Whatever the Question, Americans Think Economic Pressure Is the Answer

A resident walks past posters in Buenos Aires.

Photographer: Xinhua/Redux

A resident walks past posters in Buenos Aires.

For two decades “It’s the economy, stupid,” has been the short-form gospel of American politics. The economy is what the public cares about, the thinking goes, so no smart politician is ever going to do anything that damages the economy.

Whether or not this is true in American politics, this four-word philosophy doesn’t export well. It’s given Americans a persistently optimistic idea of the powers of economic pressure. Whatever the issue at stake, Americans tend to think that other countries will follow the U.S. model and act in their economic self-interest.

The difficulty comes when the public in those countries is convinced that a higher value is at stake. That’s what’s going on now in both the Argentine debt crisis and the Russian standoff over Ukraine’s separatist movement. In the first, investors have assumed that if not paying off bondholders is painful enough for Argentina, then Cristina Kirchner’s government is bound to come to some kind of accommodation. In the second, U.S. policy makers assume that if they can cause enough pain to the Russian financial system, Vladimir Putin will decide that backing the separatist movement is just not worth it.

Unfortunately, in both crises foreign leaders have made standing up to economic pressure a point of national pride. Whether or not that’s fair — and the situations are absolutely not equivalent otherwise — they have their respective populaces in their corner. In Argentina, the assumption that economic pressure will force a solution is already costing some bondholders dearly.

Let’s underline that morally the two situations are not equivalent. Fomenting civil war in Ukraine is not the same as refusing to pay Paul Singer. And it’s also worth noting that economic sanctions may be an end in themselves: there is a value to punishing international aggression. Just don’t expect it to change a regime’s behavior quickly, or at all.

Even if Kirchner or Putin were to change their minds, it’s hard for them to back down. After you’ve repeatedly called bond holdouts “vultures” or the new Ukrainian government “fascists,” there’s no graceful way to turn around and say, “Never mind, this is just going to be too expensive.”


Email mgimein@bloomberg.net or follow @markgimein on Twitter.

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