A Second Hand Conjecture

After forcefully savaging the Russian invasion of Georgia, controversial Swedish economist Anders Aslund lays out ten reasons he expects an impending economic collapse in Russia. Each point is sound, although some are more problematic than others.

Particularly cogent are the following Aslund points IMO:

4. Renationalization is continuing and leading to a decline in economic efficiency. When Putin publicly attacked Mechel, investors presumed that he had decided to nationalize the company. Thus, they rushed to dump their stock in Mechel, having seen what happened to Yukos, Russneft, United Heavy Machineries and VSMP-Avisma, to name a few. In a note to investors, UBS explains diplomatically that an old paradigm of higher political risk has returned to Russia, so it has reduced its price targets by an average of 20 percent, or a market value of $300 billion. Unpredictable economic crime is bad for growth.

5. The most successful transition countries have investment ratios exceeding 30 percent of GDP, as is also the case in East Asia. But in Russia, it is only 20 percent of GDP, and it is likely to fall in the current business environment. That means that bottlenecks will grow worse.

6. An immediate consequence of Russia’s transformation into a rogue state is that membership in the World Trade Organization is out of reach. World Bank and Economic Development Ministry assessments have put the value of WTO membership at an additional growth of 0.5 to 1 percentage points a year for the next five years. Now, a similar deterioration is likely because of increased protectionism, especially in agriculture and finance.

[...]

8. Oil and commodity prices can only go down, and energy production is stagnant, which means that Russia’s external accounts are bound to deteriorate quickly.

9. Because Russia’s banking system is dominated by five state banks, it is inefficient and unreliable, and the national cost of a poor banking system rises over time.
(Moscow Times via Robert Amsterdam)

As for all this leading to a Russian economic apocalypse, it should be noted that the accuracy of Aslund’s predictive powers leaves more than a little to be desired. I note that we’re still waiting for his prediction of a military coup against Medvedev to come true.

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The Fourth quarter GDP numbers came in this week, and then the Fed went ahead and cut rates further. That is 125 basis points in about a week.!

I have a roundup of news, related opinion and other reactions at Risk and Return.

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Click to enlarge

I thought the map Lance posted from the other day (originally from Strange Maps), which expressed the GDP of foreign countries as US states, based on their approximate equivalent GSP, was a pretty interesting visualization. However, I got to thinking what the same exercise might produce if the big boys were projected onto US geography. If you take the top five national economies in the world minus the US (Japan, PRC, Germany, UK), they easily fit into four macro GSP regions in the contiguous United States. I threw together the quick little map above from the data.

Incredibly, once you’ve applied the big four to the map, you will find that you still have around 800 billion dollars left to play with (including Alaska and Hawaii, which are not depicted). Underneath each country I included (in parentheses) how much additional money in US dollars you would have to add to the economies of each economic superpower to make them genuinely equal the collective GSP of each US region.

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You have to love the poll Common Sense & Wonder is running in its sidebar. The question is who will receive the 2008 Nobel Peace Prize. C&W has some damningly convincing candidates for the Norwegian Nobel Committee too: Hugo Chavez, Cindy Sheehan, Mahmoud Ahmadinejad, Noam Chomsky, Kim Jong-Il, Robert Mugabe and Fidel Castro. Given the great skill at financial mismanagement exhibited by some of these finalists, it’s entirely possible that by December 10, 2008 the cash prize of $1.5 million USD could greatly exceed the GDP of the winner’s country’s GDP.

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From Strange Maps:

This is quite an education. Click for a larger image.

Although the economies of countries like China and India are growing at an incredible rate, the US remains the nation with the highest GDP in the world – and by far: US GDP is projected to be $13,22 trillion (or $13.220 billion) in 2007, according to this source. That’s almost as much as the economies of the next four (Japan, Germany, China, UK) combined.

The creator of this map has had the interesting idea to break down that gigantic US GDP into the GDPs of individual states, and compare those to other countries’ GDP. What follows, is this slightly misleading map – misleading, because the economies both of the US states and of the countries they are compared with are not weighted for their respective populations.

Pakistan, for example, has a GDP that’s slightly higher than Israel’s – but Pakistan has a population of about 170 million, while Israel is only 7 million people strong. The US states those economies are compared with (Arkansas and Oregon, respectively) are much closer to each other in population: 2,7 million and 3,4 million.

And yet, wile a per capita GDP might give a good indication of the average wealth of citizens, a ranking of the economies on this map does serve two interesting purposes: it shows the size of US states’ economies relative to each other (California is the biggest, Wyoming the smallest), and it links those sizes with foreign economies (which are therefore also ranked: Mexico’s and Russia’s economies are about equal size, Ireland’s is twice as big as New Zealand’s). Here’s a run-down of the 50 states, plus DC:

Unsurprisingly California and Texas have the largest GDP’s. Some of the others are very surprising. My home state routinely is ranked at the bottom of many statistics, yet in GDP terms this little state with a population of only about 4.5 million ranks 16th. Not bad when you consider the cost of living. Check out the nations which rank below it in the following list.

Other’s talking about it: Barry Ritholtz and Carl Stormer:

When seeing Norway’s GDP in the context of this map, one realizes why Norway is one of the last countries U.S. companies consider when expanding to Europe.

My two cents (not in the blog): In addition to small GDP, little competition has enabled local players to build monopolies or duopolies in many industries. Add high state ownership to this mix, and you understand why Norwegian consumers are unused to good service and competitive prices. Other than that, Norway is a great country.

Fascinating:

(more…)

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Germany has finally balanced its budget after 38 years of failure. The cause is an export driven 2006-2007 boom. What constitutes an economic boom in Germany these days? 2.5% annual GDP growth. Quite a decline by the standard of West German booms. One wonders whether Thatcher’s concerns about the economic impact of a reunified Germany were misplaced, at least for our lifetimes. And things are regressing in 2008, with the government publicly expecting 2% growth and a return to federal deficit spending.

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