Arnaud Bertrand is out with an important thread on Twitter.
It is popular to compare the GDP of the American economy with the Chinese or Russian economies based on exchange rates. However, as Bertrand goes on to demonstrate, this is a misleading comparison.
If you adjust the for purchasing power parity, the Russian and Chinese economies are substantially larger. The Russian economy is in fact about the size of Germany’s economy. And the Chinese economy is 20% greater than the American economy.
But that is not all. French economist Jacques Sapir points out two things about the service sectors in the European and American economies. First, Sapir thinks the service sectors in America and Europe are greatly overvalued. Second, the service sectors make up a much larger part of the economies in the west than they do in China and Russia.
For example, in America the service sector makes up 77.89% of the economy, and in Europe, the service sector makes up 70% of the economy. Russia’s service sector is 56.27% of the economy. And China’s service sector is 54.5% of the economy.
Adjusting for this overvaluation of the service sector, Sapir believes the Russian economy is substantially larger than Germany’s economy and China’s economy is far greater than the American economy.
It’s clear that Western governments failed to grasp the size, scope, depth, strength, importance, and diversity of the Russian economy. The West’s political leaders thought that Russia was so dependent upon the West, that sanctions would cripple Russia’s economy and that Russia would do an about face on its war in Ukraine.
Instead, Western sanctions failed to take down the Russian Ruble. Sanctions have not crippled the Russian economy. In fact, Russia is forging closer relationships with the East and is finding new ways to trade outside the dollar dominated system.
All of this has left the neocons furious. Russia is quickly becoming existential for them. They will double, triple, quadruple down on sanctioning Russia, but they will only kill off their own economies and people in the process. The neocons don’t understand economics and they have no reverse gear.