Tuesday, June 05, 2007

The Russian Paradox

We’re going to take a hard political and economic look at what’s going on inside Russia on tonight’s Kudlow & Company.

It’s a strange paradigm (paradox might be more appropriate) over there.

On the one hand, they’ve got their 13 percent flat tax. And of course, with more free market policies, Putin has to some extent liberalized the Russian economy. Their stock market has rocketed 900 percent since 1999. Economic growth has surged. Inflation has come down. And the ruble has been fairly steady. So that’s all to the good.

But on the other hand, politically, Russia has become much more authoritarian.

They seem to be moving further and further away from democratic principles. They’re clamping down with limits on the free press, jailing political enemies (most notably with the incredibly harsh treatment and jail sentence of Mikhail Khodorkovsky, formerly the CEO of Yukos and Russia’s richest man). That’s all crazy stuff, not good.

And of course, on foreign policy terms, Putin has been a big thorn in our side on Iraq. And just as bad, he’s been helping Iran on nuclear weaponry—or so it appears.

To top it all off, now he’s threatening to aim missiles at Europe because he doesn’t like our plans to put a missile defense system in the Czech Republic. (Despite the fact it's meant to protect NATO allies against a missile attack from Iran, not Russia.)

So, bottom line, it’s a very complicated relationship. President Bush needs to manage it carefully. We can do business with Putin, but there has to be some tough and clear understandings.

The other big factor in all this is the oil story. Russia is living high on the hog with $65 dollar oil. But what happens if oil drops $20 bucks? Will Russia be so cocksure in foreign policy? Will their economy survive a meltdown of oil prices?