At Foreign Policy Jeffrey Sonnenfeld and Steven Tlan set out to debunk several “myths” about what’s happening with the Russian economy. Here they are:
- Russia can redirect its gas exports and sell to Asia in lieu of Europe.
- Since oil is more fungible than gas, Putin can just sell more to Asia.
- Russia is making up for lost Western businesses and imports by replacing them with imports from Asia.
- Russian domestic consumption and consumer health remain strong.
- Global businesses have not really pulled out of Russia, and business, capital, and talent flight from Russia are overstated.
- Putin is running a budget surplus thanks to high energy prices.
- Putin has hundreds of billions of dollars in rainy day funds, so the Kremlin’s finances are unlikely to be strained anytime soon.
- The ruble is the world’s strongest-performing currency this year.
- The implementation of sanctions and business retreats are now largely done, and no more economic pressure is needed.
Some of the arguments they make are convincing, others less so. What’s my take?
I have no idea. I strongly suspect that the Russians are lying about the health of their economy and the British are lying about what terrible shape it’s in. That’s one of my problems with information about the Russian-Ukrainian War more generally. I think that everybody is lying. The Russians are lying, the Ukrainians are lying, the British (who derive much of their information from Ukrainian sources), the Chinese are lying, we’re lying.
My offhand guess is that the Israelis probably have a more realistic assessment of Russia than we do and until very recently they haven’t exactly been panicked about it.
Can you share what you are seeing as the Israelis assessment of the Russia?
All I’ve seen is relations between Israel and Russia are deteriorating… which is adding a significant risk factor to the Middle East.
Today’s exchange rate is 58.88 rubles per dollar, which I believe is close to the Russian central bank goal of 60 per dollar. The ruble has been as high as 52 per dollar, but it seems to be in the mid to high 50’s range. The current value of the ruble is about 20% higher than pre-war.
Andrei Martyanov, and expatriate Russian living in Washington state, argues that if you ignore dollars and rubles and look at actual production records such as tons of steel or kwh of electricity or number of automobiles produced, then the Russian economy is about one-half the American economy and twice the German economy. That seems about right.
It also suggests that Russian military expenditures are also at least one-third of ours, not 10%, which again seems right.
The Russian economy is also nearly autarkic (a gift from the Soviet era), and it produces everything that is critical to the civilian and military sectors. Each new sanction opens up another opportunity for a Russian company that might not have been competitive with US/EU companies.
The vastness of Russia gives it enormous resources, but the distances also mean that the per caput infrastructure costs (highways, power transmission…) are high.
Whatever the effects of the current sanctions on the Russian economy, and there must be some, Russians are not facing a winter short of food and energy like the Europeans.
Menzie published this yesterday from Bank of Finland which one would think might have some insight.
http://econbrowser.com/archives/2022/07/if-you-think-the-russian-government-is-doing-just-fine-because-of-oil-gas-revenues
Steve
That brings up a good quiz question: what does that graph say?