7. SHOCK THERAPY, The Harvard Boys - and the Troika, series 2 of 2

HERE IS ANOTHER LOOK AT IT from "Provoked", by Scott Horton, 4,600 words

On top of the insult and danger of Western incorporation of former Warsaw Pact states into the NATO alliance, was the “shock therapy” economic policy of the “Harvard Boys” from the Harvard Institute of International Development (HIID) working on grants totaling tens of millions of dollars from USAID.[488] These included Undersecretary of the Treasury Larry Summers, his protégé World Bank economist Andrei Shleifer, their rival professor Jeffrey Sachs and his friends David Lipton and Anders Åslund, Rhodes Scholar Jonathan Hay, and Treasury Secretary Robert Rubin—eventually under the command of the “troika” of Vice President Al Gore, Summers and Strobe Talbott. They helped to totally destroy the Russian economy in the 1990s.[489]

Gore and Viktor Chernomyrdin, a former director of the Russian state energy giant Gazprom, co-chaired the U.S.-Russia Commission on Economic and Technological Cooperation, the main mechanism for organizing the new relationship between the U.S. and Russia.[490] Talbott chaired the Former Soviet Union Policy Steering Group,[491] while Summers became undersecretary of the treasury for international affairs.[492]

Under Clinton’s predecessor, President George H.W. Bush, Secretary of State James Baker and even the self-proclaimed “Prince of Darkness,” neoconservative hawk Richard Perle, then on the Defense Policy Board, thought that the U.S. could cut Yeltsin a little bit of slack on the Soviet Union’s old debts—$65 billion worth, of which only $2.8 billion was held by the United States.[493] But Bush Sr.’s Treasury Secretary Nicholas Brady had won that argument.[494] The Russian Federation would begin its new reign from the bottom of an economic pit.

Then, instead of being a good sport at the end of a world-historic peaceful victory, the U.S. under Bill Clinton kept kicking them while they were down. The Soviets’ command-based economic plan had been a disaster, with distortions, mis-incentives and imbalances all over the place. To wind all that down and transform the country into a market-based economy was never going to be easy. But following the Harvard Boys’ advice, the government induced hyperinflation, destroying all available capital for real investment, then implemented “voucher” and “loans-for-shares” schemes that handed over entire industries to connected gangsters and oligarchs. The consequences for the economy and civilian population were devastating.

Versailles

Comparisons to the chaotic peace at the end of World War I, caused not just by the defeat of the Central Powers, but by the overly punitive Versailles Treaty, are worth considering. American intervention was what had put the Allies in the position to dictate the seizure of Germany’s outlying territories and demand war reparations to the Allies. This destabilized German society, helping to lead to the rise of the Nazis in the 1930s.[495]

Russia had been left in much the same position after the first Cold War. When the USSR fell apart, Russia ended up losing lands they had conquered centuries before,[496] including with ethnic Russian populations in the tens of millions which were being left behind now-foreign state lines, particularly in Latvia,[497] Estonia,[498] Ukraine,[499] Kazakhstan[500] and Uzbekistan.[501] Previous Russian and Soviet leaders, especially Catherine the Great[502] and Joseph Stalin,[503] had moved large numbers of ethnic Russians into these countries for political purposes in the first place. Now they were being abandoned. And their economy had completely fallen apart.

Most Americans raised in the post-World War II era were taught that the U.S. had wisely decided to rebuild and befriend our German and Japanese enemies at the end of that war to avoid making the same mistake. After the end of the first Cold War, the U.S. government and its Western allies treated Russia in much the same way as the British and French treated the Germans of the 1920s, if to a lesser degree. Instead of learning from Versailles and making a friend out of Russia, America’s politicians and national security establishment decided to press their advantage.

At various times, the Bush Sr. and Clinton administrations both invoked this same parable.[504] They both betrayed its lessons.

Hyperinflation

In 1990, Secretary of State James Baker, by trade a lawyer who represented international oil companies and who had previously been secretary of the treasury, had warned Mikhail Gorbachev in their all-important meeting of February 9 that before they moved to a free pricing system, “First you have got to absorb the ruble overhang. You plan to sell apartments, devalue the currency, issue gold back [sic] bonds, etc., which may help. But you have got to do it before you go [to] the price system or inflation will be in the thousands percent.”[505]

The “ruble overhang” Baker mentioned was the artificially high value of the Russian currency on global exchanges, as they had it pegged to the U.S. dollar. The fact of their monetary expansion, along with the predictable economic contraction they were sure to suffer during the transition, all equaled out to, far too much currency in circulation. The government had been expanding the money supply for years, but price controls disguised the effects on the shelves, instead causing shortages as to what was available.[506] Federal Reserve Chairman Alan Greenspan recommended selling savings bonds, with part of the interest being guaranteed in convertible currencies or gold in order to incentivize buyers, along with slashing budgets and selling off government property to absorb all the money that had been previously pumped into the system.[507]

Wall Street Journal reporter Anne Williamson wrote that Russian free-market economist Larisa Piyasheva had a brilliant plan to truly privatize property in Moscow and the rest of Russia. An important aspect of the plan was that they would auction off government-owned property for rubles. The privatization itself was, first of all, necessary to create the basis for a real free market, but the plan was also meant to help absorb extra rubles in circulation, which would be destroyed by the government, rather than re-spent, to combat the danger of wild price inflation once controls were lifted. Her sound advice was ignored. The government decided to free prices before privatizing state assets. However, once it came to lifting the price controls, Piyasheva noted to Williamson that Deputy Finance Minister Yegor Gaidar “freed prices only for consumer goods and services, but not for raw materials, minerals and real estate, thereby preserving the nomenklatura’s choicest bites while simultaneously robbing the people of their savings.” As Piyasheva explained, “Gaidar is, in fact, a Communist. As a Communist, he can’t consider private property to be of principal importance and even said it was too early for privatization, that first financial stabilization should be achieved.”[508]

So the new government did not try or was unable to compensate by somehow “absorbing” all that extra money before price controls were lifted. Gaidar himself complained that he would have preferred to limit the central bank’s money printing, but that question was simply outside of his jurisdiction.[509] Their rapid monetary expansion led to price inflation of 2,500 percent in 1992,[510] devastating Russian society, wiping out the savings of virtually everyone. Real gross domestic product shrank by 50 percent in four years. More than 100 million people were sent into poverty. Forbes reporter Paul Klebnikov wrote that Russia was devastated: “Eventually Russia would sink below the level of China, India, Indonesia, Brazil and Mexico on a per capita basis. Russia would become poorer than Peru.” In this partially induced depression, “decades of technological achievement were lost. Renowned scientific institutions fell apart. The Russian cultural establishment disintegrated and the country’s assets were sold off.”[511]

Gaidar, who had come from a Communist background and promised Yeltsin he could create a free-market system in 18 months, was motivated, but, like Yeltsin,[512] had no idea what he was doing.[513] Gaidar had summoned the young economists Anatoly Chubais and Dmitri Vasiliev to come work for him. The latter two had already worked on moving privatization forward in the newly again-renamed St. Petersburg, no longer Leningrad. By the end of 1991, he had hired Jeffrey Sachs and David Lipton to advise him as well.[514] Though Sachs was credited with quickly ending the massive hyperinflation in Yugoslavia,[515] and had been praised for his handling of Poland’s transition to a market economy, the situation in that nation was far different. A much greater percentage of Russia’s economy was owned by the state, and the heavy industries were used to running massive deficits and being bailed out by the central government. Since scaling back the money-printing would have deepened the recession in the short term, the central bank simply shoveled endless amounts of money to the new private banks in an attempt to prop up government employees and other wages, even as the inflation they were causing made everything unaffordable anyway. Lastly, unlike in Poland where they were able to set a fixed exchange rate in the middle of their shock therapy program, when Gaidar tried it in Russia, it simply led to a large increase in the demand for dollars, a further collapse of demand for their endlessly printed rubles and massive capital flight of billions of dollars out of the country.[516]

American free-market economist Murray N. Rothbard urged the absolute and total privatization of everything in the old Soviet system immediately. Half-measures, he said, would only prolong the pain of the change. Like Williamson, Rothbard cited the great success that was the end of the famous Marshall Plan in Europe.[517] West German Minister of Economic Affairs Ludwig Erhard had gone on the radio on a Sunday in June 1948, and announced that all wage and price controls were over and a new currency would be issued. Contrary to the commonly taught history of those events, it was this action, against the wishes of all the Keynesian central planners, that allowed for the miracle of the rebuilding of the West German economy after the war.[518]

Instead, the Russians lifted some price controls, kept others, continued massively expanding the money supply through negative real interest rates[519] and caused a hyperinflation crisis that wiped out the savings of anyone whose wealth was denominated in rubles, as Baker predicted. This was an almost immediate fatal blow to the capitalist system before it ever had a chance to start.[520] Much of this was due to American pressure on Gaidar and his team to make the transition to market capitalism “irreversible” based on the myth that the shattered and discredited Communist Party could somehow rise from the dead and take the country back over again if the process took too long.[521]

“Chubais didn’t understand a thing he was doing, he never so much as read an article on privatization,” one Russian close to the process told Williamson. He called Russian privatization a “bamboo tractor,” referring to an attempted Chinese invention of the 1950s, “meaning something invented out of local resources, because for whatever reasons the natives can not follow other procedures, so they have to be very domestic in their approach.”[522]

The problem with the way they implemented privatization was that it did not come before the unleashing of prices. Letting people spend all their saved-up rubles would have been a perfect way to transfer state property to private citizens and companies, while allowing the government to destroy all that inflationary money as they received it, killing two birds with one stone. Williamson later said that the Harvard Boys did not want to absorb all those rubles in the hands of regular Russians. Accepting their money in exchange for state property would create a “competing claim,” in the words of one Harvard economist, on industries they wanted under the control of chosen winners.[523]

This massive inflation meant that money had, in a sense, ceased to exist. The economy, even among large-scale producers, had been reduced to a barter system of exchange more primitive than the Marxism they had just thrown off.[524] Fuel for transportation and running farm equipment and other machinery became unaffordable.[525] Agriculture, mining and other capital-intensive industries were devastated. Their workers were driven into the lowest depths of poverty.[526] When Williamson asked if further lending by the IMF and the World Bank would be helpful, Russian chief auditor Venyamin Sokolov answered, “Giving more loans to the Yeltsin government is comparable to giving a drug addict a fresh supply of narcotics. Any new loans will only go to the realm of financial speculation and to prop up support for Boris Yeltsin.” What Russia truly needed, he said, was “loans only for the purchase of new equipment or the restructuring of enterprises, and such funds can be attained from the private sector.”[527]

Vouchers

In 1992, Anatoly Chubais, the head of the state property committee, on advice from HIID’s Swedish associate Anders Åslund,[528] began issuing vouchers for 10,000 rubles to every Russian to buy stock in new companies taking over old state-owned firms. The whole thing turned out to be a disaster. Western financial institutions did the same thing they had done in Germany after World War I: they sent agents to link up with some unscrupulous locals and offered them U.S. dollars and British pounds to go buy up vouchers for practically nothing.[529] The hyperinflation induced desperate people to sell their nearly worthless vouchers for shares of industrial stock at massive discounts just to try to stay alive. Because there were price controls on stocks, which most regular people did not understand, the few connected rich bought up entire companies’ worth of vouchers for the price of a few crates of vodka.[530] The later infamous Russian oligarchs became such by seizing control of this process and thereby the entire Russian economy.

Matt Bivens of the Moscow Times explained that regular people who kept their vouchers ended up stuck with shares of some brick factory in the Arctic Circle while industries of high value were divided up separately.[531] Klebnikov added that most sold their vouchers for a few dollars or put them into pyramid schemes that later collapsed. “Instead of creating a broad class of shareholders, Chubais’s privatization gave away Russia’s industrial assets to corrupt enterprise managers or to the new Moscow banks.”[532]

Another problem was that when property was being sold off at such artificially low prices, they went to people who did not have the skills to run the businesses they had taken over, so high-producing ventures were replaced by lower-producing ones. Klebnikov cited a car factory and a scientific research center that were both closed down since there were much easier ways for the new owners of the property to recoup their investment by simply renting out the space to someone else.[533]

Klebnikov criticized Chubais for putting everything up for auction all at once: oil, metals, mining, timber, automobiles, machine tools, shipping fleets and ports. This flooded the market and massively depressed prices for the most valuable parts of the Russian economy. If they had meant well or knew what they were doing, he said, they would have auctioned off the property starting with smaller businesses first, with the major firms being carefully spun off into the market to suit economic conditions as had previously been done in Eastern Europe.[534] Perhaps if they had truly privatized so quickly it would have worked out once prices settled, but the economy remained heavily politicized, with the national government retaining ownership of major portions of important firms and preventing market pricing from ever truly getting a chance to kick in.

Rothbard, the Austrian school economist, had again thought all this through.[535] Rather than giving everyone vouchers to buy stock in all former state-owned businesses, they should have simply turned them over to the individuals who already worked at each company, in other words, let them “homestead” the assets. “After this one mighty stroke of universal privatization,” Rothbard wrote, “prices of ownership shares on the market will fluctuate in accordance with the productivity and the success of the assets and the firms in question.” He said that opponents of the idea usually decried it as an unfair “giveaway” of “windfall gains.” On the contrary, he said, “the homesteaders have already created or taken these resources and lifted them into production, and any ensuing gains (or losses) will be the result of their own productive and entrepreneurial actions.”[536]

But it was not to be. A House committee led by Republican Chris Cox of California stated that the voucher scheme “was devised by troika partner Anatoly Chubais’s U.S.-funded Russian Privatization Center and Harvard Institute for International Development, along with the U.S. Agency for International Development (USAID).” Thomas Dine, the USAID Assistant Administrator for Europe and the New Independent States, told the Senate Foreign Relations Committee that “USAID expert advisers helped Russian counterparts in designing and implementing the voucher system.”[537]

By handing massive industrial concerns to the well-connected for essentially nothing, they had given control to men who were not real businessmen, and had no access to permanent flows of capital to keep their machines and men working. So they just liquidated whatever assets they could and spent the profits on luxuries and entertainment for themselves instead of reinvesting in the businesses they had come to own through virtually no effort or even expense of their own.[538]

Writing that Sachs and his allies had put far too much emphasis on the rapidity of the transformation from state to private ownership of major industries, compared to establishing a rule of law, liberal economist Jamie Galbraith—John Kenneth’s son and Amb. Peter’s brother—assessed the that entire enterprise amounted to sabotage of the Russian economy. He quoted Georgi Arbatov, who was then a member of the foreign policy council of the Foreign Ministry of the Russian Federation, saying many Russians believed shock therapy was “a conscious design to undermine Russia completely as a great power and transform her into a kind of Third World country. The actual results of shock therapy have not been far from this goal.”

Galbraith concluded that nothing could change “the responsibility of leading American economists, diplomats and politicians—well-meaning liberals, in many cases—for the role that they played, in good faith or in bad, in one of the great economic tragedies of a generation.”[539]

Comparing the Harvard Boys with Franklin Roosevelt’s New Deal Brain Trusters who pushed through the remaking of American economic governance in 1933,[540] Anne Williamson wrote: “Choosing favoritism over the hard slog of institution-building, the Harvard crowd sold themselves by overselling their Russian contacts whose importance and competence they exaggerated to USAID officials.” Instead of working to create a real free-market system, the Harvard Boys convinced USAID to focus their efforts on helping the individual young “go-getters” they had picked, “rather than to risk fragmentation in attempting to build a consensus or to assist in engineering compromises between different social and political groups.”[541]

Williamson described another form of shock the Russian people had to suffer, finding out the prices at which massive industries had been sold during the voucher privatization. “The public sneered when it became known Russia had collected twice less than the revenues from privatization in Hungary, a country that would hardly constitute a particularly large Russian oblast or province.” She listed just a few of the daily outrages: “the Hotel Cosmos with its $10 million annual net profit sold for $23,500,000, the national electric company United Energies sold for $650,000,000, ZIL Automobile Works’ one billion in assets went for $4 million.” She continued, “Gazprom, representing approximately a third of the world’s natural gas, was valued at $230,000,000. Ports, oil companies, high-tech factories of the military sector, all sold for a pittance.”[542]

Elsewhere she described the results of the new voucher system as the opposite of privatization. The national government had found a way to ensure its continued partial ownership, and influence over important firms by rigging the auctions so they would maintain a controlling portion of the shares.[543]

‘Bullshit!’ (What V.P. Al Gore doodled on the report, while listening about Chubais corruption.)

Professor Janine Wedel wrote in 1996 that the Clinton administration’s policy when it came to foreign aid was simply to give it all to Deputy Prime Minister Chubais and the “St. Petersburg mafia,” as an HIID report called them, including Maxim Boycko, Dmitri Vasiliev and Ruslan Orekhov, who then passed around the aid to chosen cronies to consolidate their own wealth and power. The voucher system itself was built on a $58 million grant from USAID, which spent almost $8 million on salaries for 10 advisers to the State Property Committee. There is no point diminishing the Americans’ part in all this. They were happy to take credit back then. When USAID’s Thomas Dine was asked in 1996 if his organization had “helped propel Chubais into top positions in Russian government,” he answered, “As an observer, I would say yes.” And by picking this one small group of reformers to support, they were, Wedel concluded, “thus alienating other parties and avoiding other processes that clearly had to be brought on board if legal and regulatory reforms were to take place.”[544]

The CIA warned the vice president about Chernomyrdin’s and Chubais’ corruption, but Gore refused to listen, reportedly scrawling “Bullshit!” across the margin of one intelligence report on the issue.[545] He later denied the charge that he had written on it, but essentially confirmed the rest of the story, telling NBC News’s Tim Russert about the intelligence report, “You talk to the people who were in charge of that division and what they’ll tell you was that they absolutely agreed that it was a very sloppy piece of work.” Russert asked Gore if he thought Chernomyrdin was corrupt. “I have no idea,” the vice president insisted.[546] As prime minister, the man had sold himself and his friends the massive oil and gas firm Gazprom for less than a thousandth of its market value,[547] moved billions of dollars out of the country and was worth at least $5 billion himself.[548] But Clinton and Gore were not sure if he was corrupt.

However, Chubais himself was not so reluctant to admit the truth. As he told journalist Alexander Gentelev, “There are now 40 million people who hate Chubais. And they have good reason to hate me.”[549]

The Russians surely were in a difficult position. They needed to privatize their industries quickly. At the end of 1991, there were 225,000 state companies.[550] Something had to be done with them. And they needed men who could figure out how to run such large firms, but no one had the money to invest. Billions had already left the country in a massive flight of capital from the new, unstable situation.

The Soviets’ previous central plans had been a disaster, necessitating Gorbachev’s attempts to decentralize with his Perestroika program. But in many cases, this had only made things worse.

[NOTE: I am under the impression that central controls were constantly deleted and replaced with nothing, since the time of Khrushchev. I could look further in my notes.]

The government had devolved decision-making away from the central committees to the managers of the major factories, but did not transfer ownership, which would have created incentive to preserve the firms for the long term. In essence, officials had given the new bosses the ability to simply strip the factories of anything useful and split, cannibalizing and hollowing them out from the inside. In that sense, the Communists’ attempted reforms had only sped the collapse of their system.[551]

After the fall of the USSR, Russia’s heavy industries were turned over to these incompetent oligarchs at deep discounts, so they had no incentive to exert real effort to get the businesses back up and running. Like the Communist Party’s managers before, they would often simply run off with anything immediately valuable for short-term gains, then move the money out of the country.

The level of criminality in the Russian government and big business was beyond belief. One scam simply had fake banks send each other phony wire transfers that the central bank would always honor. More than half a billion dollars—equivalent to one third of the IMF’s loans to Russia for that year—was stolen this way in 1992–1993 in what Klebnikov called “one of the biggest disasters of the ‘reformist’ government of Acting Prime Minister Yegor Gaidar.”[552]

In July 1993, the Russian central bank suddenly announced that all previously printed banknotes would be considered worthless in two days’ time while people would have two weeks to trade in up to 35,000 rubles for new currency. This led to a massive panic as citizens rushed to unload their now completely worthless currency for goods of any kind. Pensioners were wiped out. Travelers were stranded with no way to buy plane or train tickets home. The arbitrary nature of the decision and the lack of any clear lines of authority behind it helped to reinforce the public’s conception of the lawlessness and corruption of the new system. Those with political influence could have what they wanted, while regular people would not even be left the scraps.[553]

Sachs Blames D.C.

For his part, Harvard’s Jeffrey Sachs blamed Washington for ham-stringing his efforts to help the Russians get the transformation right. His advice had worked in Bolivia, Slovenia and Poland, where he had been advising since the late 1980s.[554] Sachs says his focus was on trying to end the inflation and create a working currency, and that while he supported the voucher system, privatization was actually his colleague Andrei Shleifer’s department.[555] As far as the inflation is concerned, Sachs wrote that he stands by his advice to Gaidar to immediately lift price controls first, and that it really did only cause a “one-time jump” in prices, and worked quickly to end shortages. However, he argues, they would not listen to him when it came to other central parts of the program, including his call for tens of billions in Western loans, tight fiscal and monetary policy to beat inflation and new public healthcare and pension systems to solidify political support for the overall changes.[556] He argued at the time that the H.W. Bush administration was not doing enough to help.[557]

The hyperinflation, as ever, was the central bank’s fault.[558] In this case, it was under the control of Viktor Gerashchenko from the ancien régime, who was not part of the Gaidar team. Sachs also warned about this at the time.[559] On top of that, the IMF continued to insist the Russian ruble remained the common currency for the 15 former Soviet states, incentivizing each of their central banks to continue inflating on their own.[560]

Gaidar was fired at the end of 1992. The incoming Clinton administration had no more interest in helping Russia than the Bush Sr. government did. Though the new finance minister, Boris Fyodorov, said that he and his advisers produced quality reports on the economic situation, he did not have enough influence over Prime Minister Chernomyrdin. “I never once recommended the privatization of the oil and the gas sector by vouchers, or giveaways, or loans-for-shares deals, and to this day regard these actions as abominable missteps,” Sachs wrote in 2012.[561]

Though it is hard to see how tens of billions of dollars of IMF loans would have done any good, rather than just being embezzled away like the rest of it, by 1994 Sachs had concluded the Clinton administration was refusing the debt relief and short-term IMF loans he believed Russia needed, amounting to $150 billion over five years,[562] due to a deliberate choice to prevent Russia’s recovery. He concluded that they wanted to see it weakened.[563] Sachs and Åslund resigned just one year into Clinton’s presidency, after Chernomyrdin announced in January 1994 that the central government would continue massive state support for industry and agriculture, which the two predicted would cause worse monetary and price inflation.[564]

Finally, in October 1994, Yeltsin fired Chubais from his job running the National Privatization Committee (GKI).[565]

Excess Deaths

Bill Clinton and Boris Yeltsin’s men hit Russia like Stalin and the NKVD.[640] It is hard to believe, but the numbers do not lie. As Boettke reported in 1999, “From the 1960s to the 1980s life expectancy had declined from 67 to 62 for men, [and] since 1992 the decline has continued so that life expectancy for a Russian male is now in the mid- to upper-50s.”[641]

Steven Rosefielde, professor of comparative economic systems at the University of North Carolina at Chapel Hill, estimated 3.4 million premature Russian deaths between 1990 and 1998.[642] That does not count all the hardship from the second major economic crash that hit in August 1998.

Swedish journalist Dan Josefsson recounted that “between 1991 and 1997, Russian GNP—i.e., the value of all goods and services that Russia produces—went down 83 percent. Agrarian production decreased 63 percent. Investment decreased 92 percent.” He added, “70,000 factories were closed down. This led to Russia producing 88 percent fewer tractors, 76 percent fewer washing machines, 77 percent less cotton fabric, 78 percent fewer TV sets—the list is endless.” Thirteen million people had lost their jobs, the rest lost half their purchasing power. Life expectancy for men had fallen by six years.[643] The USSR had been a centrally planned monstrosity with mal-investments and distorted prices and systems beyond imagination. The correction to natural price structures in a genuinely free market was destined to be difficult. But the U.S. not only did not help them, but actively made it worse.

Forbes’s Paul Klebnikov concluded, “Both the Yeltsin clan and the crony capitalists remained in power, but they presided over a bankrupt state and an impoverished population.” In the end, he wrote, “[t]he young democrats were supposed to clean up Russia, devise a proper legal system and foster a market economy. Instead they presided over one of the most corrupt regimes in history.”[644] On the demographic collapse, he wrote, “Between 1990 and 1994 male mortality rates rose 53 percent, female mortality rates 27 percent, male life expectancy plunged from an already low level of 64 years in 1990 to 58 in 1994.” That meant that “men in Egypt Indonesia or Paraguay could now expect longer lives than men in Russia. In the same brief period, female life expectancy fell from 74 to 71. The world had seldom seen such a decline in peacetime.”[645]

Journalist and historian David Satter wrote in the Journal, “In the period from 1992 to 1998, the Russian gross domestic product fell by half. This had not happened even under Nazi occupation.” He said that “between 1992 and 1994, the rise in the death rate in Russia was so dramatic that Western demographers did not believe the figures. The toll from murder, suicide, heart attacks and accidents gave Russia the death rate of a country at war.” The excess death rate had been determined to be “between five and six million persons.”[646]

Oxford Professor Christopher Davis similarly noted that “the crude mortality rate rose from 11.2 deaths per 1,000 in 1990 to a peak of 15.7 in 1994, declined to 13.6 in 1998, and then rose to 15.3 in 2000.”[647]

Nobody knows how much money was stolen, but it was in the hundreds of billions of dollars, much of it siphoned out of the Russian economy into foreign bank accounts as regular Russian people were literally starving to death and dying from a lack of basic necessities. Another almost $30 billion in IMF loans disappeared along with it.[648]

Murder, suicides, a broken healthcare and pension system, massive alcoholism and drug abuse—Yeltsin’s hyperinflation and gangster state destroyed Russia.[649] Just imagine, the fall of a Communist regime and Marxist economy leading to the lowering of life expectancy by more than six years. That was the reality of the result of the corruption and bad faith of the neo-liberal economic advisers Bill Clinton sent to Russia, their bosses back home and the “family” of criminals they supported in power.

Former Premier Gorbachev lamented, “Shock therapy did irreparable harm. Most dangerous are the social consequences—the sharp drop in standards of living, the enormous inequality of incomes, the decline in life expectancy—not to mention impoverishment of education, science and culture.”[650]

NOTES: Chapter Six.

[488] Janine R. Wedel, “Clique-Run Organizations and US Economic Aid: An Institutional Analysis,” Demokratizatsiya: The Journal of Post-Soviet Democratization, Vol. 4, No. 4 (Fall 1996), https://demokratizatsiya.pub/archives/04-4_wedel.pdf.

[489] Janine R. Wedel, “The Harvard Boys Do Russia,” The Nation, May 14, 1998, https://thenation.com/article/world/harvard-boys-do-russia. (This is our post number 6.)

[490] “Declassified Documents concerning Gore-Chernomyrdin Commission,” Clinton Digital Library, https://clinton.presidentiallibraries.us/items/show/36597.

[491] Rep. Christopher Cox, et al., “Russia’s Road to Corruption: How the Clinton Administration Exported Government Instead of Free Enterprise and Failed the Russian People,” US House of Representatives Speaker’s Advisory Group on Russia, September 2000, https://irp.fas.org/congress/2000_rpt/russias-road.pdf.

[492] Hobart Rowan, “Treasury’s Summers Becomes a Power,” Washington Post, June 26, 1993, https://washingtonpost.com/archive/business/1993/06/27/treasurys-summers-becomes-a-power/f74a4db2-c143-48d6-bc33-99a2561ad83b.

[493] James M. Goldgeier and Michael McFaul, Power and Purpose: US Policy Toward Russia After the Cold War (Washington: Brookings Institution Press, 2003), 71.

[494] Sarotte, 139; Goldgeier and McFaul, 71–72.

[495] James Powell, Wilson’s War: How Woodrow Wilson’s Great Blunder Led to Hitler, Lenin, Stalin, and World War II (New York: Forum Books, 2007).

[496] Paul Klebnikov, Godfather of the Kremlin: The Decline of Russia in the Age of Gangster Capitalism (Orland: Harcourt, 2000), 78.

[497] Anchal Vohra, “Latvia Is Going on Offense Against Russian Culture,” Foreign Policy, March 21, 2023, https://foreignpolicy.com/2023/03/21/latvia-is-going-on-offense-against-russian-culture; Lukas Degutis, “Why Latvia is expelling its Russian speakers,” The Spectator, March 2, 2024, https://spectator.co.uk/article/why-latvia-is-expelling-its-russian-speakers.

[498] Frank Gardner, “Narva: The Estonian border city where Nato and the EU meet Russia,” BBC, May 25, 2022, https://bbc.com/news/world-europe-61555691.

[499] John Quigley, “I led talks on Donbas and Crimea in the 90s. Here’s how the war should end,” Responsible Statecraft, May 9, 2022, https://responsiblestatecraft.org/2022/05/09/i-led-talks-on-the-donbas-and-crimea-in-the-1990s-heres-how-the-war-should-end.

[500] “Kazakhstan – Country Summary,” CIA World Factbook, https://cia.gov/the-world-factbook/countries/kazakhstan/summaries.

[501] Steele, 155.

[502] Steele, 217.

[503] Mehmet Oğuzhan Tulun, “Russification Policies Imposed on the Baltic People by the Russian Empire and Soviet Union,” DergiPark Akademik, January 25, 2012, https://dergipark.org.tr/tr/download/article-file/701004.

[504] Robert Zoellick, “Reagan, George H.W. Bush, and Gorbachev,” C-SPAN, November 9, 2017, https://c-span.org/video/?436789-5/reagan-george-hw-bush-gorbachev; John Vinocur, “For NATO and Russia, A Landmark Charter,” International Herald Tribune, May 28, 1997, https://nytimes.com/1997/05/28/IHT-for-nato-and-russia-a-landmark-charter.html.

[505] “Memorandum of conversation between Mikhail Gorbachev and James Baker in Moscow,” US State Department, February 9, 1990, https://nsarchive.gwu.edu/document/16116-document-05-memorandum-conversation-between.

[506] Klebnikov, 50.

[507] Klebnikov, 51.

[508] Anne Williamson, Unpublished Manuscript.

[509] Steele, 296.

[510] Janine R. Wedel, “The Harvard Boys Do Russia,” The Nation, May 14, 1998, https://thenation.com/article/world/harvard-boys-do-russia.

[511] Klebnikov, 103–04.

[512] Steele, 38–40.

[513] Adam Curtis, “Russia 1985–1999: Trauma Zone: What It Felt Like to Live Through the Collapse of Communism and Democracy,” BBC, October 13, 2022,

[514] David McClintick, “How Harvard Lost Russia,” Institutional Investor, January 12, 2006, https://institutionalinvestor.com/article/2btfpiwkwid6fq6qrokcg/home/how-harvard-lost-russia.

[515] Zimmermann, 48–49.

[516] Steele, 299–301.

[517] Murray N. Rothbard, “A Radical Prescription for the Socialist Bloc,” The Free Market, Vol. 8, No. 3 (March 1990), https://mises.org/library/radical-prescription-socialist-bloc.

[518] Staff, “Foreign News: Engineer of a Miracle,” Time, October 28, 1957, https://time.com/archive/6612360/foreign-news-engineer-of-a-miracle; Ludwig Erhard, Prosperity Through Competition (New York: Frederick A. Praeger books, 1958), https://mises.org/library/book/prosperity-through-competition.

[519] Klebnikov, 30–31.

[520] Klebnikov, 5, 80.

[521] Steele, 298–99.

[522] Anne Williamson, Unpublished Manuscript.

[523] Anne Williamson, “Russia: Don’t Cry for Yukos,” Ludwig von Mises Institute, February 18, 2005, https://mises.org/podcasts/austrian-economics-and-financial-markets/russia-dont-cry-yukos.

[524] Anne Williamson, “Russia’s Fiscal Whistleblower,” Mother Jones, June 16, 1998, https://motherjones.com/politics/1998/06/russias-fiscal-whistleblower.

[525] Carey Goldberg, “Huge Fuel Price Boosts Next for Russians,” Los Angeles Times, May 19, 1992, https://latimes.com/archives/la-xpm-1992-05-19-mn-237-story.html.

[526] Steele, 310–23.

[527] Anne Williamson, “Russia’s Fiscal Whistleblower,” Mother Jones, June 16, 1998, https://motherjones.com/politics/1998/06/russias-fiscal-whistleblower.

[528] Dan Josefsson, “Shock Therapy: The Art of Ruining a Country,” Torsdag, April 1, 1999, https://web.archive.org/web/20081121100700/http://josefsson.net/artikelarkiv/51-shock-therapy-the-art-of-ruining-a-country.html.

[529] “US Policy Toward Russia, Part II: Corruption in the Russian Government,” US House of Representatives, October 7, 1999, https://govinfo.gov/content/pkg/CHRG-106hhrg62963/html/CHRG-106hhrg62963.htm.

[530] Dan Josefsson, “Shock Therapy: The Art of Ruining a Country,” Torsdag, April 1, 1999, https://web.archive.org/web/20081121100700/http://josefsson.net/artikelarkiv/51-shock-therapy-the-art-of-ruining-a-country.html.

[531] Sherry Jones, “Return of the Czar,” PBS Frontline, May 9, 2000, https://pbs.org/wgbh/pages/frontline/shows/yeltsin/etc/script.html.

[532] Klebnikov, 5.

[533] Klebnikov, 127–28.

[534] Klebnikov, 128.

[535] Murray N. Rothbard, “How and How Not to Desocialize,” The Review of Austrian Economics, Vol. 6, No. 1 (1992), 65–77, https://cdn.mises.org/rae6_1_2_2.pdf.

[536] Murray N. Rothbard, “A Radical Prescription for the Socialist Bloc,” The Free Market, Vol. 8, No. 3 (March 1990), https://mises.org/library/radical-prescription-socialist-bloc.

[537] Rep. Christopher Cox, et al., “Russia’s Road to Corruption: How the Clinton Administration Exported Government Instead of Free Enterprise and Failed the Russian People,” US House of Representatives Speaker’s Advisory Group on Russia, September 2000, https://irp.fas.org/congress/2000_rpt/russias-road.pdf.

[538] Dan Josefsson, “Shock Therapy: The Art of Ruining a Country,” Torsdag, April 1, 1999, https://web.archive.org/web/20081121100700/http://josefsson.net/artikelarkiv/51-shock-therapy-the-art-of-ruining-a-country.html.

[539] James K. Galbraith, “Shock Without Therapy,” The American Prospect, August 12, 2002, https://prospect.org/features/shock-without-therapy.

[540] Burton W. Folsom Jr., New Deal or Raw Deal?: How FDR’s Economic Legacy Has Damaged America (New York: Threshold Editions, 2009).

[541] Anne Williamson, Unpublished Manuscript.

[542] Anne Williamson, Unpublished Manuscript.

[543] Anne Williamson, “Russia: Don’t Cry for Yukos,” Ludwig von Mises Institute, February 18, 2005, https://mises.org/podcasts/austrian-economics-and-financial-markets/russia-dont-cry-yukos.

[544] Janine R. Wedel, “Clique-Run Organizations and US Economic Aid: An Institutional Analysis,” Demokratizatsiya: The Journal of Post-Soviet Democratization, Vol. 4, No. 4 (Fall 1996), https://demokratizatsiya.pub/archives/04-4_wedel.pdf.

[545] James Risen, “Gore Rejected CIA Evidence of Russian Corruption,” New York Times, November 23, 1998, https://nytimes.com/1998/11/23/world/gore-rejected-cia-evidence-of-russian-corruption.html.

[546] “Text: Tim Russert’s Interview With Vice President Gore,” NBC News, July 16, 2000, https://washingtonpost.com/wp-srv/onpolitics/elections/goretext071600.htm.

[547] Klebnikov, 134–35.

[548] Adam Curtis, “Russia 1985–1999: Trauma Zone: What It Felt Like to Live Through the Collapse of Communism and Democracy,” BBC, October 13, 2022,

Klebnikov, 114.

[549] Adam Curtis, “Russia 1985–1999: Trauma Zone: What It Felt Like to Live Through the Collapse of Communism and Democracy,” BBC, October 13, 2022,

[550] David McClintick, “How Harvard Lost Russia,” Institutional Investor, January 12, 2006, https://institutionalinvestor.com/article/2btfpiwkwid6fq6qrokcg/home/how-harvard-lost-russia.

[551] Adam Curtis, “Russia 1985–1999: Trauma Zone: What It Felt Like to Live Through the Collapse of Communism and Democracy,” BBC, October 13, 2022,

[552] Klebnikov, 27.

[553] Steele, 359–63.

[554] David McClintick, “How Harvard Lost Russia,” Institutional Investor, January 12, 2006, https://institutionalinvestor.com/article/2btfpiwkwid6fq6qrokcg/home/how-harvard-lost-russia.

[555] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[556] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[557] Jeffrey D. Sachs, “Russia Needs Real Aid Now,” Washington Post, December 18, 1992, https://washingtonpost.com/archive/opinions/1992/12/18/russia-needs-real-aid-now/9b7eecbe-1c15-4253-a486-cb10cdd647ba.

[558] Murray N. Rothbard, What Has Government Done to Our Money? (Auburn: Ludwig von Mises Institute, 1963), https://mises.org/library/book/what-has-government-done-our-money.

[559] Jeffrey Sachs and David Lipton, “Russia on the brink,” Financial Times, October 16, 1992, https://jeffsachs.org/newspaper-articles/25w2h3ywgysty47ezllaya8ycs4cny; Peter Passell, “Dr. Jeffrey Sachs, Shock Therapist,” New York Times, June 27, 1993, https://nytimes.com/1993/06/27/magazine/dr-jeffrey-sachs-shock-therapist.html.

[554] David McClintick, “How Harvard Lost Russia,” Institutional Investor, January 12, 2006, https://institutionalinvestor.com/article/2btfpiwkwid6fq6qrokcg/home/how-harvard-lost-russia.

[555] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[556] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[557] Jeffrey D. Sachs, “Russia Needs Real Aid Now,” Washington Post, December 18, 1992, https://washingtonpost.com/archive/opinions/1992/12/18/russia-needs-real-aid-now/9b7eecbe-1c15-4253-a486-cb10cdd647ba.

[558] Murray N. Rothbard, What Has Government Done to Our Money? (Auburn: Ludwig von Mises Institute, 1963), https://mises.org/library/book/what-has-government-done-our-money.

[559] Jeffrey Sachs and David Lipton, “Russia on the brink,” Financial Times, October 16, 1992, https://jeffsachs.org/newspaper-articles/25w2h3ywgysty47ezllaya8ycs4cny; Peter Passell, “Dr. Jeffrey Sachs, Shock Therapist,” New York Times, June 27, 1993, https://nytimes.com/1993/06/27/magazine/dr-jeffrey-sachs-shock-therapist.html.

[560] Anders Åslund, “Lessons from the Collapse of the Ruble Zone,” IFO Institute, December 2016, https://ifo.de/DocDL/forum-2016-4-aslund-ruble-zone-collapse-december.pdf.

[561] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[562] Jeffrey D. Sachs, “What I did in Russia,” JeffSachs.org, March 12, 2012, http://acamedia.info/politics/ukraine/jeffrey_sachs/What_I_did_in_Russia.pdf.

[563] Jeffrey D. Sachs, “Good decisions on economy needed to secure Russia’s future,” Taipei Times, February 24, 2014, https://taipeitimes.com/News/editorials/archives/2014/02/24/2003584208; Jeffrey Sachs, Interview with Tyler Cowen, April 9, 2015, https://conversationswithtyler.com/episodes/jeffrey-sachs.

[564] Steven Erlanger, “2 Western Economists Quit Russia Posts,” New York Times, January 22, 1994, https://nytimes.com/1994/01/22/world/2-western-economists-quit-russia-posts.html.

[565] Jeff Hayes, “Russian Privatization and Oligarchs,” Facts and Details, May 2016, https://factsanddetails.com/russia/Economics_Business_Agriculture/sub9_7b/entry-5169.html.

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