Er... Are you serious, you guys really don't realize that any sanctions on oligarchs and/or government officials only make Putin more popular and stronger? Seems like I spilled a state secret here.
Yes, the Keynesian model for MMT exists, but Keynes could not, and would not, imagine a situation where Russia's access to foreign markets is being effectively strangled, except where foreign buyers have a particular need for Russia's petroleum and natural gas. It is apparent that the Russian economy does not produce sufficient goods and services of acceptable quality on its own to meet demand; and running the ruble printing presses 24/7 is not likely to make what is available, albeit at much higher prices, any more so. Instead, the analogy that most immediately comes to mind is that of a star that exhausts its finite supply of hydrogen. As heavier elements are created, the core heats up until the inevitable explosion occurs. Actually, the star collapses on itself, which renders the simile even more apt.
Similarly, an autarky that Russia aspires to be will soon consume itself, because it lacks the capacity for either domestic or foreign investment. As long as Vladimir Putin has a stranglehold on Russia's statecraft, Russia will be a pariah state no matter what natural resources it currently controls. The world saw what happened when the Soviet Union devolved into a kleptocratic Russia, with its former satellites joining the world of free markets. If Russia is prohibited from marketing its oil and gas abroad, there will be no foreign exchange that represents real value. A fiat currency that is subject to external political pressures such as what occurred in the Rhineland during the 1920s is likely to repeat the experience of the hyperinflation that wiped out the German middle-class.
Very interesting read. I am not an economist so am not able to follow all the nuances but had what I think is a similar thought, perhaps a little too simplistic. In the most free of circumstances there was very little indication that oligarchs, even collectively, had any control over Putin. Now that the oligarchs are severely weakened by the sanctions, does that reduce their ability to influence Putin even further? I would think yes.
I think this points to what others have already said, what is the likely impact of the sanctions. Will they impact Putin’s regime? I am not so sure. I think it is much more likely Cold War 2, including Iron Curtain 2. Everyone takes their marbles and goes home.
More and more goods and service are disappearing from Russia as well as human capital does day by day,which run counter to the recommended MMT prescription.
Debt may not be a constraint for Russia in using MMT but inflation and the balance of payments are constraints. On inflation there is already a tension between raising interest rates to increase demand for ruble deposits and making liquidity available to head off bank runs. On the BoP, its very difficult to tell what the post-sanctions BoP will look like, but it would be surprising if Russia had unlimited flexibility. Whether it wants to impress the rest of the world or not, there is still a good case for orthodoxy in macroeconomic policies.
Forgive my ignorance, but surely an aggressive sanctions policy is all about shutting off supply (of goods and hard currency)? No matter how much domestic monetary demand stimulus is or isn’t applied, if the goods aren’t available, economic activity still implodes, unless there exists a domestic substitute.
Isn't the main issue for them things, products and services that cant be delivered due to sanctions. Hence the cash situation is messa relevant than the ability to produce things for the population.
I don't understand how is raising the Rouble rate to 20% supposed to help when ANY TRANSACTION w Russia is verboten? And what good will accumulating forex do when ANY TRANSACTION w Russia is verboten?
This is far beyond my understanding of economics, but isn't China the wild card? If imports and exports are further constricted (and this is very much TBD) and China doesn't pick up the slack, will it matter which theory is pursued? Forgive me if this question itself is ignorant.
Ok. So here are three things I'm sure cognoscenti would reaffirm:
1. MMT is an elaborate hoax that only holds when rates are close to zero. It's easy to dismantle it, if one knows that for all relevant intents and purposes its central tenet, i.e. that the CB is part of government, is false. Btw, currently the key rate of the Russian CB is 20%.
2. In a non-zero-rate environment, the CB can buy govt debt only for so long before inflation will eat away the gains at macro level. And the level of gains depends on the quality of fiscal policy. Once inflation is entrenched in expectations, the monetary tightening would have to be disproportionate to break the spiral. This all can take a while under normal circumstances. Given the current external constraints imposed on the Russian economy, however, such effects would be immediate.
3. Given the scale of deployed sanctions (several of which did not even bite yet in full), money becomes quasi-irrelevant. Russia just made a leap towards a fully closed economy, like N-Korea, they just don't know it yet. Why should they start printing money if they can't buy many of the things they would want? – Russia is not a market economy anymore and conventional wisdom doesn't apply.
But what makes you think Putin would care about the state of the Russian economy anyway? – I’d posit that so far all evidence is to the contrary.
Er... Are you serious, you guys really don't realize that any sanctions on oligarchs and/or government officials only make Putin more popular and stronger? Seems like I spilled a state secret here.
Yes, the Keynesian model for MMT exists, but Keynes could not, and would not, imagine a situation where Russia's access to foreign markets is being effectively strangled, except where foreign buyers have a particular need for Russia's petroleum and natural gas. It is apparent that the Russian economy does not produce sufficient goods and services of acceptable quality on its own to meet demand; and running the ruble printing presses 24/7 is not likely to make what is available, albeit at much higher prices, any more so. Instead, the analogy that most immediately comes to mind is that of a star that exhausts its finite supply of hydrogen. As heavier elements are created, the core heats up until the inevitable explosion occurs. Actually, the star collapses on itself, which renders the simile even more apt.
Similarly, an autarky that Russia aspires to be will soon consume itself, because it lacks the capacity for either domestic or foreign investment. As long as Vladimir Putin has a stranglehold on Russia's statecraft, Russia will be a pariah state no matter what natural resources it currently controls. The world saw what happened when the Soviet Union devolved into a kleptocratic Russia, with its former satellites joining the world of free markets. If Russia is prohibited from marketing its oil and gas abroad, there will be no foreign exchange that represents real value. A fiat currency that is subject to external political pressures such as what occurred in the Rhineland during the 1920s is likely to repeat the experience of the hyperinflation that wiped out the German middle-class.
Whoever was sitting around a couple of years ago wishing REALLY HARD for "Interesting Times" has overshot the mark.
Very interesting read. I am not an economist so am not able to follow all the nuances but had what I think is a similar thought, perhaps a little too simplistic. In the most free of circumstances there was very little indication that oligarchs, even collectively, had any control over Putin. Now that the oligarchs are severely weakened by the sanctions, does that reduce their ability to influence Putin even further? I would think yes.
I think this points to what others have already said, what is the likely impact of the sanctions. Will they impact Putin’s regime? I am not so sure. I think it is much more likely Cold War 2, including Iron Curtain 2. Everyone takes their marbles and goes home.
Im confused, shouldnt there be obvious and huge supply constraints? Or do they just go full Stalin and build a heavy industry?
More and more goods and service are disappearing from Russia as well as human capital does day by day,which run counter to the recommended MMT prescription.
Numerous articles on dr google. They raised prices by 50%, but not the point
A bit of a higher order reality that Xi and Putin may have considered in more depth than the hypersanctioning West:
Rail transport via China-Kazakhstan-Russia-Belorus may be more, even much more, secure from attack than ocean shipping.
This may also help explain Putin’s quick response and pulverization of unrest in Kazakhstan.
Debt may not be a constraint for Russia in using MMT but inflation and the balance of payments are constraints. On inflation there is already a tension between raising interest rates to increase demand for ruble deposits and making liquidity available to head off bank runs. On the BoP, its very difficult to tell what the post-sanctions BoP will look like, but it would be surprising if Russia had unlimited flexibility. Whether it wants to impress the rest of the world or not, there is still a good case for orthodoxy in macroeconomic policies.
Forgive my ignorance, but surely an aggressive sanctions policy is all about shutting off supply (of goods and hard currency)? No matter how much domestic monetary demand stimulus is or isn’t applied, if the goods aren’t available, economic activity still implodes, unless there exists a domestic substitute.
Isn't the main issue for them things, products and services that cant be delivered due to sanctions. Hence the cash situation is messa relevant than the ability to produce things for the population.
So I guess we'll see if inflation takes off in Russia.
I don't understand how is raising the Rouble rate to 20% supposed to help when ANY TRANSACTION w Russia is verboten? And what good will accumulating forex do when ANY TRANSACTION w Russia is verboten?
This is far beyond my understanding of economics, but isn't China the wild card? If imports and exports are further constricted (and this is very much TBD) and China doesn't pick up the slack, will it matter which theory is pursued? Forgive me if this question itself is ignorant.
Ok. So here are three things I'm sure cognoscenti would reaffirm:
1. MMT is an elaborate hoax that only holds when rates are close to zero. It's easy to dismantle it, if one knows that for all relevant intents and purposes its central tenet, i.e. that the CB is part of government, is false. Btw, currently the key rate of the Russian CB is 20%.
2. In a non-zero-rate environment, the CB can buy govt debt only for so long before inflation will eat away the gains at macro level. And the level of gains depends on the quality of fiscal policy. Once inflation is entrenched in expectations, the monetary tightening would have to be disproportionate to break the spiral. This all can take a while under normal circumstances. Given the current external constraints imposed on the Russian economy, however, such effects would be immediate.
3. Given the scale of deployed sanctions (several of which did not even bite yet in full), money becomes quasi-irrelevant. Russia just made a leap towards a fully closed economy, like N-Korea, they just don't know it yet. Why should they start printing money if they can't buy many of the things they would want? – Russia is not a market economy anymore and conventional wisdom doesn't apply.
But what makes you think Putin would care about the state of the Russian economy anyway? – I’d posit that so far all evidence is to the contrary.
MMT is supposedly constrained by inflation.
The forecast is for considerable Russian inflation following the sanctions, for a considerable period if the war drags on.
How might the BoR respond to such developments?