RUSSIALINK: “NES [New Economic School] rector Ruben Yenikolopov: Negative impact of pandemic might be far greater than just drop in GDP [Excerpt]” – Interfax
(Interfax – Aug. 23, 2020)
The Russian economy is weathering the trials of the pandemic relatively well so far, with key macro indicators, at any rate, looking better than in many other countries. But statistics can be deceiving. Firstly, they cannot record changes fast enough and, secondly, not all the repercussions for the economy have been felt yet and they are not all measured with the standard metrics, New Economic School (NES) Rector Ruben Yenikolopov said. He shared his views on the social and economic policies of the Russian authorities in the fight against the pandemic and how he sees the future of Russian and global education in an interview with Interfax.
Question: Rosstat figures for the ‘locked down’ second quarter came out recently and they turned out to be considerably better than the most pessimistic expectations, not only better than the forecasts of independent analysts, but also the Central Bank and Economic Development Ministry. Are official statistics representative amid the pandemic? And a broader question – can Covid push the fairly old debate about GDP no longer being a good indicator of the state of the economy toward something practical?
Answer: There are two components. One is the problem with GDP, with standard measures of GDP. Foremost, this is an issue of data currency – how quickly do we see the picture, particularly now, during the crisis? Surveys of companies give results with a time lag, after the fact.
Yes, the results of the second quarter were indeed better than expected, honestly. I, as an expert, also believed the drop would be steeper. It’s another matter that it’s premature to celebrate. Perhaps the decline will just be longer – some problems were swept under the rug, so the drop is not as steep, but longer. This is a very realistic possibility.
But, firstly, one can certainly expect that Rosstat will review the data. I don’t know in which direction, I’m not prepared to say, but quarterly data are sometimes revised quite dramatically, particularly in crisis periods. And this is genuinely a problem that is not just being discussed in Russia. Standard measures, based on surveys, even representative ones, are very slow and they find out everything very late. But now, with the amount of new digital data, we can collect far more information virtually online.
The Central Bank has been the leader here, because their latest statistics on money transfers by sectors were the most current statistics that have been collected on the economy, and this is just a huge leap forward. They have their limitations, of course, this is not the full picture; one needs to understand that this is just the flow that goes through the Central Bank. By they probably reflect the dynamics, and this is certainly a step forward. And there will be more and more of this. Measuring people’s mobility through the data of Internet providers, new means of collecting big data and their aggregation, making it possible to develop leading, faster indicators of economic activity – the move will certainly be in this direction. Traditional methods of measurement are indeed becoming obsolete.
The second issue is already quality rather than currency. What we measure as GDP, what relation does it have to reality? And there are two factors here. One is related to technological changes. There are concerns that formal measures of GDP, against the backdrop of what’s happening, the transition into the digital, online and so on, are ever further and further from reality. Because, nominally, in terms of formal GDP, what Yandex does, for example – search, maps, other free services on the Internet – are absolutely useless for humanity, since their price is zero.
Q: They don’t create added value.
A: Yes, no added value. Obviously, this is absolutely not so. Business models are changing – big data, platforms, ecosystems. You, as their user, pay with your data and time, and by no means necessarily with money. How to appraise this? This is genuinely a new thing, a conceptually new thing.
Before, there were other problems. For example, a huge portion of the Earth’s population was not counted in GDP – women who looked after the household. Formally, after all, it was also considered that this is “useless” activity. This is a slightly different matter, but essentially similar. Not everything that is measured by market transactions encompasses economic value.
And a third factor, and it is being increasingly discussed recently, is that, in principle, economic activity is very often confused with people’s wellbeing. GDP growth is equated with how well people are living and this, of course, is certainly not so. Because measuring a person’s wellbeing is a far more complicated thing. For instance, a person who earns more money does not always live better than a person who earns less. So how do we grasp all this multidimensionality of human wellbeing that does not come down to GDP growth?
This is an absolutely different question, a third question. The first two – yes, we believe that economic activity is poorly measured and slowly measured. But now we’re also saying: “But you know, this is not actually economics, not pure economics, a person does not live by monetary things.” And everyone actually understands this, so now a huge number of various additional indexes of human development are being constructed, they’re trying to measure happiness, and so on.
It might turn out that the impact of the coronavirus is far stronger and more negative than just an economic decline. People have been locked at home in quarantine – this is a huge psychological shock, uncertainty. What will happen? It’s not clear. And this is crushing. And all the psychological aspects are not factored in at all in the economic decline, but they play a huge role. That is, the mental wellbeing of people has suffered far more than the economy. This is a fairly obvious thing, but we really don’t know how to measure this for the large part.
With GDP, at least, everything’s clear. One can agree or disagree, but there is a definition. Here is a market transaction. Here is what was paid and we count the whole amount. And then this is a clear, defined concept, within which we can discuss pluses and minuses. But when we say how do we measure happiness? As many people as you ask about this, that’s how many opinions you’ll get about what happiness is.
In general, in terms of “fast” measures, I’m confident that there will be some progress and there will be new measures. In terms of how to factor in new technologies, free services, I also think that some sort of assessments will be developed. But people will have a far more critical view of pure GDP growth as a definitive measure of wellbeing.
Q: Returning to classic metrics and to the Russian economy. Do we already understand the scale of the pandemic’s repercussions for the country’s economy, or are there some factors that have not come into play yet?
A: Honestly, I don’t think that we already understand them fully. Firstly, Russia depends a great deal on the global situation. The slowdown of the global economy is a serious matter. The first wave of the crisis has not ended in the global economy. It is escalating. We don’t know when it will end, and what the scale of the first wave will ultimately be.
Furthermore, second waves of the virus have already started in several developed countries, and we have a poor understanding of why they are happening in some places and not in others. Epidemiologists have a poor understanding and economists, who are listening to epidemiologists, have a doubly poor understanding of what’s happening and why.
The models for the spread of the epidemic are actually very complex. Completely trivial models – there are sick people, there are people who are not sick, they run into one another with a certain probability and get infected – don’t work. People live in various social groups, various social groups communicate and interact differently among themselves. We already have several examples of a second wave before us. We can, of course, reassure ourselves that we, as usual, are different and this won’t happen here…
Q: A safe haven?
A: Yes, safe haven. We already said this at the beginning of March: “Look, they’re having a corona crisis.” And now we’re saying: “Look, they’re having a second wave.” There’s a good chance that it might end the same way as last time.
The uncertainty is huge. We don’t know how the situation will develop and, I think, we haven’t fully gone through the consequences of what has already happened. Firstly, the particulars of the production cycle – businesses worked on old orders for a long time, we don’t yet know how things will be with new ones. And secondly, we have our Russian specifics – a huge amount of resources flows through the oil and gas sector, and then filters deep into all of the rest of the economy. And this takes some time. This stream was pinched, far less money is flowing through gas, oil. This is gradually spreading to their contractors and so on. I think the drop in oil prices that occurred in the spring has not reached the economy yet, it’s lagging by several months. So a depressive phase is still awaiting the Russian economy in the fall, probably, when all these effects emerge.
June and July are not indicative at all, honestly – there was a great deal of deferred demand. People were locked up in March, in April-May they finished doing what they wanted and then, hooray, freedom! So in June-July it was partly just the realization of deferred demand, and partly, I suspect, psychological – people, overjoyed by the lifting of the lockdown, could buy something.
Now the euphoria has subsidized, people are returning to reality. The Central Bank’s latest statistics reflect this and Sberbank is also saying this – there was a sharp recovery and then everything faded again. And such a depressive phase will probably last a fairly long time, even if there is no second wave. It might not be that acute, thank God, but it will be more protracted, I’m afraid.
Q: So you don’t expect a V-shaped recovery, which the Central Bank hinted at after its recent board of directors meeting?
A: I have the impression that this is a behavioral, psychological effect. We all expected Armageddon, everyone will die, but it turns out that there was painful suffering, but not everyone died. Everything is far better than we thought, so, hooray, everything’s great. No, not great, everything’s bad, just not as bad as we thought. …
[full text of article appeared at: https://interfax.com/newsroom/exclusive-interviews/69660/]
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