Russia’s Economic “Stagnation” In Global Perspective

Иn the wake of the 2009 recession, declinist rhetoric has come to dominate discussion of Russia’s economic prospects. Jim O’Neill, the founder of the BRIC’s concept, has his work cut out defending Russia’s expulsion from the group in favor of IndonesiaMexico, or some other random middle-sized country. Journalists in the Western media claim its economy is “not growing”, as do liberal Russian newspapers such as Vedomosti. Comparisons between Putin and Brezhnev (who presided over the Soviet Union’s period of stagnation, or zastoi) are piling up. Even President Medvedev isn’t helping the situation, telling a forum of international businesspeople that Russia’s “slow growth” hides stagnation (good job promoting your country, DAM! not….).

I don’t want to exchange rhetorical barbs in this post (which you may note is not tagged as a “rant“), and my skills at mockery and picking apart tropes aren’t nearly as well developed as those of Mark Adomanis or Kremlin Stooge, so I’ll do what I do best and go straight to the statistics. And so we have Fact #1: what is described as stagnation for Russia is a growth rate of 4%. It grew 4.0% for 2010. It was 4.1% in Q1 2011, and the government predicts it will be 4.2% for the whole year. The World Bank predicts 4.4% in 2011, 4.0% in 2012; the OECD expects 4.9% in 2011 and 4.5% in 2012; and the IMF forecasts 4.8% in 2011, 4.5% in 2012, tapering off to less than 4.0% in the “medium-term.”

This does not strike me as being particularly bad by global standards. This is obviously no miracle economy of Chinese-like 10% growth rates, but Russia (4.4%; 4.0%) does not compare badly to the World Bank’s projected growth for other typical middle-income countries such as Turkey (4.1%; 4.3%), Thailand (3.2%; 4.2%), Brazil (4.4%; 4.3%), Mexico (3.6%; 3.8%), or South Africa (3.5%; 4.1%). Facing real stagnation, many countries in the developed world such as the UK could only wish for Russia’s growth rate; though this is an unfair comparison, because Russia is poorer and can therefore find it easier to grow faster (see economic convergence), it is not less unfair comparing Russia to countries such as India (8.4%; 8.7%) or Indonesia (6.2%; 6.5%) because the latter are so much poorer than Russia in their turn.

This discussion suggests that CONTEXT is vital when discussing the degree of stagnation in a country. One of the two major factors here is the current GDP of the country in question; real GDP, that is, because that is what growth refers to (i.e. if a country devalues its currency by half but output remains constant, then nominal GDP will fall by half but real GDP will remain constant; as such, real GDP per capita is also the better proxy for living standards and economic sophistication). Now there are two major estimates by international organizations of Russia’s real GDP. The IMF estimates it at $15,800 as of 2010, whereas the World Bank believes it is $19,800 (relying on recent joint research by OECD-Eurostat-Rosstat). There are grounds to believe that the latter is more accurate because the international price comparison data that goes into real GDP estimates is much more recent for the World Bank*. But regardless of which one you use, Russia’s GDP is still much higher than the other emerging markets or BRIC’s with which it is so frequently compared to – Brazil has $11,100, China has $7,500, Indonesia has $4,400, and India has $3,600.

This is extremely important for two reasons. First, it is much harder to grow quickly when you are already a mostly developed country (like Russia, Poland, Korea) than when you are a mid-level developing country (China, Brazil) or a poor developing country (India, Indonesia). The most important reasons are: (1) The potential to achieve rapid growth by transferring your population from rural agriculture to urban industry and services becomes exhausted; (2) the services sector, where productivity can’t be improved as fast as in industry, assumes a bigger share of GDP; (3) most importantly, those countries are far closer to the technological frontier or “best practice”, and hence must increasingly innovate their way to growth instead of reaping low-hanging fruit by adopting and copying from elsewhere. All this isn’t debatable – there is a ton of economic literature on this, it passes the common sense test, and it is basically a given.

Second, when your starting base is low, fast economic growth is far more necessary to achieve real improvements in living standards and catching up to the West. 5% growth in the US would be remarkable and unprecedented for decades. 5% growth in a country like Egypt, with a GDP per capita of $6,000, will not transform it into a developed or even mostly developed country for the foreseeable future. Not only that, but it will be significantly swallowed up by a population growing at nearly 2%. This is no different from the growth rates in most fiscally healthy developed nations and so in effect virtually no “catch up” happens whatsoever.

This brings us to a second point, the importance of accounting of adjusting for population growth. India’s 8% growth rate in the last decade seems remarkable, prompting talk of “Shining India” and how it is the next big superpower. But considering its very low starting base, and the fact that its population was growing by nearly 2% per year, and you have the far less impressive figure of 6% per capita growth. This is still respectable, but it is barely higher than (much wealthier) Russia, and probably doesn’t warrant the glowing accolades heaped on its “tiger” economy.

At this point, I think it will be a good idea to consolidate all these statistics into a single graph that illustrates the arguments. GDP figures are taken from the World Bank’s 2010 estimates (there is reason to believe China’s GDP is underestimated, hence it has two estimates). GDP growth refers to the mainstream consensus on how fast these countries will be growing in the medium term (e.g. Russia “stagnating” at 4% a year; China following in the historical footsteps of Korea; India growing at the realistically highest rates projected by its proponents; Brazil and Mexico continuing to conform to both their historical rates and medium-term predictions; etc). Population growth is subtracted from the GDP growth to give a per capita figure. The last column are the projected totals for 2020. Figures are rounded off.

2010 GDP /c GDP % gr. Pop % gr. 2020 GDP /c
Brazil $11,000 4% 1% $15,000
China (1) $7,500 8% 0.5% $16,000
China (2) $12,000 7.5% 0.5% $25,000
France $34,000 2% 0.5% $39,000
India $3,600 8.5% 1.5% $7,000
Indonesia $4,400 6.5% 1% $7,500
Korea $29,000 3% 0% $39,000
Mexico $15,000 3% 1% $18,000
Russia $20,000 4% 0% $30,000

The results, as you can see, are fairly stunning. A low population growth and relatively high base – Russia’s GDP per capita of $20,000 is equivalent to that of Poland, Hungary, and Estonia – means that as soon as 2020 Russia will be where Italy is today, with a GDP per capita of $31,500. Now granted Italy may have grown as well, but given its dismal record for the past decade and the growing financial tremors in the Eurozone even this is far from certain. In other words, even at “stagnant” growth rates of 4% per year Russia will have converged to the lower ranks of Western Europe’s rich countries (having overtaken Greece and Portugal outright).

But this isn’t that surprising when you consider that 4% is equivalent to the trend rate at which Korea has grown from 2003, when its GDP reached Russia’s today; the IMF predicts that by 2013, a decade later, it will hit $35,000.

(Excuse the minor digression from the main topic of this post, but the graph also convincingly demonstrates why my Sino Triumphalism is not misplaced. Even under fairly rosy assumptions for India, it will have have barely converged to China’s 2010 level in a decade’s time – and that assuming that China’s GDP isn’t underestimated. The real question isn’t why Russia isn’t growing as fast as China, but why is China growing so damn fast? See other posts for answers).

Now what about unexpected downsides? Objectively, Russia has solid macro fundamentals – far better than the over-indebted, over-leveraged Western economies (with the partial exceptions of Canada and Scandinavia). This is a trait it shares with the other BRIC’s and many other emerging markets in what is truly an amazing and perhaps unprecedented reversal of places in the last decade. This isn’t grounds for complacency – the 2009 recession is argument enough for that.

Nonetheless, the main facts remain intact: (1) It is growing from a relatively high base; (2) In an environment of approximately zero population growth; (3) The strength of state finances preclude any fundamental economic cataclysm as happened/is happening in Ireland, Greece, Latvia, etc. Taking into account these adjustments, a growth rate of 4% is entirely respectable and better than many if not most countries in the same general income bracket.

* Those interested in the details can read here and here.

EDIT: This article has been translated into Russian at Inosmi.Ru (Российская экономическая «стагнация» в глобальной перспективе).

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  • Dear Anatoly,

    Interesting but not all that surprising, if looking at the figures this way. Doomsday sayers are quite tiresome in the long run. Still, the many structural issues are hard to neglect. That Russia has great financial potential is not to be doubted, but expanding bureaucracy is really a “pain in the arse” (pardon my French). So, when looking at World Bank economic figures, their “Governance Matters” reports should, of course, not be neglected.

    Yours,

    Vilhelm

  • Great post. In particular the points about taking into account differing population growth and base GDP/capita (convergence) really need to be hammered into public discourse.

    • AK

      I completely agree.

      The problem is that doing so undermines quite a lot of the triumphalist neoliberal dogma that by embracing free markets the developing world is now well on its way to Western-like riches.

      The reality is that framed in terms of per capita convergence it is only largely true for China, Russia, and East-Central Europe.

  • peter

    Now there are two major estimates by international organizations of Russia’s real GDP. The IMF estimates it at $15,800 as of 2010, whereas the World Bank believes it is $19,800…

    You’re confusing “real” with “PPP-adjusted“. As they say in Odessa, это две большие разницы.

    • AK

      No, the difference is in fact very small and of interest only to pedants and specialists.

      Whereas few people would know what PPP-adjusted GDP is, the concept of “real GDP” (as opposed to nominal) is far more intuitively familiar to the layman reader. Except in so far as PPP GDP is an index constructed on the assumption that the same products should have the same price in different countries it is the same as real GDP for any particular country.

      That is why I used the (slightly inaccurate) term “real GDP”, if it bothers you, substitute it for PPP-adjusted real GDP. In any case this does not challenge any of the arguments in the article.

      • peter

        No, the difference is in fact very small…

        Ох. You’d save yourself a lot of embarrassment if you just bothered to click the first link — but okay, I’ll post the definition of “real GDP” right here:

        REAL GROSS DOMESTIC PRODUCT (GDP)

        AK edit: I don’t approve of lengthy copy-pastes in comments, especially when they are on tangential topics. The link is good enough – the rest is cut.

        • AK

          You can’t win arguments by just linking and copy-pasting. Specifically, in what way does you focus on the differences between real and PPP-adjusted GDP have any bearing whatsoever on the arguments made in this post?

          The most important point that relevant to this post is that both refer to the real level output in an economy, correcting for the effects of inflation and currency fluctuations. If we use the same base year to measure them, real GDP and PPP-adjusted GDP are the same after the adjustment for international price differences.

          • peter

            … real GDP and PPP-adjusted GDP are the same after the adjustment for international price differences.

            You still don’t get it, do you? The real GDP is the nominal GDP adjusted for inflation (which is typically downwards), while the PPP-adjusted GDP is the nominal GDP adjusted “for international price differences” (in the case of Russia and World Bank, upwards by a factor of almost 2). What’s so difficult here?

            • AK

              I get it and I acknowledged that my wording was inaccurate. PPP-adjusted GDP is however frequently referred to as “real GDP” in non-technical contexts, i.e. popular articles.

              They are different things but both “real GDP” and PPP-adjusted purport to measure the same thing – the real level of output. The former does it relative to the past; the latter does it relative to other countries (and if desired, to the past also by deflating the currency in which PPP-adjusted GDP is measured).

              • peter

                … I acknowledged that my wording was inaccurate.

                Sort of. You did admit to being “slightly inaccurate” in order to avoid confusing your clueless readers — but that’s worse than nothing considering that at the same time you claimed that “the difference [between the real and PPP-adjusted GDP] is in fact [ouch] very small and of interest only to pedants and specialists.”

                The truth is, apparently, that you only realized your blunder when I posted the textbook definition of real GDP — which you promptly deleted in a petty attempt to save face. Poor, junior. Very poor.

              • AK

                Had my intention been to “save face” then I’d have deleted your comments. As I said, I don’t like lengthy copy pastes and I usually take them out whoever they’re from.

  • Alexander Mercouris

    Dear Anatoly,
    I agree with you except that personally and from what I know about Russia I would go much further. I may be wrong (who can read the future?) but I expect that within a few years growth in Russia will be much higher than 4% a year. I speak as someone who knows Russia well. The country has enormous iindustrial and intellectual resources. Its productivity is lower than it should be because it remains by western standards severely undercapitalised. This is a legacy of its long history of poverty. Wise policies have left it with an extremely low debt level both in terms of sovereign debt (just 9.5% of GDP by some estimates) and private debt, whilst the country’s social and economic structure favours investment in creative activities rather say land (most Russians rent). This creates conditions for a boom. Growth rates of 4% represent the minimum level of Russia’s growth as the country recovers from the effects of the financial crisis. Incidentally I suspect that if the economy booms in the way I think possible the chances are that population will start rising fast both because of natural increase and because of immigration as was the case with the US in the late nineteenth century and up to the First World War.

    • kirill

      This is a very good point. People are forgetting that Russia and most of the West are still not fully recovered from the Great Recession that began in late 2008. Anyone with doubts about this should look at the US jobless figures. This has been the “mother of all jobless recoveries”. Probably the only reason it was not a Great Depression is that China’s growth is decoupled from those of the countries it exports to. The other BRICs contributed to this counterweight effect too. The West is no longer the core of economic activity on the planet like in the 1930s.

  • Alexander Mercouris

    Whilst on the subject of Russia’s economic performance, there is a really good and interesting post by Patrick Armstrong on Russia Other Points of View in which he discusses the transformation of Russia’s agricultural economy, which has quietly moved from a state in the 1990s of total collapse, when Russia was believed to be importing up too half of its food, to a situation today when the agricultural economy in spite of the setback caused by last summer’s drought seems to be booming making the country a major food exporter. As he absolutely rightly points out this transformation has happened without any academic or media commentary whatsoever. Obviously the western academic and media commentariat have been far more interested in “catastrophe” news, which is why this recovery has gone unexplained and unnoticed.

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  • Andrej

    Dear Mr. Anataoli,

    I was very happy to read this post on Johnson’s the other day. The “triumphalist neo-liberal” discourse dominates the coverage from Russia, so I really appreciate your sober analysis and the perspective you bring to the discussion.

    One crucial issue that you don’t cover in the post is the Russian economy’s dependence on natural resources.This sets Russia apart from the pother BRICs- even Brazil is not as dependent on hydrocarbons for its economic growth. Many observers (both domestic and foreign) see this as the economy’s Achilles’ heal, exposing Russia to volatility of commodities prices and limiting the prospects of growth in the long term.

    I’d be curious to hear your thoughts on these subject. Do you believe that the “resource curse” thesis is just overblown? Or have we been overestimating the importance of Hydrocarbons to Russia’s growth? (Berkeley Economist Gerard Roland makes this argument — though Russia’s dramatic economic downturn during the crisis seems to belie this argument).

    I very much look forward to hearing your thoughts on this and hope you reply.

    Best wishes,

    Andrej

    • AK

      Yes, I do think that.

      Its contribution to real economic growth is minimal (especially with Russian oil production now largely stagnant). The main importance lies with natural resources’ contribution to the budget, which allows taxes to be held relatively low while still leaving a lot over for investment into infrastructure and the national economy.

      I consider that the main cause of the 2008-09 crisis in Russia was the sudden withdrawal of international credit. Russian companies could no longer invest; banks could no longer keep lending. But this was a matter of Russia’s financial system being very underdeveloped.

      “Dutch disease” is, of course, a potential danger; but a carefully-considered industrial policy (e.g. see cars) and not allowing the ruble to appreciate too much mitigates its effects. Although Russia by and large only exports natural resources, it nonetheless still has a lot of manufacturing, and growing; it just serves the domestic market.

      • Alexander Mercouris

        Dear Anatoly,
        The crisis for Russia in 2008 was caused by the cutting off of foreign credit lines and the repatriation of debt. This has nothing to do with the oil price fall. I know because I have spoken to people who were involved. I am tired of hearing about Russia’s oil and gas and its supposed dependence on oil and gas. What do people say that Russia should do with its oil and gas – leave it in the ground? If oil and gas receipts account for a higher share of Russia’s budget tax receipts and exports than they do say Brazil’s, this is not Russia’s fault or a sign of Russia’s backwardness but a relfection of the fact that Russia is currently an energy exporter and Brazil is not. The US was also largely a commodities exporter in the nineteenth century. Did this prevent the US from developing a powerful industrial economy. Oil and gas extraction and export are not for Russia a source of weakness but a source of strength. They mean not only that taxes can be kept low (allowing more scope for investment) but that as was the case in the US in the nineteenth century the country’s industries do not have to be geared to export but instead to satisfy domestic demand.

        • Petri Hekkala

          “What do people say that Russia should do with its oil and gas – leave it in the ground?”

          Not a bad idea. Russia may be pumping gas and especially oil too fast out of the ground. Better to leave something for the future generations.

          Russia’s oil reserves’s are only the 8th largest in the world yet Russia is the world’s biggest oil producer. This is not a good combination for the longevity of Russia’s oil production.

          • Alexander Mercouris

            Dear Petri,
            Here’s a strange paradox: when you read criticisms of Russia’s economic policies one that is often made is that though its economy is supposedly overdependent on oil its oil output is “stagnating”. In other words, Russia tends to get criticised not for producing too much oil but producing too little with the implication that it should produce even more presumably without regard to conservation issues. Basically I think you are making a serious point though I suspect that the true size of Russia’s oil reserves is understated (though new reserves may not be very accessible). My point was not however about the merits of production versus conservation but about whether the fact that Russia is a commodities exporter is a weakness or a strength. On balance I think it is a strength for the reasons I said before.

      • Andrej

        Many thanks for your reply.

        One follow up question (if I may): If the 2009 fall in GDP was largely caused by credit drying up (a very plausible argument), then why is it that most of the Russian elites seem to have drawn the lesson that the problem is Russia’s over-dependence on natural resources? Witness all the talk for the need for modernization, about the “Putin economic model” reaching its limits, etc.

        And this isn’t just Medvedev. In the past Putin has also talked about the necessity of getting Russia off the oil and gas “igla”.

        I can understand the Western liberals making this argument (as they have another agenda entirely – to weaken the Russian state which they object to in principle), but why are the elites echoing the same arguments?

        Thanks again Anatoly for addressing my previous question. I appreciate your insights.

        • Alexander Mercouris

          Dear Andrej,
          Whilst it is true that some commentators claim that the sudden contraction in 2008/2009 was caused by “over dependence on energy” I do not think that this is true of the Russian business community or of the Russian government. The concern is that whilst oil and gas do not have a preponderant role in the whole economy oil and gas receipts account for a disproportionate share of the income the Russian government receives. When the Russian authorities talk about reducing dependence on oil and gas what they mean is that they want to diversify their tax base. The government does not want to increase taxes on the rest of the population or economy for fear of stifling growth but neither does it want to cut spending particularly on social programmes . At the same time for many good reasons the government does not want to run large deficits that it would have to cover by foreign borrowing, which because of Russia’s absurdly poor credit rating would anyway be extremely expensive. The Russian government has always intended to diversify its tax base by increasing the size of the rest of the economy so that it can carry the weight of more taxes. This was true when Putin was President and it is true now. The economic crisis of 2008/2009 has not changed this priority. The “Putin economic model” is a figment of critical commentary rather than a true description of a model devised by Putin himself.

  • peter

    … as soon as 2020 Russia will be where Italy is today, with a GDP per capita of $31,500.

    Now that we seem to agree on terminology, let me point out a big hole in your entire argument. If you want to forecast the PPP GDP beyond a couple of years, it’s not enough to know just the GDP growth rate. You also need to know how the PPP multiplier is going to evolve.

    Consider, for instance, Russia. Its 2010 nominal GDP per capita is $10,000 (give or take) and the real growth rate is 4%. Hence, if things go to plan, Russia’s 2020 real GDP per capita (in constant 2010 dollars) will be $15,000 — which, of course, is still less than half of what Italy has today… But, you argue, in today’s Russia $10,000 feel more like $20,000 because the Russian Big Mac is twice cheaper than the Italian one. Fair enough, but to apply today’s PPP multiplier to the projected 2020 figure is a definite no-no.

    • AK

      Don’t think so.

      Fair enough, but to apply today’s PPP multiplier to the projected 2020 figure is a definite no-no.

      PPP GDP is derived from from nominal GDP, not real GDP. If relative prices rise then so will nominal GDP (at a faster rate than real growth), so the effects of a lower PPP multiplier will be canceled out by a higher nominal GDP.

      Hence, if things go to plan, Russia’s 2020 real GDP per capita (in constant 2010 dollars) will be $15,000 — which, of course, is still less than half of what Italy has today…

      Real GDP (defining it uber-correctly, as you insisted on doing above) is not comparable between countries. It can only be used to compare output between different years in the same economy.

      • peter

        Don’t think so.

        You “don’t think so” what? That your $30,000 figure (the table in your post, last row, last column) is bollocks? Okay, once again, what exactly indicator is this the value of? In what units exactly? How exactly did you obtain it?

        • AK

          You “don’t think so” what?

          That you are correct. Is it not obvious from the context? You are basically saying that a decline in the PPP multiplier can actually LOWER Russia’s PPP GDP even if its real economy grows (i.e. if the real economy expands by 50% but relative prices double, you seem to be saying that Russia will actually be 25% worse off).

          If I’m interpreting you correctly, well, that is nonsense. A rise in relative prices will be reflected in the nominal GDP. The whole point of the PPP conversion is to cancel out relative prices and any changes in them.

          Okay, once again, what exactly indicator is this the value of?

          The PPP GDP / cap of Russia in 2020, assuming (1) 4% yearly growth and (2) no US dollar inflation (which is irrelevant as it will affect all PPP’s equally).

          In reality, there will be US dollar inflation, so Russia’s PPP GDP as measured in 2020 (i.e. in units equal to 2020 dollars) will be more like $35,000 or $40,000. (That is why in the IMF series Korea’s PPP GDP increases from $20,000 to $35,000 from 2003-2013 under growth rates of about 4% per year; under 0% dollar inflation, it would have only increased to $30,000). But again, this will affect everyone else equally.

          In what units exactly?

          A hypothetical currency that measures all countries GDP assuming purchasing power parity. Each of its units equals one US dollar in 2010.

          How exactly did you obtain it?

          See above. Multiplying by 4%, each year, Russia’s 2010 PPP GDP, to 2020. The same was done to all other countries in the list using their projected rates. Why do you only have objections to Russia’s figures?

          • peter

            If I’m interpreting you correctly…

            No, certainly not — see my comment over at Mark’s blog.

            Multiplying by 4%, each year, Russia’s 2010 PPP GDP, to 2020.

            For the umpteenth time, you cannot use the real growth rate to forecast the PPP-adjusted GDP. Apples and oranges.

            • AK

              I’m adjusting for $ inflation, and I’m doing the EXACT SAME for every other country.. If you want, assume US inflation increases at 3% a year and multiply the $30,000 figure by 1.5 (and everyone else’s) to get a PPP GDP of $45,000. Russia’s relative position will remain the exact same.

              I don’t want to keep smacking my head against a wall with you, so I’ll resort to an ad absurdum: Take Russia and Poland, both with a PPP GDP of $20,000 today. Do you realize that you are essentially saying that if Russia’s real GDP increases by 1.5 and relative prices converge to global levels (i.e. double), while Poland sees no change in either real GDP or relative prices, then Russians will be 25% worse off than Poles?

              • peter

                No, not really, the words “worse off” are rather misleading here — and let’s leave Poland alone, shall we?

                If your income increases by 50% and the Big Mac price doubles (due to “convergence”, not inflation!), then indeed you will be 25% worse off in terms of Big Macs. That’s the bad news.

                The good news is that you will be 50% better off in terms of good stuff like Toyotas and trips to Italy. And the moral is that there is no such thing as a one-size-fits-all well-offness indicator: the nominal GDP per capita does indeed exaggerate the gap between living standards in rich and poor countries, but the PPP adjustment is hardly a solution. The result is still about as “real” as the “average temperature in hospital” — and as your example demonstrates, the whole concept is too difficult to grasp even for an advanced amateur.

              • peter

                What? Lost for words? А как дысал, как дысал…

                Well, truth be told, I have a creeping suspicion that you have actually long realized your blunder and all that tapdancing of yours is just a damage limitation exercise. Sort of. Given your pathological intellectual dishonesty, I’m not surprised in the least that you’d rather pigheadedly deny the obvious in an obscure comment thread than admit the screw up and pull your abortive post down. Yes, I know, those idiots at InoSmi have already picked it up — but nobody said honest life was going to be easy.

              • AK

                Don’t get your hopes up. Replying to your comments (which are almost invariably distinguished by nitpicking and/or dishonesty) isn’t my first life priority.

                I’ll write something more substantial over the weekend, but for now I’ll only note that this – “If your income increases by 50% and the Big Mac price doubles (due to “convergence”, not inflation!), then indeed you will be 25% worse off in terms of Big Macs” – is an incredibly stupid, stupid sentence.

  • nagus

    Is it too soon to call it stagnation? From June’s new numbers:

    Russia’s industrial output is up 5.7% on the year

    • kirill

      There has been a full bore anti-Russian propaganda campaign from inside and outside its borders since 2004. Anything and everything is used as a pretext to attack “Putin’s neo-Stalinist regime”. Food prices go up globally, but it’s Putin’s fault, locally.

      I wonder how the liberasts, the Russia hating 5th columnists, will explain away the death of Sean Hoare after they all chirped in unison that Putin killed Lytvinenko with Polonium. There is nothing “unsuspicious” about Hoare’s death. And the motive for killing Lytvinenko never existed on the part of the Russian leadership since he was an indirect asset through his various absurd accusations, such as that Putin was responsible for the Danish Muhammad cartoon incident.

  • AK

    @peter,

    I was using Poland as a hypothetical example, though – proficient as you are at tossing about red herrings – you prefer not to studiously ignore the obvious. Okay. If you so wish, replace Russia with “Country A” and Poland with “Country B.” Now, address the following:

    Take Country A and Country B, both with a PPP GDP of $20,000 today. Do you realize that you are essentially saying that if Country A’s real GDP increases by 1.5 and relative prices converge to global levels (i.e. double), while Country B sees no change in either real GDP or relative prices, then citizens of Country A will be 25% worse off than Country B?

    Your blathering about Big Macs and Toyotas is irrelevant. PPP adjustments involve calculating relative prices across baskets of all types of goods – be they utilities and hospitality services, or tradables and holidays abroad.

    If your income increases by 50% and the Big Mac price doubles (due to “convergence”, not inflation!), then indeed you will be 25% worse off in terms of Big Macs. That’s the bad news.

    Please explain how the price of a Big Mac can “double” without inflation!?

    I agree, honest life is difficult. It has the ring of long experience to it. I thought you were trying to squirm away in this comment, having realized your blunder of failing to recognize that it is PPP adjusted GDP is derived from nominal GDP, but perhaps my lack of a quick response emboldened you to to push your luck.

    Given your pathological intellectual dishonesty, I’m not surprised in the least that you’d rather pigheadedly deny the obvious in an obscure comment thread than admit the screw up and pull your abortive post down.

    “Obscure” as in the comment thread to the Original fucking Post? You are deluded. “Abortive” as in its only fault is a slight mistake in terminology that has no impact on the overall argument? Call me back when the 1000’s of articles where real GDP growth rates are applied to nominal GDP’s – cardinal mistakes that actually destroy the entire argument that Russia (or China) will remain eternally backward – written in mainstream publications (i.e. with access to proof-readers, etc) are pulled down.

    • peter

      Please explain how the price of a Big Mac can “double” without inflation!?

      What does the GDP deflator measure?

      … having realized your blunder of failing to recognize that it is PPP adjusted GDP is derived from nominal GDP…

      I don’t have the foggiest idea what you’re talking about. Reread my comments and try again.

      “Abortive” as in its only fault is a slight mistake in terminology that has no impact on the overall argument?

      No, abortive as in the calculation on which your overall argument rests is fundamentally incorrect.

      Call me back when the 1000′s of articles…

      What part of “honest” do you not understand?

      • AK

        What are you trying to prove with your link? Real life economies are far more complex than a coconut republic importing oil. Goods that become relatively expensive are substituted for by others in many cases, etc. How is that example relevant to Russia?

        I don’t have the inclination to humor you with even more explanations of your mistake.

        Let me reiterate:
        (1) Measured by PPP-adjusted GDP, Russia’s /c is at $20,000 or thereabouts.
        (2) Real GDP growth may be projected at 4% for the next decade.
        (3) This makes for a cumulative increase of about 1.5x by 2020 in real GDP.
        (4) The increase in nominal GDP will be greater. Assuming that (A) relative prices double and hence equalize to US prices (or thereabouts); (B) the US $ inflates by 0% (just to keep things simple, but it really doesn’t matter) during the next decade; so nominal GDP will equal $30,000 from today’s c. $10,000.
        (5) Of course the PPP deflator will fall (by definition); if, as we assumed, prices equalize, it will be 1-1. Hence PPP GDP will also be $30,000.
        (6) Such a figure would place Russia into the lower ranks of the rich West European economies today.

        Let’s keep it simple. Which part of the chain above is flawed and breaks the argument.

        What part of “honest” do you not understand?

        What part of “WTF does this have to do with anything” do you not understand?

        • peter

          What are you trying to prove with your link?

          That you have no clue what you’re talking about.

          I don’t have the inclination to humor you with even more explanations of your mistake.

          So you can’t point out the exact sentence where I commit my terrible blunder? Thought so. Слив защитан.

          Which part of the chain above is flawed and breaks the argument?

          Part (4), in more ways than one. To begin with, there’s no such thing as “nominal [2020] GDP… in real 2010 $’s”. Nominal GDP is, by definition, the GDP evaluated at current prices and market exchange rate. Try again.

          • AK

            So you can’t point out the exact sentence where I commit my terrible blunder?

            If your income increases by 50% and the Big Mac price doubles (due to “convergence”, not inflation!), then indeed you will be 25% worse off in terms of Big Macs.

            Any doubling of the Big Mac price HAS to involve inflation. But if your income increases by 50%, this will be your REAL income that increases by that amount (i.e. that’s what real growth of 4% for a decade does). Your increase in nominal income will be far bigger, i.e. by 200%, in order to compensate for the inflation (2x) AND to reflect the real growth (1.5x).

            Part (4), in more ways than one…

            You’re right here, that was a mistake on my part. I slightly altered it. See new version above.

            • peter

              I’m confused. You wrote, and I quote, “your blunder of failing to recognize that it is PPP adjusted GDP is derived from nominal GDP” — but now all of a sudden it’s Big Macs. You sure need some sleep.

              Any doubling of the Big Mac price HAS to involve inflation.

              No, see the link upthread.

              I slightly altered it.

              Okay, next up: you forgot to take into account the likely market exchange rate change.