The American Enterprise Institute – Clueless on Russia, Brilliant at Projection

Uncle Volodya says, "What you said hurt me very much. I cried all the way to the bank."

There’s something strange about the windows at the American Enterprise Institute for Public Policy Research. Every window you look out of, at any time of day, any day of the year, you can see Russia collapsing. If you stop by the meteorology section to check the forecast for Russia, it’s always “Overcast with heavy rain overnight, turning to impenetrable gloom by morning”. Kicking Russia is somewhat of a blood sport among the think-tanks of America, but AEI is in a class by itself. In short, if wishing could make it so, AEI would have been dancing on Russia’s grave since the mid-1970’s.

Consider this recent bouncy-in-a-suicide-note-sort-of-way prescription for depression from Leon Aron, of the American Enterprise Institute (which I received from Nils at RussiaWatchers; thanks, Nils). To hear him tell it, running a 4% national deficit is reason to run off the nearest cliff, the elitniyy are fed up with the Kremlin and must be appeased at once, and even amid the signs of economic recovery, Russians are despondent and miserable. And so they should be, because no matter how many positive aspects one chooses to cite, despair is evidently just around the corner.

It’s hard to overstate how misinformed this is, and it would be hard not to conclude that misinformation was its intent. In fact, we could probably simplfy the entire Russia-Watchers analysis and commentary process by asking authors, “What, in your opinion, was the most positive and upbeat period in Russia’s history to date?” If the author responds, “The nineties”, discreetly reach up under your hairline and switch your audio receiving circuits to “Off”. Anyone who thinks ordinary Russians were dancing in the streets during the years the country was spiraling hellbound with a drunkard at the helm has a funny understanding of “optimism”. Of course, many western analysts believe those were Russia’s golden days – the last, best chance for achieving western reforms. That’s because the country was tearing itself apart and people were seeing their life’s savings wiped out overnight – I was there in 1998, and saw children in the Far East trade their father’s military medals for a jar of peanut butter. Good times; my, yes. I don’t mean to suggest the west in general is ghoulish and wants to see the Russian people suffer; that’s not true, and the west includes some of Russia’s most ardent supporters. But some western institutions pray devoutly for Russia’s destruction, and many who should know better are absolutely convinced that unless Russia unquestioningly adopts western-style management and business practices by, say, tomorrow morning, they won’t last out next week. Those people worship Boris Yeltsin, because he talked the privatization talk they love so well, while offering the double bonus of wiping out years of Soviet wealth overnight.

The west has western-style management and business practices – how’s that working out for you, guys?

So, Russia is a gray and sad place where, no matter how they try, they just can’t seem to get it right. People barely glance at each other as they pass on the crumbling sidewalks, too lost in their own misery to acknowledge the misery of others.

Except for at the Rai nightclub in Moscow, around this time last month, when about 2000 revelers held a naked party to celebrate Putin’s popularity. Russia won the right to host the Olympics and its first Formula One race in 2014, and is the first Eastern-European country to host the World Cup, in 2018. Wages have risen steadily since 2000, and the country has a large cash surplus. The world is paying energy-dominated economies $110.00 a barrel for oil. Truly, the outlook is grim.

Naked parties held to celebrate the popularity of western leaders so far this year? Zip, I’m afraid. Naked parties held – ever – for Boris Yeltsin, The Great Reformer? I’m afraid not. It’s a good spring for Russia-themed parties; this weekend, worldwide celebrations will mark the 50th anniversary of Russian cosmonaut Yuri Gagarin’s history-making space flight in 1961. Russians are fond of celebration, and have observed 12 public holidays already this year. The USA has had 3. If Russians are gloomy about national economic prospects, Americans must be nearly suicidal – a poll this winter by international research firm Synovate, which surveyed 22,000 people from 22 countries, concluded Russians are 30% more optimistic about economic prospects than are Americans. Slightly more recently, American confidence has tanked.

But….but, but what about capital flight from Russia? Last year, $38 Billion left the country, Leon wants us to notice. So let’s take a look at that. For one thing, capital flight is exactly the same thing as capital outflow: capital flight is what you call capital outflow when you want to scare the shit out of people. Is it bad? Might be. Capital flight often occurs for a couple of bad reasons – money laundering, and panic over currency instability. Since the ruble was not unstable last year (in fact, it rose faster against the U.S. dollar than any other currency), money laundering is one possibility. But if that were the case, the Russian government would likely institute official control over capital movement, as the USA does to prevent capital flight (or outflow, if you’re getting tired of being scared). But capital outflow is just the movement of money; if your national economy is not on the rocks, you don’t necessarily have a lot to worry about. A net annual capital outflow of $38 Billion isn’t as much cause for alarm in an economy that has something like a $225 Billion cash surplus – and the third-largest cash reserves in the world – as, say a monthly capital outflow of nearly that much ($34 Billion) while you were running a deficit of somewhere between 53% and 85%  of GDP (depending who you ask and how it’s quantified) would be. Why, in such circumstances, you might find that even close friends were afraid to lend you money.

Maybe this would be a good time to take a little break, and talk for a minute about projection. I’m sure everyone has at least an idea what it is, but since it was part of the title, I’d feel better if we start with the book definition. According to Wade & Tavris’ “Psychology”, projection is “a psychological defense mechanism where a person unconsciously denies his or her own attributes, thoughts, and emotions, which are then ascribed to the outside world, such as to other people. Thus, projection involves imagining or projecting the belief that others have those feelings”. The authors go on to say, “An example of this behavior might be blaming another for self failure”. Is there anything you’d like to talk about, Leon? No? Please yourself, then. I’m not trying to hurt your feelings, but come on – look at what you wrote. A 72% spike in new-car sales in Russia between January 2010 and January 2011 suggests “an awareness of hopes and promises unfulfilled–both economic and political.” Here’s a suggestion, Leon – when you’re trying to infer economic promises unfulfilled, pick something that’s actually done worse. Like new-car sales did in the USA, for example.

Well, if you look at Mr. Aron’s sources, you’ll see where he gets these ideas. Yes, that’s right; Novaya Gazeta. In fact, nearly all of his information on Russia’s mood and economic performance appears to have come from a single one-page article. If we could digress just for a moment, you’ll see Novaya Gazeta is cited, followed by four repetitions of “Ibid”. “Ibid” means the information was found “in the same place”, and if used correctly, the page number is also listed if that information was found on a different page of the same reference. The economist he cites is Vladimir Mau. If his name seems familiar, it’s because we just talked about him a couple of weeks ago. I suggested at the time that while he was as good as anyone else at analyzing economic events which have already transpired, he sucked pretty hard at forecasting.

Similarly, some day perhaps Finance Ministers will learn that they are just as clueless as economists when it comes to forecasting economics that fluctuate wildly based on current events. Alexei Kudrin might well have said in February that “economic growth based on oil has been exhausted”.  Except in mid-February the world oil price was $85.58. Barely a month later, the western powers imposed and enforced a no-fly zone over Libya, announcing their intent to depose Libya’s government and allow anti-government rebels to seize control of the oil-producing nation. Those who aspire to be economists – what happened? That’s right; the price jumped to $105.40. Let’s see…Russia pumps 10.2 million barrels per day….that’s $19.82 times 10.2 million…Wow. That’s $202,164,000.00 per day. How’s that for economic growth, Mr. Kudrin? And the very same month he got Mr. Aron all excited by seeming to be depressed about Russia’s economic prospects, he told everyone else that the deficit was already forecast at less than 4% (3.6%), and he fully expected it would be down to 2% in 2011. He appeared sufficiently confident that he said Russia could cut back on its borrowing. Bear in mind, that’s before he knew what was going to happen in Libya and bring in over an extra $200 Million a day. So he seems a little…confused: perhaps numbers really aren’t his thing.

Here’s the curious thing about Novaya Gazeta; while it typically is virulently anti-government (have you heard of Yulia Latynina?), it’s owned by Alexander Lebedev. What’s curious about that is the way the west (including, emphatically, AEI), can’t stand Putin and russophobes never get tired of referring to him as a “proud KGB spy”. Yet Mr. Lebedev was….a KGB spy. The west likes to refer to Lebedev as “the anti-oligarch”, which is what you call an oligarch if you want to imply he came by all his money through the sweat of his brow rather than stealing it like oligarchs do. So Putin’s career in government service made him sneaky and untrustworthy, while Lebedev’s made him bluff and hearty and full of good-humoured bonhomie. Yet they worked in the same capacity for the same employer.

Remember what we learned about projection?

Look, Leon; you can keep on with this if you like, but making up ridiculous claims about spreading malaise in Russia even as it grows wealthier and wages rise so that consumers have ever more access to consumer goods, while poverty steadily declines, is not going to make it happen. The gloom and apprehension you speak of simply does not exist on a widespread scale. Likely Russians nearing pensionable age do worry about living on their pension. Perhaps you could point me to a country where soon-to-be pensioners look forward to the experience? Here’s a tip – don’t bother about checking the UK. But Putin has steadily raised pensions, and another increase was announced only last month. Nobody is going to become an oligarch on a pension, but pensions in Russia see more frequent raises than western countries.

In summary, the great majority of Russians are either optimistic about the nation’s economic direction, or at worst not frightened it’s going to worsen. There still appears to be plenty of economic-growth punch in oil, and Russia recently signed large deals with BP and Exxon for exploration, so increases in Russia’s capacity are a definite possibility. The Russian government seems to be doing at least as good a job of looking out for its people as western democracies are, and Russia’s current government has popularity ratings western leaders fantasize about.

Most of what you said is simply not true. Stay away from the windows, will you?