Jeffrey D. Sachs: Nuclear escalation possible, we need to fight against it

Portfolio: What would you consider to be a solution for the emerging energy crisis?

Jeffrey D. Sachs:  I think the first solution to the energy crisis is to stop the war. That's the answer I would give to most questions about our current crisis. The war in Ukraine and the sanctions regime, and the geopolitical tensions are destabilizing the energy markets to be sure, but they're also destabilizing geopolitics and the world economy, so there's not any major issue now that can be solved adequately if the war continues.

When it comes to energy, we clearly need a major long-term transformation of the energy system to a zero-carbon energy system.

The idea of reaching net zero emissions by 2050 is important; it is the part of the European Green Deal, dozens of countries around the world have adopted a target like that, but that is a process that requires a quarter century to carry out.

What happened with the war of course, is that the energy markets of Europe had been destabilized overnight because of the cut off of gas exports and now the bans on oil imports from Russia, and all of the disruptions that have gone along with this. All these disruptions hurt the European economy severely and they are a direct result of the war and the sanctions regime.

I'm in favor of negotiating an end to the war quickly and removing the sanctions.

Right now, two narratives exist: one is that the war is going to be a long-term war and that Europe is going to break its economic relations with Russia for the long-term and it should restructure itself accordingly. The alternative is that the war ends quickly and that economic relations are restored. I am for the second pattern. Whether that is feasible of course, is a geopolitical question, not a choice of an economist looking at the situation, but my argument is that the second approach is much more favorable.

If that doesn't happen, I think the disruptions to our economic and political life will be quite serious. I don’t believe that there is a quick, easy way to follow the first path of permanently breaking relations with Russia and a permanent reorganization of Europe's energy system.

Jeffrey D. Sachs serves as the Director of the Center for Sustainable Development at Columbia University, where he holds the rank of University Professor, the university’s highest academic rank. Prior to joining Columbia, Sachs spent over twenty years as a professor at Harvard University. After 1989 he worked as economic advisor in several Central and Eastern European countries. In 1993 he was cited in The New York Times Magazine as "probably the most important economist in the world" and called in Time Magazine’s 1994 issue on 50 promising young leaders "the world's best-known economist." In April 2004, and again in April 2005, he was named as one of the 100 most influential people in the world by Time Magazine, and the World Affairs Council of America identified him as one of the 500 most influential people in the United States in the field of foreign policy. He is author or co-author of more than two hundred scholarly articles, and has written or edited many books, including three New York Times bestsellers. Sachs has advised the World Health Organization (WHO), the World Bank, the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), and the United Nations. During the 2020 Democratic primaries, he endorsed Bernie Sanders for president and advised the politician.

In addition to the energy crisis, inflation is also become a huge problem, in developed economies as well. Do you think that we will have to reach state of recession for inflation to come under control or would there be any other viable solution for the leaders of developed economies?

Of course, we have already what we call a stagflationary environment, meaning that inflation has increased to 8-10% annual rate and at the same time, the real economy is weakening or entering recession for a large part of Europe, and possibly for the United States as well.

The cause of the stagflation is the energy crisis.

There is a shortage of energy, because the war in Europe both drove up its price and broke down the economy, so we have what we call a supply shock. There are other factors at work as well, there is of course, the pandemic, which disrupted the world economy quite severely. The climate shocks are also impeding some of the food and agricultural supply chains, driving up prices and driving down the economy. 

When the pandemic broke out, one of the responses right away in the United States and Europe was to increase budgetary spending and increase the money supply whether it was done by the Federal Reserve or European Central Bank. So, the supply shock was also accompanied by a demand expansion of monetary and fiscal policy. When you have the supply shocks and the demand expansion, you get stagflation. The extent of the stagnation is of course, a big part of the debate right now, some economist say it will moderate on its own, other economists say it will persist in an adverse way.

I would say we don't really know with precision, because we're in uncharted waters, so we can’t say that our current situation is exactly like one of the past.

But the response of the Federal Reserve, and to an extent of the European Central Bank, is to raise interest rates and tighten monetary policy as a response, under the idea that the shocks are probably not only temporary, but require a change in policy. To the extent that the Fed raises interest rates, and the ECB raises interest rates, that leads to the tendency towards recession and so we’re on the borderline of contraction for 2023.

If you look at the forecast by the IMF for example, they believe that Germany will be in outright recession in 2023. In the United States, the opinion is divided that maybe the U.S. will have little growth, but not zero or negative. And if I had to bet, which I fortunately don’t have to do, but if I had to bet, I would bet on a contraction before we get out of this mess, because I don't think that the central banks, including the Fed and the ECB have such precise tools to be able to navigate this with a very smooth landing.

Usually, when you have a crisis like this, you get a few hard bumps, and I think that's more likely than not.

What do you think about the economic effects of the Russia-Ukraine war in Europe? Is there another solution for the EU aside continuing the ongoing economic war with Russia?

The consequences of the war are very serious. Not only in the short term, but in the longer term as well. A lot of European industry and I would say especially of German industry and Central European industry is linked to the Russian industry. For example, the automotive sector really depends on the low energy costs. And so, Europe was benefiting from the purchase of Russian gas, Russia was benefiting from the export of Russian gas, like many things in economics, this was mutually beneficial trade.

The United States didn’t like it; I don't think it was the U.S.’s business to like it or not.

Now the U.S. says to Europe, “see we told you so, you became dependent on Russia, and now you have these terrible consequences”, but I don't agree with that analysis either, because I don't think this war should have happened. And I don't think this war would have happened if the United States had not pushed for NATO enlargement. And so, I think not only Putin but also the U.S. provoked this war, which actually started back in 2014.  It took two sides to make the war, and in this sense, I think the U.S. was wrong about opposing the Nord Stream pipeline, for example, and wrong about provocations that contributed to the war.

And Europe is going to pay the consequences of this sudden cut off of energy from Russia.

So, if I had my preferences achieved, I would have the United States’ president sit down with the president of Russia now, and say “ok, this is a disaster for all sides, we hear your red lines, we agree that NATO will not enlarge to Ukraine, Ukraine will be a neutral country, you go home, we go away, and we'll leave Ukraine intact and neutral. I think this is what we should do. Of course, many in the United States, many in Europe would regard that as a defeat of the West, I regard it as a way to save Ukraine with a benefit of the European economy, because it would bring peace, a renewal of trade, and the ability to have mutually beneficial trade.

But the hardline position in the U.S., which has now been adopted – well that’s very much the hardline position in Poland and in the Baltic states and in Brussels –, is no concessions at all, Ukraine should join NATO and the West should defeat Putin on the battlefield in Ukraine. If that is the continuing policy, the economic fallout in Europe will be quite serious for years to come: the economies will suffer decline, the German industry will suffer a serious decline, of course, the risks on the military side of escalation will remain real.

The unpredictability of the economic and security environment will weigh heavily on investment in the future, so I think the consequences would be quite negative. That's why I think we should have done much more diplomatically to avoid the war in the first place, and again, especially my view, which is not universally shared: the core issue here is NATO enlargement, of course. There are other specific issues related to Ukraine and the Donbas, the Minsk II Agreement, and Crimea, and Russian-Ukrainian relations,

but I think if NATO had not pushed for enlargement, this war would not have occurred, and Europe would be in much better shape economically.

One of the reasons why Ukraine and Russia seem to be unable to come to terms during negotiations is that Ukraine is unwilling to concede territory to Russia and Russia demands territory from Ukraine. Moscow signified this territorial claim recently by the annexation of 4 Ukrainian oblasts. How do you think the territorial dispute could be settled so that it brings a long-term peace to the region?

We don’t know what negotiations would bring, so I would try to negotiate first, and we would find out whether there is an acceptable basis for a settlement.

From a territorial point of view, there are three distinct issues. The first is Crimea, and Crimea is absolutely a special case because it has been a home to the Russian Black Sea fleet since 1783, and Russia understandably views Crimea as part of Russia. Of course, Crimea was transferred in 1954 from Russia to Ukraine when both were part of the Soviet Union and when such a transfer was more symbolic than real. Khrushchev did it to commemorate the 300th anniversary of a treaty (Pereyaslav Treaty) with the Ukrainian Cossacks and the Russian imperial state, and even the meaning of the treaty is contested, but whatever, the action by Khrushchev kind of made a mess, because it was not meant as more than a celebration of an event, and it turned out to have serious consequences. After Ukraine's independence, the Crimea question was being handled by the de facto recognition of Russia's interests in the region. Before Yanukovych was overthrown in 2014, he was negotiating a long-term lease arrangement with Russia for the naval base, up to at least to the 2040s, with possibilities of extension after that.

To put a bottom line on this: my belief is that one way or another, Russia is going to stay in Crimea, and that we should not have World War III over this issue.

And most people that I discuss this issue with – not in Ukraine, but in the rest of the world – agree with that proposition, and would advise Ukraine not to have endless war over Crimea.

The next issue is Luhansk and Donetsk, the Donbas region. This is also complicated, because this is a center of the Russian ethnicity in Eastern Ukraine. It is Eastern Ukraine, but it is was deeply integrated with the Russian economy, Russian culture, Russian orthodoxy and all the rest, and it too was in a delicate balance and under a pro-Russian Ukrainian government, like Yanukovych’s. Pragmatic approaches were taken, Russian language was used, there were plenty of relations with Russia economically, with trade in both directions. The Donbas was very much economically integrated in Russia’s military industry and so forth. It was after Yanukovych’s overthrow of course, that this became the center of the war with the Russian separatists backed by Russia, first declaring independence and then later being part of Russia.

The idea of the Minsk II Agreement was to negotiate some kind of autonomy for the concentrated Russian ethnic region of Ukraine. This is pragmatic, the European countries supposedly supported the Minsk II Agreements.  Yet very unwisely in my view, both President Poroshenko and then Zelensky said “we don't like these agreements, we are not going to honor them, they were made at gunpoint, we don’t accept them”. But that meant no compromise at all, and so my view is we need a compromise over the Donbas. I don't know what's feasible anymore. Before the war, the demand was to implement the Minsk II agreements, but since the war this year, these areas have been taken into Russia according to the Russian view. Of course, this incorporation into Russia is not the U.S. and European view, but it means negotiations will be very tough. The Donbas is a special case.

When it comes to Kherson and Zaporizhzhia, I think the Russian claim on this is much, much lower and much less plausible or justifiable, if at all. They are not predominantly ethnic Russian regions, they were not part of the Post-2014 conflict, they were added to the list when the Duma said that Russia will annex the territories. And I imagine that the situation there is much more negotiable in a real political sense than the issues of the Donbas, which are more negotiable than the issues of Crimea, that I think are hardly negotiable at all. 

I would expect both Kherson and Zaporizhzhia to revert to Ukraine as part of a peace settlement.

There will have to be territorial adjustments and I would say concessions, at least Crimea. From the point of view of Ukraine, in the end if somehow the principal was set to no territorial concessions to Ukrainian borders, then the “solution” in quotation marks would be a frozen conflict. The fighting would stop, both sides would contest who does what, but Russia would be in physical control of some places and not in other places. Maybe that's the most likely outcome of an end to the fighting, which is that there isn’t a final resolution of the conflict.

Many conflicts around the world are like that. At least the fighting stops.  Unfortunately, history also shows that the bitterness can go on for decades, even centuries. So frozen conflicts are not ideal, better to actually reach a negotiated outcome, but it might not be possible at this stage. What I really disagree with is the idea that Ukraine will fight to the end to retake Crimea before negotiating, or still less plausibly, fight in order to join NATO.

That view I think, is totally self-destructive, because I don't think it's going to happen, and I think it would lead to dreadful escalation even to the point of nuclear war.

Do you think there is a chance for Russia using nuclear weapons in Ukraine? What could be the consequences of such a move?

Of course, there could be an escalation to nuclear war. History shows that escalation can happen and even get out of hand from leaders. In the past (e.g. the Cuban Missile Crisis) nuclear weapons were also in the battlefield, and it seems that battlefield commanders had authority or believed they had authority, or could have taken authority to use them. We don’t know the situation exactly today with Russia forces and doctrines. I suggest that we should never push anywhere close to the point where we could learn the hard way. 

In the case of the Cuban missile crisis 60 years ago, it was only decades after the crisis itself that we learned the shocking truth, that nuclear war had almost come within 1 or 2 seconds because a disabled Soviet submarine was on the verge of launching a nuclear-tipped torpedo. If that had occurred, the U.S. military doctrine was apparently that any nuclear attack would be met by a complete, full nuclear attack by the United States against the Soviet Union, China and Eastern Europe under Soviet control.

The idea was total war in response to any nuclear attack. Now that seems like a bizarre, horrifying idea, because now we even understand that such a full attack would destroy the whole world through the nuclear winter, including the United States. It was the doctrine and we had really crazy people in the U.S. government. Thank God, not the President, John F. Kennedy, but Curtis LeMay who was Chief of Staff of the US Air Force, and who would have favored such a complete attack. So, I don't believe anybody that says it can't happen, don't worry about it, don't succumb to nuclear blackmail and so forth. This is not the right term and right thinking.

Nuclear escalation is possible, it's terrifying and we need to fight against it.

When it comes to the situation in Ukraine, if Russian leaders felt that the Russian system or regime was under dire threat, if NATO entered with boots on the ground – and they already have in some level, but much more engagement –, if Crimea were about to be lost to a direct conventional military assault by NATO in essence, I have no doubt that the Russian leadership would at least consider using tactical nuclear weapons. And they might reason that this is vital for state security and that the use of nuclear weapons against Ukraine would not trigger a full response by the United States for example, that would be their calculation. Who knows what we would do, who knows what the consequences would be?

So, if you ask: can we think of a scenario in which this would escalate a nuclear war, the answer is yes, in my view. And President Biden said as much a month ago, he said in effect, “we are on a path to Armageddon”, and that it's very hard to get off this path. When he said it the U.S. mainstream media and many politicians attacked him for even saying it, because nobody wants to hear such negative thoughts. It seems to some ears weak or appeasement, or succumbing to “nuclear blackmail.”

I think all Biden was trying to express was how dangerous the situation is.

I wish he would take it to the next logical consequence and negotiate, and maybe he was even making a kind of plea that we need to get off the current path, because you can never be completely sure how completely an American president is in control of U.S. foreign policy, because there are many forces and actors in play. So maybe he was trying to send a signal that this is very dangerous right now. But I would say in conclusion: worry about the nuclear risk a lot, and because of that worry we should be looking for ways to end this war now.

And finally, remember the very wise words of President John F. Kennedy in the aftermath of the Cuban Missile Crisis.  Kennedy said (June 10, 1963), “Above all, while defending our own vital interests, nuclear powers must avert those confrontations which bring an adversary to a choice of either a humiliating retreat or a nuclear war. To adopt that kind of course in the nuclear age would be evidence only of the bankruptcy of our policy—or of a collective death-wish for the world.”

One of the main points of geopolitical tension is the rivalry between the United States and China right now. How can we prevent rivalry from escalating into an open military conflict in one of the decades ahead?

The U.S.-China rivalry is becoming very dangerous, in no small part because of the U.S. geopolitical mindset, which holds the only way the U.S. can be safe is if it is the dominant power of the world. This is a very strange idea, because no other country in the world thinks this way. Hungary doesn't think “well the only way we can be safe is if we are the dominant country in the world”. Of course, that would be crazy for any country to think this way, but the U.S. does think this way, which is in my view a little bit of obnoxious, because that's not how a country really achieves security. A country achieves security by having a normal relationship with counterparts. The U.S. has a little bit forgotten diplomacy and tries instead to maintain security only through strength.

But real security comes through the diplomacy, not just through military dominance. When this gets translated vis-á-vis China, many U.S. politicians and strategists think that China is too risky and powerful to be allowed to continue to make economic progress. This is also a terrible idea, because how can the United States take decision to limit China's economic progress? The „containment” was the idea of the Cold war between the U.S. and the Soviet Union, but now it has been applied to China. It raises many questions. Is it appropriate? I think the answer is no. Is it likely to be effective? I think the answer is no. Is it dangerous? I think the answer is yes.

It means that we are on a path of rising conflict and the escalation.

This year’s expansion of the U.S. containment policy – most importantly the export bans on high-tech semiconductors to China –, is an open declaration of economic conflict with China, which I deeply disagree with and regret. How can this be controlled? There are two ways. One is that the U.S. and China calm the tensions down and that requires diplomacy, negotiations, and a lot more meetings between the two countries. Maybe that started at the G20, when President Biden and President Xi met, and if that becomes institutionalized in a lot more dialog, debate and negotiation between the two sides, that would be very good.

The other way would be for the European Union, to say to the United States, “we don't agree with your approach, we want to keep open relations with China, we want to keep trade relations and we don't want to have a showdown with China”. Not only that, the same countries within the NATO context should say the same thing.

Unfortunately, Brussels seems to be more in the American line than what I think would be good for the world and good for Europe.

But if Europe were very clear and said “we keep good relations with China, we want to keep good relations with the United States of course, but we don't believe in this containment approach”, this would really help because the United States would be pushed back and basically made aware that: no, China is not going to be cornered, China is not going to be contained, so that the US had better use other means to have security with China, starting with diplomacy. This is in my view what should be done.

During the 2020 elections, you supported Bernie Sanders, a candidate who defines himself as a democratic socialist. In your opinion, is there any possible Democratic candidate who could defeat Donald Trump, Ron DeSantis or whoever the Republican Party delegates into the 2024 presidential race?

I’m sure that there are many. I am sure I don’t even know their names now, because in the American political process we keep having candidates come out of nowhere. Who knew Bill Clinton’s name as a governor from Arkansas before the 1992 elections? Not very many people. Who knew Barack Obama’s name before the 2008 elections? Again, very few.

I’m sure there are Democratic party governors who could win. I am not in favor of Biden running for reelection, because I just think that people in their 80s should give way to younger people for a next generation of leadership, on principle actually. I think Donald Trump can be defeated by a normal person, who I regard would be more sensible and stable for the United States and for the world.

DeSantis, I think, will be a pretty formidable candidate because he's a kind of normal version of Donald Trump in a way, similar politics but much more presentable.

I am sure he is a strong politician, and I’m sure he wants to be president.  He’ definitely not my preference, but he will be running.

I’m hoping that Joe Biden will gracefully step to the side, and that we will have a full primary season of 6 or 8 candidates, 2 or 3 governors and candidates that I don't know and will say,

"Woah, that candidate looks interesting”, and we will end up with a strong candidate from the Democratic Party side.

Cover photo: Ákos Stiller / Portfolio