Iatrides and Rizopoulos (2000) argue that the communists’ defeat in the Greek Civil War (1942-1949) was generally the result of the large-scale political and military interventions made by the UK and the US. Picture by Levi Meir Clancy, Unsplash Greece at a crossroads As WWII (and Greece’s occupation by Axis forces) was nearing its end, Greece’s political future was looking increasingly uncertain. Domestically, the Greek Communist Party (KKE) and its military branches (EAM/ ELAS) generally comprised the most powerful political force. Internationally, however, the pre-occupation (and conservative) Greek political regime, which was based in Cairo, was strongly favored by the British. This put Greece at a crossroads between becoming a Soviet-style “people’s democracy”, or some other form of monarchy, dictatorship, or democracy. The power struggle for Greece’s future is what led to a tragic civil war, whose aftermath can be felt to this day. UK interference in the First Round (1942-1944) of the Civil War The Civil War started during the Axis occupation, as rival Greek resistance bands fought each other for dominance over the Greek countryside. During this period, the KKE and its military branches succeeded in eliminating most other royalist and republican groups, which made them the most powerful political force within Greece. In the meantime, however, the British were very supportive of the conservative Cairo-based government-in-exile, as they wanted a return to the status quo in Greece. As a result, the British Foreign Office pressured the communists to agree to the so-called Lebanon Agreement of May 1944, which involved the formation of a “National Unity” government in which the communists would have a minority role. And a month before Greece was liberated in October 1944, in the Caserta Agreement, the British tried to control the communists by placing all resistance bands under the command of a British officer. In the same agreement, they also banned them from entering the Attica region (where the parliament is) so they wouldn’t be able to throw a coup against the newly-formed government. British forces in the Second Round (1944-1946) of the Civil War After liberation, while the KKE wanted to use EAM/ ELAS to impose its own “populist” regime on Greece, it was generally hesitant, as it was unsure of its support among non-leftists and it feared an open clash with the British. What’s more, the Soviet Union was unwilling to support them, as they had secretly agreed to leave Greece under the British sphere of influence. However, with communist grievances growing, once the British ordered the unilateral disarmament of EAM/ ELAS, they reacted with a large (and unarmed) protest in Athens. The Greek Police reacted by shooting the crowd, which led to a generalized conflict, until British military forces were deployed to take control of the capital. The British led the defeat of the communists, which resulted in the Varkiza Agreement of February 1945, in which EAM/ ELAS agreed to disarm, while the government consented to give amnesty to its members. But neither side fully abided by the agreement, which further prolonged the conflict until it ended with the defeat of the left. During this period, the papers describe the British embassy in Athens as the directing force behind the frequently reconstituted Greek governments. The birth of the Truman doctrine in the Final Round (1946-1949) According to the authors, the Third round of the Civil War would probably not have happened without the support of Yugoslavia: soon after the Varkiza Agreement, Boulkes, a small town northwest Belgrade, was turned into an ELAS holdout, where the communists were trained by specially appointed political commissars . This led to the formation of the communists’ “Democratic Army” on October 1946, and to a renewed battle for political power in Greece. Meanwhile, the British decided they could no longer afford to defend the Greek government, which brought the involvement of a more powerful partner: the US. While the US had previously opposed British involvement in Greek affairs, after Truman became President, US foreign policy became far more anti-communist. The Greek communists were now described as an example of Soviet Union expansionism (although they weren’t actively supported by the Soviets), which made their defeat pivotal to US interests. As a result, the US provided generous military and economic assistance to the Athens government, and it also took control over much of the state apparatus during this process. According to the authors, “the American “penetration” of Greece was much deeper and extensive than anything the British had ever attempted or contemplated”. As a result of America’s involvement, the communists were once more defeated, which marked the end of the Civil War. Pushed into the West The paper is interesting in that it highlights how Greece’s movement to the Western sphere of influence was largely determined by foreign forces, rather than domestic ones. After all, if it weren’t for the UK and US interventions, the Greek communists would have probably taken power, and they would likely have aligned with the Eastern bloc instead. That withstanding, it remains unclear which outcome would have been preferred by the ‘silent majority’ of Greeks back then.

In his 1994 paper, Avner Greif detected systematic cultural differences between two medieval trading societies: the ‘collectivist’ Maghribis and the ‘individualist’ Genoese. The Maghribis cooperated mostly with members of their own group, which tended to be less effective in the growing size of markets and when conducting business with diverse ethnic traders. In contrast, the Genoese utilized formal legal and political organizations for monitoring and enforcing agreements that allowed them to cooperate with members outside their group and hence to draw from a larger talent pool. As a result, they managed to pursue ever more complex forms of trade which led to increased prosperity. Picture by Austin Kehmeier, Unsplash From collectivist Maghrib to individualist Genoa Recent research has indicated societal organization to be highly correlated with per capita income in contemporary societies: most of the developing countries are "collectivist," whereas the developed West is “individualist”. Investigating this issue, Greif examines two late-medieval traders' groups: the Maghribis in the ‘Muslim world’ and the Genoese in the ‘Latin world’. Both groups faced a similar environment, employed comparable naval technology, and traded in similar goods. Crucially, their success depended on their efficiency in providing goods abroad. To do that, a merchant had to choose between two options: Traveling himself between trade centers Hiring over-seas agents in trade centers abroad to handle his merchandise Employing agents was more efficient since it saved the time and risk of traveling and allowed diversifying sales across trade centers. Yet, without supporting institutions, there was always the risk that an agent could embezzle the merchant's goods. The societal organization of the Maghribis and the Genoese enabled them to mitigate this commitment problem – but in slightly different ways. Evidence by Greif (1994) suggests that among the Maghribis a collectivist equilibrium was a natural focal point, whereas among the Genoese it was an individualist one. The former favored commercial cooperation which excluded nongroup members, while the latter allowed for the inclusion of different groups – like commoners and foreigners. Two different ways of harnessing the power of international trade As trade with more remote trade centers became possible, The Maghribis expanded their trade employing other Maghribis as agents. The descendants of Maghribis continued to cooperate with the descendants of other Maghribis. Parties held their agreements since they practically belonged to the same group. Even though the Genoese merchants were also biased towards reflecting agency relations to their own, they nevertheless developed agency relations with non-Genoese. By 1155, around 18% of the total sent abroad was through non-Genoese agents. The Genoese merchant approach enhanced commercial flexibility as native agents possessed a better knowledge of local conditions. To the extent that the division of labor is a necessary condition for long-run sustained economic growth, the Genoese created an economic revolution. The court of law There was, however, a catch: non-group members would cooperate only if there were impartial parties that made sure that all sides upheld their commitments. In other words, the commitment problem in the Genoese setting required formal legal and political enforcement organizations that ensured everyone played by the rules, and a legal system that devised a reliable set of rules in the first place. And employing non-Genoese agents, Genoese merchants pushed in this direction. In contrast, despite the existence of a well-developed local court system, the Maghribis entered contracts informally: such were their adopted code of conduct and their conflict resolution mechanisms. After all, who needs formal rules when mainly dealing with friends and relatives? Genoese merchants could thus efficiently hire native agents with excellent knowledge of the local conditions that allowed their products to reach distant markets. On the other hand, the Maghribis’ access to talented agents was limited to the circle of their own group. This made their group less capable of capturing the efficiency gains from an ever-expanding trading sphere. And thus was born international trade The developments in Genoa were the first step to a new way of conducting trade. Soon it would reach unprecedented volumes as more Western states followed. It was a gradual change, but its implications slowly started to become evident. Most goods we now enjoy in our times of prosperity have traveled whole oceans before ending up in our hands. And for this we are also to thank an individualistic maritime city whose merchants succeeded in doing business with strangers and commoners.

Panagos et al. (2018) used a general equilibrium model to estimate the cost of soil erosion by water on EU GDP in 2010. According to their estimates, while erosion prevented roughly £1.3 bn worth of crop production, the GDP impact was much smaller at around £155 mn. This reflected a supply response from non-affected farms and a substitution effect towards capital and labour. Picture by Dylan de Jonge, Unsplash What is soil erosion? According to the United Nations Convention to Combat Desertification (2017) Article 1, soil erosion is among the main processes contributing to land degradation globally. In terms of the specifics, it refers to the process by which water or wind gradually remove organic matter and nutrients from the top layer of the soil, which decreases the soil’s fertility. It can also have broader negative effects such as the siltation of reservoirs and sediment impact on fisheries. How did previous studies try to estimate its economic impact? Access to food lies at the centre of any society’s survival and, as a result, there are a number of studies which have attempted to estimate the economic cost of one of its threats: soil erosion. According to Panagos et al. (2018), other research had generally used one of the following approaches: Cost-benefit method: which equates the cost of soil erosion to the cost of its prevention through methods such as buffer strips and residue management (eg see Kuhlman et al., 2010) Market price method: which uses the market price of fertile soil as a proxy to the damage made by erosion (eg see Robinson et al., 2014) Replacement cost method: which associates the loss by erosion the price of the nutrients needed to supplement it (e.g. see Martinez-Casasnovas et al., 2006) Crop productivity loss method: which quantifies the economic loss by taking into account the crop yield loss and the price of crops (e.g. see Evans, 1996) While the above methods may arguably provide a reasonable estimate of the cost of soil erosion on a specific farm, they can also potentially misrepresent the aggregate impact to the economy. This is because they ignore complex market dimensions such as the possibility of increasing crop production elsewhere. They also ignore negative externalities by soil erosion such as a higher risk of flooding. How is the Panagos et al. (2018) paper different? Panagos et al. (2018) started from a similar place as method 4 above, as they assumed a crop yield loss for severely eroded land, which they monetised by applying the market price for different crops. Their data on the state of soil erosion in the EU came from the RUSLE2015 model, which provides data on the state of European soil back in 2010. Out of the main crops, wheat production was found to be the most affected (see Figure 1, left-hand side), and at the country-level, Italy was by far the most affected out of the major producers (see Figure 2, right-hand side). Figure 1: Over a third of Italy’s agricultural land was severely eroded by water in 2010 Source: Panagos et al. (2018), Bonsai Economics The authors move one step further however, by subsequently using a general equilibrium model to estimate the impact of this lower land endowment on the agriculture sector as a whole, and GDP. In doing so, they found that the total economic cost might be much smaller both at the sectoral and the GDP level (see Figure 2, below). This was primarily because their model included a supply response from areas where the land was not eroded, as well as a substitution effect away from land and towards capital and labour. The paper concludes that the cost of soil erosion may be much smaller than it is implied by directly inferring from the previous direct cost methodologies. Figure 2: The GDP impact of soil erosion is almost 10 times smaller than its direct cost Source: Panagos et al. (2018), Bonsai Economics Conclusion While the Panagos et al. (2018) paper offers a good reminder of the dangers of directly inferring from direct cost estimations to economy-level losses, it is important to highlight that their methodology was in no way perfect. In fact the authors themselves acknowledge that their estimates should be treated as a lower bound for the cost of erosion, due to their model’s assumption of perfect markets. Moreover, it is unclear whether a supply response from non-eroded land would remain possible if much more soil got eroded.

Xu (2019) distinguishes between three historic world food regimes: the period when the UK was the world’s major food importer (1850s-1917), when the US dominated world grain exports (1920s – early 1970s), and the current period of weaning US influence and high third world food dependence. By reading his piece, today’s reader can get a more holistic perspective of the current global food crisis faced by the war in Ukraine. Picture by Jonathan Petterson, Unsplash Figure 1: A history of crises (real global food price index) Source: Xu (2019), Mitchell (1988), Grilli and Yang (1988), FAO, Bonsai Economics. Note: the different lines refer to different data sets used to derive each global food price index series 1850s-1917: the UK at the centre of the world The UK was the first country to industrialise, which eventually contributed to rising longevity and higher living standards, all of which led to the rapid increase of its food demand. Domestic food production failed to keep up with this boom, which combined with Britain’s world dominance at the time, led it to become a major food importer. While the UK sourced roughly 10% of its wheat from abroad in the first half of the 19th century, the ratio reached close to 80% by the beginning of WWI. Wheat came primarily from Europe (Russia, Germany) and the Americas (US, Canada, Argentina). 1920s-early 1970s: the US as the world’s food superpower A key turning point in the world food system occurred after WWI, when the Russian Revolution of 1917 and the subsequent civil war abruptly disrupted Russian grain exports to the UK and Europe. It was at this point, that the US rapidly increased its food production to support its European allies, becoming by far the world’s largest grain exporter. In fact, during WWI, the US supplied the UK with half of its wheat imports and during the reconstruction period from 1919 to 1926 it shipped 6.2 mn tons of food to Europe. This boom in US food production was the root of the later difficulty of US overproduction, as the Great Depression and WW2 created difficulties in finding markets to export. This contributed to the growing US exports to third-world countries, marking the starting point of their growing food dependency. 1980s-today: third-world dependence and a drop in US influence A food crisis began in the late 1960s, as the USSR started to rapidly improve the living standard of its citizens, turning itself into a major food importer. In fact, in 1990 the calorie intake in the USSR matched the US, while Soviet citizens consumed equal or more meat than their counterparts in the UK (even though the latter were much richer otherwise). The lack of a sufficient supply response to this rising demand led to a period of booming food prices, with the crisis reaching a conclusion with the collapse of the Soviet Union and the subsequent living standards drop. In parallel to the Soviet dynamics, this was also an era when the US and Europe further solidified their food exports to the third world. In fact, as it is shown in Figure 2 below, the second half of the 20th century saw Africa and Asia becoming increasingly reliant on cheaper American and European grains. Figure 2: Africa and Asia became major net importers of grain (net cereal exports) Source: Xu (2019), FAO, Bonsai Economics At the same time, it was also a period of weaker US influence on the grain market, with its share of world exports declining from the 1980s onwards (see Figure 3, below). This partially reflects the rising food production in Europe, with Russia and Ukraine being vital parts of the current food regime. Figure 3: US cereal export share has been declining (US world cereal export share) Source: Xu (2019), FAO, Bonsai Economics Some concluding remarks In total, the food market seems to have followed a classical commodity pattern of supply and demand misalignments creating market boom and bust cycles. At the same time, its great importance for social welfare implies that a degree of self-sufficiency, particularly in the global South, may be justified. This is especially the case as soil degradation and the growing use of agriculture land for biofuel threaten future supply from the US and elsewhere. And this is without accounting for the current war at ‘Europe’s breadbasket’.

In their paper, Zivkov et al (2018) investigate the relationship between the major Eastern European stock indexes (Czechia, Hungary, Poland, Romania) and that of the US, Germany, and the UK. They estimate a strong correlation between Germany’s DAX and most Eastern European indexes (EEMs) Moreover, they make several observations with regards to the relationship of EEMs between themselves and other indexes. Picture by Wance Paleri, Unsplash How big are the Eastern European stock markets? Among the Eastern European stock markets, Czechia’s (PX) is by far the largest in terms of market capitalisation, which averaged $703 bn in 2021. This was partially driven by a twelve-fold jump in value in 2018, after the inclusion of numerous medium-sized companies. Poland’s (WIG) exchange is the second largest, followed by Romania’s (BET) and Hungary’s (BUX). These stock exchanges are dwarfed compared to Germany’s (DAX) $2.5 tn market capitalisation, which is about 2.2 times larger than their combined value. Figure 1: Germany’s stock exchange is over two times bigger than emerging Europe’s DATA: Bonsai Economics, Prague Stock Exchange, Warsaw Stock Exchange, Budapest Stock Exchange, Bucharest Stock Exchange, Deutsche Börse Group Most Eastern European indexes are strongly correlated to DAX Zivkov et al (2018) investigate the extent to which Germany’s dominant position in the European economy leads a strong correlation between the DAX and EEM indexes. Using an econometrics model, they indeed estimate an average correlation of roughly 50% for Poland, Czechia and Hungary (see Figure 2, left-hand side). Romania was the only country not to exhibit a strong correlation, with a value of 24%. The authors attribute this result to Romania’s relatively less trade with Germany: their bilateral trade accounted for just 15% of Romanian GDP (see Figure 2, right-hand side). While the explanation makes sense, it is noteworthy that Poland also exhibits a similar degree of trade with Germany, but its index remains highly correlated to the DAX. The paper does not explain this phenomenon. Figure 2: Less bilateral trade partially explains the Romanian index’s lower correlation to DAX DATA: Bonsai Economics, Zivkov et al (2018), Observatory of Economic Complexity … a few more interesting observations by Zivkov et al (2018) In the paper, a number of other interesting empirical observations are made with regards to EEMs. More specifically: Out of the main developed country indexes (S&P500, FTSE250, DAX), a shock on the S&P500 index had the largest impact on EEMs. This relates to the considerably larger size of the S&P500 compared to DAX and FTSE250. During periods of crisis such as the global financial crisis of 2008 and the sovereign debt crisis of 2010, the correlation between EEMs increases, reaching almost 80%. The authors attribute this to so-called contagion effects when investors simultaneously move away from risky emerging market assets towards safer ones such as gold. Previous shocks in EEMs have a stronger impact on their future volatility compared to the DAX index. In other words, there is a higher degree of shock persistency in emerging market stock indexes. This can be explained by the easier loss of investor trust in such markets. While EEMs are too small to affect the S&P500, a shock in EEM stocks can affect the British FTSE250 and the German DAX index. This relates to the EEMs higher interconnectedness to these respective economies.

Using data covering 175 countries from 1960 to 2010, Acemoglu et al (2019) estimate that, on average, democratization alone increases GDP by 20 percent in a 25-year horizon. These effects seem to be unrelated to the initial level of economic development, although they are larger in countries with greater levels of secondary education. Picture by Element5 Digital, Unsplash The elephant in the room More than 30 years have passed since the Cold War was concluded with the victory of the democratic US over the communist USSR. Since then, however, the unprecedented economic growth in China and the relative stagnation of Western democratic nations inevitably question the once dominant position of democracy. Is it still our best chance for prosperity? An increasing number of people nowadays tends to disagree. Acemoglu et. al hop in to the rescue. The subject is inherently tricky. To substantiate their claim that democracy indeed causes growth, the authors face several challenges: The accurate definition of what constitutes a democracy is inherently elusive It can be hard to measure real changes in democratic institutions even through Democratic Score indexes Unobserved characteristics. Democracies differ to non-democracies in institutional, historical, cultural aspects that are inherently hard to isolate, but affect GDP nonetheless Time-varying unobservable characteristics. These parameters change as time passes. Econometrics at the service of Democracy To determine what indeed constitutes a democracy and a democratic transition the authors create an index out of, among others, two pivotal data sets – the Freedom House and Polity IV. Consequently, they consider a country as democratic when several sources agree to that status. More specifically, they grant democratic status to a country for a given year if the Freedom House classifies it as “free” or “partially free” and the Polity IV assigns a positive score at the period. When either of the main sources is unavailable, the authors refer to the rest of the existing literature on this country. Having established what constitutes a (transition to) democracy, the authors move on to tackle the challenges in measuring the actual effect it has on growth. They initially measure the direct effect that democratization has on countries. However, this approach does not safeguard against omitted underlying variables that affect both democracy and GDP. They hence implement what is known as an Instrumental Variable (IV) strategy. In essence, the IV method invokes a variable that affects the variables of interest but is not correlated with the any confounding factors. In our example, this role is assumed by using the regional nature of democratisation. Political science literature emphasizes that transitions to and away from democracy often take place in regional waves; a country is more likely to transition to democracy or nondemocracy when the same transition recently occurred in other countries in the same region. This is illustrated in Figure 1 below, which shows how historically after a country switch towards or away from democracy (year ‘zero’) its neighbours tend to follow. Figure 1: Democratization (towards and away) happens in waves Source: Acemoglu et al (2019), Bonsai Economics How does democracy increase prosperity? The case for a positive effect of democracy on GDP has been made. How does it materialize though? The authors suggest it takes place through a delicate process where democracies contribute to growth by: Increasing investment Encouraging institutional reforms that disperse economic and political power to broader social strata Improving the provision of schooling and health care Reducing social unrest In other words, democracies encourage and allow people to invest more resources in the economy, are better in keeping people educated and healthy, and make clashes for power less urgent. The same processes can take place in nondemocracies but with a smaller reform potential; powerful actors thriving in autocratic states are more likely to successfully resist their broad introduction. Economic privileges are not shared lightly by the haves. The future of Democracy Scepticism about the performance of democratic institutions is as old as democracy itself. Works such as the one summarized in this article allow us to also be optimistic on the prospects of democratic institutions; the authors make a cogent case that despite occasional setbacks, societies where all citizens (demos) have access to the social decision-making process (kratos), are the best candidates for long-term prosperity.

Sabes et al (2022) investigate whether a yield curve inversion has historically been a good predictor of Eurozone recessions. They find that while an inversion occurred in all recessions prior to 2010, this stopped being the case after the start of quantitative easing. At the member-state level, the yield curve was found to be a much better predictor in ‘core’ economies like Germany, than in ‘peripheral’ ones like Spain. This was attributed to the latter group’s higher sovereign debt credit risk, which blurs the relationship between the yield curve’s slope and a potential recession. Picture by Mika Baumaister, Unsplash What is a bond yield? Prior to discussing the implications of a yield curve inversion, it is important to explain what a sovereign bond yield is. Typically, it is defined as the present value return of the bond throughout its lifetime. Consequently, a bond’s yield can decline (or increase) due to a variety of factors, two of which are outlined below: Lower interest rate expectations: a drop in the bond’s interest makes the already-issued higher-interest bonds more valuable. As a result, their market price increases, while their future cash flow remains constant. A higher buying cost with a constant return decreases the bond’s expected profit, which is the same as saying its yield has dropped. Lower credit risk: a lower risk of default leads to more demand for the bond, and thus to a higher price. Consequently, the bond’s yield drops. What is a yield curve inversion and how is it linked to recessions? A bond’s yield curve refers to a line of the bond’s yield for different maturity dates (e.g., 6 months, 1 year, 10 years). A yield curve inversion is said to occur in the unusual situation when longer-maturity bonds have a smaller yield. In other words, lending one’s money for longer pays off less. This is said to sometimes occur when investors expect a recession, to which the central bank typically reacts by stimulating the economy through lower interest rates. In anticipation of the change, investors lend to the government more for longer, causing the longer-term bond yields to surpass short-term yields. This is one of the paths through which a yield curve inversion can be interpreted to reflect market expectations of a recession. Has the yield curve predicted well past Eurozone recessions? Sabes et al (2022) found the yield curve to be a strong predictor of Eurozone recessions prior to 2010. This is illustrated in Figure 1 below, which shows the difference between 10-year and 3-month Eurozone bond yields. A negative value shows a yield curve inversion, as it shows that the 3-month yield exceeded the 10-year one, which is what happened in all pre-2010 recessions. However, it is interesting that this was not the case in the last two recessions. The authors attribute the change to the European Central Bank’s quantitative easing policy during these years. Figure 1: A yield curve inversion occurred in all Eurozone recessions prior to 2010 DATA: Sabes et al (2022), Bonsai Economics. Note 1: shaded regions indicate periods of recession. Note 2: Yield spreads are derived using the difference between the 10-year and 3-month yield What about member state recessions? At the member state level, the authors highlight the yield curve’s different predictive power for ‘core’ economies such as Germany compared to ‘peripheral’ ones like Spain. More specifically, while almost all yield curve inversions in Germany coincided with a recession this was hardly the case for Spain (see Figure 2, below). While the authors offer no detailed explanation for this, they highlight that it could reflect Germany’s risk-free status, compared to Spain’s. This observation offers an interesting insight into the yield curve’s predictive power: it can be higher in countries whose debt is considered by the market as risk-free (e.g., Germany, US) than in countries with a larger default risk. Figure 2: In Spain, yield curve inversions occurred frequently outside a recession DATA: Sabes et al (2022). Note 1: shaded regions indicate periods of recession. Note 2: Yield spreads are derived using the difference between the 10-year and 3-month yield

Dell and Querubin’s paper 'Nation Building Through Foreign Intervention' (2016) finds evidence from the Vietnam War that a strategy aimed to capture the ‘hearts and minds’ of civilians would fare better than one based on ‘overwhelming firepower’. This is because the latter can boost civilian support for the enemy and weaken state capacity. Picture by Chandler Cruttenden, Unsplash In 1967, two years after the US put boots on Vietnamese ground, increasing tensions along the demilitarised zone called for the transfer of the US Third Marine Division to the frontline. Its previous occupation zone was left under the command of the US Army. Not long afterwards, armed conflicts quickly intensified in the ex-Marine (now Army-controlled) zone, with the refugee count increasing five-fold. However, Viet Cong did not launch new offensives or insurgencies in that area. Nor did Army and Marine personnel differ – they came from the same stock. Marines versus Army The only difference of note was simply one of operational doctrine – the Army was instructed to over-awe the local population into submission by ‘Overwhelming Firepower’, whereas the Marines were told to capture the ‘Hearts and Minds’ of the locals by developing civil assistance, cooperating with the local police, and building schools, roads, marketplaces and hospitals. Dell and Querubin (2018) seized this opportunity for natural experimentation, by comparing the developments around the borders of Marine Corps- and Army-controlled operational zones. Vietnamese people there were similar in all characteristics, owing to their close proximity to each other. Whatever differences that arose between them during the War should be attributable to the only variable that separates them – operational doctrines. These differences were enormous. The authors find that, during and right after the war, individuals living on the Marine side of the boundary were 39% more likely to complete primary school education, 19% more likely to receive medical services, and 28% more likely to have public works constructed in their hamlets, as one would expect from the Marine doctrine. The benefits did not stop at humanitarian niceties; military outcomes improved as well. Hamlets just falling into Marine’s side were 10% less likely to be classified as ‘high security’ risk, 56% less likely to have armed Viet Cong presence, and 48% less likely to witness Viet Cong-initiated attacks. US and South Vietnamese troops were also less likely to become casualties. Death by a rounding algorithm To improve the robustness of their study, the authors included in their analysis another dimension of the War, with a focus on the US Air Force bombings. The Air Force did not bomb indiscriminately, but allocated loads according to a metric called the Hamlet Evaluation System (HES). The HES gives a score from A to E to evaluate the target-worthiness of hamlets. However, because it is so coarse, hamlets that were otherwise quite similar to each other could fall, or not, into the ‘target-worthy’ category. By comparing ‘bombed’ and ‘not bombed’ similar hamlets to each other, the researchers could gain further support for their hypothesis of the counter-productive effect of the ‘overwhelming force’ approach. The results are just as staggering. In terms of military objectives, moving from no bombing to sample-mean bombing, a hamlet was found to be 25% more likely to support Viet Cong infrastructure, 27% more likely to host Viet Cong guerrilla squad, and 9% more likely to witness attacks on local government officials. Furthermore, local state capacity was compromised. ‘Sample-mean bombing’ hamlet’s administration was found to be 8% more likely to be classified as ‘high threat’, its village committee was 21% less likely to be filled in full, and its local government was 25% less likely to collect taxes. The economy was similarly devastated: goods stocks were depleted, and more households were reduced to subsistence. Implications History is littered with the backfiring of excessive force, from the downfall of neo-Assyria, the early demise of Qin to Rome’s punishments of its rebellious subjects. This paper now puts the weight of econometric evidence behind history. Nevertheless, as the authors themselves note, such wrong-headed policies were still carried out, pointing to US actions in Afghanistan. Putin’s war in Ukraine is the latest addition to that list.

In their article, Gopinath et al. (2020) found evidence that global trade volumes and prices are significantly driven by the value of the US dollar, the world’s dominant currency. US domestic policies that increase the value of the dollar against other currencies reduce global trade flows since goods become more expensive in dollar terms and US rest of the world imports do not sufficiently increase. Picture by: Adam, Unsplash Traditional determinants of international trade flows The traditional, neo-Keynesian models of international trade argue that when country X’s currency depreciates versus another country Y’s it will export more to country Y. This will occur because country X’s goods will become cheaper as its currency value drops, as goods that are exported are denominated in local currencies and prices are sticky. Conversely, the opposite happens for country X’s imports from country Y, which have now become more expensive. Consequently, if a country’s currency depreciates, its trade balance will improve as its exports increase and its imports drop. In other words, the depreciating currency economy increases its competitiveness as its firms can export more easily. Such benefits can also spread across the economy, as these export-oriented companies increase their capacity and hire more employees. Is this true for international trade? Gopinath et al. (2020) challenge the neo-Keynesian approach. They indicate that quantities of goods that flow from one country to another, as well as prices, are not significantly affected by bilateral currency values. This is because many internationally traded goods are priced in US dollars. Thus, it is each currency’s position versus the dollar that impacts competitiveness, rather than its relation to the currency of each respective trade partner. In their model, the authors incorporate the dollar’s central position in the global terms of trade which they describe as the ‘dominant currency paradigm’. Figure 1: New-Keynesian models vs Dominant Currency Paradigm model Source: Bonsai Economics, Gopinath et al. (2020) The US dollar’s performance affects global trade Due to the dollar’s dominance, US domestic policies that affect its value can influence international trade flows. Using a dataset of 2,500 country pairs and covering 91% of international trade, the authors highlight three main findings: 1) A 1% US dollar appreciation against all other currencies predicts a 0.6% decline in global trade within a year. When the US dollar appreciates, demand for imports to the rest of the world decreases, since goods are more expensive in dollar terms. Moreover, the authors found that the appreciation does not lead to an equivalent increase in US imports Consequently, the dominant currency’s appreciation reduces global trade flows. 2) Country import volumes are more sensitive to the US exchange rate than to the bilateral exchange rate Adding the US exchange rate to the effect of bilateral trade reduces the effect of the latter from 0.76 to 0.16 percentage points. 3) The higher the share of a country’s dollar-denominated goods, the more sensitive is its trade to US dollar fluctuations US dollar dominance matters In today’s globalized economic system, the value of the US dollar affects trade worldwide, especially in emerging economies that invoice a higher share of their goods in US dollars. The US dollar offers a stable alternative to volatile local currencies. However, it also raises the risk of weaker global trade when US monetary policy tightens to control domestic inflation, as it is currently happening. As a result, what can benefit domestic US economic stability may have a negative global economic impact.

Yergin’s The Prize provides a sweeping account of the history of oil, using it as a lens to view the most impactful economic, political, military, and social developments from roughly 1850 until 1990. Oil is on the way out, but as his history shows, it has impacted our past more than nearly any other commodity, and it likely still has a role to play in our future – for better or for worse. Picture by: Zbynek Burival, unsplash Yergin’s thesis can be summarized in three points: 1The rise of capitalism and modern business are inextricably linked to oil ‘[O]il as a commodity [is] intimately intertwined with national strategies and global politics and power.’ Since oil’s dethroning of coal (with the help of natural gas) in the late 19th century, we have made ourselves into a ‘Hydrocarbon Society’ The first two tenets are uncontroversial. Oil is power, both political and economic. If coal powered the Industrial Revolution, then oil powered our modern societies. Geopolitically, oil (and the combustion engine) has underpinned the largest paradigm shift in warfare since the invention of gunpowder. But whereas gunpowder made the walled city obsolete, the oil age has distorted and stretched projection of power, and therefore, the reach of nations. Access to commodities has always mattered, from antiquity to the present. The world’s first empire, the Sumerians, rose in part because they secured steady access to tin from the faraway Taurus Mountains to forge their place as the paladins of the early Bronze Age. Millenia later, only a few years before the outbreak of WW1, then-First Lord of the Admiralty Winston Churchill’s decision to transition Britain’s navy from coal-powered to oil-powered meant that oil was the strategic resource. Yergin’s analysis of WW2, viewed from oil, provides crucial insights into the most important conflict of the 20th century. After all, Imperial Japan did not attack Pearl Harbor for lack of iron, but oil. And when Hitler’s armies marched east in a pincer movement, their goal was to eventually capture Baku and the rich oil fields of the near east. But his dual defeats, at Stalingrad and El-Alamein, thwarted this plan. Without oil, Imperial Japan and Nazi Germany were doomed. Access to oil is not a sufficient condition for victory, but in modern warfare, it certainly is a necessary one – hence the remaining importance of the Straights of Hormuz and Malacca. Oil shaped our economies and geopolitics. But will this hold up in the future? Are we still a ‘Hydrocarbon Society’, as Yergin argues? The answer is still yes, but clearly this is changing. Our societies will of course move away from oil, but prognostications of ‘peak oil’ in the past have often been wrong: Hubert’s 1956 ‘peak oil’ prediction was right about the 1970s, but the US production rebounded during the Obama administration to levels above the peak a half-century earlier. As the Russian invasion of Ukraine highlights, while we certainly must redouble our efforts to electrify our economies, oil (and other hydrocarbons) still plays a key role in bridging the gap. However, if oil was the main geopolitical force of the past century (as seen in the Agadez Crisis, WW2, the Suez Crisis, Western engagement in the Middle East) and has so greatly shaped our societies (suburbanisation, globalisation to scales previously unimaginable, and an existential pollution threat) – then what will be the driving force for the next century? Oil is no saviour for all countries – ‘Dutch Disease’ examples abound, from Mexico, Venezuela, Libya, Iran, and the Soviet Union in the 1970s and 1980s. But what will happen to the countries who have become wealthy off oil? Saudi Arabia, the rest of the GCC, Norway, to name a few? How will the shift to renewables change the social contract in these countries? The truth is we don’t know. In the past 15 years, the NASDAQ has outperformed the USO oil futures ETF by 40 times. The microchip is the future, and a future without oil is surely coming. The question is what will that future look like? If we want to spend some time thinking about that, we would do well to study the history of oil to help us navigate these uncharted waters.

Harris (2020) investigates the differing nationalist ideologies developed in Russia and Ukraine after the dissolution of the Soviet Union. Russia promoted a cross-border kin state identity which justified its interventions across the post-soviet world. In Ukraine, the nation-building project was led by western Ukraine, and it emphasized the region’s Western identity. This narrative excludes eastern Ukrainian culture, whose sense of identity is more closely linked to their Soviet past. A post-Soviet search for a new self After the dissolution of the Soviet Union in 1991, there was a radical reconfiguration of the political landscape, with countries undergoing a parallel process of nation and state-building. Nationalistic discourse involved a re-interpretation of each successor state’s history and identity, with Brubaker (2011) highlighting five common motifs: The idea that each state contains a ‘core’ nation, which differs from the permanent resident population A claim to ownership or primacy of the core nation in the successor state A view that the core nation is being threatened A narrative that action is needed to strengthen the core nation such as promoting its language and political hegemony A claim that supportive state action is needed in order to redress the previous suffering of the core nation Harris (2020) highlights how the use of these narratives in successor states led to a triadic relationship between national minorities, nationalising states, and external ‘homelands’. The reframing of Soviet-era ethnic conflicts in this new setting led to a renewed wave of conflicts and identity politics. Russia’s irredentist nationalism The author begins tracing Russian nationalism in the Soviet period when Russian national identity was neither ethnic nor connected to the territory of the Russian Republic. Instead, it identified with the Soviet proletarian identity, with the national home being the Soviet Union as a whole. In the post-Soviet world, this identity changed, and it became increasingly ethno-linguistic and ethno-national: Russians were viewed to be all people who are ethnically Russian or who speak Russian. This wide, cross-border definition of the Russian nation has been repeatedly used to legitimise Russian interventions in the neighbouring countries, with the ongoing invasion of Ukraine being the most extreme example. Moreover, Russia’s labelling of Ukraine as ‘small Russia’ indicates that while the current Russian identity is more closely attached to ethnic and linguistic characteristics, it retains elements of its Soviet past. Ukraine’s nationalist discourse split between west and east Ukraine’s nationalistic discourse retains a strong cultural divide between western and eastern Ukraine, which reflects the regions' different historical experiences. More specifically, Ukrainian nationalism mainly originates in the west, which existed as a separate country and underwent its own nation-building process over the 19th century. On the other hand, eastern Ukrainian identity was primarily linked to the Soviet past. This led to a cultural divide between west and east, with western Ukraine feeling culturally closer to Europe and eastern to Russia. Russia’s continued influence on Ukrainian political life also affected political discourse in the country. Pro-European and western Ukrainian leaders after the Orange Revolution (2004) and the Maidan Revolution (2013-2014) embarked on the heroization of the Organisation of Ukrainian Nationalists (OUN) and the Ukrainian Insurgent Army (UIA), who fought for Ukraine’s independence from the Soviet Union. At the same time, these organisations’ historical collaboration with the German Nazi regime and their participation in anti-Jewish pogroms led to their labelling as ‘fascists’ in Russia. Consequently, a new ideational division was created, which split Ukraine between a fascist and anti-Russian west, and the pro-Russia east. The partial reliance of the Maidan revolution (2013-2014) on far-right groups further exacerbated this Russian narrative of the Ukrainian political landscape. Nationalist discourse as an opium for the masses While Harris (2020) emphasizes the importance of nationalist discourse in justifying country policy, she also highlights how it is often used to cover other materialistic intentions. For example, she argues that Russia’s support of the Donbas insurgency (2014) primarily reflected Russia’s aim to protect its business interests in the area after the fall of the pro-Russian Yanukovych government. Russia, however, framed its intervention only in terms of protecting the local ‘Russian’ population,. In fact, current evidence suggests that Russia’s ongoing invasion of Ukraine is yet another example of when nationalist protection discourse is used to legitimise political power games.

In a policy note from January 2022, prior to the Russian invasion of Ukraine, the Vienna Institute for International Economic Studies, a think tank, discussed the potential impact of different sanction packages on the Russian and EU economies. As a baseline, the authors assume increased Russian military presence in the Donbas region, deeming a full military invasion of Ukraine unlikely. Given that the invasion is now happening, this piece compares the authors’ sanction predictions with those imposed to date. Picture by 'Stillness in Motion' The institute identified three key Western sanction options in the case of a full Russian military invasion in Ukraine. In the following, we will compare them one-by-one to the sanctions the West has so far imposed on Russia. Sanction 1: The restriction of energy imports from Russia Prediction: Countries would restrict their energy imports from Russia in order to deny the country a crucial source of income. However, the authors argue the measure would lead to “a massive inflation and a recession in the global economy, and especially in the EU”. They, therefore, deem this option “highly unlikely”. Reality: Western States have not yet officially restricted the import of Russian oil and gas. However, the German government has put the ratification of the new gas pipeline Nord Stream 2 on hold indefinitely. This is not equivalent to cutting off Russian energy supply to the European market which is not contingent on Nord Stream 2 but it serves as an important political signal of European solidarity with Ukraine. Europe is highly dependent on Russian energy supplies and would suffer immensely should supply lines be cut off. As of the end of 2020, Russia accounted for 32% of European gas consumption. Sanction 2: Limiting Russian banks’ access to capital markets Prediction: Isolating Russian banks would cause significant financial disruption in Russia through a reduction in lending and investment. The Russian government would therefore need to inject large sums of capital into the banking sector. The authors conclude that cutting access to US dollars while simultaneously disconnecting Russia from the SWIFT payment system would have the most severe impact on the Russian economy. Reality: The EU member agreed on 26 February to expel Russia from the SWIFT system in addition to limiting Russia’s access to the EU’s capital and financial markets. Skeptics such as the German government had originally warned that the suspension of Russia from SWIFT may not have the desired effect since Russia could fall back onto its own system called SPFS. Furthermore, there is fear that suspending Russia’s access to SWIFT will impact the European energy supply since it will make trans-border transactions more complicated and expensive. Section 3: Banning high-tech exports to Russia Prediction: The authors predict that only industries that rely on high-tech parts Russia cannot import from China would be hard hit by this sanction. It is expected that Chinese goods would substitute at least some of the European tech exports. Reality: The EU members have decided to ban exports of high-tech parts such as semiconductors to Russia immediately. This would inhibit Russia from building “a prosperous future” according to EU commissioner Ursula von der Leyen. Among other key industries, the lack of cutting-edge technology from the West shall make it impossible for Russia to upgrade the oil refineries on which its economy so heavily relies. However, China which is already Russia’s most important single trading partner may be able to substitute some of the technology needed. The EU’s own share in Russia’s foreign trade has declined in recent years from around 50% to 34%. Conclusion As recently as January 2022, a full-blown Russian invasion of Ukraine and the sanction regime the West was likely going to impose on Russia as a response seemed unlikely. Russia’s unjustified military aggression against its neighbour has now triggered all three sanction options the Vienna institute had identified as “nuclear” for the Russian economy. The effects are likely to be economically detrimental to both sides and it remains to be seen how high a price EU members are willing to pay to punish Russia for starting a war in Europe.