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Russian Reaction

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Nearly every other day brings another scary headline about Russia’s economic apocalypse. Inflation is robbing Russians of buying power and Putin propagandists are denying it. The “wheels are coming off” the regime according to our friends at the RFERL, the end of the regime is nigh according to Bill Browder, and Putin’s days are numbered, at least in the creative imagination of Ukrainian nationalist academic Alexander Motyl.

Masha Gessen’s friends can no longer get their little Gruyères, the “legendary” (primarily for losing his clients’ money) Moscow investor Slava Rabinovich is predicting food shortages, and things are only about to get worse with oil falling to $25 per barrel and the ruble to 125/$1, at least according to the Khodorkovsky-funded Interpret Mag’s Paul Goble, who has made something of a professional career forecasting Russia’s takeover by Muslims and the Chinese.

Ambrose Evans-Pritchard, the guy who has predicted all twelve of China’s past zero recessions amongst other forecasting accomplishments, says that Russia is “in a full-blown depression.”

One would think from all the noise that we are looking at some sort of Greece-like depression, or an imminent rerun of the collapse of the post-Soviet economy in the 1990s.

Now for the rather banal reality. Real GDP is expected to contract by around 2.7% this year according to the World Bank, but then recover to 0.7% in 2016 and 2.5% in 2017.

The reasons behind this are likewise pretty banal. They don’t have a great deal to do with Western sanctions, which hurt the ability of Russian companies to raise capital but otherwise have had little bite, and they have even less to do with any particular feature of Russia’s political system/kleptocracy/lack of economic freedoms that both anti-Russian establishment pundits like Ariel Cohen and pro-Western liberals in Russia like former Finance Minister Alexey Kudrin like to claim as dooming it to economic stagnation. If they were right, then East-Central Europe – most of which is rated as a lot economically freer and less corrupt than Russia on the various indices that proclaim to measure such – would not also have been stuck in a relative economic rut since around 2007.

No, the reason for Russia’s recession is quite simple and boils down to the sharp collapse in oil prices from ~$100 in 2014 to ~$50 this year.

Though the Russian economy is about far more than just oil – natural resource rents are 18% of GDP – it is true that oil is the key component of Russia’s export basket. So when oil prices collapse, in the absence of massive and unsustainable interventions, the ruble devalues. This is indeed what happened. Imports went down, goods became more expensive, and inflation rose. The Central Bank jacked up interest rates in order to prevent runaway inflation, but at the price of a decline in aggregate demand and consequently a short-run decrease in the GDP. If one is really searching for a comparison, the correct one would be not to Greece (which is locked in a monetary straitjacket by the ECB) nor to the late Soviet Union (wholly irrelevant) but to the Volcker recession in the early 1980s US.

Sergey Zhuravlev's permanent oil shock model. Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

Sergey Zhuravlev’s permanent oil shock model (click to enlarge). Steady growth line represents $100 oil scenario; trough and recovery line represents $50 oil scenario.

There is now a very substantial output gap. Dependence on Western credit is now much reduced relative to 2013, to say nothing of 2007. Meanwhile, there are active and serious efforts to develop Russia’s own financial system, which remains woefully underdeveloped for an economy of its size and scope.

Finally, even if oil prices drop permanently to $50 – which is entirely possible, given the removal of the Iran sanctions, this would not mean the Russian economy would be necessarily doomed to years of stagnation. To the contrary, econometric modeling by Russian economist Sergey Zhuravlev indicates that it would result in a ~1.5 year recession (which began in mid-2013, versus 2012 in his model; but otherwise it remains very relevant) followed by accelerated GDP growth thanks to exports.

Otherwise, macroeconomic indicators remain unremarkable. Corporate debt repayments scheduled for the second half of the year are twice lower than in the first half. The budget deficit is forecast to be 3-4% of GDP for the year and overall state debt levels continue to be very low. (Incidentally, this figure is 20% for Saudi Arabia. Which should put the nail in the coffin of the idiotic conspiracy theory that the fall in oil prices has been orchestrated by them and the US to undermine Russia).


Unemployment in Russia (Trading Economics).

Unemployment has barely budged, not even reaching 6% at its peak. In comparison, it was at 10% throughout much of the 1990s. This is almost entirely an output recession.

Now inevitably when recessions occur, living standards tend to fall, and people have to live more frugally. Reading the Western media, one would think that the recession has led to a tsunami in worker protests, criminality, and elite intrigues against Putin.

But in statistical terms, the real impacts of the downturn have been modest. According to Levada opinion polls, the percentage of people having difficulty buying food and clothing increased to 32% this year from 21% in 2014, but this is still lower than the figure for (pre-crisis) 2012, when it was at 33%, to say nothing of the early 2000s (higher than 50%) or the 1990s (around 80%). The percentage of Russians who spend either “almost all” or “two thirds” of their incomes on food, another measure of poverty, is 26% this year, completely unchanged from 2014, and actually lower than in 2013 (33%) or the 2000s in general (40%-50%), to again say nothing of the 1990s (consistently around 80%). These numbers have been confirmed credible by observers such as Russia Insider’s Gilbert Doctorow and Alexander Mercouris, who have personally assessed the situation on the ground, in stark contrast to the New York Times’ Masha Gessen’s reliance on her “Je suis fromage” liberal Russian friend.

Index of "protest potential" based on percentage of Russians saying they'd be willing to partake in protests.

Index of “protest potential” based on percentage of Russians saying they’d be willing to partake in protests.

It is deeply unfashionable to say this but Russian living standards have improved astronomically in the 15 years of Putin’s rule – more so than the headline GDP figures. As such, even a recession like the current one only kicks living standards back by one or two years.

As such, it is not surprising – if deeply disappointing to the Western elites who want to stir up a color revolution in Russia – that Russia’s level of “protest potential” (the percentage of Russians saying they would be willing to participate in protests, or rating the likelihood of protests as being high) is currently near record lows.

Naturally, any such attempts to put the effects of an ultimately modest ~3% drop in GDP into statistical perspective will be met with accusations of callous indifferent to the plight of the Russian people, and the work of Olgino trolls to boot. I have seen this replayed numerous times on the Internet, even when the people making such arguments were Russians living in Russians, whose only sin was to recount their own (generally modest) experiences and impressions of the recession.

Make no mistake – there is a well coordinated media effort in the West to leverage any Russian economic problems to destabilize the Kremlin. Note the chorus of condemnation around the destruction of food illegally imported from the EU in contravention of Russian sanctions, even though the destruction of excess food is routine under the EU’s Common Agricultural Policy.

Naturally, this is driven by their altruistic and heartfelt commitment to the wellbeing of the Russian people. Though isn’t it just a wee bit strange that those journalists and “activists” who tend to shout loudest about the burning of European food also tended to be the ones who maintained the thickest silence about the burning of Russian people in Odessa in the new European Ukraine.

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At least according to the latest revision of the World Bank’s PPP-adjusted GDP estimates.

China has long been expected to overtake the US economy (one economist dated it to as early as 2010), and there had already been a flurry in the media when the IMF claimed the same thing in December last year. The World Bank’s new figures just confirm the new reality and scaremongering about a bad night at the irrelevant casino that is the Chinese stockmarket is not going to materially change the fact. Annual growth continues at 7% per year, much the same as South Korea when it was at a similar stage of per capita development in the 1980s.

Russia’s PPP-adjusted GDP actually marginally overtook Germany’s back in 2013, and it managed to maintain this small lead into 2014 despite falling into recession. Of course with GDP expected to fall by around 3% this year, there will almost certainly be a reversal of this, but not by any radical amount – the hystrionical pronunciations of the Western media regardless – and will likely be temporary anyway import substitution really kicks in.

Financial, military, and cultural power are all ultimately functions, if lagging functions, of productive economic power. Although it would be a bad idea to go overboard with it, the spectacle of the same year (give or take) seeing both Russia overtaking the former biggest economy in Europe, and China overtaking the former biggest economy in the world, is really quite symbolic.

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So who are you and why should I read you?

I am a businessman, journalist, and talentless PhotoShopper based in the SF Bay Area. My blogging career began in 2008, when I perceived an increasingly absurd discrepancy between the doom-mongering rhetoric of the Western media towards Russia, which painted it as a “weak,” “dying,” and “finished” country in between hysterics about Putin’s plans to subjugate Middle-Ear- oops, I mean Europe… and its rather mundane and mediocre reality.

I launched my first blog with the intention of clearing up these myths not so much because they were Russophobic as because they were logically implausible or just factually wrong. Personally, the thing I’m most proud of there was modeling and correctly predicting Russia’s demographic turnaround. It is not an exaggeration to say I was a lone voice in the wilderness on this question in 2008.

I will not go into any further detail, because many of you will either be already familiar with my Russia blog, or simply uninterested. If neither of that applies to you, please feel free to explore my extensive, hand-selected posts archive here:

Soon my interests soon began to extend well beyond the Eurasian carapace into topics such as geopolitics, futurism, and psychometrics. I found it expedient to launch a second blog to explore these topics. I started reading Steve and Razib. I leafed my way through the Index Librorum Prohibitorum of our days – books by Murray and Rushton, Lynn and Jensen – and found the case for human biodiversity to be near incontrovertible. I started exploring the ways in which human biological differences might have influenced history (e.g. the classic puzzle of why the Industrial Revolution began in NW Europe), affected the present (e.g. why are rich countries rich and poor countries poor?), and what they could portend for the future of our civilization (e.g. will China manage to converge to First World living standards? Will India? Will Russia? Will Africa?). And what practical lessons can we draw from these findings in areas from immigration policy (probably restrict it) to the welfare state (surprising wide range of legitimate arguments)?

It is through these online debates and discussions that I first encountered Ron Unz.

We met at the somewhat arcane intersection of Chinese academic performance, the urban/rural IQ divide, and the Flynn effect. Why are East Asian IQs seemingly so much more resilient than European IQs to negative socio-economic influences? Could it be an artifact of poor sampling? Or maybe we were just comparing the wrong tests? On the other hand, Unz’s theory conflicts with historical anecdotal data, and opens up an additional can of worms in the sense that it makes the question of why China didn’t have an Industrial Revolution first all the more puzzling. But the balance of evidence swings one way then another. In the 2012 PISA, Vietnamese students did as well as the Germans and almost two (!) standard deviations better than the Indians had done in 2009, even though Vietnamese per capita incomes are at India’s level and nowhere near Germany’s. That’s some major support for Unz’s theory of the East Asian Exception!

This particular debate encapsulates what I find so entrancing about HBD and psychometrics. They have immense explanatory power. Nothing else explains why the wealth of nations is so unevenly distributed, or why China started growing so fast after it threw away its Maoist shackles, quite as well and convincingly. But they also open up new conundrums almost as soon as the old ones are resolved.

My blogging fell to near zero in 2014 as I concentrated on real life(TM) things. But I missed the old days of blogging and the indepth research that went into it; quickfire exchanges on Twitter were no substitute. By a happy coincidence, Ron emailed me with an offer to join The Review just as I was about to sit down and update my websites in preparation for resumed blogging.

He believes that my interests in HBD/psychometrics, geopolitics, and Eurasia tie in well with the general themes of The Review. I sure think (hope?) so too, and for my part I am am honored to work with him, and alongside Razib and Steve, two bloggers I have long followed and respected, and the many other great and wonderful columnists who call The Review their home. I am looking forwards to this.

Why the Russian Reaction?

I am a Russian reacting to things. And many people would call me a reactionary. (Though I am broadly sympathetic to NRx, I don’t formally identify with them. They have too many unsubstantiated ideas, like their strange hard-on for monarchy, and rejection of climate change science. It is an ideology like any other and virtually all ideologies have their own specific blinkers).

What are you going to write about?

I will aim to produce about one post per day spread across the following major topics:

  • HBD and Psychometrics – Analysis of topical news from this perspective. New research papers. My own theories/connections between this and various aspects of world politics and history.
  • Geopolitics and the Ukrainian conflict.
  • Russian politics, economics, demography; its portrayal in the Western media.

Apart from this I will also occasionally do book reviews and write posts about futurism, transhumanism, energetics, ancestral health, biohacking, SJW insanities, topical scandals like Gamergate, and other topics that interest me (and hopefully at least some of you).

Where else can I follow you?

  • @akarlin88 on Twitter.
  • Subscribe to me on Facebook (nothing personal… but please don’t Friend me unless I know you).
  • I have some vague plans to start doing YouTube videos. Will update if it happens.

Otherwise, I am working on a book tentatively titled APOLLO’S ASCENT, about the role of intelligence in world history. My basic thesis is that the rate and global distribution of technological and, consequently, economic progress is strongly dependent on the absolute numbers of literate, high-IQ people. Naturally, it ties in quite strongly with the themes I will be blogging about, so I’ll definitely be throwing a lot of ideas out of it here (and your ideas… into it?).

What is your moderation policy?

It is not my choice, but premoderation is system-wide on this website. That said, it does allow me to add exceptions, so I’ll be continuously doing that.

I rarely censor/ban. When I do, it will almost inevitably be for one of the following reasons:

  • Particularly gratuitous ad homs, personal attacks, and/or slander against me or other commentators.
  • Spam.
  • Idiotic unfunny trolling. I tolerate intelligent trolling, and I tolerate funny trolling. But if you are neither intriguing us nor entertaining us, then you are just taking up space. Go do it elsewhere.
  • SIFs (Single Issue Fanatics). You know that one guy who goes on and on and on about the Federal Reserve, the Rothschilds, and how 9/11 was carried out by the Bilderberg Group? Without the option of downvoting him into well-deserved oblivion, like you can do on Disqus, there is no choice but to eradicate his ramblings so that the rest of us sheeple can have a normal conversation.
  • Crude ethnonationalist propaganda (including Holocaust denial). What is the difference between racism and race realism? Half Sigma: “The race realist understands The g Factor, The Bell Curve, and other works of scientific research. The racist apparently thinks that because Barack Obama is half black, it’s impossible for him to have a significantly higher g than John McCain.” I specifically allowed this comment from “David” to use as an example of what I do not want to see here. If you insist on polluting the comments thread with rants about “WHITE EXTINCTION AND WHITE GENOCIDE,” I am certain you would find a more appreciative reception at a certain weather-related forum.

I am absolutely sure that the above will not concern 99%+ of you. But it’s always good to get these things clear straight off the bat.

Anything else?

That’s it. The Russian Reaction begins now.

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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.