Ever since the end of the Cold War, certain segments of the U.S. elite has viewed the world as if it is just one big happy marketplace, and that economic policy is the only thing that matters in global statecraft. Wars and instability have been seen as things that happen in parts of the world that are meaningless, except to the extent that those places contain oil. In any case, whatever global shocks do occur as a result of political instability have been short-lived as markets have tended quickly recover and resume their “normal” path. In this view, Europe and Asia have come to be seen as a continents of political &economic stability. What instability there was here has been seen as a function of poor economic policies, with better economic policies being seen as the solution.

Recently, Vladimir Putin and Russia have intruded rather abruptly into this mostly happy narrative with actions in Crimea and the Ukraine. By bringing back specters of the Cold War, Putin has reminded everyone that Europe’s destiny as a fortress of political stability (like the continental United States) where war has, to quote one European politician, “been absolutely ruled out”, is far from assured.

To those who have followed Russia over the last 15 years, these developments are not terribly surprising. While Europe and Asia (and to some extent South America) have been liberalizing markets and crafting a liberal-market economic order, Russia has been operating along its own set of rules. While most states seem to see economic policies as a tool to improve the performance of companies and increase the prosperity of their citizenry, Russia appears to see its companies and economic policies primarily as a tool of global statecraft. For example, Germany has made itself so dependent on Russian gas (and Putin has shown no qualms about reducing or turning off the gas flow in other disputes) that it is inhibiting a united European response to the situation in the Ukraine.

Since the end of the Cold War, European states outside of Britain and France have largely tended to look at defense spending as a sort of welfare spending. Without an obvious threat and with the United States underwriting the security of Europe anyway, defense spending has not been a high priority. Consequently, European states have built up their economies, focused on trade, and enjoyed life (at least until the debt crisis). Going forward however, geopolitics is likely to have a more visible impact on the economic sphere. Firstly, as Europe increases defense spending, economic growth is likely to slow as defense spending tends to be economically unproductive spending, especially when you are just buying arms from another country. Secondly, with Russia appearing to be attempting to reconstitute the Soviet Empire is some form, they are likely to take (or threaten to take) economically disruptive actions from time to time, further hampering global economic growth. Thirdly, investments will now need to be made to counter or work around Russia, raising the cost of maintaining the global economic order and slowing economic growth.

Over the last 25 years, the field of economics and the policymaking elite appears to have forgotten the geopolitical aspect of economics. Economics is often seen as the interplay of market forces. To the extent that politics plays a role, it is often seen as secondary and being driven by market forces. What we have in the case of Russia may be a situation where politics is primary and economics is secondary. The Russian model of state capitalism appears to be organized along this assumption, in which many actions of its global companies appear designed to achieve political results rather than economic ones. Russia today is an actor that appears to be operating on a different set of assumptions than what has underpinned the global economic order. The surprise of the elite was expressed by no less a personage than President Obama when he stated that Russia was taking a 19^th century action in the 21^st century. Like it or not, Russia is determined to be a political player, and it appears that its actions are likely to have a negative economic impact globally.

Recently, comments from the Federal Reserve indicate that the Fed is concerned that low inflation is leading to the low economic growth that has been plaguing the country for the last 6 years. The Feds implied solution is to increase the money supply in order to spur investment and hiring. While these prescriptions follow basic Keynesian economic theory, there may be several problems with this line of reasoning.

The first one is that much of what we call macroeconomic theory has only changed marginally over the last 40-50 years or so, while the economy has changed a lot. Western economies are much more service oriented than they were 50 years ago, and there are many jobs today that didn’t even exist 30 years ago (and some that did exist that no longer do). While this might not matter much on a microeconomic level where issues of supply and demand determine price, it can matter a great deal on a macroeconomic level where the structure of an economy can impact how it will respond to various policies. In many ways, the failure of economic policy to engineer a solid recovery over seven years (The Great Depression last for 10) is a testament to an economic policy elite that has not yet figured out appropriate policies for the economic situation in which the country finds itself.

The second problem is that the Fed’s measure of inflation has changed over the years, and so economic policies that might have had an impact of ‘x’ thirty years ago, now have an impact of ‘y’ today. While deflation (negative of inflation) is highly contractionary and something to be avoided, even at the cost of stoking inflation, the Fed may not be using measurements that can be used in the context of earlier historical periods to determine the appropriate policy response.

Finally, while the Fed has generally been correct that historically, low economic growth and low inflation have tended to go together (except for that economic period in the 70’s in which stagflation reigned), the Fed may not be correct that high inflation causes high economic growth. It is not impossible that the causation works in one direction (high economic growth leads to high inflation), but not in the other direction (high inflation leads to high economic growth). If businesses don’t believe that the economy will be expanding they are not going to invest and hire.

Over the last 5 years, the Fed has been pumping money into the economy. However, due to limited investment opportunities, the money has been flowing into stocks and other securities. In short, while the stock market has increased, economic growth has remained sluggish. This is an indication that something has fundamentally shifted. Rather than simply trying more of the same medicine, the Fed should be trying to figure out policies that are more appropriate for the current economic situation, and not one that we faced 40 -60 years ago.

Another tax season is upon us, and with it roughly 6 billion hours in tax compliance that cost Americans around $168 billion (according to a Washington Post article done in 2013). While a complex and byzantine tax code can benefit those who make their living guiding ordinary mortals through it, or politicians who change it to reward favored interest groups, the tax code actually hurts the country as a whole.

Firstly, the country is hurt economically in that $168 billion annually in compliance cost is actually waste. This money and output does not produce anything tangible for society, and only enables Americans to do what most of them would do anyway in the absence of such complexity (i.e. pay their taxes). When one considers that $168 billion annually is roughly 20% of federal defense spending for fiscal year 2014, it is not hard to see that this amount is not insignificant and that these resources could likely be better spent elsewhere.

Secondly, the current tax code hurts the country from a transparency perspective. An opaque tax code allows politicians to reward certain interest groups by changing the code in ways that the public does not understand to the benefit of those interest groups. Many of these favors would not be politically feasible if the public truly understood what was going on, which is why the politicians don’t just write the favored interest groups checks from the public treasury. By keeping these changes and rewards hidden, the accountability of government is reduced.

Finally, a complex tax code hurts the country from a freedom perspective. In order for freedom to flourish, rules must be clearly defined and known in advance. A tax code where an individual is not sure whether or not one has broken the law, despite ones best efforts to comply, is not code that can be said to promote freedom in society.

Simply put, the American tax code is badly in need of serious overhaul. While certain proposals for flat taxes or national sales taxes in the past have sometimes been criticized on the grounds that they would not raise enough tax revenue or that they are inherently unfair (i.e. having the rich and the poor paying the same tax rate), such concerns do not require complexity to be addressed. For example, a ‘progressive flax tax’ might have 3 or 4 flat tax rates for various income brackets, and there is no reason that these rates could not be set high enough to raise the required revenue. While one can legitimately argue over exactly what the various tax rates should be and what an ideal tax system should look like, one would be hard pressed to make the case that the current tax system is the one that the United States should be using. It is long past time for a major overhaul of the U.S. tax system.