James K. Galbraith teaches at The University of Texas at Austin and is the author of The Power to Destroy: How Bad Economics Drove America’s Decline” forthcoming in September from the University of Chicago Press. He was Executive Director of the congressional Joint Economic Committee in the early 1980s.
William McChesney Martin, long ago chairman of the Federal Reserve, famously remarked that his job was to “take away the punch bowl just as the party is getting good.” Similarly, the proper job of a professional economist, especially one with the high profile imparted by the so-called Nobel Prize, is to deliver bad news as necessary.
Professor Simon Johnson of M.I.T., a 2024 Nobel laureate and former chief economist of the International Monetary Fund, takes the opposite tack in a recent essay on the Lindsey O. Graham Sanctioning Russia Act. His full-throated endorsement declares that the “bill clearly identifies comprehensive ways to squeeze Russian export revenues.” Given that “Russia is desperate for foreign cash,” the bill “would throttle Russia’s ability to import electronics and other components for rockets, drones and military equipment . . . [without which] its attacks on Ukraine would grind to a halt.”
To be blunt, this is delusional. It brings to mind a mock leaflet imagined many years ago by my Cambridge economics tutor, when the lecturers and teaching assistants threatened to strike: “In six weeks, the supply of trained personnel to the civil service will halt! In two months, the country will be on its knees!!” But Professor Johnson and his co-author, Oleg Ustenko, are, apparently, serious.
Let’s begin with the fact that Professor Johnson’s old agency, the I.M.F., uses a metric called “purchasing power parity” to assess the relative size and productive power of national economies. By this measure, Russia is fourth, after China, the United States and India — ahead of Japan, Germany, Britain or any other NATO country. It is not so big as all of them put together. But it is organized far more effectively for combat in the Eurasian heartland than any combination of NATO states, which is why Russia outproduces NATO in the basic categories of war matériel: shells, bombs, drones and missiles.
Second, the claim that Russia is “desperate for foreign cash” is economically illiterate. For all internal purposes, Russia produces its own cash, called the ruble. Moreover, Russia produces, from its own soil, practically all the natural resources and food it requires. There are a few basics it imports — chemicals and pharmaceuticals, notably but not much. What it does import, manufactures from China for instance, it can pay for in rubles, or with foreign reserves — of which it has $720 billion, more than half of that available — or even with a loan. The notion that Russian imports are constrained by current export earnings in dollars or euros is bizarre.
Third, despite many claims by Western sources, there is little reason to think Russia needs high-end imports for military purposes. Some designs — the “Geran” drones, for instance — originated elsewhere, in Iran in that case. But military electronics do not usually require the latest Nvidia G.P.U.s, and Russia has productive capacity for semiconductors. And to the extent Russia does import sensitive items, it obviously does so through secret channels and through countries — ever hear of China? — that are opaque to American sanctions.
The Graham bill takes aim at countries that import Russian oil and gas. The top five are said to be China, India, Slovakia, Hungary and Azerbaijan, or in some accounts, Japan. Japan, an ally, just received a massive Treasury bailout — is Mr. Trump going to hit Tokyo too? Slovakia and Hungary are small, landlocked NATO allies with few supply alternatives. Yes, there’s India: the United States is its top export destination. But India will cope; it needs Russian oil more than it needs American markets. And, again, there’s China. Would the United States gain by breaking the fragile trade truce with Beijing and losing access to gallium and rare earths?
Next, Professor Johnson discusses the “shadow fleet” — Russia’s tankers, long excluded from Western shipping insurance. He does not expect the sanctions to stop Russia from selling oil — as Jennifer Kavanagh has pointed out for the Quincy Institute, Russia has many workarounds — only to cut the price. But thanks to Mr. Trump’s confrontation with Iran, Russian oil sellers have been flying high. They can weather steep discounts from world prices, as Professor Johnson and Mr. Ustenko admit their production cost is only $15 a barrel. There would be some effect on the Russian state budget. The effect on the war effort? Negligible to nil.
Professor Johnson closes with a verdict: the bill would deliver “a severe blow to a Russian economy that is already struggling after more than four years on a war footing . . . with high inflation and interest rates that are eating away at the foundations of the economy and sapping its growth.” Strong words. And yes, Russian interest rates are high, and inflation, at 5.6 percent, is above the world average of 4.6 percent — though below the rate in the United States in 2021 and 2022, which the country managed to survive. Beyond this, we can check what Professor Johnson’s own I.M.F. says about real economic growth in Russia, surely the acid test. In its April World Economic Outlook, the fund projected Russia’s growth this year at a higher rate than Germany’s, France’s or Britain’s.
Chairman Martin’s mistake was wishful thinking; the Vietnam War showed that the Fed could not stop the party. Professor Johnson is equally wishful, and one can only agree with him, in the end, that the Lindsey Graham sanctions bill is a “no-brainer.” Any economist with a brain should call it out for what it is: a gesture. It will make no difference to Russia’s war in Ukraine.
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