Economist Nikolay Kulbaka: "The main scenario for Russia is stagflation"

Yekaterina Maximova

Why statistics record growth and how crafty the figures turned out to be, how many years the country can last in this mode — in an interview with Novye Izvestia, explained the candidate of Economic Sciences Nikolay Kulbaka.

- At a recent cabinet meeting, a call was made: the country needs sustainable consumption of domestic demand, but within the framework of the Central Bank's inflation target. And how to do this if all the key consumption indicators have been in the red for almost a year?

- Domestic demand is not only consumer demand. It can also be pumped up at the expense of government spending.

Approximately the same as in In the Soviet Union, when consumption by the population was low, and public investment (there was simply no private investment), on the contrary, was very high. That is, everything went into the development of the state. This option is possible.

- That is, investments in the construction of new "factories, newspapers, steamships"?

- Yes, including in the development of the industrial sector. In general, it is clear why the authorities today declare the need for sustainable consumption of domestic demand.

Roughly speaking, in order for the economy to grow, it is necessary that demand within the economy grows. This is understandable and no one disputes it. Just as no one disputes that this demand should not grow very quickly, because otherwise we will have inflation.

Whether it will work out or not is another question. State bodies can control the budget, they can control public investments again. But neither private investment, nor, strictly speaking, consumer spending, they cannot control, and this is the problem of such a task announced on March 29.

- The current consumption crisis is one of the strongest in the last two decades. Retail sales are falling at a rate of 9% per annum. In the retail segment, the annual decline is -7.8%. Directly non-food products -12.3%, and sales of food products decreased to -2.4%.

- Yes, people have reduced their consumption. This indicator shows us that, of course, the real incomes of the population have decreased.

And it also suggests that the Russians are just trying to somehow turn their money into something more, say, safe. For example, to invest in the purchase of dollars or euros. The options are different. Therefore, here, of course, the situation is not so easy.

Even according to official figures, our GDP has fallen less than consumer spending has fallen. That is, the state increases its share, the state is engaged in orders, production, but people consume less. This is what the statistics show.

- Is the transition to public investment a sign of equality with the planned economy? Have we heard the announcement of the transition to such a model?

- no. Many people think that if the state takes over everything, it will be a planned economy, but this is not quite true. The basic concept of a planned economy was that with such a model, prices were planned. That is, the prices were not market prices, but were determined by the state, by some supposedly calculations, but in fact, of course, not calculations.

Yes, with a planned economy, the state was engaged in the allocation of resources. There was no market. And until the state starts regulating prices, we will definitely not have a planned economy. Because it will immediately mean an imbalance of the markets and problems with shortages and overstocking. This is an unavoidable thing.

- Deputy Prime Minister Tatyana Golikova reported that 3.6 million people got out of poverty thanks to social support measures. Is this a record figure for reducing the number of poor Russians? The number of poor people in Russia has been declining so sharply for the last 20 years — in 2003.

- There is, of course, a certain cunning here. It is based on the fact that our demographic statistics, unfortunately, are very unreliable. The last population census is generally of such quality that demographers do not use these data.

But she's right about something. The fact is that in recent years, in principle, support has increased for the population, the poor first of all: these are payments for the birth of a child, this is the maternity capital, this is assistance to large families. These are all quite large volumes that help people get out of poverty. At least according to statistics. This is the first moment.

The second point is that the poverty line in Russia is quite low, and in a good way it should be shifted up quite a lot. But that's another question.

The question of where we will draw this border will give us the number of people who are below the poverty line. And if millions of families receive 10 thousand per child, then millions of families have already crossed the poverty line.

- According to Rosstat, it seems that we are not getting poorer: real wages have increased by 0.3%, by 0.6% ... And over the past five years, Golikova noted, the growth of real wages has exceeded 22%.

- The government has data on real wages for those sectors for which they have data. They don't have data for the whole country in general completely. There are gray payouts somewhere. Somewhere, for example, they report that salaries have increased, and people are being transferred to a reduced working day, or the number of people is reduced. There are different schemes.

Therefore, to say that people's real wages have increased… Statistically, maybe, it has grown, but in reality people have not become richer. There is also no much poorer, but they definitely did not become richer.

- Real disposable income in the middle of 2022 was steadily declining, and by the end of the fourth quarter of 2022, an increase of 0.8% was recorded. How to explain it?

- Firstly, in terms of real disposable income, we are definitely below the level of 2014. Secondly, when the year is summed up, then at the last moment some sums are crammed in that had to be urgently spent, urgently done, and projects closed.

That is, to some extent, maybe, yes, there is a small increase. Another thing is that, again, we cannot check these statistics. Because the regions are trying to report well, the governors are trying to report "perfectly". No one talks about how this money was actually spent. It is difficult to check it to the end.

The Accounting Chamber periodically says that a lot of money is spent in the wrong place and wrong way. In general, this is such an endless circle of problems that are very difficult to solve.

- But so far, according to the totality of statistical data, everything seems to be fine. Or is it all a crafty statistic?

- Let's put it this way: if she is crafty, then not much. GDP could have been tightened by two percent, inflation could also have been tightened by several percent. It could very well be, yes. Because here you can easily do it with techniques. Therefore, in reality, most likely, the recession is still deeper, and inflation is a little more. But it's like counting.

- And which class is the most affected?

- The middle class, because these are exactly the people who tried to make money on income growth, on new types of services, on some modern methods of production, including programming and so on. They had the most problems.

The state helped the poor, big business somehow pulled itself out, and the middle class sank. Not counting the officials, of course. The middle class stratum was so small, and, and became even smaller.

- How many percent do you think?

- That's very difficult to say. If we talk about specific percentages, I do not think that these are large volumes, but we do not know either the number of migration abroad or the number of relocated businesses. Therefore, the statistics here are very unreliable so far.

- By the end of the first quarter, the federal budget deficit exceeded 4 trillion rubles, that is, higher than the figure planned for the whole of 2023. Finance Minister Siluanov explained this with a large amount of advance payments and assured that the situation would improve markedly further.

- The deficit is growing. I probably wouldn't say that he's a jerk. Yes, it is serious for Russia — the country lived with such a deficit only in the nineties. But it is not worth saying that this deficit is something supernatural. There are a huge number of countries that live with a large deficit and nothing happens.

The problem here is not that there will be a shortage (and it will be higher than the planned level), but that it will be possible to actually close it, most likely, only with the help of a printing press. That is, the larger the deficit, the more we have to wait for inflation in general.

- Siluanov said out loud for the first time: our citizens will be one of the main investors. The only question so far is what financial instruments the Russians will be offered to use.

- Most likely, it will be some kind of bonds. At least, that's what we're already talking about. And this is quite a familiar tool for countries.

But here the biggest problem will be how to convince people to buy these bonds. If this is done in a market way, then in principle there will be nothing terrible. If this is done voluntarily-in a mandatory way, as it was in Soviet times, then it will be worse. But it is still difficult to say. Theoretically, they can force people in large state-owned enterprises to subscribe to these bonds. This is quite possible. Will it be used? It's hard to say yet.

But the bigger problem is not even that money is needed (and Siluanov is right - there is money in the country), but that it is unprofitable to invest it in the Russian economy, because no one can predict that it will bring income. Money is invested if it brings income. And if the Russian economy were of investment interest, that is, roughly speaking, you invest 100 rubles and after some time you receive 110 rubles guaranteed, then there would be no end of investors.

But in the Russian economy there are very high risks and very low profits. And the existence of these two parameters makes it unprofitable to invest in Russia. By and large, they invest anywhere. They invest even in the most gangster regimes in Africa, but there the profitability should be very large. The general rule has not been canceled: the greater the risks, the greater the profitability should be. And our risks are high, and the profitability is low, so no one is going to invest. And certainly without coercion, no one particularly invests in Russia is not going to.

- Are they going to introduce a new type of investment accounts for individuals for these purposes?

- Yes, the government is trying to come up with some tools. How they will actually do it, we don't know yet. There are many options, and they are probably still being discussed. So we'll see.

- But it will definitely be?

- With a very high probability.

- And how do you explain such favorable inflation forecasts?

- It is clear that she is being painted a little. I said this above. The second point. Inflation occurs when you have a lot of money and few goods. And if you have fewer goods and less money, then inflation will be low.

Let's go back to what has already been said: people's incomes are falling, and since people's incomes are falling, it means that business will not raise prices. Look — in stores, in principle, prices are not really growing. And the reason is very simple: consumer demand is falling. And if you raise prices as the business wants, then no one will take it at all. Therefore, there is no inflation as such.

- How, very briefly, would you describe the current economic situation in Russia after a year of its holding?

- The main scenario for Russia is stagflation. That is, this is a situation where you have stagnation, that is, a reduction in production, and inflation at the same time.

And this is not a very good thing, because it is extremely difficult to fight it for the simple reason that if you want to spur production, it is done by methods that accelerate inflation, and if you want to fight inflation, you will slow down production.

That is, you will not be able to solve both tasks at the same time. Therefore, I repeat, it is very difficult to fight stagflation.

It can be solved only by increasing cooperation with foreign countries, increasing exports and imports, opening borders, free trade, but so far we do not see such a forecast, of course, with you.

- And how long can the country hold out in such a situation?

- If nothing happens, then two or three years - it may well be. Provided, again, that there will be no price regulation. If price regulation starts, everything can happen much faster, more complicated and in very different ways. There are a lot of options there.

- And if nothing changes?

- And then ... then there will be either a small ascent, very small, or a fluttering somewhere at the same level to which we descended.