Russia is many things that the US is not, and for most of these things, Americans can feel grateful. Systemic corruption, brutal and incompetent police, governors and mayors appointed by the president -- none of these social achievements are worthy of imitation. But encountering Russia’s top leadership at a Moscow investment conclave last week while the low farce of the government shutdown unfolded back home, one could not help but admire certain aspects of the Putin gang as well.
One, odd as it may seem from an authoritarian government, is their candor. We Americans oblige our elected officials to tell us fairy tales about the nation’s greatness. Remember when Jimmy Carter hinted mildly that the US might have gone a bit off course, in the 1979 “malaise” speech that never mentioned the word malaise? Carter was derided for a generation after as an unpresidential worry wart, and booed off the stage in favor of master mythmaker Ronald Reagan.
Contrast that with Vladimir Putin’s blunt admission that Russia remains a developmental laggard. “Our main problem is the very low effectiveness of our economy,” the president told the annual conference sponsored by state-owned bank VTB. “We are half as productive as the advanced economies, and not gaining enough to catch up.” Not that Putin, in power now for 13 years, offered any striking new ideas for reducing his country’s titanic waste of labor and energy. But the straight talk itself was refreshing.
More to the point in our current situation is Russia’s success at balancing budgets and keeping out of debt. The country was boosted by a deluge of oil revenue in the 2000s, as prices rose more or less constantly until the crash of 2008. But unlike some governments we might mention, the Kremlin saved hundreds of billions of dollars in rainy day funds during the good times. So it was able to deploy its version of a stimulus package post-Lehman without tapping foreign creditors in any serious way. Russia’s public debt stands at just 7.7% of gross domestic product according to the CIA World Fact Book, compared to 72.5% for the United States. Russian national savings equal 30% of GDP, while US savings equal 10% of GDP.
Russia has maintained fiscal discipline in the post-2008 era, despite plateauing oil and gas revenue, and growth that has slowed along with the rest of the world’s. Finance minister Anton Siluanov explained how this is done at the VTB get-together. The government binds itself by a so-called fiscal rule that limits annual borrowing to 1% of GDP and keeps reserve fund levels at a minimum 7% of GDP, or about $140 billion. The ministry assumes oil revenues based on average prices over the past six years. The results are enviable: Russia ran a budget deficit of 0.1% of GDP last year, compared to 6.9% for the US. Siluanov presented a new budget on time on October 1 that plots balanced spending and revenue for the next three years.
The point here goes well beyond Russia. Ten days into the US government shutdown and a mere week before the October 17 debt ceiling deadline, bond markets are still treating the contretemps in Washington, DC, as a nonevent. US Treasury yields have barely moved since October 1. Neither have emerging market bonds, as reflected in the widely held iShares JPMorgan USD Emerging Markets Bond ETF
(NYSEARCA:EMB). The financial world, in other words, still trusts in the fairy tale ending. Never mind that the lunatic, default-is-no-big-deal, Republican fringe is commanding increasing air time. The sane majority will somehow rally itself over the next few days, restoring America as the best credit on Earth and the best hope for future global peace and prosperity.
But can we really get off so cheaply this time? Even assuming that the immediate crisis is resolved, this bitter confrontation would seem to have buried the last ghost of a chance that Barack Obama’s second term would see a serious attempt at a fiscal “grand bargain,” some concerted attempt to map out America’s financial future on a sustainable basis. The headliners in Washington are already machinating with both the 2014 mid-term and 2016 presidential elections in mind.
The best that can be expected from the bruising debt ceiling fight is that the US makes an eleventh-hour escape back to the status quo ante. And that is America increasingly playing the role of the world’s spoiled brat, certain that the rest of humanity has no choice but to put up with and pay for its whims and tantrums.
The rest of humanity indeed does not, for the moment. But other nations far and wide are playing the role of disciplined kids from less pampered homes – working harder and demanding more of themselves to get ahead in the future. The US has already frittered away its lead in education and skills over the past generation, falling to end up no better than average in the latest survey
from the Organization for Economic Cooperation and Development. Now the US is doing its best to tarnish its great achievements in governance. This latest tantrum will have costs, one way or another.
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