Russian GDP

[andrewfi]

Infrastructure is an historical issue. The first thing to understand  is that the Soviet Union failed because of inflation. Because the tools did not exist to allow inflation to take place (prices, exchange rates, unemployment) there was a big problem in the areas in which inflation could be expressed - underemployment, poor quality of production and underinvestment in infrastructure.

After the fall of the Soviet Union there was a huge amount of released inflation - it was one of the reasons why national assets were sold off so fast and, in hindsight so cheaply. There was really very little choice in the matter and the reality is that Russia and Russians have benefitted hugely from the increases in real wealth these firms have generated.

In the space of a few short years Russia has changed dramatically. On my first visits women were selling themselves becasue there was nothing else to sell and no work for them. People were going to markets carrying the last of their possessions to sell for food. Foreigners were like kings. Now, the ruble is a strong currency, internationally traded and appreciating against other currencies.

But, not everything can be done at once. I remember visiting a power plant in Saint Petersburg. It was new (but badly delayed) this was about 2002 IIRC. It was the only new power plant being built in the whole of Russia, but the second generator was still not being built. The result was that a whole new section of Saint Petersburg was not being built - there was no electricity to serve the needs of the new area.

Infrastructure will continue to be an issue for some time to come. Even though the country is slooshing with spare cash, there is not the wherewithal to do everything at once. The constraint is not now money. The infrastructure needs of the country can come from the set aside from the oil and gas industry. There is no inflationary effect from this. There is however a great addition to GDP. Pollution cleanups are also an addition to GDP, although there are economists who suggest we should use other methods to calculate a country's wealth that do not, in essence, give credit for making a mess, or just digging stuff from the ground.

In economic terms, as an economy grows there is usually inflationary pressure caused by increased demand in the economy that is putting upward pressure on supplies of goods and services in the country. In Russia though we have two countervailing forces. We have rapid and great economic growth coming from energy extraction and that will continue for several decades at least. Against that we have inefficiences in the rest of the economy, partly due to infrastructure issues. So, in fact inflation may well be countervailed by the systemic inefficiences already present.

But, it should be remembered that inflation is not of itself a bad thing. In some circumstances it is good and pretty much all economies, including the US, encourage it! Deflation is the culture killer, it removes any benefits from capital investment - what point in investing if you know the aggregate increased output is going to be sold for LESS in a year than it is today? In general terms inflation is only bad in three circumstances:
1) When the inflation is unpredictable - not a problem in Russia. Unpredictability removes the ability to plan and thus investment is reduced. (for those who would quote cases of hyperinflation, particularly Weimar Germany, it should be understood that it was the unpredictability that was the issue. Other countries have had very high inflation with comparitively little ill effect - Post Soviet Russia in the 90's is actually such an example, other examples in South America spring to mind.)
2) If you are an American going to Russia with devalued currency...
3) If wages do not keep pace with, or exceed inflation, not an issue in Russia at the moment, but the government is well aware of the issues- the problem is to maintain wage increases at levels that can be met by increased real terms productivity increases. If that issue can be dealt with then Russians may be getting richer rather faster than the more cautious wife hunter might find helpful.

[Bruce]

Thanks Andrew  . 

[Mamma D]

Well hear this... my kids are staying put here at home.

At least Basil will until he is past draft age!

And, his grandmother will travel this direction! He will miss his cousins
and Irina may travel without him.

I do think that things are better now than they were, and time will be needed to
move ahead, just as it does anywhere.

I saw England and Germany after WWII... and the advances they made were something else, rebuilding. Replacing infrastructure and modernizing....amazing.

I expect that the Russian people will do the same, don't under estimate
the will of a people to succeed.

Mamma D

[BillyB]

Billy ~ You are doing it again.

Do you understand the words you are writing? I am making NO COMMENT about US military power, it is not germane. If it helps you to understand what you read though, I will bow down and worship at the altar of American military might as displayed by Vietnam, Greneda, the invasion of Panama, the increasingly peaceful situation in Iraq and Afghanistan, etc etc. Does that feel better? (I thought not!)

Ok, now to deal with the figures you quoted and the 'meat' of your post:
Real GDP growth is the growth in an economy, after accounting for inflation. Now, it is true that GDP is not a measure of personal wealth, but it is often a good proxy when looking at direction and magnitude. (people tend to not get richer during times when GDP is decreasing)

So, in the figures you quoted, but did not understand. (and bearing in mind that consumer prices are NOT a good proxy for the economy as a whole - but simply using them as given)

Growth in nominal percentage terms = real GDP growth + Inflation = 6.4+11=17.4%
Growth in real terms = nominal GDP growth - inflation = 17.4-11=6.4%
The Russian economy grew by 17.4%, year on year, but inflation 'ate' 11% of that growth.

So, using GDP growth as a proxy for personal wealth growth, as you have done, we find that 'mr Russian Dude' is earning 17.4% more than last year, but that prices have gone up by 11%. He is unhappy that prices have gone up and feels bad, but he forgets that he is actually 6.4% better off than last year, after inflation.

Guys/girls - I know the figures are not correct, but I am keeping things simple,OK! From my recollection, the net improvement for mr Russian Dude is about 3%, still not to be sneezed at and especially when taken in context of actual income distributions - the middle class and near middle class is growing rapidly in number and income.

Okay Andrew,

I'm going to have to take you to school. Don't be insulted, I actually enjoy debating you.

You are correct when you say "Real GDP growth is the growth in an economy, after accounting for inflation" but you are incorrect when you say
"Growth in nominal percentage terms = real GDP growth + Inflation = 6.4+11=17.4%
Growth in real terms = nominal GDP growth - inflation = 17.4-11=6.4%
The Russian economy grew by 17.4%, year on year, but inflation 'ate' 11% of that growth."

The reason is that GDP is the value of all final goods and services produced within a nation in a given year. When inflation is factored in GDP, it is not the same inflation consumers pay for products(retail prices). Inflation of goods and services are affected by raw material price increases, increased manufacturing costs, and wage increases to the people who manufacture products or supply services. Inflation affecting the cost of making goods or supplying services could be any possible % not covered by the CIA but it IS NOT THE SAME inflation affecting the consumers which could be double, tripled and then some. Your flaw is that you added real GDP growth with consumer pricing inflation to say "growth in nominal percentage terms is 17.4% when consumer pricing inflation should be looked at AFTER real GDP growth is established which means the Russian economy isn't looking too bright! Consumer goods and services growth is 6.4% with the proper inflation accounted for but what people are paying is 11% higher for the services and goods from last year.

In the economy overview, the CIA stated "Nevertheless, serious problems persist. Economic growth slowed to 5.9% for 2005 while inflation remains high." 5.9% growth is something to be proud about but inflation doesn't allow the citizens to enjoy the benefits when purchasing products after manufacturer's inflation is say at 8%, (don't know what it is but let's call it 8% for debating purposes) and then manufacturers along with their retailers selling the product with an increase 11% for the year to consumers. The poor consumer who might have gotten a whopping 10% pay raise must now pay 11% more for his everyday goods. He is actually worse off than last year.

Take a look at Angola's Economy overview. It states in 2000 Consumer inflation was 325%. Countries in Africa are famous for periods of out of control inflation regarding pricing for consumer goods. Now try to take that 325% and insert it in the formula you gave me for Russia "Growth in nominal percentage terms = real GDP growth + Inflation". Growth in nominal percentage terms would sound silly with adding such a large number(325%) for that country! What I'm trying to say Andrew is that you have to look at Inflation(consumer prices) AFTER you figured out real GDP growth, not add to it to get "Growth in nominal percentage terms"

P.S. I accept your apology.

[andrewfi]

Billy ~ I surrender. You simply do not understand what you read., You got it back to front again. The nominal figures you gave for Angola are not germane to the discussion at least in part because of exchange rate issues, which complicate the picture as I illustrated in the Russian/American case. It is perfectly possible to have hyperinflation and a positive gdp growth in real terms. That the numbers are nominally large high simply is not important.

Billy, this is not fun to debate. I am trying to help you and others to better understand the environment in which you sometimes find yourselves but this is not school.
If you don't understand, don't argue, ask a question. Check a dictionary, think before you write, ask whether what you are about to write fits with your observed knowledge.
The bottom line is that year on year, Russians are demonstrably better off. To argue the opposite as you are trying to do simply flies in the face of the empirical as well statistical data. (ie, an observer can see the differences from personal observation as well as being able to measure them numerically)

There is little to apologise for. I feel no need to apologise for your lack of understanding, but I am sorry that I can not lead you to comprehension, but, in the end most learning has to be done for oneself. As a very good teacher once told me, a good teacher can only show the student the roadmap, the student has to follow the trail for themself. I apologise if I have not shown you a good enough roadmap. That said there are many good guides out there.

This one is a good introduction : http://en.wikipedia.org/wiki/Inflation but the article specifically rejects the concept of increase in money supply as inflation. My own view is somewhat dfferent, but the 'popular' view is as per the article.

This one deals with GDP: http://en.wikipedia.org/wiki/Gdp There is a discussion of shortcomings and mention of alternatives. There is no explicit discussion of inflation, but if you look at the elements of GDP you will see how interest rates and money supply (and thus inflation) are incorpoated into the model. This really is only an introduction to the subject though.

Here is an interesting intoduction to economic types, making it clear that there is a multitude of market economies: http://en.wikipedia.org/wiki/Mixed_economy

Economics is fun! It is an integral part of our lives even though we do not usually know it. It provides insights into why people do things and how. A lack of understanding means that we simply can not make the best use of our world.

[BillyB]

The bottom line is that year on year, Russians are demonstrably better off.

A lot of Communist sympathizers will vigorously debate that since superpower status will never return at the rate Russia's going. Elen's not to happy with Russia's so called democracy and she lives in the city where the money flows.

Look Andrew, you should have saved yourself a whole lot of typing and realize the definitions of what we're talking about is in the CIA factbook if you click the book symbol.

Now, how can you tell everyone  real GDP growth 6.4%(which has inflation factored in)+ Inflation(consumer retail prices) 11% = Growth in nominal percentage terms 17.4% as if 17.4% is good? You can't keep adding different kinds of inflation to get growth in nominal percentage terms. Add Angola's 325% inflation for that one year to your equation and their "growth in nominal percentage terms" will be high and something to brag about. I don't think so.

Again the CIA's factbook economic overview for Russia states ""Nevertheless, serious problems persist. Economic growth slowed to 5.9% for 2005 while inflation remains high." While you have implied inflation doesn't factor in anymore, the CIA has factored in inflation AFTER determining real growth in their economic overview. Somebody is WRONG.

Someone once told me "If you don't understand, don't argue, ask a question. Check a dictionary, think before you write, ask whether what you are about to write fits with your observed knowledge." Andrew, I do have a question for you since I didn't understand from a statement you made a year ago. How did you come about predicting, since you're on the other side of the pond, the demise of the U.S. as a superpower ecomically and militarily as early as in 20 years?

Don't be suprised that people can see beyond all the fancy words you throw out and figure you don't always add up things correctly. Will you be able to ever admit you are wrong in anything? If you don't admit some faults of yours, then it's everyones right to be skeptical in what you say on any given day.

I feel a healing coming on(with my hand raised in the air) and I'm ready to forgive you Andrew if you'd only repent.

[prince_alfie]

I'm going to play the skeptic and say that there isn't a true democracy anymore. 

[Mamma D]

Sorry to say, I think you may be right and hope I am wrong. The pendulum has swung far to on side and I do hope as it swings the other, we may have learned something of value.

Mamma D

PS... Dan I sure do love that spell check and so does that worn little old dictionary