Stories from the Road

Chapter 1: In Which Dr. John Tries to Save the World by Trading Corn for Nukes and Fails—Again.

Summary: When Complex Systems, like the global economy and the political order, are attacked by pathogens, they can undergo structural damage that persists long after the original shock has passed. Post-COVID, the long slide from democracy into autocracy and growing tribal conflict that has followed every pandemic in history is our biggest risk today. Putin’s thinly veiled, almost daily, threats to use nuclear weapons highlight this risk. I thought this would be a good occasion to tell you about a proposal I floated in 1993 of a way to ensure that today’s mess could never happen.

NOTE TO READERS: Most of the things I write about concern practical matters like inflation, Fed policy, interest rates and investment strategy and I will keep doing so. But my head is always full of (impractical) Forrest Gump experiences from 50 years on the road meeting with the most interesting people, so I have decided to sprinkle them in between my regular economics/investment posts. Hope you enjoy my adventures.

Serious Beginning

My work on Complex Adaptive Systems over the past 30 years has taught me that system shocks, like the COVID pandemic, can have profound and long-lasting structural effects that reverberate through a system long after the original shock has passed. In previous posts, I suggested that The Real Long COVID—the slide from democracy into autocracy and growing tribal conflict that has followed every pandemic in history—may be our biggest risk today. We can see signs of it already: our dysfunctional Congress, the corrosive upcoming elections, Putin’s invasion of Ukraine, the Israel/Palestine tragedy, the effective blockade of the Suez Canal, and Xi Jinping’s threats to seize Taiwan. You can read about these ideas here, here, here, and here.

Putin’s thinly veiled, almost daily, threats to use nuclear weapons against Ukraine and members of NATO if he doesn’t get his way are scaring the hell out of people who spent the last two decades thinking the Cold War was over. Turns out Oppenheimer was right.

Nuclear Blackmail

Putin’s brazen execution of Alexei Navalny last Friday, just a month before the fake Russian “elections” was a public warning to Western leaders to back off. His message was completed on Sunday in a Telegram post by Putin’s Threatener-in-Chief, Dmitri Medvedev, saying that if Russia is pushed out of Ukraine, Russia’s Supreme Commander-in-Chief of the Russian Armed Forces (Putin) would launch a nuclear attack “against Kyiv, Berlin, London, Washington. Against all other beautiful historical places that have been long ago included in the flight targets of our nuclear triad.”

Caving in to Putin’s blackmail would be a terrible mistake that would invite him to use the nuclear threat again and again. The fact that he can credibly make that threat is the result of policy mistakes made at the time the Soviet Union collapsed that left almost 6000 nuclear warheads in the hands of a narcissistic madman. I thought this would be a good occasion to tell you about a proposal I floated in 1993 of a way to make sure that today’s mess could never happen.

Cheney and the Nukes

Forty years ago, in the early 1980’s, I spent the first week of March every year in Beaver Creek, Colorado, with an extraordinary group of friends and clients. One of them was Dick Cheney, a young freshman Congressman from Wyoming. It was theoretically a skiing trip, but we spent most afternoons talking about politics and economics. I liked him very much. (Before you type-cast me, I should tell you that another good friend, Dick Gephardt, future Democrat Speaker of the House, was in the same conversations. I liked him too.)

Fast forward a dozen years to the spring of 1993. I had just given a speech to a business group at The Boulders, a fancy resort in Scottsdale, Arizona. After my speech, I walked out of the hotel to wait for the limo that was taking me to the airport for the flight back to New York when I saw Dick Cheney standing in the driveway waiting for his limo too. Lucky for me, both drivers were a half hour late, so we had a good chance to catch up while we waited.

Dick had just left his job as Defense Secretary for daddy Bush, who had lost the election to Bill Clinton a few months before and was hanging out at the American Enterprise Institute while he decided what to do next. After catching up on the families and kicking around a few other topics, Dick asked what I thought about the disaster taking place in Russia. I told him I had thought up a way to take advantage of the mess to do some good.

To refresh your memory, two years earlier, the Soviet Union had ceased to exist. In August 1991, Boris Yeltsin—newly elected President of the Russian Republic—stood on a tank in front of the Russian Parliament and gave a speech that squashed an attempted coup by a group of hardliners who were holding Gorbachev hostage in Crimea. Later that year, Gorbachev and Yeltsin agreed to dissolve the USSR. On New Year’s Day, 1992, Yeltsin and daddy Bush signed an agreement that the Cold War was over. Or so we thought.

Cold War or not, there was still plenty of drama going on in Russia. Yeltsin’s Deputy for Economic Policy, Anatoly Chubais, with the support of certain idiots in the US, talked Yeltsin into so-called shock treatment, advertised as a way to liberalize the economy. To attack inflation, they raised tax rates, eliminated subsidies and welfare spending, jacked-up interest rates and shrank the money supply. The result was a massive credit crisis, failed agriculture harvests, and a depression that reduced GDP by 50%. (Who could have known, right?)

Then they privatized the big state-owned companies by issuing paper vouchers to cash-strapped Russian citizens, who promptly sold them in the black market for pennies on the dollar to a small group of rich guys we now call Oligarchs. In 1995, the government handed out a second round of vouchers—same result. In 1996, Chubais handed what was left of the state-owned companies to the same group of Oligarchs in return for their support for Yeltsin’s election.

The result was that, at the time Dick and I were standing in driveway of The Boulders, the Russian economy had collapsed, inflation was soaring, people were starving, and the Yeltsin’s government was teetering. So, I told Dick about my plan.

Corn for Nukes

My proposal, like all my ideas, was simple. Russia had a big pile of nukes and a lot of hungry people. The US had an equally big pile of nukes and lots of silos filled with government-owned grain they had bought from farmers as part of our farm subsidy program. I thought it was a good time for “let’s make a deal.”

Here’s the deal I proposed:

• The collapse of the Soviet Union has given us a temporary, once in a lifetime, opportunity to make the world a little safer.
• We buy Russia’s nuclear warheads with our surplus grain.
• For each warhead they sell us we send them one huge mother of a bulk carrier (see graphic above) full of corn or wheat.
• As a bonus, for each Russian warhead we buy we throw in one of our own warheads to match theirs.
• Then we jointly dismantle and destroy both warheads.
• Repeat until we almost out of warheads.

The result of my proposal would be a world with little nuclear overhang, no hungry people in Russia, and happy farmers in the US.

The result of my proposal would be a world with little nuclear overhang, no hungry people in Russia, and happy farmers in the US.

Dick was intrigued enough that we outlined it in some detail. But later he got back to me and said we can’t do it. Why? Congress would not authorize the spending because it would increase for the budget deficit. I said, “What spending? There is no money changing hands.” But, apparently, sending grain that we would never use to Russia would be accounted for as an expense in the budget equal to the (imaginary) market value of the corn.

I wish I were making this up, but this really happened. Don’t get me wrong. I was not under the illusion we could snap our fingers and make the world bright again. But I did think we were letting a magic moment go to waste and one day we would regret it. That day is today.

Another good plan to save the world gone to waste. Next time I’ll tell you about my adventures in China, my James Bond assignment in North Korea, my solution to Social Security, and my surefire plan to balance the budget. None of those happened either.

I welcome your comments.

Dr. John

The views and opinions expressed in this article are those of Dr. John Rutledge. Assumptions made in the analysis are not reflective of the position of any entity other than Dr. Rutledge’s. The information contained in this document does not constitute a solicitation, offer or recommendation to purchase or sell any particular security or investment product, or to engage in any particular strategy or in any transaction. You should not rely on any information contained herein in making a decision with respect to an investment. You should not construe the contents of this document as legal, business or tax advice and should consult with your own attorney, business advisor and tax advisor as to the legal, business, tax and related matters related hereto.