How Vladimir Putin Falls

A dictator meets an opponent he can’t co-opt, corrupt, calumniate, cow or coerce.

The Russian human-rights lawyer Karinna Moskalenko once explained to me how Vladimir Putin’s machinery of repression works.

  • “It isn’t necessary to put all the businessmen in jail,” she said. “It is necessary to jail the richest, the most independent, the most well-connected.
  • It isn’t necessary to kill all the journalists. Just kill the most outstanding, the bravest, and the others will get the message.”

Her conclusion: “Nobody is untouchable.”

That was in 2007, when Putin still cultivated an image as a law-abiding, democratically elected leader. But that fiction vanished long ago.

Boris Nemtsov, the leading opposition figure, was murdered in the shadow of the Kremlin in 2015. His successor in that role, Alexei Navalny, has been in and out of prison on various trumped-up charges, as well as the victim of repeated attacks by “unknown chemicals.” Others, like the Putin critic and ex-Parliament member Denis Voronenkov, have been gunned down in broad daylight in foreign cities.

 

So it’s little less than awe-inspiring to read Andrew Higgins’s profile in The Times of opposition activist Lyubov Sobol.

Sobol, 31, is a Moscow lawyer and Navalny associate who has spent years pursuing a graft investigation of Putin intimate Yevgeny Prigozhin, the oligarch indicted by the U.S. last year for sponsoring the troll factory that interfered in the 2016 U.S. election. Considering that journalists have been killed looking into Prigozhin’s other businesses, Sobol’s doggedness recalls Eliot Ness’s pursuit of Al Capone in “The Untouchables” — except, unlike Ness, she has no knife, no gun, no badge, no law, and no federal government to aid her.

Now she is at the forefront of protests that have rocked Russia this summer after the regime disqualified opposition candidates (including her) from running in Sunday’s municipal elections. Her husband has been poisoned. Assailants have smeared her with black goo. Police dragged her from her office. Only a law forbidding the imprisonment of women with young children has kept her out of jail.

“I am always asked whether I am afraid, and I know that I should say, ‘Yes, I am,’” she tells Higgins. But, she says, “I am a fanatical kind of personality and am not afraid. I have always been a fan of the idea of fairness and, since childhood, have hated to see the strong abuse the weak.”

When regimes like Putin’s realize they cannot co-opt, corrupt, calumniate, cow, or coerce their opponents, what usually comes next is a decision to kill them. The risk that this could happen to Sobol or Navalny is terrifyingly real, not least because Putin has so many underworld friends willing to do his presumptive bidding without asking for explicit orders.

But Putin also needs to beware. Dictatorships fall not only when they have implacable opponents but also exemplary victims: Steve Biko in South Africa, Benigno Aquino in the Philippines, Jerzy Popieluszko in Poland. Through their deaths, they awakened the living to the conviction that it was the regime that should die instead.

Today, Nemtsov continues to haunt the Kremlin. So do Sergei Magnitsky, Natalia Estemirova, Alexander Litvinenko and Anna Politkovskaya, to name just a few of the regime’s murdered adversaries. At some point, a growing list of victims will start to weigh heavily against Putin’s chances of staying in power. The death of a galvanizing opposition figure could be the tipping point.

Especially when the political-survival formula that has worked for Putin so far is coming unstuck. That formula —

  • enrich your cronies,
  • terrify your foes,
  • placate the urban bourgeoisie with a decent standard of living, and
  • propagandize everyone else with heavy doses of xenophobic nationalism

no longer works so well in an era of

  • Magnitsky sanctions,
  • international ostracism,
  • a persistently stagnant economy,
  • middling oil prices,
  • unpopular pension reforms, and
  • dubious foreign adventures.

It works even less well when your domestic foes aren’t so easily terrified. As in Hong Kong, a striking feature of the Russian protests is the extent to which they are youth-driven — a vote of no-confidence in whatever the regime is supposed to offer. One recent survey found that the number of young Russians who “fully trust” Putin fell to 19 percent this year, from 30 percent last year. That’s not a good trend line for a man who aspires to die on his throne.

None of this guarantees that Putin can’t bounce back, not least if Donald Trump gives him the kinds of breaks, like readmission into the G7, he needs. And Robert Mugabe’s death this week at 95 is a reminder that tyrants can endure longer than anyone expects.

Still, for the first time in 20 years, the elements by which Putin falls are coming into place. Core among them is the courage of people like Sobol — a woman who, as Pericles said more than 2,400 years ago, “knows the meaning of what is sweet in life and of what is terrible, and then goes out undeterred to meet what is to come.”

Related
‘I Am Always Asked if I Am Afraid’: Activist Lawyer Takes On Putin’s Russia

He Played by the Rules of Putin’s Russia, Until He Didn’t: The Story of a Murder

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The Anatomy of the Coming Recession

Unlike the 2008 global financial crisis, which was mostly a large negative aggregate demand shock, the next recession is likely to be caused by permanent negative supply shocks from the Sino-American trade and technology war. And trying to undo the damage through never-ending monetary and fiscal stimulus will not be an option.

NEW YORK – There are three negative supply shocks that could trigger a  by 2020. All of them reflect political factors affecting international relations, two involve China, and the United States is at the center of each. Moreover, none of them is amenable to the traditional tools of countercyclical macroeconomic policy.

The first potential shock stems from the Sino-American , which  earlier this month when US President Donald Trump’s administration threatened additional tariffs on Chinese exports, and formally labeled China a currency manipulator. The second concerns the slow-brewing cold war between the US and China over technology. In a rivalry that has all the hallmarks of a “,” China and America are vying for dominance over the industries of the future: artificial intelligence (AI), robotics, 5G, and so forth. The US has placed the Chinese telecom giant Huawei on an “entity list” reserved for foreign companies deemed to pose a national-security threat. And although Huawei has received temporary exemptions allowing it to continue using US components, the Trump administration this week announced that it was adding an additional 46 Huawei affiliates to the list.

The third major risk concerns oil supplies. Although oil prices have fallen in recent weeks, and a recession triggered by a trade, currency, and tech war would depress energy demand and drive prices lower, America’s confrontation with Iran could have the opposite effect. Should that conflict escalate into a military conflict, global oil prices could spike and bring on a recession, as happened during previous Middle East conflagrations in 1973, 1979, and 1990.

All three of these potential shocks would have a stagflationary effect, increasing the price of imported consumer goods, intermediate inputs, technological components, and energy, while reducing output by disrupting global supply chains. Worse, the Sino-American conflict is already fueling a broader process of deglobalization, because countries and firms can no longer count on the long-term stability of these integrated value chains. As trade in goods, services, capital, labor, information, data, and technology becomes increasingly balkanized, global production costs will rise across all industries.

Moreover, the trade and currency war and the competition over technology will amplify one another. Consider the case of Huawei, which is currently a global leader in 5G equipment. This technology will soon be the standard form of connectivity for most critical civilian and military infrastructure, not to mention basic consumer goods that are connected through the emerging Internet of Things. The presence of a 5G chip implies that anything from a toaster to a coffee maker could become a listening device. This means that if Huawei is widely perceived as a national-security threat, so would thousands of Chinese consumer-goods exports.

It is easy to imagine how today’s situation could lead to a full-scale implosion of the open global trading system. The question, then, is whether monetary and fiscal policymakers are prepared for a sustained – or even permanent – negative supply shock.

Following the stagflationary shocks of the 1970s, monetary policymakers responded by tightening monetary policy. Today, however, major central banks such as the US Federal Reserve are already pursuing monetary-policy easing, because inflation and inflation expectations remain low. Any inflationary pressure from an oil shock will be perceived by central banks as merely a price-level effect, rather than as a persistent increase in inflation.

Over time, negative supply shocks tend also to become temporary negative demand shocks that reduce both growth and inflation, by depressing consumption and capital expenditures. Indeed, under current conditions, US and global corporate capital spending is severely depressed, owing to uncertainties about the likelihood, severity, and persistence of the three potential shocks.

In fact, with firms in the US, Europe, China, and other parts of Asia having reined in capital expenditures, the global tech, manufacturing, and industrial sector is already in a recession. The only reason why that hasn’t yet translated into a global slump is that private consumption has remained strong. Should the price of imported goods rise further as a result of any of these negative supply shocks, real (inflation-adjusted) disposable household income growth would take a hit, as would consumer confidence, likely tipping the global economy into a recession.

Given the potential for a negative aggregate demand shock in the short run, central banks are right to ease policy rates. But fiscal policymakers should also be preparing a similar short-term response. A sharp decline in growth and aggregate demand would call for countercyclical fiscal easing to prevent the recession from becoming too severe.

In the medium term, though, the optimal response would not be to accommodate the negative supply shocks, but rather to adjust to them without further easing. After all, the negative supply shocks from a trade and technology war would be more or less permanent, as would the reduction in potential growth. The same applies to Brexit: leaving the European Union will saddle the United Kingdom with a permanent negative supply shock, and thus permanently lower potential growth.

Such shocks cannot be reversed through monetary or fiscal policymaking. Although they can be managed in the short term, attempts to accommodate them permanently would eventually lead to both inflation and inflation expectations rising well above central banks’ targets. In the 1970s, central banks accommodated two major oil shocks. The result was persistently rising inflation and inflation expectations, unsustainable fiscal deficits, and public-debt accumulation.

Finally, there is an important difference between the 2008 global financial crisis and the negative supply shocks that could hit the global economy today. Because the former was mostly a large negative aggregate demand shock that depressed growth and inflation, it was appropriately met with monetary and fiscal stimulus. But this time, the world would be confronting sustained negative supply shocks that would require a very different kind of policy response over the medium term. Trying to undo the damage through never-ending monetary and fiscal stimulus will not be a sensible option.

The Bond Market Is Giving Ominous Warnings About the Global Economy

You know the moment in a horror movie when the characters are going about their business and nothing bad has happened to them yet, but there seem to be ominous signs everywhere that only you, the viewer, notice?

That’s what watching global financial markets the last couple of weeks has felt like.

In a lot of ways, nothing looks particularly wrong. The S&P 500 was down 0.7 percent Wednesday, tumbling for a second consecutive session, but over all is down only about 5.5 percent from its early May high. The unemployment rate is at a five-decade low. With major companies nearly done releasing their first-quarter results, 76 percent had results above expectations.

But along the way, global bond prices have soared, driving interest rates down sharply. Ten-year Treasury bonds are yielding only 2.26 percent as of Wednesday’s market close, down nearly a full percentage point since November 2018. The outlook for inflation in the years ahead is falling as well, as are the prices of oil and other commodities.

Most significant, the fall in longer-term bond yields has not been matched by a fall in shorter-term rates. For example, a 30-day Treasury bill is yielding 2.35 percent — meaning you can earn more on your money tying it up for a month risk-free than you can tying it up for a full decade.

This is not normal. It is called an inverted yield curve, and historically it has been viewed as a sign of a recession in the offing. At a minimum, it indicates that bond investors believe the Federal Reserve will soon need to cut interest rates — in effect, that it overshot with those four rate increases last year.

There is also a soft underbelly to some of the good economic data of late. Orders for capital goods like business equipment fell 0.9 percent in April, suggesting companies may not be in an expansionary mood. The Institute for Supply Management’s index of activity at manufacturing companies fell sharply in the most recent reading, though it remained in expansion territory.

The financial markets don’t always tell a tidy little story about what is happening, but here’s a theory about reconciling the apparent calm in the economy with the many worrying signs.

The breakdown in trade negotiations with China and the imposition of tariffs on Chinese goods are part of the story, but only a part.

Businesses have weathered escalating tariffs for two years now, and while tariffs can be costly, they do not need to wreck the economy. After all, prices for products fluctuate for all sorts of reasons, and market economies are pretty good at adjusting.

OPEC Has a New Best Friend: Russia

Putin has helped resolve conflicts within the cartel, giving the country considerable influence over oil markets

When the Organization of the Petroleum Exporting Countries met in Vienna in December, it was in danger of imploding.

Oil prices had plunged. Member states Iran, Venezuela and Libya were refusing to cut production. Qatar had quit. And U.S. President Donald Trump was pressuring Saudi Arabia to keep prices low.

With negotiations teetering on the brink of failure, rescue came from an unlikely place—Russia, which isn’t even an OPEC member. President Vladimir Putin agreed to cut Russian oil production in league with OPEC, provided that Iran was allowed to keep pumping.

The degree of acrimony that pervaded that critical meeting, and the critical role Russia played in resolving the crisis, hasn’t previously been reported. What happened behind closed doors in December was a pivotal moment in Russia’s transformation from a nation that didn’t cooperate with OPEC at all to one that has become an indispensable partner.

Saudi energy minister Khalid al-Falih recently joked that he talks more with his Russian counterpart Alexander Novak than with some of his colleagues in the Saudi cabinet. “We met 12 times in 2018,” he said of Mr. Novak at a news conference in March.

At the next OPEC meeting, scheduled for May, Russia and Saudi officials will discuss whether to formalize what has been until now an temporary alliance.

For decades, the U.S. has embraced Saudi Arabia as one of its close geopolitical allies, selling it arms and encouraging its role as a stabilizing force in the Middle East. In exchange, Washington has come to expect a stable supply of oil to global markets to help damp price spikes and to prevent harm to the U.S. economy.

With its new ally in Russia, Saudi Arabia is no longer beholden only to Washington.

Under Mr. Trump, the U.S. has altered its longstanding, hands-off approach to the cartel. Mr. Trump has repeatedly tweeted for OPEC to boost output to drive oil prices down, and he has phoned the Saudi government directly asking the kingdom to open the taps.

“The United States-Saudi Arabia relationship plays a critical role in ensuring Middle East stability and maintaining maximum pressure against Iran,” said a senior Trump administration official. “The U.S.-Saudi relationship remains strong.”

The murder of dissident journalist Jamal Khashoggi at the Saudi consulate in Turkey last October created a fresh rift between the Saudi kingdom and the U.S.—and provided an opening for Russia to insert itself further into OPEC.

.. Oil prices had cratered in 2016 and didn’t look likely to rebound. The three men needed to orchestrate a deal to reduce crude output to lift global prices. Russia and OPEC agreed to cut production.

By the middle of last year, crude was soaring again, thanks to lower output from OPEC and Russia and renewed prospects for global economic growth. By the end of the year, however, amid a U.S.-China trade battle, the world’s economic outlook was dimming.

As the December OPEC meeting loomed, oil prices had plunged some 30% in six weeks. The Saudis needed unanimous agreement on proposed production cuts to shore up prices. Iran, already hobbled by U.S. sanctions that began in November, was reluctant to curb its output. Libya and Venezuela, with domestic troubles of their own, also were holdouts.

With the cartel about to meet in Vienna, Qatar, Saudi Arabia’s neighbor in the Persian Gulf, shocked global oil markets by announcing it was leaving OPEC. It was among a small group of member countries that felt overshadowed as the Saudi-Russia alliance grew stronger. OPEC has become “basically all about what [Prince Mohammed] and his buddy Putin want,” says a Qatari official.

.. When Mr. Falih asked Iran to join the collective production cut, Iranian oil minister Bijan Zanganeh rejected the demand and blamed Persian Gulf countries for replacing Iran’s sanctioned oil. According to the people familiar with the conversation, he pointed his finger at Mr. Mazrouei, the Emirati minister in charge of the meeting, and said: “You are the enemy of my country.” Mr. Zanganeh then threatened to suspend Iran’s membership in OPEC, these people said. Spokesmen for the UAE and Saudi Arabia’s energy ministries couldn’t be reached for comment.

 .. Mr. Novak acknowledged that Russia would benefit from the cartel’s cuts. “We need $60 a barrel and we are under sanctions” from the U.S., OPEC officials recall him saying.When Mr. Falih re-entered the OPEC meeting room, he was beaming.

The coalition began curbing output in January. Oil prices have risen 30% since the beginning of the year, their best annual start since the early 1980s.

Saudi Arabia says it has trimmed more than it promised. Russia had pledged to curb production by 230,000 barrels a day, but in March it had slashed daily output by just 120,000 daily barrels, according to OPEC and Russian officials.

Saudi officials say Riyadh is willing to overlook Russia’s shortcomings because it needs support on the international stage. “We cannot afford to lose them,” says one Saudi official.