Chris Miller with a good, simple high-level overview on what exactly is going on with Vladimir Putin and the economy in Russia today:
First, to frame things:
“Whoever does not miss the Soviet Union has no heart,” Russian President Vladimir Putin famously said in 2010. But he quickly added, “Whoever wants it back has no brain.”
Speaking of the Soviet Union:
When the Soviet Union confronted this array of challenges in the mid-1980s, it promptly collapsed. But facing very similar forces today, Mr. Putin’s government has survived—even thrived. What has made the difference, above all, is Mr. Putin’s devotion to conservative fiscal and monetary policies, coupled with an authoritarian’s ability to implement austerity measures without consulting his population.
Stalin, the architect of this system, faced scant obstruction from economic interest groups, thanks to his willingness to execute “enemies of the people” by the thousands. Mr. Gorbachev was unwilling to use firing squads to provide economic incentives. Instead, he embraced fiscal loosening and promised a wave of subsidies to big industry and agriculture in exchange for their acceptance of his market reforms.
Where the Soviets suffered from an exploding budget deficit, financed by money creation, today’s Russia has pushed through an aggressive austerity program, slashing spending on social programs and pensions to balance the budget. The Bank of Russia has hiked interest rates to double-digit levels, driving inflation down to 6%, a respectable figure for an emerging market. The Kremlin’s budget deficit will be a bit more than 3% of GDP this year, even though oil—which previously provided half of government revenues—is now selling for half its price two years ago. And Russia’s government debt remains less than 20% of GDP, according to Russian government statistics. America’s public debt, by contrast, is more than 75% of GDP, according to the Federal Reserve.
Management and control through fiscal conservation (and some manipulation, of course).Read more...