How can Russia with an economy a bit smaller than Italy’s (both with a GDP a bit over 2 trillion); afford a large scale, 3 year war?
I get: it is a largely extractive economy (likely a bit more immune to sanctions), Cold War military hardware reserves, a good bit of help from China, Purchasing Power Parity likely is working in their favor, a greater willingness to spend lives vs rubles, brutal suppression of dissent.
Regardless war has always been an expensive enterprise,
How have managed to drag it on this long?
That oil money
ETA:
~Max
Russia’s GDP situation is even worse if you rank by GDP per capita. Here’s a Wikipedia article with rankings by 3 different orgs. It’s a bit funny since the left hand numbering somehow skips many countries.
But among those numbered, Russia is in the mid 60s just above the world average. I.e., it’s not close to a real world power in internal economic terms.
China is slightly worse. India is way down at 141. So keep in mind the external view (exports) can be very different from the internal (everyday citizens) view.
As to Russia’s war economy, this is something that’s affecting it’s citizens a lot.
Is this really true?
Obviously the war and the wartime economy are having a horrible effect on lots of ethnic groups in rural areas of Russia..
But unfortunately, the only citizens who count are the “pure” Russians-- in Moscow and a few other cities.
And I haven’t seen any reporting on how life in Moscow has been affected by the war.
Two years ago, much joy was had in the western press when the McDonalds in the center of Moscow closed down. And there were breathlessly exciting reports that the sanctions were so strong that there was a shortage of plastic , so -(gasp!!)–new cars were being sold in showrooms of Moscow missing the plastic knobs on the radio!!! Surely defeat is imminent!!!
But to me, the only actual , realistic effect that I saw was the flood of draft dodgers who ran to neighboring countries, forming lines of cars several kilometers long for one week. (And then they disappeared from the news. What happened to them?)
And now professional economists are blathering about statistics. (inflation, rising mortgage rates, the percent of debt, sales of oil to India increasing the money supply of rubles,). As if this will cause the downfall of Putin.
But the only thing Putin cares about is the day-to-day life of the citizens of Moscow. Are they suffering in any way at all? . If not, then Putin can keep the war going forever.
I assume that in Moscow and St. Petersburg , the supermarkets are still full, and car dealers are still selling new cars. Maybe their rent or mortgage payment is higher, but the citizens are not complaining, and still support Putin.. .. .
Am I wrong?
I assume the only thing Putin cares about is paying off or terrifying those that could esurpt power from him. But in a larger sense - we are saying the same thing.
But how can it last this long, given a largely hostile economic environment?
And I fully understand I am only get one side of the agreement, hence the good faith question.
They can’t. Russia is collapsing. They’re just taking a really long time to do it, because they’re really big.
They’re also really good at stoically surviving hardships; they’ve had plenty of practice at it.
A point that farmers will make is that you only have one chance, per year, to make a profit and, if there’s some sort of catastrophe, that entire year of funds is completely blown.
But, as farmers, producing food for tens, hundreds, thousands, or tens of thousands of people - even when there’s a catastrophe, you’ve almost certainly made enough food for yourself. You’ve almost certainly got some shelter to live in.
If you own your own land and you have your own plot of land to grow food on, pretty much any disaster in the world will basically still pass you by. You lost some money, sure, but you just spread new seed the next year and try to get back in the market again, next year.
Money is just a useful fiction for people to pass IOUs around. If we all tore them up and tossed them away - as farmers - we’d be just as well off as we were before. Beets are real and will get you through anything.
The real state of an economy is purely a factor of how much real production, real supply, etc. there is. Fancy numbers and paper bills don’t matter if the rest of that is good.
Russia’s economic issue is that it’s sending young, capable men away to be killed and maimed. The rest of everything doesn’t matter much since the people have a history of private gardening, as an emergency fallback, and they have high levels of native manufacturing and plentiful native resources to exploit, relative to the population. So long as there are enough humans to do the work…and only that…there’s no risk of collapse. But, so long as they’re sending young, capable men away to be killed and maimed, that does steadily lead towards the breaking point.
There’s also the point that farming beyond that sufficient to support a family or a village, farming that can support city populations, requires inputs beyond what local resources can supply (fuel, machinery, seed, fertilizer, pesticides, etc.) plus a transportation and distribution infrastructure to get the food from the production source to the consumers. I doubt there are enough horses and oxen to draw sufficient wagonloads of food to Moscow, for example.
So, yes, farming communities in the hinterlands could get by, but the overall economy would still collapse if the food lies rotting unharvested in the fields or doesn’t get produced at all.
As the Stalin-era famines proved.
The tale of Russia’s economy’s seeming resilience in the face of their war effort, their manpower meatgrinder, the draft-dodging emigres, and (porous) Western sanctions shoold give all of us pause as we confidently predict the sky falling in the US economy due to trumply madness / mismanagement / stealing.
An economy can perform a long way short of its optimal potential for a long time before it truly grinds to a near halt and warlordism takes over. That’s gonna be hard on people used to an S&P500 with a P/E above 30. But a lot of the so-called real economy can limp along making and selling widgets even if they’re not getting rich doing it.
Trump is sanctioning us, which is suspicious given that he has also sanctioned others - as punishment.
But, yeah, businesses knew that Trump was coming. They stocked up before he came in. Many businesses only turn on their factory once a year to do a big production run. In general, we won’t see the impacts of Trump’s economic interventions until at least about a year or year and a half have passed.
The US won’t collapse, but we could have significant job loss, shortages, significant income redistribution (probably shrinking the middle class and increasing the income disparity), etc. Again, this could all take years to play out.
I seriously question the accuracy this idea. Unless you’re in a particular industry and can speak to the details.
All that equipment, be it a little or a lot costs money. Ditto rent. Factories don’t run without workers, and hiring, recruiting, and training a full crew for a couple months’ operation is simply prohibitively expensive.
But yeah, I agree with your overall point. Idiot trump is sanctioning the USA and doing it hard.
Doubtless the Russians are pleased, whether it was their idea or not. I suspect it was, but I don’t like to be too conspiratorial; there’s plenty to be blamed on trump’s personal ignorance and malice without needing to add “… at Putin’s orders” to each wacky USA-harming thing coming down the pike.
I’ve heard that canneries sometimes operate for only a small fraction of the year, when whatever the locally-grown profitable crop is is harvested.
That would make sense for seasonal produce, including certain fisheries runs.
A significant amount of food is seasonal, and thereby stored in ways to allow distribution throughout the year. I know from my own life a pencil manufacturer who did batch runs and I see that cardboard and paper manufacturers tend to do bulk runs - probably for the same reason: Plant harvest times are best done in a seasonal, bulk timeline.
It looks like the pharmaceutical industry does about 85% of production in large batch runs. That may also tie into harvest times, depending on whether there are organic inputs.
Businesses who are buying from American businesses may have contracts in place that guarantee prices for a time. Most renters will have a 12 month lease and most people move in spring so, if inflation hits later in the year, most of the effect on housing/office space price won’t come until spring of the following year.
Some products may be multiple layers of production away from the tariff, so the cost difference won’t translate through the system for some time.
Businesses can stockpile supplies, knowing that tariffs are coming.
Optimistic CEOs can run at a deficit, keeping prices stable, convinced that the tariffs are a temporary bargaining measure and not intended for long term implementation.
In his book The Next 100 Years, geopolitical historian and futurologist George Friedman curiously discounts the impact of Russia (and China) on the upcoming century, apparently believing that the twin forces of population decline and corrupt governance will cause both to experience a substantial decline in prosperity and influence.
I don’t know if I fully buy into that vision but witnessing the hostile takeover of our own country by the wealthy criminal class forces me to consider the possibility.
OTOH, US population is declining if you discount (or stop) immigration. And even more so if you start serious deportations (or self-deportations / emigrations) of non-citizens and ethnic minority citizens.
I think his future history may well be right. But instead of his sceanrio, in my scenario all three of Russia, China, and the USA will be in economic & foreign affairs decline due to population shrinkage and corrupt governance.
During the 2008 financial crisis, the USA was a safe haven for other countries’ investors not because we were absolutely good, but because we were relatively better. In the land of the blind, the one-eyed man is King.
In a world of imploding China, Russia, and the USA, the larger countries of the rest of the world don’t have to get too many things right to emerge as (relative) winners. And relative is all there is.
I’ll just chime in that in pharma, we do everything we can to run lines as much as possible. Construction, care, and feeding costs are huge and idle time is expensive time.
It’s a big part of why so many companies, even big ones with resources, outsource a lot of the manufacturing. Companies like Lonza and Catalent flog their factories like rented mules (which is a good thing).
This is not to say that Pfizer et al don’t run their own manufacturing, just that they invest in lines that are either so consumed with one product or are flexible enough to keep them running.
And many smaller companies have no manufacturing of their own at all, and no intention to every have any.
Russia is spending about $100 billion in military spending a year, about 5% of GDP. By comparison, during WW2 several allied nations were spending 40% of GDP on war. Nations like Germany and Japan were spending even more, I think Japan was spending almost 70% of GDP on war.
Spending 5% of GDP on military is sustainable. The US was spending 6-10% of GDP on war between the period after the Korean war and up until the fall of the USSR. So a 40 yar period of the US spending 6-10% of GDP on military. After the fall of the USSR, the US military spending dropped.
U.S. Defense Spending in Historical and International Context | Econofact.
Russia’s cold war military reserves are mostly depleted now. Supposedly either this year or next year they will run out of tanks and artillery to refurbish and send into the field. They don’t have the capacity to make new tanks or artillery in any meaningful numbers. Russia’s military strategy is highly dependent on artillery, so tactics may have to change in a year or so. Russia is producing 250,000 artillery shells a month, but with no artillery barrels to fire them (barrels fail after about 2,000 shots), they won’t be able to fire the shells. Maybe Russia will start mass attaching the shells to drones and firing them that way, who knows.
Russia is sending people that Russian society doesn’t care about into war. They are sending ethnic minorities, criminals and people from the rural countryside to die. They aren’t sending middle class people from Moscow or St. Petersburg to die in the war, so public resistance to the war isn’t that high.
Also the US managed to fight the Vietnam war for over 20 years. The final 10 years (1965 to 1975) saw an escalation of the war effort. The US pulled out due to lack of public support, not due to lack of resources.