Posted on 08/07/2022 10:09:11 AM PDT by dennisw
Western leaders undervalued the size and global reach of the Russian economy Headlines concerning the collapse of the Russian economy under sanctions have been many and varied, although more recently observations have been made that sanctions imposed by the West aren’t working to the extent intended.
Writing this from Moscow, I can observe that supermarkets are full, there are no shortages, and gasoline is US$3.1 a gallon. That compares with Washington at US$4.99, London at US$8.16, Berlin at US$6.73 and Rome at US$7.31.
Why has the effect of sanctions upon Russia been so widely misunderstood? It’s a complicated question yet comes with a simple answer: politicians aren’t economists.
The French economist Jacques Sapir has recently explained the mistakes politicians have made when assessing Russia, with the United States constantly stating the Russian economy as being insignificant when compared to the US and being about the same size of Italy’s. That is a miscalculation.
According to Sapir, the reason for this disparity is exchange rates. If you simply convert Russia’s GDP from rubles to dollars for comparison, it would be seen as an economy as large as Italy’s. However, such comparisons are meaningless without adjusting for purchasing power parities, (PPP) which account for productivity and living standards, and thus per capita welfare and resource use. In fact, PPP is the preferred measure of most international institutions, from the IMF to the OECD.
So what happens when the PPP methodology is used to compare the actual size of the Russian economy?
Doing so reveals a much larger and significant beast – it becomes clear that Russia’s economy is rather more similar to the German economy at about US$4.4 trillion versus Germany’s US$4.6 trillion.
This means that the West’s politicians has grossly under estimated Russia’s economy as being a small, somewhat sickly European economy to being close to the largest in Europe and one of the largest in the world.
Concerning Russia, Sapir also asks: “What is the share of the services sector compared to the share of the products and industry sector?” In his view, today’s services sector is grossly overvalued compared with the industrial sector and commodities such as oil, gas, copper, and agricultural commodities, all of which Russia possesses in massive amounts.
If we reduce the importance of services as a proportion of the global economy, Sapir says, “Russia’s economy is much bigger than Germany’s, and accounts for up to 5-6% of the world economic output.”
That puts Russia on a par with Japan rather than Italy.
This makes intuitive sense. When times are tough, it is common knowledge that it is more valuable to provide people with the things they need, such as food and energy, rather than intangibles such as entertainment or financial services.
When a company like Netflix trades at a price-to-earnings ratio three times higher than Nestle, the world’s largest food company, that is more likely a reflection of frothy markets than actual reality. Netflix is a great service company, but as long as some 800 million people in the world are undernourished, Nestle still offers more value. And Netflix shares and earnings have indeed begun to slide post covid as consumers concentrate on the essentials. (Netflix also recently exited the Russian market).
There are lessons to be learned from this – the current situation in Ukraine helps to clarify values on what have been regarded as “archaic” aspects of the modern economy, such as industry and commodities, but whose prices have soared this year; compared with overvalued services and “technology” whose value has recently diminished, such as Netflix and Facebook.
There is more. The size and importance of the Russian economy has been further distorted by ignoring global trade flows, which Sapir estimates Russia’s portion “may account for 15%”.
For example, while Russia is not the world’s largest oil producer, it has been the largest oil exporter, surpassing even Saudi Arabia. The same is true of many other basic products, such as wheat, the world’s most important food crop, of which Russia controls about 19.5% of global exports, as well as nickel (20.4%), semi-finished iron (18.8%), platinum (16.6%) and frozen fish (11.2%).
This means that Russia has such an important position in the production of so many basic commodities, that along with several other countries, is in fact a key part of the globalized supply chain.
The United States has largely failed to acknowledge this and persuaded the European Union to follow the same thinking over sanctions while grossly underestimating both the size of the Russian economy and the role Russia has in global trade. The US has had success in imposing “maximum sanctions” on countries like Iran and Venezuela but trying to cut Russia off from world markets has resulted in and will continue to bring about a huge restructuring of the global economy that may take several years to absorb.
In fact, by controlling large sections of the oil, gas, food and other global commodities, the sanctions pain bought to bear upon Russia by the United States and its Allies has shifted to the originators of these – and their own populations.
Kudos for posting an informative article.
Also bear in mind the Russian Military Budget for 2021 was roughly $66 billion. The US military budget for 2021 was 801 billion. Saint HIMARs is the new god, Raytheon laughs all the way to the bank given the orders for the over-priced POS. Children in Ukraine are being named Javelin and Javelina. Bet.
Not really. You are not looking at the Dollar-Euro debt creation and its effects on the money supply. Jeff Snider identifies this well.
You listen to Alex and Gonzalo? - if so good.
Indeed. Glad you caught the meme Javelin/Javelina reference.
Although Money has no meaning, there IS a Money Line in your comment:
"For decades Russia has exported something with actual value — joules — in form of oil and gas. The US exports bytes on a data stream that put movie pictures on a screen, and because of importing and paying for oil, those exported bytes do not offset the cost of oil import."
That’s a sensible way to think about it.
I’d add that when there is a concerted effort on every level to damage the US in all ways possible, we’re sunk. It’s inevitable, I am extremely sad to say.
I have always been an eternal optimist but that has faded out when facing reality.
He is right about the decadent part.
why is the LEFT so intent on collapsing the West?
monitor
Because others are still doing business with Russia
He’ll America buys oil daily from Russia
Such insanity
“I’d add that when there is a concerted effort on every level to damage the US in all ways possible, we’re sunk. It’s inevitable, I am extremely sad to say.”
We have been able to bounce back before in part because the hard left-e.g. communists, socialists, etc were marginalized.
Now the left has taken over the media, education at all levels etc.
I remember in 1972, the AFL-CIO did not endorse anyone for president and a good number of labor unions, such as the Teamsters, the Seafarers, and I believe the East Coast Longshoremen (ILA) supported Nixon. Since then almost all labor unions moved left, at least at the leadership level including the building trades.
Bingo! The short answer is that Russia grows, mines and manufactures vast amounts of things for itself and for export. By contrast, America and the West outsourced far too much of our manufacturing and fooled ourselves into believing that services are the truest measure of real wealth. Well, that may be true -- until things go wrong and reality disagrees.
In hard times, agricultural, mining and manufacturing economies still have the capacity to grow, mine and make things that people need. Real wealth remains. But when a service economy hits the skids, there's less money to manage and people find ways to amuse themselves, mow their own lawns, and do without what they can no longer afford -- and all that's left to sell off are unneeded computers, phones and lawnmowers. And paper promises.
All over the world, countries that were once "poor" now realize that they are actually rich in minerals, agriculture, and modern manufacturing capacities -- as long as they can prevent its theft by bankers and traders who don't mine, grow or make their own stuff. In particular, Russia ranks among the top producers of oil, natural gas, wheat and strategic minerals, maintains a huge manufacturing base, and has the military might to protect it.
This is why Russia is so feared by the West, and so hated by the bankers who dominate Western economies. This is why our government supports efforts to break up Russia into many smaller countries that would be easier to control. And it's why the ongoing rapprochement between Russia, China and India as a friendly trading block is absolutely terrifying to us.
America still possesses vast, excess mineral and agricultural wealth, much like Russia does. But we screwed up badly by off-shoring the bulk our manufacturing base. Now our pants are down, and we'd better fix ourselves quickly.
Then there is this less biased story:
‘There’s no path out of economic oblivion for Russia’: New report reveals how corporate exodus has already wiped out decades of post–Cold War growth
https://freerepublic.com/focus/f-news/4083665/posts
However, such comparisons are meaningless without adjusting for purchasing power parities, (PPP) which account for productivity and living standards, and thus per capita welfare and resource use."
Spin from the everything is great in Russia crowd. The author fails to do the very PPP analysis he says is necessary to make price comparisons meaningful. So lets do that for gasoline at $3.1 in Russia and $4.99 in the USA.
US Per Capita Income: $19,306
Russian Per Capita Income: $5,504
Source
A gallon of gasoline relative to median per capita income:
US: $4.99/$19,306 = 0.0258% of income
Russia: $3.10/$5,504 = 0.05632% of income
The median income per person in Russia is about one fourth of the median income in the USA, so in reality their gas costs them twice as much relative to their income as gas costs people in the USA. Relative to their income their gas is about the same as gas at $10.87 would be for us.
Using the exact example provided by the article, and applying the relative purchasing power correction, the average Russian is paying much more of their income for gas than people in the USA are.
Oops, another propaganda fail.
Except for an urban elite Russia is a very poor country.
You forgot to mention that the nation ahead of Russia, with roughly 1.4 times as much production is the USA.
So how does your whole theory work when the USA is actually the top oil producer?
Very good point which often gets missed when comparing GDP’s of countries. Man’s haircut in India cost me a quarter in 1984 during my visit while it was $4 in USA at that time. I still remember my $2.50 haircut in Paris in 1969, with a shampoo wash first, and then the barber cut it with a straight razor, which one gets only at very high priced barber shops in USA.
Looks to me that both the Ukes and the Ruskies are currently enjoying heavy savings on their military payrolls.
why is the LEFT so intent on collapsing the West?
———
As Rush had prophecized, expected. What is troubling is the amount of people going along with it all, Biden’s vax hoax, shut downs and mandates, gay marriage, boys in girls locker rooms, LGBXYZ now in all government office, the Ukie War, etc…
I attribute it firmly to America’s departure from God’s word. The good news, God has a habit of protecting his believers. I can say since the Covid vax hoax hit awhile back, I have had the most “ prosperous “ times ever, blessings upon blessings, attributed to my increase in giving thanks, praise and worship.
My most valuable “ gift” was the gift of discernment. Without discernment, none of what is happening ( and what is coming) will make any sense. Pray for discernment.
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