A SMAC in the Face #19: Russia’s Economy is Burgered

One thing that scientists, economists and your investment advisor love doing is to draw smooth curves through carefully selected sets of noisy data and float a whole pet theory.  If they’re not fudging the data when it doesn’t predict what they want, then they get a bit fanciful in their explanations as to why badly conforming data actually conforms in much the same way that politicians can convince people that a turd has a clean end.  As an engineer with an interest in how the world works and having evolved many theories about it around the braai, I am not adverse to dipping my toes into the chaotic world of data and making a prediction about Russia’s future and backing that up with a sexy curve. 

Executive summary: Russia’s economy is buggered.

But let’s take a step back.  In 1986, The Economist introduced the concept of the Big Mac Index as a semi-humorous illustration of the Purchasing Power Parity between countries as the Big Mac is a standardised product worldwide.  It encompasses a wide range of local factors in a single item such as wages, finance costs, agricultural efficiencies, property costs, etc.  By and large is has proven to be an accurate assessment and you don’t have to rely on experts.

The Big Mac, together with the iconic McDonalds logo has come to represent the superiority of Western (American) culture – sloth, overconsumption, hype and instant gratification amongst others – and helped establish Western hegemony over large parts of the world.  Before 1990 though, one place that definitely didn’t have a McDonalds was Russia.  Glasnost (openness) changed all that.  The first McDonalds restaurant opened in Moscow in 1990 and people queued for up to three hours to get a taste of freedom.  The old Russian joke of what has 500 legs but doesn’t move (a Russian bread queue) had to be updated.  This was hugely symbolic as it was the first time Russia had given the West a bear hug since 1917.  Now however, with Russia treating Ukraine like a McDonalds Drive-Thru, McDonalds has shuttered all 850 of its outlets in Russia.  It might be a symbolic gesture or just a hard-nosed realisation by management that Russians won’t be able to afford them in the future and they might as well get some good PR out of it.

This brought me to wondering if the iconic logo might be a predictor of Russia’s economy.  Squinting with one eye at the image and the data in a mirror in a darkened room without my glasses, it shows a surprising correlation.  The early years of opening up its economy showed it rising Phoenix-like from the cold ashes of communism with the GDP growth stabilising at above 5% for 10 years.  Then, around 2008, along came the Wall Street Wankers and blew up the World’s financial system with WMDs (Weapons of Mass Destruction) like toxic CDOs (Collateralized Debt Obligations) placed inside bank vaults around the world.  So far, the graphs correlate very nicely and the correlation would have continued to the second arch if Putin hadn’t invaded Ukraine by proxy in 2014.  As all good theorists, discarding those years as outliers, the dotted line now shows a fair correlation to the second arch.

Having established the validity of the McDonalds model, it’s possible to make an accurate prediction – the Russian economy is going to tank like a T-72 blown up by a Ukrainian missile.  I’ll have my Nobel Economics Prize now, thank you.

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