What's occurring in Ukraine, says the Peterson Institute's Fred Bergsten, is an unwelcome consequence of globalization. Russian President Vladimir Putin thinks he can enjoy political and military freedom in dealing with Ukraine without experiencing crippling economic costs from sanctions or the exit of multinational firms from Russia.
Call this "Putinomics." It presumes that Russia's "trading and investment partners are so committed to their own economic interests that, for all the talk of tough sanctions, they will not upset the apple cart in meaningful ways," Bergsten says. Commerce dominates geopolitical interests. This gives Putin the freedom to pursue both. In this skewed system, economic interdependence makes effective sanctions difficult and often impossible.
To be sure, Russia has suffered economically from seizing Crimea and threatening Ukraine. Capital outflows have surged: Investors dump Russian stocks and bonds, convert the proceeds from rubles to dollars or euros and move the money out of Russia. Economist Lubomir Mitov of the Institute of International Finance, an industry think tank, says that capital outflows jumped to a near record $70 billion in 2014's first quarter and might be as high as $170 billion for the year. The ruble depreciates, making imports more expensive and raising inflation.