A Collapse of Economic Rationality

Brad Patty

1 months ago

April 20, 2022

One of economics’ most infamous theories is that people will, on average, behave rationally in accord with their economic interests. This is demonstrably untrue as a universal law: many people destroy their wealth in order to pursue things like divorce, which they want more than they want the wealth. On average it is supposed to be true, though: by the time you reach whole societies, in general economic rationality is supposed to rule. We have come to the point at which this is definitely not true, not for any of the three great powers of the world. As a consequence, economic recession is becoming increasingly likely.

Russia’s war with Ukraine is explainable in terms of Russian interests, just as the pursuit of a ruinous divorce is explicable in terms of personal interests. Russia hoped to force Ukraine into neutrality so that it would serve as a permanent buffer state between itself and NATO. The failure of the Russian army to perform effectively* has led them to pursue their fallback objective of securing eastern Ukraine as a buffer state. (The Security Studies Group had assessed this to be their mission from the start, because it was the only one achievable with the force structure they deployed.)

Russia has elected to suffer significant economic harm in order to attain this end. Yet the harm to the whole world’s economic order should not be underestimated. Ukrainian crops are not getting planted in much of the country; both Ukrainian and Russian fertilizer elements are not being produced or sold at normal rates (though nations like Brazil are dodging the Russian sanctions in order to feed their people). The inflationary cost on food prices will be steep even in the wealthy parts of the world. In places like Yemen, this conflict will lead to famine and death. Our government has not chosen to take the obvious steps to limit this harm, but has instead doubled-down on ethanol production this year.

China, meanwhile, has chosen to pursue a round of lockdowns in major cities like Shanghai that is so inexplicable in terms of health policy that top independent thinkers like Richard Fernandez and Ross Kennedy are speculating about hidden motives. Regardless of just why China is doing it, it has led to a disruption of shipping so severe that it will take months to unravel, ensuring another supply chain shock coming soon and lingering for a while. The economic effects globally will be both bad and lingering.

Here at home, our administration is focused on symbolism rather than economically rational goals. Having opened by killing the Keystone energy pipeline, they then closed public lands to oil and gas leases until forced to open at least some by court order. As consequence, gasoline prices look set to stay above $4/gallon for the foreseeable future, and our nation’s natural gas stockpiles are depleted. This is supposedly in pursuit of a ‘clean energy’ agenda, but it is incoherent: the ethanol production process relies on very dirty energy, and the lack of clean-burning natural gas is imperiling legitimate investments in cleaner energy. None of what they are doing makes very much sense, neither as a way of protecting the national interest nor even as an advancement of their agenda.

Market analysts I have consulted are estimating the probability of America’s economy slipping into recession between thirty and forty percent. The Security Studies Group estimates that probability as far higher. No one is behaving economically rationally, as all the major players are choosing to spend resources and position on political goods rather than economic goods. None of the leadership of the three great powers can be quickly replaced — if indeed they can be replaced at all. There are tough times coming because of this.

 

* One issue that the Russian adventure has laid bare is the fragility of the battalion as a combat team. Organizing into “Battalion Tactical Groups” (BTG) was an error because the battalion has too few people to suffer significant losses and remain combat effective. The United States made the same move to shrink its self-sustaining military organization below the division level, first with the Regimental Combat Teams (RCT), then with the Army’s larger Brigade Combat Teams (BCT). All of these organizations are attempts to make a smaller force deployable on its own, which means giving that group integrated support units like air and/or air defense assets, fire supports, and the ability to integrate units like Psychological Operations. A brigade-sized unit is at least three times the size of the battalion-sized units, and therefore more capable of continuing operations in the face of losses because there are more people involved in every function. The Russians committed too few troops to attain their ends — about half what the United States deployed in Operation Iraqi Freedom I — but they also deployed those too-few troops in fragile units that broke under stress. Some of them are currently being refitted, but some of them are too broken even for that. These, like the British elements savaged by Colonial forces at Cowpens, will have to be broken up and redistributed among other still-operational military units.

About the Author

Brad Patty

Dr. Patty advised US Army units in Iraq on tribal affairs and information operations over more than a decade. His work has received formal commendations from the 30th Heavy Brigade, the 2nd Brigade, 1st Armored Division, the 3rd Infantry Division and the 1st Cavalry Division. He is the author, most recently, of Free Americans: Essays Towards a Rebirth of Liberty. Dr. Patty holds his PhD in Philosophy from the University of Georgia, as well as a Master's in history from Armstrong in Savannah.