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Russian demography

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With data for the first three months of 2015 out, it is now tentatively possible to make out some hints of what Russia’s demographic developments are going to be like this year.

In short, it’s not looking very good. But not catastrophic, either.

The birth rate has remained essentially stable, declining by 0.8% relative to the same period last year; but considering that the percentage of Russian women in their childbearing years is now in complete freefall, as the postwar boomer “echo” of the 1980s ages and the shrunken cohort of the 1990s enter their reproductive years, this is all but inevitable. In fact, since this pool of people is now shrinking at well more than 2% per annum, even a 0.8% decline still implies a marginal increase in the total fertility rate (a measure of fertility that is independent of the population’s age structure).

But the death rate has climbed by a discomfiting 5.2%, which if continued threatens to undo the progress of the past few years and send life expectancy tumbling back to around 69.5 or 70 years from its 2014 record high of 71 years. The immediate and logical supposition is that this reversal occured because of the lowering of the minimum vodka price from 225 rubles to 180 rubles as of February 1st, 2015. Russian mortality has traditionally been highly correlated with vodka (over)consumption, which in turn has largely been a function of its relative affordability. Was I premature to posit that this link had weakened in the past decade?

A closer look at the structure of the mortality increases suggests that maybe I was not wrong after all. Deaths from alcohol poisonings have in fact continued falling, and are down 4.1% relative to the same period last year. Accidental drownings, a category of death almost entirely synced with alcohol inebriation, fell by almost a quarter; and other “deaths from external causes,” such as homicides, suicides, and deaths from vehicle accidents – all categories that more often than not involve alcohol to some extent in Russia – continued falling at a respectable clip. The categories of death that saw substantial increases were heart related ones (by 4.6%), and lung related ones/pneumonia (by 21.8%).

This implies that the situation might be somewhat akin to early 2013, when a particularly cold winter and an unusually virulent flu season also created an uptick. Although this time the magnitude of the increase is quite a lot greater – in the first three months of 2013, mortality only increased by 0.8%, relative to 5.2% this year – and included a significant increase in deaths from heart disease – that is, by the aforementioned 4.6%, whereas in the first three months of 2013, deaths from heart disease actually fell slightly. So optimistic conclusions are completely unwarranted.

Neither, however, are overly pessimistic ones. The overall shape of this year’s demographic trajectory will only become clear in a few more months. And even if these first three months represent the beginning of what will become a demographic slump this year, the numbers would still be far better than they were at any time between the end of the Soviet Union and 2010.

 
• Category: Miscellaneous • Tags: Russian demography 
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This year will mark yet another milestone in Russia’s steady post-1990s demographic recovery, with the population minus Crimea hitting 144.0 million as of January 1, 2015 [XLS link], relative to 143.7 million in the same period last year. (Excluding Crimea is, needless to say, done not out of political considerations, but to retain the appropriate base for comparison). Though figures for December will only be out in about two weeks’ time, the picture for January-November is positive; despite the continuing pressures of population ageing and the decline in the numbers of women in their childbearing age as the small 1990s cohort enters adulthood, both natality and mortality figures improved slightly relative to 2013. For the second consecutive year running in its post-Soviet history, Russia’s births will substantially supercede deaths. Below shows a summary from state statistics service Rosstat.

russia-demography-jan-nov-2008-2014

But will this happy state of affairs last?

Mark Adomanis and an email correspondent known as “Doug” suggest that the turnaround has come to an end. They are both serious and intelligent people who know a lot about both demographics and Russia, and I am in qualified agreement with most of the points they make. But they might be slightly too pessimistic. Although in the middle term a cessation and perhaps limited reversal of Russia’s demographic uptrend during the Putin years is virtually inevitable, there are a number of factors that will likely soften and considerably mitigate the end of Russia’s demographic uptrend.

Below I will list a summary of their main points and my comments on each one of them.

Fertility Trends

One, most obviously, the “empty cohorts” of the 1990s are now hitting peak reproductive age. So far, that’s been balanced out by a rise in TFR [AK: Total Fertility Rate, an age structure-independent measure of the birth rate] — there are fewer women aged 20-25, but Russian women overall are having more kids per woman. But it seems a bit premature to declare that this will continue to be the case. – Doug.

I always considered the idea that TFR would keep up with the falling numbers of women in their childbearing age to be extremely unlikely, as it would require the TFR to eventually rise above that seen in any other developed country bar Israel. Anybody reading through my demography archives will see this being emphasized repeatedly.

According to my simulations from 2008, if the TFR now remains constant at its current rate of 1.7 children per woman, the crude birth rate will fall below 10/1,000 women by 2025 – today it is at what will likely be a local maximum of ~13.3/1,000 – before bottoming out at around 9/1,000 in the early 2030s. Even if the TFR were to rise to 2.0 children per woman, equivalent to that of the most fertile Western countries like France and Ireland, the crude birth rate by 2025 will still be 11/1,000.

That said, natural population increase is a function of both birth rates and death rates, and there is very ample scope for further improvements in the latter. In the early 2000s, the death rate was at ~16/1,000 and average life expectancy was at just 65 years, mostly due not to any great defect of the healthcare system – after all, even many properly Third World nations achieve life expectancies in the mid- or high-70s – but to the region-wide alcoholism drinking, in the form of vodka binge drinking. Despite the continued pressure of an ageing population, a rise of the life expectancy to 71 years by 2014 was accompanied by a reduction in death rates to 13/1,000. If these trends continue and life expectancy continues rising, reaching 75 years by 2025 – by no means an unrealistic prospect, based on the prior experience of Finnish Karelia and the Baltic states in battling their own alcohol epidemics – then Russia’s birth rates and deaths rates should continue to more or less move in lockstep to each other.

The sign might be a plus or a minus, but contingent on the continuation of current trends – a TFR of around 1.7-1.8, and moderately fast improvements in life expectancy – the magnitude of natural population growth (or decline) will be very small.

Recession

Two, the impact of the recession. Recessions almost always depress fertility, and there’s no reason to expect this one to be different. You’d also expect the recession and the weak ruble to affect the immigration / emigration balance.Doug.

And:

As Russia’s economy was growing, wages were increasing, jobs were plentiful, and housing was, if not readily available, than a lot more available than it had been in the past. Russian workers might not have had it great in comparison to their Western peers, but they had it a lot better than at any other point in their history. The rather banal result of this, still rather modest, economic bounty was that people felt more comfortable starting and expanding families and that lots of “guest workers” form the rest of the former Soviet Union moved to Russia to find jobs.

However now that Russia’s economy is set for a nasty recession of indeterminate length, and now that real incomes are getting hit by a combination of currency weakness and inflation, it’s not terribly surprising that its population dynamics are starting to weaken. That’s exactly what you’d expect to happen when a country suffers a sharp short-term economic reversal. Despite the Kremlin’s loud protestations of exceptionalism Russia is not, in fact, all that different: when you hammer the population’s standard of living they react accordingly.Mark Adomanis.

A comprehensive economic collapse followed up with austerity policies can definitely torpedo Russia’s demographic recovery. See the Latvian experience after 2008, or the complete shipwreck that is post-2010 Greece.

But I do believe there are a few reasons why this is overstated:

What’s important is not so much the depth of the economic collapse as the effect it has on social policies. Back in 2009, Russia’s GDP fell by an impressive 8%, but its demographics continued improving nonetheless. That is because the Russian state, flush with accumulated hydrocarbons revenue, could easily avoid implementing painful austerity policies. The consensus estimate for the coming Russian recession is a 4-5% fall in GDP, and there are no plans to cut social spending this time around either.

Having chosen currency devaluation over internal devaluation through austerity and wage cuts – unlike aforementioned Greece and Latvia, who have no influence over EU monetary policy – the Russians worst affected will be already well-off regular consumers of imported produce, whose fertility rates are the least affected by economic considerations. These types of recessions tend to be short but sharp. Surprising everyone, Russian industrial production actually increased by a solid 4.1% this December y/y, and there are several other encouraging leading indicators suggesting that this recession is likely to be pretty mild.

Because migration flows are so much more directly dependent on the economy – a Tajik working as a Gastarbeiter in Russia will now, effectively, earn twice less in the US dollar equivalent than a year ago – net immigration can reasonably be expected to decrease. There are signs this is already happening, as net immigration fell from 277,000 in January-November 2013 to 246,000 in the same period this year. On the other hand, and somewhat tragically, this decline will be substantially or completely covered by increasing immigration of war refugees, draft evaders, political dissenters, and the plain immiserated from Ukraine. Even as overall net immigration fell, it rose via-a-vis Ukraine from 36,000 last year to 78,000 this year, and frankly this is probably a huge underestimate (other sources state it’s close to a million). This is a huge loss for Ukraine, but a boon for Russia; after all, Ukrainian immigrants don’t raise the sorts of subpar human capital and integration issues that Central Asians and Caucasians do.

Vodka and Mortality

Three, cheaper vodka. Apparently vodka consumption dropped by more than 10% just between 2012 and 2013 — a very encouraging sign! But that’s likely to go into reverse this year, especially if the cut in price is accompanied by a relaxation of anti-alchohol campaigns and policies. Historically, the effects of changing access to alcohol have shown up pretty quickly in the numbers — you can pretty much spot the departure of Krushchev and the end of Gorbachev’s anti-alcohol campaigns just by staring at mortality statistics. So I’d expect a visible shift. The open question will be the magnitude.Doug.

Just to be clear, I agree that the decision to cut vodka prices from this February is a bad one. Putin justifies it by the need to prevent people from drinking more surrogates, but the empirical evidence indicates that prices are closely linked to overall consumption, which is in turn linked to mortality. While higher prices will increase illicit (and more dangerous) production, only a small percentage of people, typically the truly dependent and lost causes, partake in it anyway.

That said, the 2010s are not the 1980s, and there are a number of differences between now and then that would imply that the effects of lowering vodka prices now will have fewer negative than back then.

Despite the immediate effectiveness of Gorbachev’s anti-alcohol campaign – life expectancy instantly jumped up by two years – it was very much imposed top down and worked in a blunt, authoritarian, and frequently plain idiotic manner (e.g. the destruction of Crimean vineyards, which had absolutely nothing to do with Russia’s alcohol epidemic, at least as it related to population health). Its effects faded away almost as soon as the campaign dissolved away in the chaos of the Soviet collapse.

In contrast, what occured in recent years was the introduction of many legal regulations which exist in the West – elementary things, like restrictions on advertising and banning vodka sales after 10pm and from kiosks – as well as a gradual change in tastes and mentality that have propeled a shifting preference for beer and wine over vodka. (This is good, since beer and wine isn’t near as bad for you as vodka). In 2014, vodka production in Russia fell by a further 22%. Deaths from alcohol poisoning today, while still much higher than in normal countries, are as of 2014 lower even than they were during the height of Gorbachev’s anti-alcohol campaign. There is also good evidence indicating that Russian demand for vodka is slowly but surely becoming largely delinked from its price, as is the case in any Western country.

The modest decrease in the vodka price planned for 2015 will surely do not good, but it is highly unlikely to reverse or even stop the powerful trends that have been leading the decline in vodka bingeing for the past decade.

 
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It’s been a great year! To recap, in rough chronological order, 2011 saw: The most popular post (with 562 comments and counting; granted, most of them consisting of Indians and Pakistanis flaming each other); Visualizing the Kremlin Clans (joint project with Kevin Rothrock of A Good Treaty); my National Comparisons between life in Russia, Britain, and the US; my interview with (now defunct) La Russophobe; interviews with Craig Willy and Mark Chapman; lots of non-Russia related stuff concerning the Arctic, futurism, Esperanto, and the Chinese language; possibly the most comprehensive analyses of the degree of election fraud in the Duma elections in English; TV appearances on RT and Al Jazeera; and what I hope will remain productive relationships with Al Jazeera and Inosmi. Needless to say, little if any of this would have been possible without my e-buddies and commentators, so a special shout out to all you guys. In particular, I would like to mention Alex Mercouris, who as far as I can ascertain is the guy who contributed the 20,000th comment here. I should send him a special T-shirt or something.

In previous years, my tradition was to review the previous year before launching into new predictions. I find this boring and will now forego the exercise, though in passing I will note that many of the defining traits in 2010 – the secular rise of China and of “The Rest” more generally; political dysfunction in the US; growing fissures in Europe, in contrast to Eurasian (re)integration; the rising prominence of the Arctic – have remained dominant into this year. The major new development that neither I nor practically anyone else foresaw was the so-called “Arab Spring”, as part of a pattern of increasing political stress in many other states: Occupy Wall Street and its local branches in the West; the Meetings for Fair Elections in Russia; Wukan in China and anti-corruption protests in India. I don’t disagree with TIME’s decision to nominate The Protester as its person of the year. However, as I will argue below, the nature of protest and instability is radically different in all these regions. I will finish up by reviewing the accuracy of my 2011 predictions from last year.

tsar-putin 1. There is little doubt that Putin will comfortably win the Presidential elections in the first round. The last December VCIOM poll implies he will get about 60%. So assuming there is no major movement in political tectonics in the last three months – and there’s no evidence for thinking that may be the case, as there are tentative signs that Putin’s popularity has began to recover in the last few weeks from its post-elections nadir. Due to the energized political situation, turnout will probably be higher than than in the 2008 elections – which will benefit Putin because of his greater support among passive voters. I do think efforts will be made to crack down on fraud so as to avoid a PR and legitimacy crisis, so that its extent will fall from perhaps 5%-7% in the 2011 Duma elections to maybe 2%-3% (fraud in places like the ethnic republics are more endemic than in, say, Moscow, and will be difficult to expunge); this will counterbalance the advantage Putin will get from a higher turnout. So that’s my prediction for March: Putin wins in the first round with 60%, followed by perennially second-place Zyuganov at 15%-20%, Zhirinovsky with 10%, and Sergey Mironov, Mikhail Prokhorov and Grigory Yavlinsky with a combined 10% or so. If Prokhorov and Yavlinsky aren’t registered to participate, then Putin’s first round victory will probably be more like 65%.

2. I will also go ahead and say that I do not expect the Meetings For Fair Elections to make headway. Despite the much bigger publicity surrounding the second protest at Prospekt Sakharova, attendance there was only marginally higher than at Bolotnaya (for calculations see here). So the revolutionary momentum was barely maintained in Moscow, but flopped everywhere else in the country – as the Medvedev administration responded with what is, in retrospect, a well balanced set of concessions and subtle ridicule. Navalny, the key person holding together the disparate ideological currents swirling about in these Meetings, is not gaining ground; his potential voters are at most 1% of the Russian electorate. And there is no other person in the “non-systemic opposition” with anywhere near his political appeal. There will be further Meetings, the biggest of which – with perhaps as many as 150,000 people – will be the one immediately after Putin’s first round victory; there will be the usual (implausibly large) claims of 15-20% fraud from the usual suspects in the liberal opposition and Western media. But if the authorities do their homework – i.e. refrain from violence against peaceful protesters, and successfully reduce fraud levels (e.g. with the help of web cameras) – the movement should die away. As I pointed out in my article BRIC’s of Stability, the economic situation in Russia – featuring 4.8% GDP growth in Q3 2011 – is at the moment simply not conductive to an Occupy Wall Street movement, let alone the more violent and desperate revolts wracking parts of the Arab world.

3. Many commentators are beginning to voice the unspeakable: The possible (or inevitable) disintegration of the Eurozone. I disagree. I am almost certain that the Euro will survive as a currency this year and for that matter to 2020 too. But many other things will change. The crisis afflicting Europe is far more cultural-political than it is economic; in aggregate terms, the US, Britain and Japan are ALL fiscally worse off than the Eurozone. The main problem afflicting the latter is that it suffers from a geographic and cultural rift between the North and South that is politically unbridgeable.

The costs of debt service for Greece, Portugal, Italy, and Spain are all quickly becoming unsustainable. They cannot devalue, like they would have done before the Euro; nor is Germany prepared to countenance massive fiscal transfers. The result is the prospect of austerity and recession as far as the eye can see (note that all these countries also have rapidly aging populations that will exert increasing pressure on their finances into the indefinite future). Meanwhile, “core Europe” – above all, Germany – benefits as its superior competitiveness allows it to dominate European markets for manufactured goods and the coffers of its shaky banking system are replenished by Southern payments on their sovereign debt.

The only way to resolve this contradiction is through a full-fledged fiscal union, with big longterm transfers from the North to the South. However, the best the Eurocrats have been able to come up with is a stricter version of Maastricht mandating limited budget deficits and debt reduction that, in practice, translates into unenforceable demands for permanent austerity. This is not a sustainable arrangement. In Greece, the Far Left is leading the socialists in the run-up to the April elections; should they win, it is hard to see the country continuing on its present course. On the other side of the spectrum, the Fidesz Party under Viktor Orbán in Hungary appears to be mimicking United Russia in building a “managed democracy” that will ensure its dominance for at least the next decade; in the wake of its public divorce with the ECB and the IMF, it is hard to imagine how it will be able to maintain deep integration with Europe for much longer. (In general, I think the events in Hungary are very interesting and probably a harbinger of what is to come in many more European countries in the 2010′s; I am planning to make a post on this soon).

Maybe not in 2012, but in the longer term it is becoming likely that the future Europe will be multi-tier (not multi-speed). The common economic space will probably continue growing, eventually merging with the Eurasian Union now coalescing in the east. However, many countries will drop out of the Eurozone and/or deeper integration for the foreseeable future – the UK is obvious (or at least England, should Scotland separate in the next few years); so too will Italy (again, if it remains united), Greece, the Iberian peninsula, and Hungary. The “core”, that is German industrial muscle married to Benelux and France (with its far healthier demography), may in the long-term start acquiring a truly federal character with a Euro and a single fiscal policy. But specifically for 2012, I expect Greece to drop out of the Eurozone (either voluntarily, or kicked out if it starts printing Euros independently, as the former Soviet republics did with rubles as Moscow’s central control dissipated). The other PIGS may straggle through the year, but they too will follow Greece eventually.

I expect a deep recession at the European level, possibly touching on depression (more than 10% GDP decline) in some countries.

4. How will Russia’s economy fare? A lot will depend on European and global events, but arguably it is better placed than it was in 2008. That said, this time I am far more cautious about my own predictions; back then, I swallowed the rhetoric about it being an “island of stability” and got burned for it (in terms of pride, not money, thankfully). So feel free to adjust this to the downside.

  • The major cause of the steep Russian recession of 2008-2009 wasn’t so much the oil price collapse but the sharp withdrawal of cheap Western credit from the Russian market. Russian banks and industrial groups had gotten used to taking out short-term loans to rollover their debts and were paralyzed by their sudden withdrawal. These practices have declined since. Now, short-term debts held by those institutions have halved relative to their peak levels in 2008; and Russia is now a net capital exporter.
  • I assume this makes Russia far less dependent on global financial flows. Though some analysts use the loaded term “capital flight” to describe Russia’s capital export, I don’t think it’s fair because the vast bulk of this “flight” actually consists of Russian daughters of Western banking groups recapitalizing their mothers in Western Europe, and Russians banks and industrial groups buying up assets and infrastructure in East-Central Europe.
  • The 2008 crisis was a global financial crisis; at least *for now*, it looks like a European sovereign debt crisis (though I don’t deny that it may well translate into a global financial crisis further down the line). There are few safe harbors. Russia may not be one of them but it’s difficult to say what is nowadays. US Treasuries, despite the huge fiscal problems there? Gold?
  • Political risks? The Presidential elections are in March, so if a second crisis does come to Russia, it will be too late to really affect the political situation.
  • Despite the “imminent” euro-apocalypse, I notice that the oil price has barely budged. This is almost certainly because of severe upwards pressure on the oil price from depletion (i.e. “peak oil”) and long-term commodity investors. I think these factors will prevent oil prices from ever plumbing the depths they briefly reached in early 2009. So despite the increases in social and military spending, I don’t see Russia’s budget going massively into the red.
  • What is a problem (as the last crisis showed) is that the collapse in imports following a ruble depreciation can, despite its directly positive effect on GDP, be overwhelmed by knock-on effects on the retail sector. On the other hand, it’s still worth noting that the dollar-ruble ratio is now 32, a far cry from what it reached at the peak of the Russia bubble in 2008 when it was at 23. Will the drop now be anywhere near as steep? Probably not, as there’s less room for it fall.
  • A great deal depends on what happens on China. I happen to think that its debt problems are overstated and that it still has the fiscal firepower to power through a second global crisis, which should also help keep Russia and the other commodity BRIC’s like Brazil afloat. But if this impression is wrong, then the consequences will be more serious.

So I think that, despite my bad call last time, Russia’s position really is quite a lot more stable this time round. If the Eurozone starts fraying at the margins and falls into deep recession, as I expect, then Russia will probably go down with them, but this time any collapse is unlikely to be as deep or prolonged as in 2008-2009.

new-eurasia 5. Largely unnoticed, as of the beginning of this year, Russia, Belarus, and Kazakhstan became a common economic space with free movement of capital, goods, and labor. Putin has also made Eurasian (re)integration one of the cornerstones of his Presidential campaign. I expect 2012 will be the year in which Ukraine joins the Eurasian common economic space. EU membership is beginning to lose its shine; despite that, Yanukovych was still rebuffed this December on the Association Agreement due to his government’s prosecution of Yulia Tymoshenko. Ukraine can only afford to pay Russia’s steep prices for gas for one year at most without IMF help, and I doubt it will be forthcoming. Russia itself is willing to sit back and play hardball. It is in this atmosphere that Ukraine will hold its parliamentary elections in October. If the Party of Regions does well, by fair means or foul, it is not impossible to imagine a scenario in which accusations of vote rigging and protests force Yanukovych to turn to Eurasia (as did Lukashenko after the 2010 elections).

6. Russia’s demography. I expect births to remain steady or fall slightly (regardless of the secular trend towards an increasing TFR, the aging of the big 1980′s female cohort is finally starting to make itself felt). Deaths will continue to fall quite rapidly, as excise taxes on vodka – the main contributor to Russia’s high mortality rates – are slated to rise sharply after the Presidential elections.

7. Obama will probably lose to the Republican candidate, who will probably be Mitt Romney. (Much as I would prefer Ron Paul over Obama, and Obama over Romney). I have an entire post and real money devoted to this, read here.

The US may well slip back towards recession if Europe tips over in a big way. I stand by my assertion that its fiscal condition is in no way sustainable, but given that the bond vigilantes are preoccupied with Europe it should be able to ride out 2012.

8. There is a 50% (!) chance of a US military confrontation with Iran. If it’s going to be any year, 2012 will be it. And I don’t say this because of the recent headlines about Iranian war games, the downing of the US drone, or the bizarre bomb plot against the Saudi ambassador in the US, but because of structural factors that I have been harping on about for several years (read the “Geopolitical Shocks” section of my Decade Forecast for more details); factors that will make 2012 a “window of opportunity” that will only be fleetingly open.

  • Despite the rhetoric, the US does not want to get involved in a showdown with Iran due to the huge disruption to oil shipping routes that will result from even an unsuccessful attempt to block of the Strait of Hormuz. BUT…
  • While a nuclear Iran is distasteful to the US, it is still preferable to oil prices spiking up into the high triple digits. But for Israel it is a more existential issue. Netanyahu, in particular, is a hardliner on this issue.
  • The US has withdrawn its troops from Iraq. In 2010, there were rumors that the US had made it clear to Israel that if it flew planes over Iraq to bomb Iran they would be fired upon. This threat (if it existed) is no longer actual.
  • The US finished the development of a next-generation bunker-busting MOP last year and started taking delivery in November 2011. But the Iranians are simultaneously in a race to harden and deepen their nuclear facilities, but this program will not culminate until next year or so. If there is a time to strike in order to maximize the chances of crippling Iran’s nuclear program, it is now. It is in 2012.
  • Additionally, if Europe goes really haywire, oil prices may start dropping as demand is destroyed. In this case, there will be an extra cushion for containing fallout from any Iranian attempt to block off the Strait of Hormuz.
  • Critically, the US does not have to want this fight. Israel can easily force its hand by striking first. The US will be forced into following up.

The chances of an Azeri-Armenian war rise to 15% from last year’s 10%. If there is any good time for Azerbaijan to strike, it will be in the chaotic aftermath following a US strike on Iran (though the same constraints will apply as before: Aliyev’s fears of Russian retaliation).

world-crude-oil-prodcution-and-fitted-growth-oil-drum

[Source: The Oil Drum].

9. Though I usually predict oil price trends (with great and sustained accuracy, I might add), I will not bother doing so this year. With the global situation as unstable as it is it would be a fool’s errand. Things to consider: (1) Whither Europe? (demand destruction); (2) What effect on China and the US?; (3) the genesis of sustained oil production decline (oil megaprojects are projected to sharply fall off from this year into the indefinite future); (4) The Iranian wildcard: If played, all bets are off. But I will more or less confidently predict that global oil production in 2012 will be a definite decrease on this year.

If investing, I would go into US Treasuries (short-term) and gold to hedge against the catastrophic developments; yuan exposure (longterm secular rise) and and US CDS (potential for astounding returns once SHTF). Property is looking good in Minsk, Bulgaria, and Murmansk. Any exposure to Arctic shipping or oil & gas is great; as the sea ice melts at truly prodigious rates, the returns will be amazing. I do think the Euro will survive and eventually strengthen as the weaker countries go out, but not to the extent that I would put money on it. Otherwise, I highly agree with Eric Kraus’ investment advice.

10. China will not see a hard landing. It has its debt problems, but its momentum is unparalleled. Economists have predicted about ten of its past zero collapses.

11. Solar irradiation was still near its cyclical minimum this year, but it can only rise in the next few years; together with the ever-increasing CO2 load, it will likely make for a very warm 2012. So, more broken records in 2012. Record low sea ice extent and volume. And perhaps 100 vessels will sail the Northern Sea Route this year.

12. Tunisia is the only country of the “Arab Spring” that I expect to form a more or less moderate and secular government. According to polls, 75% of Egyptians support death for apostasy and adultery; this is not an environment in which Western liberal ideas can realistically flourish. Ergo for Libya. I can’t say I have any clue as to how Syria will turn out. Things seem strange there: Russia and Israel are ostensibly unlikely, but actually logical, allies of Assad, while the US, France, the UK, and the Gulf monarchies are trying their best to topple him. These wars are waged in the shadows.

I've got some ways to go before I reach Navalny's demagogic stature.

I’ve got some ways to go before I reach Navalny’s demagogic stature.

13. As mentioned in the intro, 2011 has been a year of protest. As I argued in BRIC’s of Stability, in countries like China, Russia, or Brazil they will remain relatively small and ineffectual. Despite greater scales and tensions, likewise in Europe (though Greece may be an exception); these are old societies, and besides they are relatively rich. They won’t have street revolutions. I do not think Occupy Wall Street has good prospects in the US. By acting outside the mainstream (as part of a “non-systemic opposition”, to borrow from Russian political parlance) it remains irrelevant – the weed smoking and poor sartorial choices of its members works against its attaining respectability – and municipalities across the US are moving to break up their camps with only a few squeaks of protest. (This despite the arrests of 36 journalists, a number that had it been associated with Russia would have cries of Stalinism splashed across Western op-ed pages). I say this as someone who is broadly sympathetic with OWS aims and has attended associated events in Berkeley.

The nature of protest in the Arab world is fundamentally different, harkening back to earlier and more dramatic times: Bread riots, not hipsters with iPhones; against cynical and corrupt dictators, not cynical and corrupt pseudo-democrats; featuring fundamental debates about reconciling democracy, liberalism and religion, as opposed to weird slogans like “Occupy first. Demands come later.” Meh.

14. The world will, of course, end on December 21, 2012.

What about the 2011 Predictions?

1) My economic predictions were basically correct: “Today I’d repeat this, but add that the risks have heightened… The obvious loci of the next big crisis are the so-called “PIGS” (Portugal, Italy, Greece, Spain), and Ireland, Belgium and Hungary.”

2) Neither the Iranian war (chance: 40%) or an Azeri-Armenian war (chance: 10%) took place. If they don’t happen in 2012, their chances of happening will begin to rapidly decline.

3) Luzhkov still hasn’t been been hit with corruption charges, but merely called forth as a witness. Wrong.

Prediction of 3.5%-5.5% growth for Russia was exactly correct (estimates now converging to 4.0%-4.5%).

With headlines this December cropping up such as “End is nigh for Russia’s ‘reset’ with US“, my old intuition that US – Russia imperial rivalry couldn’t be set aside with a mere red plastic button may have been prescient: “In foreign policy, expect relations with the US to deteriorate.”

4) Pretty much correct about the US and the UK, though I didn’t predict anything drastic or unconventional for them.

5) “Oil prices should stay at around $80-120 in 2010 and production will remain roughly stable as increased demand (from China mostly) collides with geological depletion.” Totally correct, as usual.

6) China will grow about 9.4% this year, well in line with: “China will continue growing at 8-10% per year. Their housing bubble is a non-issue; with 50% of their population still rural, it isn’t even a proper bubble, since eventually all those new, deserted apartment blocs will be occupied anyway.”

7) 2011 was the warmest La Nina year on record, so in a sense thermometers did break records this year.

“Speaking of the Arctic, as its longterm ice volume continues to plummet and sea ice extent retreats, we can expect more circumpolar shipping. I wouldn’t be surprised to see up to 10 non-stop voyages along the Northern Sea Route from Europe to China, following just one by MV Nordic Barents in 2010.” If anything, I low-balled it. 34 ships made the passage this year! Sea ice cover was the second lowest on record, and sea ice volume was the lowest. So in the broad sense, absolutely correct.

“Likewise, expect the Arctic to become a major locus of investment.” This year, plans were announced to double the capacity of the Port of Murmansk by 2015.

8) Wrong on the Wikileaks prediction. The insurance file was released by The Guardian’s carelessness (whose journalists, David Leigh and Luke Harding, then proceeded to mendaciously lie about it), not by Assange. And the extradition proceedings are taking far longer than expected, though my suspicions that his case is politically motivated is reinforced by US prosecutors’ apparent pressure on Bradley Manning to implicate Assange in the theft of the State Department cables.

9) On Peter’s enthusiastic reminder, I did get my Russia Presidential predictions for 2012 wrong. Or 75% wrong, to be precise, and 20% right (those were the odds that I gave for Putin’s return back in May). I did however cover it separately on a different post, here. That said, I do not think the logic I used was fundamentally flawed; many other Kremlinologists ended up in the same boat (and most didn’t hedge like I did).

(Republished from Sublime Oblivion by permission of author or representative)
 
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A collection of news stories and my take on them from the past month or so.

1. Bribes are growing quickly in Russia. Their average sizes, that is. It was reported by the MVD that they increased by 5x from a year earlier to $10,000. The usual Russophobe suspects wasted no time declaring this to be further evidence of the uncontrolled, unstoppable Blob-like growth of corruption in Russia. But let’s use common sense for a minute. If average bribe amounts are increasing by such huge percentages, surely it means one or both of two things: (1) Investigations are moving higher up the chain of command, where quantities are bigger; (2) Paying bribes is becoming riskier, so – as with illegal drugs – the margins providers demand also increase. Either are good developments, no?

2. Russian readers, e.g. at Inosmi, were shocked to discover Russia renting out agricultural land to Asian farmers to grow food. Talk of “colonial takeovers”, “resource appendages”, etc. What many studiously ignore is that colonialism in the true sense consists of settlers with guns taking over the lands of aborigines with spears. This is patently not the case with Russia. To the contrary, it is a relatively easy and excellent way to earn foreign currency and create development in rural places – and a practice that will become increasingly prevalent in the decades ahead as agricultural yields in the south plummet due to the advance of climate change.

3. Did Russia experience a uniquely disastrous collapse in the 2008 crash, thus proving its unfitness for BRIC’s and the G8? Not really. According to this recent chart in the Economist, by the most objective measure taking the whole period of the global recession into account, Russia doesn’t actually do too badly. In fact it outperforms every single developed country, with the exception of Taiwan, Korea, and Poland. The -7.9% GDP drop in 2009 looks big, except when you consider that most of Russia’s recession was packed into that single year. It’s growth for the past decade as a whole is also entirely respectable, coming 27th out of 179 countries.

5. The Russian government respects and listens to opinion polls. The horror! Real democracies only listen to lobbyists.

Seriously, they might be derided as fickle, etc. – I remember some newspapers bizarrely lauding Tony Blair for his ” bold leadership” in taking the UK to war in Iraq against the will of the British people – but the fact is that opinion polls are the best proxy of the people’s voice that we have and as such a political leadership that orients itself towards opinion polls is the most purely democratic one absent rule by referenda.

This logic is highly disturbing to Westerners. Its implication is that Russia, or even China – which is experimenting in several regions with “deliberative dictatorship”, in which policies and spending are determined on the results of opinion polls – may be more democratic than, say, the United States, where priorities are distorted by moneyed special interests. For instance, multiple polls show that vast majorities of Americans favor tax increases on the wealthy as part of any attempt to balance the budget, but one of the two parties of power is adamantly opposed to this. So any such an initiative is dead in the water.

6. Further food for discussing Russia’s prospects in the next global crisis.

One of the main themes seems to be that its economy isn’t as leveraged as it was before, so a block-up in credit wouldn’t be so critical now.

7. REPORTING THE BRITISH RIOTS. Highly recommended post by Alex Mercouris.

8. Huge Chavez is moving Venezuela’s gold reserves back home. This is a wise move. The West has a proclivity towards seizing the assets of countries they dislike, using human rights abuses real and alleged as fig leaves – sometimes, human rights abuses in response to disturbance their intelligence agencies foment themselves. In his years of power, Chavez has proved that an alternate route of more equitable development is both possible and preferable to neoliberalism. So the West hates him.

He is also moving Venezuela’s cash reserves out of Western nations to China, Russia, and Brazil. This is just common sense under current conditions. Despite massive fiscal stimulus and monetary loosening, much of the Western world appears to be slipping into recession again. Even Germany. This will keep revenues depressed, torpedoing any hope of solving the massive budget deficits throughout the US and Europe. The time will approach sooner or later when mainstream investors come to view their debts as worthless.

9. The spread of Four Hour Workweek ideas into Russia? As reported, many Muscovites are beginning to rent out their apartments in the high-priced capital while living and traveling across South-East Asia or Central America. If they work, they do so through the Internet, for Russian (or Western) salaries.

That said, I’ve no doubt the Russophobes will seize on this as yet another apocalyptic wave of emigration and further proof of Russia’s rottenness.

10. Russia’s demography results are out for the first half of 2011. I’ll have a more detailed post out in a while, seeing as Russia’s demography is one of S/O’s interests, but in summary: birth rates and death rates both fell by about 3%. The rate of natural decrease improved slightly from 142,000 to 138,000. Net immigration increased from 90,000 for the first half of last year to 144,000 for the first half of this year. So the population is basically at a standstill this year so far (after small growth in 2009, and small decrease in 2010). If the trends remain similar, and in the light of a non-repetition of the 2010 heatwave that artificially increased mortality, this year will probably eke out a small population increase.

(Republished from Sublime Oblivion by permission of author or representative)
 
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Anatoly Karlin
About Anatoly Karlin

I am a blogger, thinker, and businessman in the SF Bay Area. I’m originally from Russia, spent many years in Britain, and studied at U.C. Berkeley.

One of my tenets is that ideologies tend to suck. As such, I hesitate about attaching labels to myself. That said, if it’s really necessary, I suppose “liberal-conservative neoreactionary” would be close enough.

Though I consider myself part of the Orthodox Church, my philosophy and spiritual views are more influenced by digital physics, Gnosticism, and Russian cosmism than anything specifically Judeo-Christian.