EDITORIAL
Economics for Russians
Based on the total incompetence in the field of economics that we see routinely displayed by Russians, we often think that perhaps they should develop a whole new genre of how-to books with titles that cater to Russians who are not yet sophisticated enough to be able to access a publication like “Stock Market for Dummies.” There could be ”Inflation for Russians” and “Unemployment for Russians.” Lots of pictures and such, no big words.
As a way of perhaps jump-starting this process, we offer our little primer on the latter two subjects.
A nation can get away with high inflation if it has low unemployment. Low unemployment means most people who want jobs, and the incomes that go with them, have them. With lots of people holding cash, naturally prices for things are going to get bid up. A society should be able to produce enough to meet demand at reasonable prices in order to increase its standard of living, something Russia has never shown any ability to do, but that’s a secondary problem. At least if people have jobs, they can buy things.
On the other hand, a nation can get away with high unemployment if it has low inflation. Sure, lots of people need incomes, but prices are under control so it’s easier to get buy on savings. Hopefully, demand for production will remain vigorous, and that will mean new jobs have to be created to meet that demand. Obviously, if unemployment gets out of control the whole system can collapse, but firm control of prices means the economy has sound footing.
What you don’t want, what you simply can’t have, is high unemployment and inflation simultaneously. That is a formula for insurrection, tumult, and national collapse. People have no money, and prices are rising. Goods become unobtainable, and people become desperate. They sacrifice things like healthcare just to put food on the table. It’s what’s going on in banana republics like Zimbabwe.
This is the situation Russia faces now, runaway inflation and unemployment. The World Bank, as we recently reported, has said it expects both to be in double digits by the end of this year. At the same time, Russia faces massive bank defaults because another thing people sacrifice in such times are loan repayments. That means banks run out of money to fund new business growth, or fail entirely.
None of this should come as a surprise to any thinking person who has seen the Russian stock market shed three-fourths of its value over the past year. But it apparently does come as a total shock to Russians, who claimed as the stock market was falling that it had no significance for ordinary Russians or the real economy.
Nobody even vaguely clued in to basic economic principles could say such a thing, which proves how clueless Russians are. And if they don’t get a clue pretty damned soon, Russia will go the way of the USSR.
2 responses so far ↓
penny // July 8, 2009 at 7:39 pm |
What do you expect from a nation run by FSB hacks. It’s not like Putin and his clan of idiots ever started a succesful business from scratch or took business/accounting/economic courses. Even the economists they rely upon must prove their are trusted hacks. Dissent gets you fired.
The dumber than rocks trolling brigade here pretty much sum up the life experience and how economically challenged Putin and his followers are.
You can’t fix stupid.
ABCT Man // July 9, 2009 at 1:07 am |
LR, high employment cannot cause inflation – that silly idea has been proven wrong by history, and is theoretically unsound. It’s one of the silliest ideas in the history of economic thought (apart from mercantilism probably).
Unless you have a general decline in productivity, average wages can only rise as a RESULT of inflation (money inflation, that is) . Inflation (money inflation, not price inflation) precedes average wage increases. It’s one of those basic concepts people have been ignoring ever since Keynes.
Why can’t AVERAGE wages rise without prior money inflation (and excluding general decline in productivity)?
Because without money inflation, the stock of money is fixed. Which means that an increase in prices of some goods or services MUST NECESSARILY result in the prices of other goods and services to go down.
Of course, as long as there is fractional reserve banking AND/OR Central Bank money printing, there will always be monetary inflation, which results in the prices of some goods and services being bid up WITHOUT prices of other goods and services going down, resulting in general price inflation.
Elementary – though in an age where people believe that ‘government stimulus’ can improve the economy, its not surprising people still believe in low unemployment being a driver of inflation.