The Pundit Class's Russia Obsession Is a Loud Insult to Reason

The U.S. placed a trade embargo on Germany during World War I.  Not long after, exports from U.S. producers to Scandinavian countries surged.

All of the above is just a reminder that embargos are toothless.  They don’t restrain trade between producers as much as they alter how the exchanges are completed.  Germans and Americans didn’t stop trading with one another as much as they continued to exchange via middlemen in Scandinavia. 

Reducing it all to the absurd, the United States could be 100% bereft of oil (as Germany nearly is today), at war with and embargoed by every oil-producing nation on earth, but Americans would still consume more of the world’s oil than anyone else.  They would do so as though the oil had been extracted right in the Permian Basin.  They would because there’s no accounting for the final destination of any good.  Americans would buy oil and its byproducts from those the warring and embargoing countries were selling to.  It can’t be stressed enough that the only barrier to imports is a lack of production. 

Which brings us to the latest freakout inside the pundit class about Russia.  It’s about natural gas.  The Russian people and the incompetents inside the Kremlin have to be flattered and thrilled at the same time that so many book smart Americans are so obsessed with them.  It’s a reminder that degrees and uppermost credentials don’t always correlate with common sense.

For background, President Trump pointed to an in-production pipeline meant to bring Russian-sourced natural gas to Germany as evidence of the latter’s kept status vis-à-vis Russia.  Pundits on the left and right strangely agree with Trump on this one.  These smart people don’t understand basic economics.  If they did, they would dismiss what’s irrelevant. 

The latest pundits to wring their hands over nothing are David Rivkin and Miomir Zuzal.  The D.C. attorney and former Croatian foreign minister argued in yesterday’s Wall Street Journal that growing energy ties between Russia and Germany will make “Germany the continent’s major gas-distribution hub” all the while enhancing “Russia’s blackmail capability by enabling Moscow to cut off gas supplies to Eastern Europe without subjecting Western Europe to the same treatment.” Funny here is that the alarmism of Rivkin and Zuzal loudly explains why there’s nothing to worry about. 

Indeed, assuming Moscow were to “cut off gas supplies to Eastern Europe,” the solution would be blindingly simple.  Eastern European countries could purchase natural gas supplies from those the Russians aren’t cutting off.  Pundits prone to emotion would be wise to put posters all around their offices that state in bold that “There’s no accounting for the final destination of any good!"  This would be particularly wise for a right wing that’s at least rhetorically free market, but that reverts to mysticism any time energy enters the conversation. Once it does, the right goes mercantilist faster than it takes one to read this sentence.  Back to reality, energy is no different than any other market good.  So long as people are producing, energy will be available to them at the market price.

Rivkin and Zuzal might argue that Russia-based Gazprom charges “double the U.S. domestic price,” but if so, the latter speaks to a market opportunity that needn’t involve government.  Assuming Rivkin and Zuzal are correct about Gazprom fleecing their European customers, that’s merely a chance for other producers to enter the mix in order to undercut Gazprom’s alleged attempts to overcharge European buyers.  And as Rivkin and Zuzal acknowledge, that’s precisely what’s happening. They note that “[E]astern European states have taken the lead in trying to develop alternatives” when it comes to natural gas access, and those include U.S. producers.  Well, of course.  High prices of anything are a useful signal to producers of where delivery of supply will be most rewarded.  Assuming Europe finds itself “hostage to a single supplier” of the Russian variety, the act of gouging the European people will eventually soften Russia’s natural-gas dominance for it inviting in new competition, fuel alternatives, or both.

That’s why readers should dismiss Rivkin and Zuzal’s economically false suggestion that Moscow could “cut off gas supplies to Eastern Europe.” Except that it couldn’t.  If we ignore that outside suppliers would gladly capture the market share blithely handed them by “Moscow,” the simple truth is that short of hoarding its natural gas supplies, Russia could never “cut off” any part of Europe despite the expressed alarmism of Rivkin and Zuzal.  Simply stated, what’s sold will eventually make its way to where it’s needed.  As for hoarding the gas, let’s be serious.  Nothing could be more self-defeating than Moscow forcing its natural gas producers to give up one of the world’s biggest markets for nothing.  And so it won’t.

Instead, Russian producers like Gazprom will continue to aggressively sell natural gas in Europe in order to maintain what Rivkin and Zuzal claim is “80% of Gazprom’s exports.” That they will won’t imperil Europe as much as it will logically make Europe safer.  It will because the more that producers and consumers are reliant on one another, the less likely war is.  It becomes too expensive.  Assuming Russia is the military threat that so many think it to be, the best solution to what is arguably oversold is feverish trade with Russian producers.  Killing one’s best customers is a fool’s errand.

Sadly Rivkin and Zuzal don’t see it this way.  Rather than recognizing Gazprom natural gas dominance as a peaceful sign of market needs being ably met, they ascribe Germany’s desire to enhance Russia-Europe trade through Nord Stream 2 (the pipeline) as a threat.  Typical of pundits, they see government as the answer to the alleged Russian threat with mercantilist (“[M]ore Americans would have jobs, trans-Atlantic ties would be stronger…”) calls for noted energy theorist Donald Trump to “ramp up” his administration’s “energy strategy” through “sanctions on Russian energy” in concert with more “U.S. investment” in non-Russia alternatives. Oh dear.  Mercantilism combined with industrial policy.

How about markets instead? Europe’s people need energy. Russian producers have it.  If they fail at providing it, or choose to hoard it per the alarmism of the pundit class, they’ll just hand over a huge market to others.  This isn’t hard.  Sometimes we just need to exercise common sense while leaving out the insult-to-common-sense that is government.