly macroeconomic policy mistake since the 1930s.

George Osborne is no longer chancellor, sacked by the post-Brexit Prime Minister, Theresa May. Philip Hammond, the new Chancellor, has yet to announce detailed plans but he has indicated that the real economy rather than the deficit is his priority. The senior Conservatives Sajid Javid and Stephen Crabb have advocated substantial increases in public-sector infrastructure investment, noting how cheap it is for the government to borrow. The argument that Osborne and the Conservatives had been making since 2010 – that the priority for macroeconomic policy had to be to reduce the government’s budget deficit – seems to have been brushed aside.

Is there a good economic reason why Brexit in particular should require abandoning austerity economics? I would argue that the Tory obsession with the budget deficit has had very little to do with economics for the past four or five years. Instead, it has been a political ruse with two intentions: to help win elections and to reduce the size of the state. That Britain’s macroeconomic policy was dictated by politics rather than economics was a precursor for the Brexit vote. However, austerity had already begun to reach its political sell-by date, and Brexit marks its end.

To understand why austerity today is opposed by nearly all economists, and to grasp the partial nature of any Conservative rethink, it is important to know why it began and how it evolved. By 2010 the biggest recession since the Second World War had led to rapid increases in government budget deficits around the world. It is inevitable that deficits (the difference between government spending and tax receipts) increase in a recession, because taxes fall as incomes fall, but government spending rises further because benefit payments increase with rising unemployment. We experienced record deficits in 2010 simply because the recession was unusually severe.

In 2009 governments had raised spending and cut taxes in an effort to moderate the recession. This was done because the macroeconomic stabilisation tool of choice, nominal short-term interest rates, had become impotent once these rates hit their lower bound near zero. Keynes described the same situation in the 1930s as a liquidity trap, but most economists today use a more straightforward description: the problem of the zero lower bound (ZLB). Cutting rates below this lower bound might not stimulate demand because people could avoid them by holding cash. The textbook response to the problem is to use fiscal policy to stimulate the economy, which involves raising spending and cutting taxes. Most studies suggest that the recession would have been even worse without this expansionary fiscal policy in 2009.

Fiscal stimulus changed to fiscal contraction, more popularly known as austerity, in most of the major economies in 2010, but the reasons for this change varied from country to country. George Osborne used three different arguments to justify substantial spending cuts and tax increases before and after the coalition government was formed. The first was that unconventional monetary policy (quantitative easing, or QE) could replace the role of lower interest rates in stimulating the economy. As QE was completely untested, this was wishful thinking: the Bank of England was bound to act cautiously, because it had no idea what impact QE would have. The second was that a fiscal policy contraction would in fact expand the economy because it would inspire consumer and business confidence. This idea, disputed by most economists at the time, has now lost all credibility.

***

The third reason for trying to cut the deficit was that the financial markets would not buy government debt without it. At first, this rationale seemed to be confirmed by events as the eurozone crisis developed, and so it became the main justification for the policy. However, by 2012 it was becoming clear to many economists that the debt crisis in Ireland, Portugal and Spain was peculiar to the eurozone, and in particular to the failure of the European Central Bank (ECB) to act as a lender of last resort, buying government debt when the market failed to.

In September 2012 the ECB changed its policy and the eurozone crisis beyond Greece came to an end. This was the main reason why renewed problems in Greece last year did not lead to any contagion in the markets. Yet it is not something that the ECB will admit, because it places responsibility for the crisis at its door.

By 2012 two other things had also become clear to economists. First, governments outside the eurozone were having no problems selling their debt, as interest rates on this reached record lows. There was an obvious reason why this should be so: with central banks buying large quantities of government debt as a result of QE, there was absolutely no chance that governments would default. Nor have I ever seen any evidence that there was any likelihood of a UK debt funding crisis in 2010, beyond the irrelevant warnings of those “close to the markets”. Second, the austerity policy had done considerable harm. In macroeconomic terms the recovery from recession had been derailed. With the help of analysis from the Office for Budget Responsibility, I calculated that the GDP lost as a result of austerity implied an average cost for each UK household of at least £4,000.

Following these events, the number of academic economists who supported austerity became very small (they had always been a minority). How much of the UK deficit was cyclical or structural was irrelevant: at the ZLB, fiscal policy should stimulate, and the deficit should be dealt with once the recession was over.

Yet you would not know this from the public debate. Osborne continued to insist that deficit reduction be a priority, and his belief seemed to have become hard-wired into nearly all media discussion. So perverse was this for standard macroeconomics that I christened it “mediamacro”: the reduction of macroeconomics to the logic of household finance. Even parts of the Labour Party seemed to be succumbing to a mediamacro view, until the fiscal credibility rule introduced in March by the shadow chancellor, John McDonnell. (This included an explicit knockout from the deficit target if interest rates hit the ZLB, allowing fiscal policy to focus on recovering from recession.)

It is obvious why a focus on the deficit was politically attractive for Osborne. After 2010 the coalition government adopted the mantra that the deficit had been caused by the previous Labour government’s profligacy, even though it was almost entirely a consequence of the recession. The Tories were “clearing up the mess Labour left”, and so austerity could be blamed on their predecessors. Labour foolishly decided not to challenge this myth, and so it became what could be termed a “politicised truth”. It allowed the media to say that Osborne was more competent at running the economy than his predecessors. Much of the public, hearing only mediamacro, agreed.

An obsession with cutting the deficit was attractive to the Tories, as it helped them to appear competent. It also enabled them to achieve their ideological goal of shrinking the state. I have described this elsewhere as “deficit deceit”: using manufactured fear about the deficit to achieve otherwise unpopular reductions in public spending.

The UK recovery from the 2008/2009 recession was the weakest on record. Although employment showed strong growth from 2013, this may have owed much to an unprecedented decline in real wages and stagnant productivity growth. By the main metrics by which economists judge the success of an economy, the period of the coalition government looked very poor. Many economists tried to point this out during the 2015 election but they were largely ignored. When a survey of macroeconomists showed that most thought austerity had been harmful, the broadcast media found letters from business leaders supporting the Conservative position more newsworthy.

***

In my view, mediamacro and its focus on the deficit played an important role in winning the Conservatives the 2015 general election. I believe Osborne thought so, too, and so he ­decided to try to repeat his success. Although the level of government debt was close to being stabilised, he decided to embark on a further period of fiscal consolidation so that he could achieve a budget surplus.

Osborne’s austerity plans after 2015 were different from what happened in 2010 for a number of reasons. First, while 2010 austerity also occurred in the US and the eurozone, 2015 austerity was largely a UK affair. Second, by 2015 the Bank of England had decided that interest rates could go lower than their current level if need be. We are therefore no longer at the ZLB and, in theory, the impact of fiscal consolidation on demand could be offset by reducing interest rates, as long as no adverse shocks hit the economy. The argument against fiscal consolidation was rather that it increased the vulnerability of the economy if a negative shock occurred. As we have seen, Brexit is just this kind of shock.

In this respect, abandoning Osborne’s surplus target makes sense. However, there were many other strong arguments against going for surplus. The strongest of these was the case for additional public-sector investment at a time when interest rates were extremely low. Osborne loved appearing in the media wearing a hard hat and talked the talk on investment, but in reality his fiscal plans involved a steadily decreasing share of public investment in GDP. Labour’s fiscal rules, like those of the coalition government, have targeted the deficit excluding public investment, precisely so that investment could increase when the circumstances were right. In 2015 the circumstances were as right as they can be. The Organisation for Economic Co-operation and Development, the International Monetary Fund and pretty well every economist agreed.

Brexit only reinforces this argument. Yet Brexit will also almost certainly worsen the deficit. This is why the recent acceptance by the Tories that public-sector investment should rise is significant. They may have ­decided that they have got all they could hope to achieve from deficit deceit, and that now is the time to focus on the real needs of the economy, given the short- and medium-term drag on growth caused by Brexit.

It is also worth noting that although the Conservatives have, in effect, disowned Osborne’s 2015 austerity, they still insist their 2010 policy was correct. This partial change of heart is little comfort to those of us who have been arguing against austerity for the past six years. In 2015 the Conservatives persuaded voters that electing Ed Miliband as prime minister and Ed Balls as chancellor was taking a big risk with the economy. What it would have meant, in fact, is that we would already be getting the public investment the Conservatives are now calling for, and we would have avoided both the uncertainty before the EU referendum and Brexit itself.

Many economists before the 2015 election said the same thing, but they made no impact on mediamacro. The number of economists who supported Osborne’s new fiscal charter was vanishingly small but it seemed to matter not one bit. This suggests that if a leading political party wants to ignore mainstream economics and academic economists in favour of simplistic ideas, it can get away with doing so.

As I wrote in March, the failure of debate made me very concerned about the outcome of the EU referendum. Economists were as united as they ever are that Brexit would involve significant economic costs, and the scale of these costs is probably greater than the average loss due to austerity, simply because they are repeated year after year. Yet our warnings were easily deflected with the slogan “Project Fear”, borrowed from the SNP’s nickname for the No campaign in the 2014 Scottish referendum.

It remains unclear whether economists’ warnings were ignored because they were never heard fully or because they were not trusted, but in either case economics as a profession needs to think seriously about what it can do to make itself more relevant. We do not want economics in the UK to change from being called the dismal science to becoming the “I told you so” science.

Some things will not change following the Brexit vote. Mediamacro will go on obsessing about the deficit, and the Conservatives will go on wanting to cut many parts of government expenditure so that they can cut taxes. But the signs are that deficit deceit, creating an imperative that budget deficits must be cut as a pretext for reducing the size of the state, has come to an end in the UK. It will go down in history as probably the most costly macroeconomic policy mistake since the 1930s, causing a great deal of misery to many people’s lives.

Simon Wren-Lewis is a professor of economic policy at the Blavatnik School of Government, University of Oxford. He blogs at: mainlymacro.blogspot.com

 Simon Wren-Lewis is is Professor of Economic Policy in the Blavatnik School of Government at Oxford University, and a fellow of Merton College. He blogs at mainlymacro.

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt