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November 4, 2019 No.
8346

Russian Expert Danilov: State Disinformation Will Lead Russia Over A Cliff

Russian expert Yuri Danilov, a senior researcher at the Russian Presidential Academy of National Economy and Public Administration (RANEPA), denounces the manipulation of macro-economic data by the Russian authorities.

He recalled that such statistical rigging had existed in Soviet history and played a certain role in the USSR's collapse. Danilov argues that if such manipulations persist, Russia could at best land in deep trouble, and at worst could go off a cliff.

Below is Danilov's article:[1]


(Source: Novayagazeta.ru)

"During the late Soviet era, this anecdote was in circulation. The train stops because railway tracks go no further. Here is the reaction [typical] of various Soviet leaders to this situation. Stalin: 'Shoot the engine driver, arrest the passengers and let them carry the train forward in their arms.' Khrushchev: 'Disassemble the rails at the back and lay them in front.' Brezhnev: 'Close the curtains, rock the train.'

"Now we are observing the latter choice – 'Close the curtains, rock the train.' Rosstat, which was transferred to the Ministry of Economic Development's authority, reports on the growth rate of the most important macroeconomic indicators, which cannot be confirmed upon their comparison with dependent indicators.

"Based on the results of 2018, a 5% increase in construction work has to be accompanied by an increase in transportation, production of building materials, etc. But this was absent in the Rosstat figures. If this [increase] was a one-time occurrence as hinted to the public ('completing the construction of a large secret object'), then in 2019 there should have been a decrease, but that did not occur. In other words, going in both directions of a simple verification (a comparison by sector and a comparison by time series), it turns out that this 5% increase was simply painted on. In my opinion, no one has any doubts about this.

"Data on the dynamics of industrial production, construction, investment in fixed assets is being highly falsified quite openly. True there is possibly another explanation - it is in these areas that cost parameters are most easily compared with natural ones, and therefore falsifications are simply more noticeable. Rosstat figures on the growth rate of industrial production in June, July and August 2019 (against the corresponding period last year) - 3.3%; 2.8%; 2.9% are absolutely implausible.

"This is clearly seen, for example, when comparing them with the freight turnover of transport, which even decreased during these three months or with the dynamics of electricity consumption and etc. In 2019, for the first time in Russian domestic history, a situation developed when the range of assessments of analytical centers involved in assessing macroeconomic dynamics did not even closely overlap with Rosstat figures.

"The consensus of leading think tanks on growth rates for industrial production (arithmetic means estimates) in June – August: 0.4%; 1.8%; 1.2%.

"Almost all authoritative macroeconomists during the current year criticized the activities of the statistical agency, exposing the inconsistency of certain indicators with concrete examples.

"Such coarse cheating on economic statistics is apparently connected with two circumstances. Firstly, the cheating possibilities via less glaring tools have been exhausted. For a long time 'adjustment for the 'gray' sector of the economy' helped considerably to increase the numbers on paper, because the share of the 'gray sector' in the economy was estimated quite arbitrarily. If one year this share was estimated at 33% of the 'white sector', and next year it would be estimated at 35%, giving a markup of about 1.5%, when the actual growth of the 'white sector' was 5%. But forcing the share of the grey sector to over 50% is somehow completely obscene and politically dangerous. Therefore, other methods were required.

"I cannot say that Russia is the only country where a politicized adjustment of macroeconomic indicators exists. But it gives me simply aesthetic pleasure to observe how the Chinese comrades elegantly and with most profound knowledge of the interconnections between economic parameters, recalculate indicators, keeping all proportions within credible limits. And here the second circumstance comes into force.

"Secondly, in Russia, the qualifications of specialists involved in the processes of 'performance adjustment' are, to put it mildly, low. […] Graduates of Russian universities of the 21st century who have joined the public service do not seem to understand what the economy is at all.

"The manipulation of statistics existed in Soviet history [...]. And we must admit that it played its part in the collapse of the USSR.

"The decline in real disposable income is also apparently embroidered; the real decline is likely to be greater. The main element of real disposable income is real salary; its index is considered to be a correlation of indices of nominal salary and consumer prices. If you rely on the official figures of Rosstat, this ratio is maintained. But ever increasing questions appear as to the adequacy of inflation estimates, especially after the advent of alternative estimates. The official Rosstat data, on the one hand, and population estimates, information on which is collected by the Bank of Russia while setting the key rate on the other hand, differ significantly in Russia, way more than similar indicators in other countries do.

"In recent years, my colleague at RANEPA, Alexander Abramov, has been monitoring his family budget to identify real inflation. And I must say that this pioneering work provides estimates that also differ significantly from official data. By the way, the economist Grigory Khanin in 2017 in an interview with 'Ogonyok' magazine estimated unaccounted inflation at 2%. The population as a whole is impoverished, and the pace of this impoverishment is likely to be higher than Rosstat shows. This is also being indicated by the annual increase in the tax ratios in the structure of household expenses and the debt obligations ratio in their savings observed in the last 3 years. […]

"All these shenanigans are unsafe. Rosstat is the eyes of the state. They are already wearing pink glasses with already broken lenses (how else to evaluate the gaps in the data series after the introduction of new methods?), But this year, it seems, they decided to also attach quite crudely a large magnifying glass on top of the preexisting enhancement inflation of the reality.

"Where will such a state arrive at? In the optimistic scenario- into deep trouble, in the pessimistic one, it will go over the cliff.

"The misinformation of state and society actually deprives people who make economic decisions of the opportunity to rely on scientific justifications. Using the data of the Federal State Statistics Service, it is already impossible to construct a correct regression, not to mention the construction of time series suitable for forecasting: the numbers do not meet; the rows diverge. Under these conditions, decisions can only be made blindly, at random."


Yuri Danilov (Source: Youtube.com)

 

 

[1] Novayagazeta.ru, October 13, 2019.