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Episode 162 – War and Peace: Ukraine and the Neoliberal Project with Alexander Valchyshen
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**There’s a transcript accompanying every episode of Macro N Cheese. You’ll also find links to other resources on the Extras page. Go to realprogressives.org.org/macro-n-cheese-podcast/ **
Alexander Valchyshen brings special knowledge of both economics and conditions in Ukraine. He’s a PhD student under Scott Fullwiler and has more than twenty years of experience in Ukraine’s banking and financial markets, so he has a point of view that the US public rarely hears. Given the current geopolitical conflict, Steve wanted to fill the gaps in his knowledge of Alexander’s homeland. It’s no surprise that social media and the major news organizations are unreliable.
“As I said, it’s a pretty difficult time. But at the same moment, this is a very crucial moment not only for Ukraine itself, for its existence, because we have to understand Ukraine as a sovereign country in every possible sense of that word, not only in the political terms, but also in the economic terms.”
Some of what Alexander describes is very familiar, including the discrepancy between what Ukrainian policy makers understand and their public stance as fiscal conservatives. Alexander goes into some detail about the handling of budget deficits by turning to foreign markets.
“I tend to differentiate between currency and money units of account … What makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation and people developed this habit to find a rescue in foreign money. And there is widespread usage of foreign money of account in this economy.”
The episode looks at both the history and current conditions of Russia and Ukraine. At a time when most of the news from that part of the world is weighted with emotion and skewed by complex, often obscured interests, we’re bringing you a perspective you may not be accustomed to.
Alexander Valchyshen is a Research Fellow at the Global Institute for Sustainable Prosperity and an interdisciplinary Ph.D. student in the Economics department of UMKC, under the supervision of Dr. Scott Fullwiler. He holds an M.S. in Economic Theory and Policy (2019) from the Levy Economics Institute at Bard College. He completed his Master’s thesis under the supervision of Dr. L. Randall Wray and Dr. Jan Kregel. He has more than 20 years of experience in Ukraine’s banking and financial markets, including with some of Ukraine’s major banks and financial firms.
During 2016-17, Alexander supervised a team of Ukrainian translators, who translated two books by Dr. Wray―Modern Money Theory and Why Minsky Matters―into Ukrainian. In the Fall of 2018, he held the position of visiting instructor of Finance at Bard College, and taught its Financial Management course to undergraduate students, supervised by Dr. Pavlina Tcherneva.
@AlexValchyshen on Twitter
Macro N Cheese – Episode 162
War and Peace: Ukraine and the Neoliberal Project with Alexander Valchyshen
March 5, 2022
[00:00:03.390] – Alexander Valchyshen [intro/music]
What makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation, and people developed this habit to find a rescue in the foreign money.
[00:00:25.570] – Alexander Valchyshen [intro/music]
My understanding of this part of the world since at least 2016, is that Russia was inviting sanctions on itself just to correct its economy and how the society perceives the leadership governing that economy.
[00:01:35.110] – Geoff Ginter [intro/music]
Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.
[00:01:43.040] – Steve Grumbine
All right, folks, we come together under very somber times. Normally, I’d say this is Steve with Macro N Cheese, but today I’ve got Alexander Valchyshen, who is a Ukrainian economist. He’s a PhD student at UMKC. He’s also a research fellow with the Global Institute for Sustainable Prosperity. And he is my expert on Russian and Ukrainian economies.
And I’m going to be talking to him today. And our podcasts usually have an evergreen feel to them. Hopefully, this will be a great history lesson as well on the Russian and Ukrainian economies. However, with the war breaking out, there’s some extra gravity to doing this podcast. Alex, thank you so much for joining me today, sir, I really appreciate your time.
[00:02:34.990] – Alexander Valchyshen
Thank you for inviting me, Steve. I’m happy to be here.
[00:02:38.980] – Grumbine
Things are pretty somber. I don’t think anybody was hoping for war, but war we’ve got. And so Ukraine is in the spotlight. So this is something that I’ve been looking very forward to. I just was hoping that it wouldn’t be under the terms of war that we would be talking. Tell me a little bit about what’s going on over there, and then we’ll jump right into the interview.
[00:03:00.430] – Valchyshen
Well, it’s a pretty difficult time right now for my country. And here over past several days within my family, we were totally occupied by these developments, and it’s tough for us. We do have relatives there. We talk regularly to them and try to keep in touch and try our best to help with what we can. But it’s a pretty difficult time.
I would like again to thank you for inviting me. And the best thing I can do right now is to use this opportunity and to use my knowledge to try to explain the details behind those pictures that people see on the Internet, on social media and on the major news channels. As I said, it’s a pretty difficult time. But at the same moment, this is a very crucial moment not only for Ukraine itself, for its existence, because we have to understand Ukraine as a sovereign country in every possible sense of that word, not only in the political terms, but also in the economic terms.
And what we know on the subject of economics that there are pretty different views about how we have to understand the reality around us. But still, I believe that Ukraine’s future, its prosperity, is as an independent country, and only this way, its long-lasting hope to be a self-governing nation. It will allow it that aspiration to materialize eventually.
Despite all those bad experiences in the economics this country had until now, very recently, just before this official war broke out, there were several opinions made by quite known people in the West – in the English language, let’s say social environment, social media – like historian Adam Tooze and Bloomberg columnist Noah Smith.
They wrote several articles about these geopolitical issues and they touched upon the Ukraine’s economy along those lines. And they were saying something like, look at the past history of Ukraine’s economy. It didn’t perform quite well, if we compare it to other countries, like neighboring countries. And the best examples, usually it’s like Poland, or some other country being nearby.
And there are many data out there by different data providers or data collectors and so on, and policy advising like machinery. And most of the time people use IMF data, and IMF data shows that Ukraine, indeed, it has been lagging behind for a long, long time. It experienced several crises along the way, like major crises, and those were associated with different triggers.
And that past volatility gave grounds to conclude, for instance, to Adam Tooze and Noah Smith that Ukraine’s economy in some sense was highly underperforming. There is economic failure in this country. But to conclude, I believe that if we extend our knowledge, we go into more details of what’s going on, and we define the future on the better terms. This country, its economy and its society as a whole has an opportunity. And as I said, it must be independent, it must be a sovereign state.
[00:07:15.850] – Grumbine
One of the things that I know as an MMTer is the currency issuer, currency user dynamic. And in Europe, many of the countries have given up their monetary sovereignty and have been part of the European Union. With Russia and Ukraine, Ukraine is a huge country, we have two sovereign nations. Do they have separate currencies as well?
[00:07:43.930] – Valchyshen
Yes, they do.
[00:07:45.910] – Grumbine
Talk to me about the separation and the Ukrainian currency and how that plays out with Russia, because I know there’s some history that we need to dive into going back to the bond collapse in 98. Why don’t we just start with describing the Ukraine economy in terms of its currency?
[00:08:04.750] – Valchyshen
Yeah. Both countries have their own currencies. They have their own financial systems, and those organized along the, so to speak, best practices as they are defined internationally. But particularly in Ukraine’s case, there is a national currency, the hryvnia. There is the financial system, and the broader economy is organized around the financial system as well, as in every other country.
But what makes Ukraine stand out? And I’m probably wrong to say standing out. There are many similarities with other countries around the globe which are considered like emerging market countries or global south countries where we have national currencies out there. We have financial systems out there, but many of them they use other money of accounts.
And here I would like to underline since recently, I tend to differentiate between currency and money units of account. I don’t want to explain it a little bit more, but what makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation and people developed this habit to find a rescue in the foreign money.
And there is widespread usage of foreign money of account in this economy. Russia, by the way, has the same feature, that they have their own currency, but private sector – what we understand from the private sector is like private individuals, private businesses – they tend to do business and transactions in the foreign money as well.
[00:10:06.790] – Grumbine
Is this the government itself leveraging foreign debt or is this just the people themselves leveraging foreign money?
[00:10:14.410] – Valchyshen
This practice spreads to every corner in Ukraine in particular. So we have this established policy in the country where the government, at every possible situation when the state budget deficit is widening for some reason because of some unexpected events that happened, the policymakers of the country, they go out and say that to finance that deficit the government has go out and borrow money from investors and usually borrow from the financial markets.
But on the financial markets it’s mostly understood that it’s going to be borrowing from the foreign market. So foreign investors. And it could be Eurobonds or it could be local market borrowing only if there is this appetite from the investors. So it’s all the time this kind of dependency on the external financial assistance. It’s not only the private sector, private individuals, private businesses which leverage themselves in the foreign money, the government as well does the same thing.
[00:11:24.850] – Grumbine
The IMF has a strategy it uses on the global south. They impose austerity on countries that borrow from them. Is Ukraine a country that has sovereign energy, food, systems of production, or is it dependent on external sources to provide goods and services within the country?
[00:11:47.770] – Valchyshen
Well, in this sense, on the sovereignty side of the real resources, Ukraine is pretty much sovereign in the full extent, so to speak, in the food supply, I would say. Because it’s globally known that there’s this long tradition to call Ukraine the “breadbasket of Europe”. So in this sense, in the food industry, Ukraine is pretty well positioned in terms of supplying food to its own population.
And so the country is big and productive soil is there so much that the food industry is not only able to supply the domestic population, it’s able to export quite a lot out of the country along with providing for their own consumption. In energy it’s a little bit different because the industry which was built in the country, it wasn’t more than the energy efficient production. So till now, the country has this low efficiency in terms of the energy usage, and the country is not fully sovereign. So it has to import quite a bit.
[00:13:10.330] – Grumbine
So it is constrained to requiring imports to sustain itself.
[00:13:16.490] – Valchyshen
Yes.
[00:13:17.950] – Grumbine
When you think about a net importer exporter position, what is their fiscal position to support the country? Do they have an understanding of MMT or are they fiscally conservative? How does that play out for them on that domestic front?
[00:13:34.090] – Valchyshen
Officially and in the public discussions, the policymakers of Ukraine are fiscally conservative. And even today, in this difficult time on the public, we have some statements and people who know, like this language of this part of the economic prescriptions. They can recognize that this language reflects this particular mindset of the policymakers.
But they know about MMT because in Ukraine, Randall Wray’s book on Modern Money Theory was translated several years ago, and it was available on the bookshelves in the major bookstores. And more than that, that book was handed over to key decision makers in the government offices, like, I believe, in the Ministry of Finance as well as in the central bank.
I know that, and I myself presented that book to the Ukraine’s representative in the IMF here in Washington, DC. So people in Ukraine, key people who are responsible for the economic policy making, they are pretty much aware of MMT, but they’re very much critical as elsewhere. In public, they pretty much behave as conservative thinkers.
And because of that, the economic policy I’m arguing that economic policy in Ukraine a long time ago until now has been very much biased to austerity. That’s why it has been so weak in terms of the growth metrics. And more than that, it was vulnerable. And that’s why it showed those crises in the past. It’s not only about fiscal conservative stance by the Minister of Finance and the central bank but is also because of the behavior of the private sector.
And as I already mentioned, the private sector and government sector have been using foreign money quite a lot. And this logic that if something happens, it’s better to use foreign money because it’s cheaper versus the domestic, because domestic rates are higher.
[00:15:55.330] – Grumbine
In World War II, Russia and the US had come to terms. The establishment of NATO. There were some agreements that were made. I believe the Western States agreed that they would not expand NATO. There are efforts to expand NATO into Ukraine. What is the political play here for both Russia and Ukraine? This has significant impacts on both economies, but it’s not just economies. The economies are people. There’s real resources at stake. There’s other factors that go way beyond any of the currency flying back and forth. What is the history leading up to this moment. Why are we here?
[00:16:39.010] – Valchyshen
It’s a nice question and I would love to explain it in a bit of a lens. You are right mentioning returning to that long history, but I want you to listen to my explanation and what I have in mind trying to construct the answer. There are many details here and I don’t pretend that I know everything. There is a lot of shortage of understanding which I want to illuminate even in my personal research.
But at the very beginning it’s critical to mention this that we all know that there are some notions which are socially constructed which exist in daily debates, conversations, opinions. And those are sticky. They refuse to die, so to speak. In economics as we know, there is this sticky phrase used by mainstream people – like printing money, which is a tool to remind people about, in my opinion, some hyperinflation episodes back in history.
The same socially constructed terms which exist and they relate to today’s understanding of this Ukraine and Russia relationship, something like this Ukrainian NATO aspiration, or more nasty terms that Ukraine has been developing into having Nazi-like groups, et cetera. Those are kind of sticky and they are staying there.
But I think that this longer term history and relations with these security related discussions—in my opinion, we can’t improve our understanding without taking knowledge about economics and how the history unfolded over the past century and before the Soviet Union collapsed. And how this new independent States, Russia and Ukraine, all others which appeared after the breakup of the Soviet Union, how those were developing and how they ended up being in this situation that we observe today as we speak.
In my opinion, there is a great deal of economics and I developed, quite long ago—it was several years now—that MMT provides good lens to understand economics not only in developed countries but in the countries like we are talking about right now. And especially it’s useful to understand the Soviet Union as well from that point.
[00:19:46.990] – Grumbine
The collapse of the Soviet Union brought about a host of changes and you’ve laid out some of this. But economically speaking, Russia has always been behind going back to the revolution and the time of Czars. They had been a peasant society for so long. The people had no concept of governance. They had been kept blind. As the Bolsheviks had their revolution, major changes happened during that time. And then Stalin as the Soviet Union grew and grew. I guess my question here is what is the relationship between Ukraine and Russia?
[00:20:29.890] – Valchyshen
It has been tense and pretty complicated along the history—and a long history—and it has been dotted with those relationships when these two nations, they had questions for each other. There were periods that these two nations, they happened to coexist within countries or as they were known back then, like Czarist Russia, Russia’s Empire, then under structure of the Soviet Union, and now as independent states.
And those relationships were observing as bright periods of cooperation and prosperity, but those were also—there were periods, I’m talking now about Ukraine—when Ukraine’s population suffered and we can recall the period of famines between the two World Wars. And now we have this tense relationship which is turned out to this bloody war, which has to stop as soon as possible.
[00:21:53.950] – Grumbine
What do you think is leading Russia to invade Ukraine? Is this about securing and keeping a walled garden around Russia to avoid NATO, or is this about real resources?
[00:22:08.200] – Valchyshen
Yeah.
[00:22:09.250] – Grumbine
To invade a country, there has to be something going on. What are they seeking to gain here? Why are they doing it?
[00:22:17.930] – Valchyshen
Now it’s understood that it’s in the mind of one person which is President of modern day Russia. He was talking past several days in public and it was followed widely in the globe, why he was doing that. He was trying to explain his rationale. But here is my explanation. There is this notion that Russia and Putin himself have this grievance versus the West and the Western push of NATO into the Eastern parts of Europe and further on to Ukraine, allegedly.
But when I was on my job, by the way, before moving here in the US, before moving to study MMT, first at Levy Economics Institute and then to become a PhD student here at UMKC, just to be a more MMT economist. Back then, I was observing on my job how Ukraine’s economies and how Russia’s economies were performing. So it was my job description to follow the markets, the economies and try to explain those.
And I developed that rationale back then. First of all, we have to go a little bit back very recent history, when it was 2012-2013, when President Putin was back in office as President. And he made this kind of turn, that was a little bit like greater push to this assertiveness into the relationship with so-called near abroad, as in Russia they call the neighboring countries that were part of the former Soviet Union.
So that shift was very much in the display, and it was noticeable at the time. But because I was following macro pictures of both countries, because they are pretty big, there is great influence, not of China, not only of the US, this dollar based financial system, but the local influences, they also all the time there. So I was following the Russia’s economy as well, pretty much closely.
And then in 2013, I was developing that understanding that Russia’s economy, if we used this mainstream economics language back then, Russia got this Dutch disease and it was visible by the metrics we used back then. But it’s not very much visible to other people in my profession. I used to talk to different people who follow the same economies because it was their job description, because they were people from the financial markets industry, like people who do economic research for hedge funds for major banking institutions in New York and London.
We were talking back then to those people asking, “Do you see that? Do you see that there is something that ruble — is national currency of Russia — do you notice that there is something mispriced here?” And the response was, “No, it’s fine.” And we’re saying “No, we think that ruble is going to strengthen.” But in my opinion, it was a big misprice here and people kind of not seeing what we have seen.
And I was developing that notion that something is different than the established understanding. And what was also noticeable that some metrics of the opinion polls inside Russia were showing that people of Russia, like ordinary people — because those were opinions taken from the surveys — so ordinary people, not only elites or professionals in the big salary positions.
So those surveys were showing that economy doesn’t provide satisfaction to the Russian people. So there was slowdown and it was like a side effect from the global financial crisis. It was a side effect, in my opinion, from the austerity-biased economic policy historically done by the Russian authorities themselves.
So they were following these prescriptions as every emerging economy is following from IMF, World Bank, etc. So the Russian economy wasn’t delivering at that time. And another factor we have to recall here is that Russian authorities started to be more aggressive in this trade war or let’s say trade sanctions or economic sanctions against so-called near abroad. So economic sanctions, it’s not an invention of the West.
Economic sanctions did exist from Russia itself. So they were very much selective and they were pretty much targeted. So since 2013, Russia opened this trade war to put some restraint on the Ukrainian exporters, which were pretty much successful on selling goods to Russia. And why they were doing that, because the Russian market was flooded with this income generated by the sales globally of oil, of natural gas, et cetera.
So selling stuff to the Russian economy was very much profitable for Ukraine’s private businesses. And it was also like a reflection of this price mismatch or valuation mismatch in the national currencies. So the Russian ruble was very much overvalued. I would argue back then it was overvalued and there has to be correction going forward. So the Russians imposed trade sanctions on Ukraine’s economy. It was like a defense in economic terms. So those relationships have been kind of unfolding.
And in my opinion, if we sum up all of those, the Russian economy was governed with these austerity-biased ideas. There was mispricing of the national currency, meaning that the future was to go into weaker values of the ruble. And also there were sizable leverage of the domestic private businesses in Russia in the foreign money. So they were also very much vulnerable back then to the quick swings in the global finance.
And summing that all together brought me to the idea that Russian assertiveness and this complicated geopolitics, if we consider this several-years period, they were driven to correct their economic model, which was largely mistaken. And at the same time to recover or to regain domestic support and to do these two things at the same time, you can do some action which is not in our understanding of the economics. Okay.
And I was arguing back then that Russia’s great turn—to violate these geopolitical boundaries, since 2014—it was for the sake of survival of the elites in Russia. So it’s a domestic question because popularity was at the bottom. And at the same time to correct the domestic economics because there were this Dutch disease, there was this great overvaluation of the ruble.
And to go smoothly through this period, there has to be a victory in this geopolitics. And Ukraine is useful terrain for that because the Ukraine’s domestic differences, so to speak, they were fueled not only from one side when people critically view the Western actions within Ukraine, within the prescriptions which are made by the Western institutions, when they critically consider the debt, there is this kind of explainer that Russia acts in geopolitics because it wants to preserve itself, because the West was kind of pushing Ukraine. In my opinion, it’s not a full picture of what’s going on in Ukraine itself.
[00:31:30.110] – Andy Kennedy [Intermission]
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[00:32:21.150] – Valchyshen
In Russia, there is this notion that they have to create parallel structures, so they have to mirror the Western actions in every possible field. It’s not only domestic security in question in the foreign securities. So the Ukraine’s domestic situation was fueled from Russian side as well, just to kind of stretch the country apart, to make it seem unstable, to seem populated by these extreme people with extreme ideas.
Et cetera, et cetera. And the Ukraine’s Euromaidan, which happened in late 2013 and 2014, which opened the way for Russia to intervene and take Crimea, so to speak, back as it’s formulated in Russian politics. If you sum that altogether, in my opinion, Russia’s assertiveness is largely domestic matter and it’s kind of response as well to the mistake they did themselves to following the framework, how they can best govern the domestic economy.
They failed as they kind of figure it out after the global financial crisis and several years afterwards. They failed to have a growing economy. It was growing at very low pace and domestic dissatisfaction of authorities was only on the rise. But since 2014, domestic support of the authorities was back into the high numbers of support.
And effectively, I would argue that international geopolitics—complicated geopolitics that Russian government was playing—it helped to consolidate domestically the society behind it. And the Russian population kind of agreed for the economic correction they have been experiencing since 2014 under this umbrella that we have to resist because there is this sanctionings from the West.
We have to be supportive of the authorities and so on and so on. But just to conclude, my understanding of this part of the world since at least 2013 is that Russia was acting, inviting sanctions on itself just to correct its economy and how the society perceive the leadership governing that economy.
[00:35:03.030] – Grumbine
Interesting. So they use sanctions to rebuild themselves internally.
[00:35:07.410] – Valchyshen
Yeah. Something like, you put excuse of the hardship of the ordinary people—and there is this hardship of ordinary people—I believe that everybody agrees that prosperity that Russia’s oil and natural gas industry bringing to the country is not shared fairly. There is private ownership in this economy as well as in the Ukraine’s economy. But there is this notion of oligarchs. But many people in Russia don’t enjoy those oil and natural gas revenues.
[00:35:42.690] – Grumbine
Vladimir Putin certainly does, doesn’t he? He’s got tons of money stashed in Panama.
[00:35:48.850] – Valchyshen
Yeah. There is kind of this chaos. But if we take into account just official accounts where these funds are stashed and very recent developments in this geopolitics, they are saying that they wouldn’t have this access to those funds. But it’s not just one part of this explanation that you asked me about why Russia behave in that way. Right? So I would argue that since 2013, it was like to correct domestic economy, but not in a full extent.
So they did shield it. They corrected the economy. They made the national currency or national money unit of account more flexible currency. It’s not free floating as of now, but still it becomes much more currency, which is flexible. So they shifted from the regime where convertibility was kind of assured to the regime—we’re a little bit closer to this, as MMTers would say—to the situation when the country is inconvertible currency.
[00:37:00.270] – Grumbine
So go back to 2014, where you have the, quote, unquote “revolution of dignity”, or as you said, the Euromaidan revolution. It seems like Russia is the only country in the world that is on two continents. And then clearly Ukraine is in the Europe side of that. The former President, Viktor Yanukovich, appeared to be more sympathetic to Russia, where the new President appears to be more stylized toward the more central European mindset. I’m wondering if that divide is also part of this geopolitical war. As you’ve got folks that are sympathetic to Russia, to Western causes. What is your take on that?
[00:37:49.530] – Valchyshen
Well, good question. But I would like also to recall that it’s not only probably Russia based on two continents, right? We can recall the Turkey. Yes, probably Turkey as well. But it’s just a side note. But to this Euromaidan thing and stuff. Again, there is this kind of notion which is sticky and survive until today that in Ukraine there is this divide. This line that divides the society.
So the society allegedly is not kind of holding together. So probably we have to consider it’s broken society or something like that. It’s a wrong perception. And to think of Ukraine as there is this part of Ukraine which wish to be with Russia. There is this part of Ukraine which wants to be part of EU or Eurozone. It’s pretty simple, I think.
Again, we have to take a different look here. There are competing opinions inside Ukraine, how the country has to develop. And I tend to think of this situation along these lines. And by the way, I have been interested in this particular view since Euromaidan and even before, because I was interested in how opinions shape how they survive, how they become sticky in the public discourse and so on, first of all in Ukraine and then in other areas.
And I developed this thinking and it goes from the literature and such authors as Philip Mirowsky, who has been writing extensively on this currents on how neoliberal thinking was establishing itself within different territories. And one quote I cannot reconstruct that quote precisely, but I’ll try. It’s a quote from Mirowsky, something like we have to understand what people associated with Mont Pelerin Society have been doing.
But again, it’s not precise quote. So there is this attention to this part of the activities and in the literature it’s called also neoliberal collective of thinking or neoliberal thinking collective. And doing my own research in that field, I turned to the literature on how these people associated with Mont Pelerin Society and now as people associated with Atlas Network, how they were establishing themselves in Ukraine in particular.
But it’s not only about these kind of activities of these thinkers. We have also understand that as I mentioned previously, that in Russian understanding they want to create these mirror actions. It’s not only about geopolitics, but it’s also about these currents that are taking place within opinion making and opinion making within economic field. And saying that, my observation of what was happening in Ukraine in terms of opinion making, it has been influenced quite a lot and still it’s present there.
There is this infrastructure of this neoliberal collective of thinkers. Units which are associated with Atlas network. I believe they are pretty much known and followed not only from the West and from Russia as well. But we also need to understand that when Russia tends to create their mirroring institutions or actions, they also tend to act together with those actors who does the job on the other side.
Like in Ukraine when it was peaceful and quiet as it was just a few months ago or just a few weeks ago, there is this kind of standard conversation among the experts and economists and politicians that there is corruption in the country. We have to eliminate it in order to become a more prosperous economy and more prosperous society.
And in order to do that, we have to follow all those standard prescriptions that are defined by the international financial institutions like IMF, World Bank, et cetera, et cetera. And in order to do that, we have to open up markets. We have to create this market and that market. And Ukraine have been very busy about that, like creating land market, which is called land reform, which was just launched just recently.
So we have to create those markets. We have to create market for health care, we have to create market for education services, et cetera, et cetera. But as I said, Russian side they observe, they know about all those developments, they tend to influence them. I pretty much understand that Russian security forces, when they consider different tools, it’s not only about underground military exercises, it’s not about cyber exercises, cyber attacks or something.
There is this kind of obvious tendency to add fuel towards the discourse that other side is trying to establish in the country of interest. So what I was observing that these kind of discussions about how the country is corrupt and how it has to improve itself in this corruption perception index, how the country has to improve itself in the different indices developed by the Heritage Foundation.
Et cetera, et cetera. You know, probably about those very neoconservative stuff that in order to improve itself, you have to follow that path, right? So there has been this kind of fueling, channeling into that so that there is only one discourse left. So there is no other ideas to be discussed.
[00:44:25.550] – Grumbine
There is no alternative.
[00:44:27.210] – Valchyshen
Yeah. So there is no alternative thinking as it’s being established by the Atlas Network people. And I have to recall Anthony Fisher, if you know that person, who has been an entrepreneur of think tanks. So this discourse was fueling not only from the Western part but from the Eastern part. And it was fueling in order to create this conservative thinking to establish itself, so much so that the country has just only one kind of understanding of economics.
And that understanding of economics is about austerity. It’s about “allowing freedom.” So “freedom” means economic freedom, right. If we take the basic ideas of this neoliberal or neoconservative think tanks. So economic freedom comes from the freedom of using different monies, different money of accounts. It means that we have to attract investors.
And by attracting investors, it means that we have to make the government smaller. Privatization, markets, all this stuff. And what was evident, I was arguing in my opinion articles that I was trying to publish back then in Ukrainian and in English as well, that this kind of path that we are following is not only because there is this IMF prescription.
But because there is this established network or established infrastructure which is here that doesn’t allow any other explanation of economics but understanding of economics which end up with this austerity focused, financial market friendly understanding of the society of the economy which ends up with this financial crisis, because the financial institutions were, as we mentioned before, leveraging themselves up into foreign money, pretty much aggressively.
And there is constantly this issue who is going to refinance those balances? And it’s not only the actions done from the West, those actions were done also from the East. Because there are details, if you follow the financial balances of certain institutions which were influenced by the Russian leadership, because there is a known relationship between private business and leadership of the country which encourage Russian business to be present in that economy of interest, and an investigation of the balances of those businesses which belong to the private Russian businesses.
But again, we can put a question mark what kind of relationship existed back then between those private businesses and the interests of the state, especially under the light of today’s situation which is happening right now in Ukraine. So those balances of those businesses were aggressively leveraged up by foreign money. Quite aggressively. Those were financial businesses.
Those were non financial businesses. So all this ended up effectively stretching the society pretty much extensively. It’s not only about opinions on how we have considered ourselves as a society, but it’s also stretching the society from the theoretical understanding, how best to govern the economy, how it has to be set up, but also what was stretching up from that point of view, as we know that too much of foreign money, of the balance sheet of some economic unit probably will lead up to the situation that that economic unit, or if you aggregate them into a broader economy, it’s going to end up in crisis.
In a pretty much nasty crisis. And those crises where there were several of them in the Ukraine’s history. And to conclude my answer, which I want you to understand, that this Euromaidan thing. So we ended up that we have this guy, the previous President, Yanukovych, which was kind of pro-Russian, and then that new one Poroshenko, which was tended towards the West.
It’s kind of representing this polarizing parts of the society. It’s a kind of mistaken view. If we step back and take a look into the broader or let’s say more basic metrics. One of my favorite metrics that I use is what share of national income goes to the profits and what share of national income goes to the compensation of the workers. So it’s pretty aggregate numbers.
When you take the GDP number, which is national income, there are the statistics how that GDP number divides into profits and wages. Right. They are available for different countries in Ukraine as well. It’s available. So if you take those numbers and you start thinking about how the national income is being divided, because since independence, there has been private property in Ukraine and in Russia as well. By the way, private property under the Soviet Union on the means of production didn’t exist.
So it was pretty new social phenomena in terms of the private property. But again, returning back to this distribution impact, Yanukovych, and it’s not only about Yanukovych but previous governments as well, under leadership of different people, they tended to keep this distribution metric in favor of wage earners. So under Yanukovych economy managed itself so that a share of wages or what employers get, it was above 50% and it reached, if I’m not mistaken, 54 or even 55% back then.
But the financial crises that happened since 2014 and til today and the economic recovery that took place after those crises, even after the COVID crisis, by the way, which also we can treat as a crisis. So just to conclude, the share of distribution which goes to the wage, it didn’t recover even to the 50%. So it stays very much stagnated at 40 something percent.
It means that in terms of distribution, profits gain pretty much. So I tend to consider the relationships which are established in the Ukraine’s economy and by the way, in the Russian economy as well from this standpoint. So to the broader society, there has to be pro-wage policies, including job guarantee policies, especially for Ukraine in this situation.
But the intricacies of Ukraine situation and its geopolitics, if we apply the standard or established lens, something like this divide, that is that divide, it’s kind of misleading. So the true or underlying metrics or true underlying developments we have to pay attention to is that how the economy utilizes its financial system. How it utilizes all the resources it’s capable to enjoy like labor resources or different parts of industries it has, or it’s able to develop within its own financial system and how the financial system is set up, whether it overuses foreign money along the way.
And the same lens has to be applied for Russia’s economy. And applying those lenses, we can see that the Russian geopolitics, it’s about preservation of the status quo. And the status quo is again about preservation of the private property and distributional divide which is established under this structure. Right now, people say, oh, Putin is trying to reinstate the Soviet Union or some Russian Empire.
He has these grievances about the Soviet Union. We have to kind of understand what does it mean in detail? What does it mean to return back to the Soviet Union? And again, I just mentioned that on the Soviet Union there was no private property for the means of production. Right now in Russia, everyone understands that there is private property and there is no question mark.
Nobody is asking whether Putin is threatening that. But it seems that Putin never, at least what I’ve heard mentioned that he’s going to put this private property scene at risk. So it means that for the true aspirations of the wider public in Russia, which wants to be a little bit more prosperous, I believe.
[00:53:49.470] – Grumbine
It’s very interesting that you bring up private property and it’s a good place to close out because we don’t understand in the United States, especially, that whole Soviet period. We don’t understand real communism. We are so badly propagandized ourselves that translating geopolitical events feels like a James Bond movie. Constantly. The fake news, the propaganda is so bad and I imagine it’s not unique to the US. But Alexander, I would like very much to be able to have you come back on sometime soon.
[00:54:24.990] – Valchyshen
Thank you so much.
[00:54:26.050] – Grumbine
We are at the end of this one. I know you have some good work getting ready to come out. Why don’t you let everyone know what is coming up? So you’ve got a paper coming out with Scott Fullwiler correct?
[00:54:37.760] – Valchyshen
It’s not going to be a paper by me and him. But I was writing that paper under his supervision and as I mentioned at the very beginning that it was his idea that we write case studies of why sovereign defaults took place in the national currencies across history. And I offered to dig into the case of Russia and it turned out it’s very richly detailed. There are details that give you great food for thought.
[00:55:13.410] – Grumbine
Well, we would love to have you back on so we can do a deeper dive into that area as well. Alexander, thank you so much for joining me today. Please keep the Ukraine people in your prayers. Keep the world peace in your prayers. This is Steve Grumbine, Alexander Valchyshen. We’re out of here.
[00:55:37.810] – Andy Kennedy [outro/music]
Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.
Alexander Valchyshen – Guest
A Research Fellow at the Global Institute for Sustainable Prosperity and an interdisciplinary Ph.D. student in the Economics department of UMKC, under the supervision of Dr. Scott Fullwiler. He holds a M.S. in Economic Theory and Policy (2019) from the Levy Economics Institute at Bard College. He completed his Master’s thesis under the supervision of Dr. L. Randall Wray (primary reader) and Dr. Jan Kregel (secondary reader). With more than 20 years of experience in Ukraine’s banking and financial markets, including with some of Ukraine’s major banks and financial firms.
UMKC – University of Missouri Kansas City
A public research university in Kansas City, Missouri. UMKC is part of the University of Missouri System
GISP – Global Institute for Sustainable Prosperity
Adam Tooze
British historian who is a professor at Columbia University and Director of the European Institute.
Noah Smith
IMF – International Monetary Fund
An organization of 190 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Hryvnia
The national currency of Ukraine. The currency was adopted by the country’s government in 1996. The currency, which is also sometimes written as hryvnya or grivna, is subdivided into 100 kopiykas.
L. Randall Wray
Professor of economics at Bard College. His current research focuses on providing a critique of orthodox monetary theory and policy, and the development of an alternative approach. He also publishes extensively in the areas of full employment policy and, more generally, fiscal policy
Levy Economics Institute
The Levy Economics Institute of Bard College, founded in 1986 through the generous support of Bard College trustee Leon Levy, is a nonprofit, nonpartisan, public policy research organization
World Bank
International financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects.
Ukraine’s EuroMaidan
Wave of demonstrations and civil unrest in Ukraine, which began on the night of 21 November 2013 with public protests in Maidan Nezalezhnosti in Kyiv.
Mont Pelerin Society
International organization composed of economists, philosophers, historians, intellectuals and business leaders.
Atlas Network
Formerly known as the Atlas Economic Research Foundation. It is a non-governmental 501 organization based in the United States that provides training, networking and grants for libertarian and free-market groups around the world.
Anthony Fisher
British businessman and think tank founder. He participated in the formation of various libertarian organisations during the second half of the twentieth century, including the Institute of Economic Affairs and the Atlas Network
Heritage Foundation
American conservative think tank based in Washington, D.C., primarily geared towards public policy. The foundation took a leading role in the conservative movement during the presidency of Ronald Reagan, whose policies were taken from Heritage’s policy study Mandate for Leadership.
Scott Fullwiler
Assistant professor of economics and James A. Leach chair in banking and monetary economics at Wartburg College, Waverly, Iowa, where he teaches finance, banking, and macroeconomics. He is also a research associate at the Center for Full Employment and Price Stability, University of Missouri–Kansas City. His research interests are financial markets, monetary operations, and macroeconomic policy. Most recently, his research has focused on simulation with large macroeconometric models and the sustainability of alternative macroeconomic policy regimes.
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**There’s a transcript accompanying every episode of Macro N Cheese. You’ll also find links to other resources on the Extras page. Go to realprogressives.org.org/macro-n-cheese-podcast/ **
Alexander Valchyshen brings special knowledge of both economics and conditions in Ukraine. He’s a PhD student under Scott Fullwiler and has more than twenty years of experience in Ukraine’s banking and financial markets, so he has a point of view that the US public rarely hears. Given the current geopolitical conflict, Steve wanted to fill the gaps in his knowledge of Alexander’s homeland. It’s no surprise that social media and the major news organizations are unreliable.
“As I said, it’s a pretty difficult time. But at the same moment, this is a very crucial moment not only for Ukraine itself, for its existence, because we have to understand Ukraine as a sovereign country in every possible sense of that word, not only in the political terms, but also in the economic terms.”
Some of what Alexander describes is very familiar, including the discrepancy between what Ukrainian policy makers understand and their public stance as fiscal conservatives. Alexander goes into some detail about the handling of budget deficits by turning to foreign markets.
“I tend to differentiate between currency and money units of account … What makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation and people developed this habit to find a rescue in foreign money. And there is widespread usage of foreign money of account in this economy.”
The episode looks at both the history and current conditions of Russia and Ukraine. At a time when most of the news from that part of the world is weighted with emotion and skewed by complex, often obscured interests, we’re bringing you a perspective you may not be accustomed to.
Alexander Valchyshen is a Research Fellow at the Global Institute for Sustainable Prosperity and an interdisciplinary Ph.D. student in the Economics department of UMKC, under the supervision of Dr. Scott Fullwiler. He holds an M.S. in Economic Theory and Policy (2019) from the Levy Economics Institute at Bard College. He completed his Master’s thesis under the supervision of Dr. L. Randall Wray and Dr. Jan Kregel. He has more than 20 years of experience in Ukraine’s banking and financial markets, including with some of Ukraine’s major banks and financial firms.
During 2016-17, Alexander supervised a team of Ukrainian translators, who translated two books by Dr. Wray―Modern Money Theory and Why Minsky Matters―into Ukrainian. In the Fall of 2018, he held the position of visiting instructor of Finance at Bard College, and taught its Financial Management course to undergraduate students, supervised by Dr. Pavlina Tcherneva.
@AlexValchyshen on Twitter
Macro N Cheese – Episode 162
War and Peace: Ukraine and the Neoliberal Project with Alexander Valchyshen
March 5, 2022
[00:00:03.390] – Alexander Valchyshen [intro/music]
What makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation, and people developed this habit to find a rescue in the foreign money.
[00:00:25.570] – Alexander Valchyshen [intro/music]
My understanding of this part of the world since at least 2016, is that Russia was inviting sanctions on itself just to correct its economy and how the society perceives the leadership governing that economy.
[00:01:35.110] – Geoff Ginter [intro/music]
Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.
[00:01:43.040] – Steve Grumbine
All right, folks, we come together under very somber times. Normally, I’d say this is Steve with Macro N Cheese, but today I’ve got Alexander Valchyshen, who is a Ukrainian economist. He’s a PhD student at UMKC. He’s also a research fellow with the Global Institute for Sustainable Prosperity. And he is my expert on Russian and Ukrainian economies.
And I’m going to be talking to him today. And our podcasts usually have an evergreen feel to them. Hopefully, this will be a great history lesson as well on the Russian and Ukrainian economies. However, with the war breaking out, there’s some extra gravity to doing this podcast. Alex, thank you so much for joining me today, sir, I really appreciate your time.
[00:02:34.990] – Alexander Valchyshen
Thank you for inviting me, Steve. I’m happy to be here.
[00:02:38.980] – Grumbine
Things are pretty somber. I don’t think anybody was hoping for war, but war we’ve got. And so Ukraine is in the spotlight. So this is something that I’ve been looking very forward to. I just was hoping that it wouldn’t be under the terms of war that we would be talking. Tell me a little bit about what’s going on over there, and then we’ll jump right into the interview.
[00:03:00.430] – Valchyshen
Well, it’s a pretty difficult time right now for my country. And here over past several days within my family, we were totally occupied by these developments, and it’s tough for us. We do have relatives there. We talk regularly to them and try to keep in touch and try our best to help with what we can. But it’s a pretty difficult time.
I would like again to thank you for inviting me. And the best thing I can do right now is to use this opportunity and to use my knowledge to try to explain the details behind those pictures that people see on the Internet, on social media and on the major news channels. As I said, it’s a pretty difficult time. But at the same moment, this is a very crucial moment not only for Ukraine itself, for its existence, because we have to understand Ukraine as a sovereign country in every possible sense of that word, not only in the political terms, but also in the economic terms.
And what we know on the subject of economics that there are pretty different views about how we have to understand the reality around us. But still, I believe that Ukraine’s future, its prosperity, is as an independent country, and only this way, its long-lasting hope to be a self-governing nation. It will allow it that aspiration to materialize eventually.
Despite all those bad experiences in the economics this country had until now, very recently, just before this official war broke out, there were several opinions made by quite known people in the West – in the English language, let’s say social environment, social media – like historian Adam Tooze and Bloomberg columnist Noah Smith.
They wrote several articles about these geopolitical issues and they touched upon the Ukraine’s economy along those lines. And they were saying something like, look at the past history of Ukraine’s economy. It didn’t perform quite well, if we compare it to other countries, like neighboring countries. And the best examples, usually it’s like Poland, or some other country being nearby.
And there are many data out there by different data providers or data collectors and so on, and policy advising like machinery. And most of the time people use IMF data, and IMF data shows that Ukraine, indeed, it has been lagging behind for a long, long time. It experienced several crises along the way, like major crises, and those were associated with different triggers.
And that past volatility gave grounds to conclude, for instance, to Adam Tooze and Noah Smith that Ukraine’s economy in some sense was highly underperforming. There is economic failure in this country. But to conclude, I believe that if we extend our knowledge, we go into more details of what’s going on, and we define the future on the better terms. This country, its economy and its society as a whole has an opportunity. And as I said, it must be independent, it must be a sovereign state.
[00:07:15.850] – Grumbine
One of the things that I know as an MMTer is the currency issuer, currency user dynamic. And in Europe, many of the countries have given up their monetary sovereignty and have been part of the European Union. With Russia and Ukraine, Ukraine is a huge country, we have two sovereign nations. Do they have separate currencies as well?
[00:07:43.930] – Valchyshen
Yes, they do.
[00:07:45.910] – Grumbine
Talk to me about the separation and the Ukrainian currency and how that plays out with Russia, because I know there’s some history that we need to dive into going back to the bond collapse in 98. Why don’t we just start with describing the Ukraine economy in terms of its currency?
[00:08:04.750] – Valchyshen
Yeah. Both countries have their own currencies. They have their own financial systems, and those organized along the, so to speak, best practices as they are defined internationally. But particularly in Ukraine’s case, there is a national currency, the hryvnia. There is the financial system, and the broader economy is organized around the financial system as well, as in every other country.
But what makes Ukraine stand out? And I’m probably wrong to say standing out. There are many similarities with other countries around the globe which are considered like emerging market countries or global south countries where we have national currencies out there. We have financial systems out there, but many of them they use other money of accounts.
And here I would like to underline since recently, I tend to differentiate between currency and money units of account. I don’t want to explain it a little bit more, but what makes Ukraine vulnerable and weak is that historically, as many other countries, there has been instability, there has been a period of hyperinflation and people developed this habit to find a rescue in the foreign money.
And there is widespread usage of foreign money of account in this economy. Russia, by the way, has the same feature, that they have their own currency, but private sector – what we understand from the private sector is like private individuals, private businesses – they tend to do business and transactions in the foreign money as well.
[00:10:06.790] – Grumbine
Is this the government itself leveraging foreign debt or is this just the people themselves leveraging foreign money?
[00:10:14.410] – Valchyshen
This practice spreads to every corner in Ukraine in particular. So we have this established policy in the country where the government, at every possible situation when the state budget deficit is widening for some reason because of some unexpected events that happened, the policymakers of the country, they go out and say that to finance that deficit the government has go out and borrow money from investors and usually borrow from the financial markets.
But on the financial markets it’s mostly understood that it’s going to be borrowing from the foreign market. So foreign investors. And it could be Eurobonds or it could be local market borrowing only if there is this appetite from the investors. So it’s all the time this kind of dependency on the external financial assistance. It’s not only the private sector, private individuals, private businesses which leverage themselves in the foreign money, the government as well does the same thing.
[00:11:24.850] – Grumbine
The IMF has a strategy it uses on the global south. They impose austerity on countries that borrow from them. Is Ukraine a country that has sovereign energy, food, systems of production, or is it dependent on external sources to provide goods and services within the country?
[00:11:47.770] – Valchyshen
Well, in this sense, on the sovereignty side of the real resources, Ukraine is pretty much sovereign in the full extent, so to speak, in the food supply, I would say. Because it’s globally known that there’s this long tradition to call Ukraine the “breadbasket of Europe”. So in this sense, in the food industry, Ukraine is pretty well positioned in terms of supplying food to its own population.
And so the country is big and productive soil is there so much that the food industry is not only able to supply the domestic population, it’s able to export quite a lot out of the country along with providing for their own consumption. In energy it’s a little bit different because the industry which was built in the country, it wasn’t more than the energy efficient production. So till now, the country has this low efficiency in terms of the energy usage, and the country is not fully sovereign. So it has to import quite a bit.
[00:13:10.330] – Grumbine
So it is constrained to requiring imports to sustain itself.
[00:13:16.490] – Valchyshen
Yes.
[00:13:17.950] – Grumbine
When you think about a net importer exporter position, what is their fiscal position to support the country? Do they have an understanding of MMT or are they fiscally conservative? How does that play out for them on that domestic front?
[00:13:34.090] – Valchyshen
Officially and in the public discussions, the policymakers of Ukraine are fiscally conservative. And even today, in this difficult time on the public, we have some statements and people who know, like this language of this part of the economic prescriptions. They can recognize that this language reflects this particular mindset of the policymakers.
But they know about MMT because in Ukraine, Randall Wray’s book on Modern Money Theory was translated several years ago, and it was available on the bookshelves in the major bookstores. And more than that, that book was handed over to key decision makers in the government offices, like, I believe, in the Ministry of Finance as well as in the central bank.
I know that, and I myself presented that book to the Ukraine’s representative in the IMF here in Washington, DC. So people in Ukraine, key people who are responsible for the economic policy making, they are pretty much aware of MMT, but they’re very much critical as elsewhere. In public, they pretty much behave as conservative thinkers.
And because of that, the economic policy I’m arguing that economic policy in Ukraine a long time ago until now has been very much biased to austerity. That’s why it has been so weak in terms of the growth metrics. And more than that, it was vulnerable. And that’s why it showed those crises in the past. It’s not only about fiscal conservative stance by the Minister of Finance and the central bank but is also because of the behavior of the private sector.
And as I already mentioned, the private sector and government sector have been using foreign money quite a lot. And this logic that if something happens, it’s better to use foreign money because it’s cheaper versus the domestic, because domestic rates are higher.
[00:15:55.330] – Grumbine
In World War II, Russia and the US had come to terms. The establishment of NATO. There were some agreements that were made. I believe the Western States agreed that they would not expand NATO. There are efforts to expand NATO into Ukraine. What is the political play here for both Russia and Ukraine? This has significant impacts on both economies, but it’s not just economies. The economies are people. There’s real resources at stake. There’s other factors that go way beyond any of the currency flying back and forth. What is the history leading up to this moment. Why are we here?
[00:16:39.010] – Valchyshen
It’s a nice question and I would love to explain it in a bit of a lens. You are right mentioning returning to that long history, but I want you to listen to my explanation and what I have in mind trying to construct the answer. There are many details here and I don’t pretend that I know everything. There is a lot of shortage of understanding which I want to illuminate even in my personal research.
But at the very beginning it’s critical to mention this that we all know that there are some notions which are socially constructed which exist in daily debates, conversations, opinions. And those are sticky. They refuse to die, so to speak. In economics as we know, there is this sticky phrase used by mainstream people – like printing money, which is a tool to remind people about, in my opinion, some hyperinflation episodes back in history.
The same socially constructed terms which exist and they relate to today’s understanding of this Ukraine and Russia relationship, something like this Ukrainian NATO aspiration, or more nasty terms that Ukraine has been developing into having Nazi-like groups, et cetera. Those are kind of sticky and they are staying there.
But I think that this longer term history and relations with these security related discussions—in my opinion, we can’t improve our understanding without taking knowledge about economics and how the history unfolded over the past century and before the Soviet Union collapsed. And how this new independent States, Russia and Ukraine, all others which appeared after the breakup of the Soviet Union, how those were developing and how they ended up being in this situation that we observe today as we speak.
In my opinion, there is a great deal of economics and I developed, quite long ago—it was several years now—that MMT provides good lens to understand economics not only in developed countries but in the countries like we are talking about right now. And especially it’s useful to understand the Soviet Union as well from that point.
[00:19:46.990] – Grumbine
The collapse of the Soviet Union brought about a host of changes and you’ve laid out some of this. But economically speaking, Russia has always been behind going back to the revolution and the time of Czars. They had been a peasant society for so long. The people had no concept of governance. They had been kept blind. As the Bolsheviks had their revolution, major changes happened during that time. And then Stalin as the Soviet Union grew and grew. I guess my question here is what is the relationship between Ukraine and Russia?
[00:20:29.890] – Valchyshen
It has been tense and pretty complicated along the history—and a long history—and it has been dotted with those relationships when these two nations, they had questions for each other. There were periods that these two nations, they happened to coexist within countries or as they were known back then, like Czarist Russia, Russia’s Empire, then under structure of the Soviet Union, and now as independent states.
And those relationships were observing as bright periods of cooperation and prosperity, but those were also—there were periods, I’m talking now about Ukraine—when Ukraine’s population suffered and we can recall the period of famines between the two World Wars. And now we have this tense relationship which is turned out to this bloody war, which has to stop as soon as possible.
[00:21:53.950] – Grumbine
What do you think is leading Russia to invade Ukraine? Is this about securing and keeping a walled garden around Russia to avoid NATO, or is this about real resources?
[00:22:08.200] – Valchyshen
Yeah.
[00:22:09.250] – Grumbine
To invade a country, there has to be something going on. What are they seeking to gain here? Why are they doing it?
[00:22:17.930] – Valchyshen
Now it’s understood that it’s in the mind of one person which is President of modern day Russia. He was talking past several days in public and it was followed widely in the globe, why he was doing that. He was trying to explain his rationale. But here is my explanation. There is this notion that Russia and Putin himself have this grievance versus the West and the Western push of NATO into the Eastern parts of Europe and further on to Ukraine, allegedly.
But when I was on my job, by the way, before moving here in the US, before moving to study MMT, first at Levy Economics Institute and then to become a PhD student here at UMKC, just to be a more MMT economist. Back then, I was observing on my job how Ukraine’s economies and how Russia’s economies were performing. So it was my job description to follow the markets, the economies and try to explain those.
And I developed that rationale back then. First of all, we have to go a little bit back very recent history, when it was 2012-2013, when President Putin was back in office as President. And he made this kind of turn, that was a little bit like greater push to this assertiveness into the relationship with so-called near abroad, as in Russia they call the neighboring countries that were part of the former Soviet Union.
So that shift was very much in the display, and it was noticeable at the time. But because I was following macro pictures of both countries, because they are pretty big, there is great influence, not of China, not only of the US, this dollar based financial system, but the local influences, they also all the time there. So I was following the Russia’s economy as well, pretty much closely.
And then in 2013, I was developing that understanding that Russia’s economy, if we used this mainstream economics language back then, Russia got this Dutch disease and it was visible by the metrics we used back then. But it’s not very much visible to other people in my profession. I used to talk to different people who follow the same economies because it was their job description, because they were people from the financial markets industry, like people who do economic research for hedge funds for major banking institutions in New York and London.
We were talking back then to those people asking, “Do you see that? Do you see that there is something that ruble — is national currency of Russia — do you notice that there is something mispriced here?” And the response was, “No, it’s fine.” And we’re saying “No, we think that ruble is going to strengthen.” But in my opinion, it was a big misprice here and people kind of not seeing what we have seen.
And I was developing that notion that something is different than the established understanding. And what was also noticeable that some metrics of the opinion polls inside Russia were showing that people of Russia, like ordinary people — because those were opinions taken from the surveys — so ordinary people, not only elites or professionals in the big salary positions.
So those surveys were showing that economy doesn’t provide satisfaction to the Russian people. So there was slowdown and it was like a side effect from the global financial crisis. It was a side effect, in my opinion, from the austerity-biased economic policy historically done by the Russian authorities themselves.
So they were following these prescriptions as every emerging economy is following from IMF, World Bank, etc. So the Russian economy wasn’t delivering at that time. And another factor we have to recall here is that Russian authorities started to be more aggressive in this trade war or let’s say trade sanctions or economic sanctions against so-called near abroad. So economic sanctions, it’s not an invention of the West.
Economic sanctions did exist from Russia itself. So they were very much selective and they were pretty much targeted. So since 2013, Russia opened this trade war to put some restraint on the Ukrainian exporters, which were pretty much successful on selling goods to Russia. And why they were doing that, because the Russian market was flooded with this income generated by the sales globally of oil, of natural gas, et cetera.
So selling stuff to the Russian economy was very much profitable for Ukraine’s private businesses. And it was also like a reflection of this price mismatch or valuation mismatch in the national currencies. So the Russian ruble was very much overvalued. I would argue back then it was overvalued and there has to be correction going forward. So the Russians imposed trade sanctions on Ukraine’s economy. It was like a defense in economic terms. So those relationships have been kind of unfolding.
And in my opinion, if we sum up all of those, the Russian economy was governed with these austerity-biased ideas. There was mispricing of the national currency, meaning that the future was to go into weaker values of the ruble. And also there were sizable leverage of the domestic private businesses in Russia in the foreign money. So they were also very much vulnerable back then to the quick swings in the global finance.
And summing that all together brought me to the idea that Russian assertiveness and this complicated geopolitics, if we consider this several-years period, they were driven to correct their economic model, which was largely mistaken. And at the same time to recover or to regain domestic support and to do these two things at the same time, you can do some action which is not in our understanding of the economics. Okay.
And I was arguing back then that Russia’s great turn—to violate these geopolitical boundaries, since 2014—it was for the sake of survival of the elites in Russia. So it’s a domestic question because popularity was at the bottom. And at the same time to correct the domestic economics because there were this Dutch disease, there was this great overvaluation of the ruble.
And to go smoothly through this period, there has to be a victory in this geopolitics. And Ukraine is useful terrain for that because the Ukraine’s domestic differences, so to speak, they were fueled not only from one side when people critically view the Western actions within Ukraine, within the prescriptions which are made by the Western institutions, when they critically consider the debt, there is this kind of explainer that Russia acts in geopolitics because it wants to preserve itself, because the West was kind of pushing Ukraine. In my opinion, it’s not a full picture of what’s going on in Ukraine itself.
[00:31:30.110] – Andy Kennedy [Intermission]
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[00:32:21.150] – Valchyshen
In Russia, there is this notion that they have to create parallel structures, so they have to mirror the Western actions in every possible field. It’s not only domestic security in question in the foreign securities. So the Ukraine’s domestic situation was fueled from Russian side as well, just to kind of stretch the country apart, to make it seem unstable, to seem populated by these extreme people with extreme ideas.
Et cetera, et cetera. And the Ukraine’s Euromaidan, which happened in late 2013 and 2014, which opened the way for Russia to intervene and take Crimea, so to speak, back as it’s formulated in Russian politics. If you sum that altogether, in my opinion, Russia’s assertiveness is largely domestic matter and it’s kind of response as well to the mistake they did themselves to following the framework, how they can best govern the domestic economy.
They failed as they kind of figure it out after the global financial crisis and several years afterwards. They failed to have a growing economy. It was growing at very low pace and domestic dissatisfaction of authorities was only on the rise. But since 2014, domestic support of the authorities was back into the high numbers of support.
And effectively, I would argue that international geopolitics—complicated geopolitics that Russian government was playing—it helped to consolidate domestically the society behind it. And the Russian population kind of agreed for the economic correction they have been experiencing since 2014 under this umbrella that we have to resist because there is this sanctionings from the West.
We have to be supportive of the authorities and so on and so on. But just to conclude, my understanding of this part of the world since at least 2013 is that Russia was acting, inviting sanctions on itself just to correct its economy and how the society perceive the leadership governing that economy.
[00:35:03.030] – Grumbine
Interesting. So they use sanctions to rebuild themselves internally.
[00:35:07.410] – Valchyshen
Yeah. Something like, you put excuse of the hardship of the ordinary people—and there is this hardship of ordinary people—I believe that everybody agrees that prosperity that Russia’s oil and natural gas industry bringing to the country is not shared fairly. There is private ownership in this economy as well as in the Ukraine’s economy. But there is this notion of oligarchs. But many people in Russia don’t enjoy those oil and natural gas revenues.
[00:35:42.690] – Grumbine
Vladimir Putin certainly does, doesn’t he? He’s got tons of money stashed in Panama.
[00:35:48.850] – Valchyshen
Yeah. There is kind of this chaos. But if we take into account just official accounts where these funds are stashed and very recent developments in this geopolitics, they are saying that they wouldn’t have this access to those funds. But it’s not just one part of this explanation that you asked me about why Russia behave in that way. Right? So I would argue that since 2013, it was like to correct domestic economy, but not in a full extent.
So they did shield it. They corrected the economy. They made the national currency or national money unit of account more flexible currency. It’s not free floating as of now, but still it becomes much more currency, which is flexible. So they shifted from the regime where convertibility was kind of assured to the regime—we’re a little bit closer to this, as MMTers would say—to the situation when the country is inconvertible currency.
[00:37:00.270] – Grumbine
So go back to 2014, where you have the, quote, unquote “revolution of dignity”, or as you said, the Euromaidan revolution. It seems like Russia is the only country in the world that is on two continents. And then clearly Ukraine is in the Europe side of that. The former President, Viktor Yanukovich, appeared to be more sympathetic to Russia, where the new President appears to be more stylized toward the more central European mindset. I’m wondering if that divide is also part of this geopolitical war. As you’ve got folks that are sympathetic to Russia, to Western causes. What is your take on that?
[00:37:49.530] – Valchyshen
Well, good question. But I would like also to recall that it’s not only probably Russia based on two continents, right? We can recall the Turkey. Yes, probably Turkey as well. But it’s just a side note. But to this Euromaidan thing and stuff. Again, there is this kind of notion which is sticky and survive until today that in Ukraine there is this divide. This line that divides the society.
So the society allegedly is not kind of holding together. So probably we have to consider it’s broken society or something like that. It’s a wrong perception. And to think of Ukraine as there is this part of Ukraine which wish to be with Russia. There is this part of Ukraine which wants to be part of EU or Eurozone. It’s pretty simple, I think.
Again, we have to take a different look here. There are competing opinions inside Ukraine, how the country has to develop. And I tend to think of this situation along these lines. And by the way, I have been interested in this particular view since Euromaidan and even before, because I was interested in how opinions shape how they survive, how they become sticky in the public discourse and so on, first of all in Ukraine and then in other areas.
And I developed this thinking and it goes from the literature and such authors as Philip Mirowsky, who has been writing extensively on this currents on how neoliberal thinking was establishing itself within different territories. And one quote I cannot reconstruct that quote precisely, but I’ll try. It’s a quote from Mirowsky, something like we have to understand what people associated with Mont Pelerin Society have been doing.
But again, it’s not precise quote. So there is this attention to this part of the activities and in the literature it’s called also neoliberal collective of thinking or neoliberal thinking collective. And doing my own research in that field, I turned to the literature on how these people associated with Mont Pelerin Society and now as people associated with Atlas Network, how they were establishing themselves in Ukraine in particular.
But it’s not only about these kind of activities of these thinkers. We have also understand that as I mentioned previously, that in Russian understanding they want to create these mirror actions. It’s not only about geopolitics, but it’s also about these currents that are taking place within opinion making and opinion making within economic field. And saying that, my observation of what was happening in Ukraine in terms of opinion making, it has been influenced quite a lot and still it’s present there.
There is this infrastructure of this neoliberal collective of thinkers. Units which are associated with Atlas network. I believe they are pretty much known and followed not only from the West and from Russia as well. But we also need to understand that when Russia tends to create their mirroring institutions or actions, they also tend to act together with those actors who does the job on the other side.
Like in Ukraine when it was peaceful and quiet as it was just a few months ago or just a few weeks ago, there is this kind of standard conversation among the experts and economists and politicians that there is corruption in the country. We have to eliminate it in order to become a more prosperous economy and more prosperous society.
And in order to do that, we have to follow all those standard prescriptions that are defined by the international financial institutions like IMF, World Bank, et cetera, et cetera. And in order to do that, we have to open up markets. We have to create this market and that market. And Ukraine have been very busy about that, like creating land market, which is called land reform, which was just launched just recently.
So we have to create those markets. We have to create market for health care, we have to create market for education services, et cetera, et cetera. But as I said, Russian side they observe, they know about all those developments, they tend to influence them. I pretty much understand that Russian security forces, when they consider different tools, it’s not only about underground military exercises, it’s not about cyber exercises, cyber attacks or something.
There is this kind of obvious tendency to add fuel towards the discourse that other side is trying to establish in the country of interest. So what I was observing that these kind of discussions about how the country is corrupt and how it has to improve itself in this corruption perception index, how the country has to improve itself in the different indices developed by the Heritage Foundation.
Et cetera, et cetera. You know, probably about those very neoconservative stuff that in order to improve itself, you have to follow that path, right? So there has been this kind of fueling, channeling into that so that there is only one discourse left. So there is no other ideas to be discussed.
[00:44:25.550] – Grumbine
There is no alternative.
[00:44:27.210] – Valchyshen
Yeah. So there is no alternative thinking as it’s being established by the Atlas Network people. And I have to recall Anthony Fisher, if you know that person, who has been an entrepreneur of think tanks. So this discourse was fueling not only from the Western part but from the Eastern part. And it was fueling in order to create this conservative thinking to establish itself, so much so that the country has just only one kind of understanding of economics.
And that understanding of economics is about austerity. It’s about “allowing freedom.” So “freedom” means economic freedom, right. If we take the basic ideas of this neoliberal or neoconservative think tanks. So economic freedom comes from the freedom of using different monies, different money of accounts. It means that we have to attract investors.
And by attracting investors, it means that we have to make the government smaller. Privatization, markets, all this stuff. And what was evident, I was arguing in my opinion articles that I was trying to publish back then in Ukrainian and in English as well, that this kind of path that we are following is not only because there is this IMF prescription.
But because there is this established network or established infrastructure which is here that doesn’t allow any other explanation of economics but understanding of economics which end up with this austerity focused, financial market friendly understanding of the society of the economy which ends up with this financial crisis, because the financial institutions were, as we mentioned before, leveraging themselves up into foreign money, pretty much aggressively.
And there is constantly this issue who is going to refinance those balances? And it’s not only the actions done from the West, those actions were done also from the East. Because there are details, if you follow the financial balances of certain institutions which were influenced by the Russian leadership, because there is a known relationship between private business and leadership of the country which encourage Russian business to be present in that economy of interest, and an investigation of the balances of those businesses which belong to the private Russian businesses.
But again, we can put a question mark what kind of relationship existed back then between those private businesses and the interests of the state, especially under the light of today’s situation which is happening right now in Ukraine. So those balances of those businesses were aggressively leveraged up by foreign money. Quite aggressively. Those were financial businesses.
Those were non financial businesses. So all this ended up effectively stretching the society pretty much extensively. It’s not only about opinions on how we have considered ourselves as a society, but it’s also stretching the society from the theoretical understanding, how best to govern the economy, how it has to be set up, but also what was stretching up from that point of view, as we know that too much of foreign money, of the balance sheet of some economic unit probably will lead up to the situation that that economic unit, or if you aggregate them into a broader economy, it’s going to end up in crisis.
In a pretty much nasty crisis. And those crises where there were several of them in the Ukraine’s history. And to conclude my answer, which I want you to understand, that this Euromaidan thing. So we ended up that we have this guy, the previous President, Yanukovych, which was kind of pro-Russian, and then that new one Poroshenko, which was tended towards the West.
It’s kind of representing this polarizing parts of the society. It’s a kind of mistaken view. If we step back and take a look into the broader or let’s say more basic metrics. One of my favorite metrics that I use is what share of national income goes to the profits and what share of national income goes to the compensation of the workers. So it’s pretty aggregate numbers.
When you take the GDP number, which is national income, there are the statistics how that GDP number divides into profits and wages. Right. They are available for different countries in Ukraine as well. It’s available. So if you take those numbers and you start thinking about how the national income is being divided, because since independence, there has been private property in Ukraine and in Russia as well. By the way, private property under the Soviet Union on the means of production didn’t exist.
So it was pretty new social phenomena in terms of the private property. But again, returning back to this distribution impact, Yanukovych, and it’s not only about Yanukovych but previous governments as well, under leadership of different people, they tended to keep this distribution metric in favor of wage earners. So under Yanukovych economy managed itself so that a share of wages or what employers get, it was above 50% and it reached, if I’m not mistaken, 54 or even 55% back then.
But the financial crises that happened since 2014 and til today and the economic recovery that took place after those crises, even after the COVID crisis, by the way, which also we can treat as a crisis. So just to conclude, the share of distribution which goes to the wage, it didn’t recover even to the 50%. So it stays very much stagnated at 40 something percent.
It means that in terms of distribution, profits gain pretty much. So I tend to consider the relationships which are established in the Ukraine’s economy and by the way, in the Russian economy as well from this standpoint. So to the broader society, there has to be pro-wage policies, including job guarantee policies, especially for Ukraine in this situation.
But the intricacies of Ukraine situation and its geopolitics, if we apply the standard or established lens, something like this divide, that is that divide, it’s kind of misleading. So the true or underlying metrics or true underlying developments we have to pay attention to is that how the economy utilizes its financial system. How it utilizes all the resources it’s capable to enjoy like labor resources or different parts of industries it has, or it’s able to develop within its own financial system and how the financial system is set up, whether it overuses foreign money along the way.
And the same lens has to be applied for Russia’s economy. And applying those lenses, we can see that the Russian geopolitics, it’s about preservation of the status quo. And the status quo is again about preservation of the private property and distributional divide which is established under this structure. Right now, people say, oh, Putin is trying to reinstate the Soviet Union or some Russian Empire.
He has these grievances about the Soviet Union. We have to kind of understand what does it mean in detail? What does it mean to return back to the Soviet Union? And again, I just mentioned that on the Soviet Union there was no private property for the means of production. Right now in Russia, everyone understands that there is private property and there is no question mark.
Nobody is asking whether Putin is threatening that. But it seems that Putin never, at least what I’ve heard mentioned that he’s going to put this private property scene at risk. So it means that for the true aspirations of the wider public in Russia, which wants to be a little bit more prosperous, I believe.
[00:53:49.470] – Grumbine
It’s very interesting that you bring up private property and it’s a good place to close out because we don’t understand in the United States, especially, that whole Soviet period. We don’t understand real communism. We are so badly propagandized ourselves that translating geopolitical events feels like a James Bond movie. Constantly. The fake news, the propaganda is so bad and I imagine it’s not unique to the US. But Alexander, I would like very much to be able to have you come back on sometime soon.
[00:54:24.990] – Valchyshen
Thank you so much.
[00:54:26.050] – Grumbine
We are at the end of this one. I know you have some good work getting ready to come out. Why don’t you let everyone know what is coming up? So you’ve got a paper coming out with Scott Fullwiler correct?
[00:54:37.760] – Valchyshen
It’s not going to be a paper by me and him. But I was writing that paper under his supervision and as I mentioned at the very beginning that it was his idea that we write case studies of why sovereign defaults took place in the national currencies across history. And I offered to dig into the case of Russia and it turned out it’s very richly detailed. There are details that give you great food for thought.
[00:55:13.410] – Grumbine
Well, we would love to have you back on so we can do a deeper dive into that area as well. Alexander, thank you so much for joining me today. Please keep the Ukraine people in your prayers. Keep the world peace in your prayers. This is Steve Grumbine, Alexander Valchyshen. We’re out of here.
[00:55:37.810] – Andy Kennedy [outro/music]
Macro N Cheese is produced by Andy Kennedy, descriptive writing by Virginia Cotts and promotional artwork by Andy Kennedy. Macro N Cheese is publicly funded by our Real Progressives Patreon account. If you would like to donate to Macro N Cheese, please visit patreon.com/realprogressives.
Alexander Valchyshen – Guest
A Research Fellow at the Global Institute for Sustainable Prosperity and an interdisciplinary Ph.D. student in the Economics department of UMKC, under the supervision of Dr. Scott Fullwiler. He holds a M.S. in Economic Theory and Policy (2019) from the Levy Economics Institute at Bard College. He completed his Master’s thesis under the supervision of Dr. L. Randall Wray (primary reader) and Dr. Jan Kregel (secondary reader). With more than 20 years of experience in Ukraine’s banking and financial markets, including with some of Ukraine’s major banks and financial firms.
UMKC – University of Missouri Kansas City
A public research university in Kansas City, Missouri. UMKC is part of the University of Missouri System
GISP – Global Institute for Sustainable Prosperity
Adam Tooze
British historian who is a professor at Columbia University and Director of the European Institute.
Noah Smith
IMF – International Monetary Fund
An organization of 190 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Hryvnia
The national currency of Ukraine. The currency was adopted by the country’s government in 1996. The currency, which is also sometimes written as hryvnya or grivna, is subdivided into 100 kopiykas.
L. Randall Wray
Professor of economics at Bard College. His current research focuses on providing a critique of orthodox monetary theory and policy, and the development of an alternative approach. He also publishes extensively in the areas of full employment policy and, more generally, fiscal policy
Levy Economics Institute
The Levy Economics Institute of Bard College, founded in 1986 through the generous support of Bard College trustee Leon Levy, is a nonprofit, nonpartisan, public policy research organization
World Bank
International financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects.
Ukraine’s EuroMaidan
Wave of demonstrations and civil unrest in Ukraine, which began on the night of 21 November 2013 with public protests in Maidan Nezalezhnosti in Kyiv.
Mont Pelerin Society
International organization composed of economists, philosophers, historians, intellectuals and business leaders.
Atlas Network
Formerly known as the Atlas Economic Research Foundation. It is a non-governmental 501 organization based in the United States that provides training, networking and grants for libertarian and free-market groups around the world.
Anthony Fisher
British businessman and think tank founder. He participated in the formation of various libertarian organisations during the second half of the twentieth century, including the Institute of Economic Affairs and the Atlas Network
Heritage Foundation
American conservative think tank based in Washington, D.C., primarily geared towards public policy. The foundation took a leading role in the conservative movement during the presidency of Ronald Reagan, whose policies were taken from Heritage’s policy study Mandate for Leadership.
Scott Fullwiler
Assistant professor of economics and James A. Leach chair in banking and monetary economics at Wartburg College, Waverly, Iowa, where he teaches finance, banking, and macroeconomics. He is also a research associate at the Center for Full Employment and Price Stability, University of Missouri–Kansas City. His research interests are financial markets, monetary operations, and macroeconomic policy. Most recently, his research has focused on simulation with large macroeconometric models and the sustainability of alternative macroeconomic policy regimes.