Pietro Paganini begins the Austrian Economics Monthly by reiterating that the economic times are “exciting because a lot of things are going on. A lot of things that have to do with our lives, our liberty, and also with our prosperity.” Paganini then explains how the current global economic ecosystem is being affected both by Covid-19 as seen in China’s closed ports, and conflicts such as the Russia-Ukraine war.
Richard Bonugli, the first guest speaker, addresses the movement towards commodity-based currency. Bonugli states “We see this as a big turning point, represented in the Russia-Ukraine war and the associated sanctions.” Bonugli hits a second point as he explains there is a movement to a bipolar world in the financial system. He explains this as “a SWIFT based system in the West and a non-SWIFT based system further east.” Most importantly, Bonugli points out the rise in inflation, and blames supply chain disruptions that started from Covid-19 and is continued by the Russia-Ukraine war due to the massive amounts of Russian commodities. This has “exacerbated the entire energy situation in Europe.” Furthermore, he tells us the European debt market has fallen harshly, along with the deprecation of the Euro. When asked about sanctions posed on Russia, Bonugli believes that they have major consequences on the whole world. He cites rising inflation rates and increases social tensions as main consequences.
Giorgio Arfaras concurs with Bonugli in that the sanctions have overreached their intended effects. Arfaras points out that the main point is the effect on the Russian citizens. He states that they are “living in a time similar to the Soviet Union.” They will be without medicines, planes, cars, and no global travel. Regarding the sanctions, Arfaras states “Yes, they are working, but with unintended consequences.”
When asked for advice they would give to governments, Bonugli recommended that the European Union uses the current sanctions to press the “green” or environmental agenda. The need for new energy sources comes from possible bans on Russian natural gas and oil. Not only would this approach have environmental benefits, but it could potentially improve the energy crisis Europe is currently facing. Conversely, Arfaras takes a very honest approach and states “I don’t know how to solve this issue.” Arfaras turns to Macroeconomics and elasticity to explain food supply. He reminds us
“Production is not elastic in the short term. If you don’t have anything coming from Russia and Ukraine, you do not have enough food in the short run. You may be able to produce whatever you want in the long run, but the point is you don’t have a sufficient supply in the short run.”
Arfaras also responds to Bonugli’s answer by stating that perhaps it is more important to reduce pollution in developing countries as Italy is responsible for only 1% of the world’s pollution. There is only so much that this minimal amount can decline. However, poorer countries have a much larger space to reduce pollutants. Arfaras acknowledges however that “This is very very dangerous. We don’t have the resources for this kind of investing.”
The Economic Upheaval episode of Austrian Economics Monthly focuses mainly on the current Russia-Ukraine war and both it’s political and economic consequences globally. Specific scrutinization of the usage of sanctions is explored with an agreement of ideas between both Richard Bonugli and Giorgio Arfaras. Both believe the sanctions to be effective, yet they overreach their intended targets and harm Russian citizens and the global markets of other nations. Furthermore, both agree that a focus on green policy for energy may be effective. That being said, Arfaras defers stating the need for green policy in poor countries, but the restraints imposed by risky investment in said countries.
Matthew is a student at Wabash College in Crawfordsville Indiana, where he studies Classics and Rhetoric. He is an active member of Kappa Sigma Fraternity and enjoys traveling, playing volleyball, and writing. Matthew is the spring 2022 intern with the Austrian Economics Center.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.