Friday, 5 December 2014

'Sanctions': a shot in the arm for Russian Economy?

Since I posted the comment the Rouble has taken a beating but this only supports my argument that Russia will be forced to produce more of the goods that its citizens desire. In addition countries like Turkey, India and China are more than capable to supply imports that the Sanctions bloc refuses to supply. Shooting oneself in the foot is the appropriate word for what the 'Elites' in Nato, EU etc are pursuing.

Comment 25 July 2014
Contrary to ill-informed media speculation the proposed 'Western' sanctions (imposed in an undemocratic knee-jerk reaction, like a toddler throwing his toys out of a pram) may well do a lot of good for the Russian economy.
Trade is always based on exchange. So the Daimlers, Apples, Burberrys of the West will lose a customer as it would not make sense for Russia to accept sanctions that hit their industries while selected and favored Western exporters are supposed to carry on as if nothing had happened.
But a reduced level of the Rouble and imports of Western capital and consumer goods may be a spur to develop domestic substitutes. No one can deny that Russia has a lot of qualified and highly educated engineers and with the targeted hiring of Western experts any number of industries could be made highly competitive. Levels of income tax are attractive and engineers in the West that live in the shadow of overrated financial experts would jump at the opportunity to double their after-tax pay, especially if they are young or have already grown-up children.

What comes first - Supply or Demand?

Interesting controversy - is there a demand deficiency in Europe, and if so what can or should be done to boost demand? I tend to support Frank Shostak's argument that supply comes first. Demand is never 'sufficient' and we all have 'demands' that are larger than our incomes can support. Microeconomic arguments (The Baker producing bread in this case) are severely neglected by the economics and policy tribes - including the media commentators. Maybe Shostak's example is a bit simplistic and needs refining but I think he is on the right track. Just pumping money out of thin air (Martin Wolf, FT, The curse of weak demand) just papers over the cracks in the economy.