When the topic is foreign policy, we don't say "inflation," we say "spillover"

Whatever you call it, Biden's domestic agenda, which Republicans oppose, will generate a lot less of it than his foreign policy agenda, which they support.

This was what “spillover” from the Yom Kippur War looked like in 1973.

Concerns that the plan will ignite undesirably high inflation and an overheating economy are overdone, as the fiscal support it provides will ensure the economy only returns to full employment from the recession caused by the COVID-19 pandemic.

—Moody’s Analytics on the infrastructure and Build Back Better bills, November 2021

Inflation is already a major political and economic problem for President Joe Biden. The recent rebound in gasoline prices threatens to further aggravate inflation. And $100 oil in a Russia-Ukraine conflict would make it even worse.

—Matt Egan, CNN Business, Jan. 21, 2022

The Build Back Better bill is a tiny bit inflationary, but that’s enough to make congressional Republicans oppose it. Imposing U.S. sanctions on Russia, if it invades Ukraine, will be hugely inflationary, but in foreign-policy circles it’s considered vulgar to say so.

On a background phone call with reporters January 25 on the subject of “Russia Ukraine Economic Deterrence Measures,” i.e., sanctions against Russia if it invades Ukraine, the word “inflation” was mentioned only with regard to what Russia will bring on itself. “When you have inflation in the mid-teens and you have a recession, you know, that doesn’t win hearts and minds,” an official said. “So [Putin’s] tolerance for economic pain, it may be higher than other leaders, but there is a threshold of pain above which we think his calculus can be influenced.”

But what about the west’s tolerance for pain? Economic sanctions against Russia, even if they don’t target Russian oil, which accounts for 45 percent of that country’s exports, will provoke countermeasures from Russia that will send the price of oil skyrocketing. Europe is especially dependent on Russian oil, and the oil market is a global one, so Europe’s pain will also be ours. What about that, unnamed U.S. official?

Over time, if Putin weaponizes the supply of energy supply, he is creating a major incentive for Europe to accelerate the diversification of their energy supplies away from Russia.  And that would further remove an opportunity for Russia to earn revenues on the export side and on the budget. 

That’s all well and good for the future, and three cheers for more windmills and solar panels in the EU. But what about the near term when Russia turns off the spigot? Isn’t that going to be very inflationary? Even here in the U.S., we import more oil from Russia than we do from Saudi Arabia.

The answer appears to be that while one may acknowledge inflation when it batters the enemy, it’s taboo to acknowledge it when it batters ourselves. So when that subject comes up, we don’t say “inflation” or even “oil and gas shortage.” We say … “spillover.” As in: “As we prepare these measures to maximize pressure on Russia’s leadership, we’re equally focused on minimizing unwanted spillovers.”

The spillover projected from U.S. sanctions against Russia greatly exceed the spillovers projected from passing Build Back Better. For the record, I’m in favor of both, and reckoning with the consequences. But don’t let’s pretend the spillover consequences of defending freedom in Ukraine won’t be much, much greater than the spillover consequences of shoring up clean energy and the well-being of young children in the United States.

That’s the topic of my latest New Republic piece. You can read it here.