The Latvian Expose of Edward Lucas

Many people know of a certain publication misleadingly named The Economist, its burning love for Russia, and its amazing track record of predicting the impending collapse of Russia's economy. Some of them also know that the brain (and I use the term loosely) behind The Economist's publications on Russia is a certain Edward Lucas. And some of those suspect that Lucas is really more of a professional propagandist rather than a journalist. But there was this one nagging question: who does Lucas's propaganda serve?

But now, thanks to the brave investigative effort of our Latvian colleagues, the truth has finally emerged. A brilliant Latvian mind of our century, INĀRA MŪRNIECE, writes on the pages of Latvijas Avīzē:

New portals that force on their readers a certain point of view
advantageous to Russia are being created on the Internet.

For example, an interview with E. Lucas published in Latvijas Avīzē
was translated into Russian and posted on the InoSMI.ru portal on the morning of
the very same day.

In an ironic twist, the brave investigative reporter's expose was immediately translated into Russian and posted on InoSMI.ru, thereby forcing a certain point of view advantageous to Russia on its unsuspecting readers.

An astute and logical reader might pause here and ask: in what way do translations of Latvian and other foreign newspapers into Russian, of articles such as "It is Time for the West to Open its Eyes [to the dangers that the state led by Putin's Chekists creates for the world]" (that's Lucas's insightful interview) and "How Russian Propaganda Works" (that's the above mentioned brilliant piece of investigative reporting), can "force a certain point of view advantageous to Russia"? And then roll his eyes, write it off to "Latvian logic", and forget the whole thing.

But we must dig deeper, just like the intrepid Latvian reporter! We might recall that the shrill anti-Russian whining in Western media has reached an apex in the runup to the Russian election season starting in the fall of 2007. Edward Lucas himself bravely jumped into the thick of it, coming up with his magnum opus entitled "The New Cold War: How the Kremlin menaces both Russia and the West", not to mention the usual volume of various rants in the media. And yet, if we look at the facts, we immediately see a discrepancy. For example, Putin's global confidence rating is not only up 4 points since last year, but he is now the most trusted national leader on the planet (granted, all national leaders are mistrusted, but Putin is the least mistrusted one). And it's not just Putin. According to a BBC poll, the global view of Russia as a whole has improved the most of any other counry in that poll, from 29% positive to 37% positive.

Huh? So the harder Lucas works, the better Russia's image gets? What? How is that possible? Wait, wait... Let's put two and two together carefully. So the brilliant Latvian reporter found that disseminating Lucas's views serves the purposes of Russian propaganda. And we know Lucas is a propagandist... So, this is the missing piece of the puzzle! Lucas is a Russian propagandist! Eureka!

Good job, Ed! You had me puzzled for a while. Who would've thought that you really work for Russia? That's a nice cover you got there. But Latvians saw right through you. Can't hide now, Eddie! Come clean, how much is the Kremlin paying you?

A Charmed Profession

BBC has published its own indictment. What, it doesn't look like an indictment? Well, please allow me to explain.

The first part of the poll, conducted in 31 countries including Russia and the G7, dealt with the influence of President Putin on various aspects of Russian and global affairs. Two of these aspects stand out in particular: They are the quality of life in Russia and democracy and human rights situation in Russia. Why do they stand out? Simply because they are an internal Russian matter, i.e. one has to actually be in Russia in order to form a sufficiently educated and hopefully accurate opinion on the topic. Global affairs are anyone's fair game, but internal situation in any country needs to be assessed from within. Logical, isn't it?

So what data are we dealing with here? When it comes to Putin's influence on the quality of life in Russia, 77% of Russians hold a positive view of it, and 8% -- negative. Of the residents of G7 countries, on the other hand, only 39% hold a positive view, while 44% are negative. On to democracy and human rights: 64% of Russians think Putin's influence was positive, while 12% think it was negative. The residents of G7 countries, once again, beg to differ: only 26% have a positive opinion, while 56% think that Putin strangled the nascent Russian democracy, personally butchered 200 Russian journalists and 500,000 Chechens, and also poisoned the "KGB spy" Litvinenko with polonium had a largely negative influence.

It's all clear with Russians: if a Russian wants to form an opinion of his quality of life, for starters he can open his fridge and compare its current contents with what was in it in the 90s. Or he can look at his paycheck. Or vacation time. Or the feeling of security. Same with democracy -- in Russia, one can simply look out the window, and there they are, Russia's democracy and human rights, out in full force! But if one lives in a G7 country, how can you look into a Russian's fridge? How can you look out a Russian's window? Well, probably a million of G7 countries' citizens have visited Putin's Russia by now. Tens of thousands have stayed long enough to form an educated opinion of what it feels like to live in Putin's Russia. But that is such a drop in the bucket compared to the entire population!

Where do G7 citizens get their information on Russia? Why, they get it from the pros! They pay good money to certain professionals to live in Russia, and to report on what Russians have in their fridges and what they see outside their windows. These professionals are colloquially known as "journalists". And BBC is one of the companies that employs these so-called "journalists". And then charges its clients, directly or by proxy, for the privilege of partaking of their superior knowledge on various subjects, including the quality of life and the state of democracy and human rights in Russia.

So how is it that the information that these professional journalists filter down to their clients about one particular subject, Russia, is so different from what anyone living in Russia actually sees? Maybe the clients are idiots who cannot interpret what they're told correctly? Seems unlikely. Or maybe it is that these "professionals" distort the information out of sheer incompetence, or malice, or editorial pressure, or all of the above? That seems a bit more likely.

Hey, BBC, do you hear me? I want my money back. You have done a shoddy job, and you have let me and others down. We are your customers! Where's the quality of service that we expect? Virtually any occupation you can think of, if someone provided such a poor service, they'd be out on their ass in no time, and their company would be bankrupt. But not in journalism, apparently. A charmed profession, indeed.

An Audit of the Committee to Protect Journalists Claims

One of the frequent staples of anti-Putin propaganda is the number of journalists murdered in Russia on Putin's watch. The more propagandistically inclined authors use the total number of journalists who died for any reason whatsoever, and even manage to imply that it was Putin who killed them off, while others rely on a database compiled by the Committee to Protect Journalists, which includes only "confirmed" cases of deaths related to the journalists' professional activities.

Of course, none of them mention that the death rate for Russian journalists has actually decreased during Putin's presidency, and that it is correlated with the overall criminal situation, rather than any political developments. But I guess I'm asking for too much honesty from propagandists.

CPJ claims that it "applies strict journalistic standards when investigating a death. We consider a case “confirmed” only if we are reasonably certain that a journalist was killed in direct reprisal for his or her work; in crossfire; or while carrying out a dangerous assignment... If the motives are unclear, but it is possible that a journalist was killed because of his or her work, CPJ classifies the case as “unconfirmed” and continues to investigate to determine the motive for the murder."

I believe that an audit of CPJ's findings is in order. We will examine all cases reported in CPJ's database of confirmed deaths during Putin's presidency (2000-present day) to see if they belong. Each case will be classified into true (CPJ's claims are not disputed), falsified (the case does not involve professional activities or is not even a murder), and partially falsified (journalist murdered or died on duty, but the perpetrator or other relevant information is false).

And so, without further ado, here are the 17 "confirmed" cases of journalists killed in the line of duty in Russia since 2000. The order is chronological.

Premeditated murder of Vladimir Yatsina, a photographer, on 20 February 2000 by the military with the use of small arms. By CPJ's own admission, Yatsina was murdered by Chechen militants who had been holding him hostage for ransom. Real "source of fire" is "criminal group" or "paramilitaries". Suspect deliberate obfuscation of the "source of fire" in order to set the stage for an accusation against the Russian government, amounting to a partial falsification.

Combat related death of Aleksandr Yefremov, a photographer, on 12 May 2000 due to use of explosives by the military. By CPJ's own admission, Yefremov and two police officers were "killed in Chechnya when the military jeep he was riding in was blown up by a remote-controlled mine". Since IEDs are the MO of the Chechen militants, it is safe to assume that the real "source of fire" was a "criminal group" or "paramilitaries". Suspect deliberate obfuscation of the "source of fire" in order to set the stage for an accusation against the Russian government, amounting to a partial falsification.

Spontaneous murder of Igor Domnikov, a reporter and an editor for Novaya Gazeta, on 16 July 2000 from the injuries suffered at the hands of an unknown assailant on 12 May 2000. CPJ claims that the murderer got away with impunity. CPJ's data is obsolete. In reality, in 2007 the perpetrators of the murder, the so-called "Tagir'yanov group", who specialized in assassinations and kidnappings, were convicted on multiple counts including Domnikov's murder. Facts as reported by CPJ in 2000 are not in dispute for that date.

Premeditated murder of Eduard Markevich, an editor and publisher of Novy Reft, on 18 September 2001, committed by government officials with a firearm. CPJ's date is incorrect, the real date of the murder was 19 September. CPJ's reasoning for blaming Markevich's murder on government is that "Novy Reft often criticized local officials, and Markevich's colleagues told the Itar-Tass news service that he had received threatening telephone phone calls prior to the attack." The reality was somewhat more complicated, as noted by the US funded Radio Liberty on 27 September 2001: "The murder victim's wife, Tatyana, also working in the Novy Reft newspaper, is certain that the murder is connected with Markevich's professional activities and is clearly a contract hit, possibly political. Not long before his death Eduard Markevich ran for the Reftenskii village council, this was on September 16, but did not receive the necessary number of votes and did not get the mandate. Law enforcement officials do not reject this theory, but are more diligent in investigating the possibility that the murder was committed for as revenge for personal reasons. As villagers report, the entrepreneur, founder, and editor of the newspaper Eduard Markevich had plenty of enemies. The murder victim had conflicts with the village authorities, leaders of local organizations, quarreled with various people for all sorts of reasons. Many incidents were not connected with his work as a journalist." Due to the contract nature of the hit it is more likely that Markevich was murdered for his professional activities, but CPJ's attribution of the murder to "government officials" without a shred of evidence to back it up amounts to wishful thinking and smells of propagandistic intent. A clear case of partial falsification.

Premeditated murder of Natalya Skryl, a reporter for Nashe Vremia in Rostov-on-Don, committed by an unknown assailant on 8 March 2002. Skryl died from head injuries on the next day. CPJ's attribution of Skryl's case to professional activities of the victim is based on the following: "Grigory Bochkarov, a local analyst in Rostov-on-Don for the Moscow-based Center for Journalism in Extreme Situations, told CPJ that the only credible motive for Skryl's murder was her reporting about Tagmet and that police had emphasized the robbery motive in an effort to play down the significance of the case. Just prior to her death, Skryl reportedly told several colleagues that she had recently obtained sensitive information about the Tagmet story and was planning to publish an article revealing this information." Needless to say, the quality of evidence provided here is pathetic. Moreover, CPJ's description contains disingenuous description of the investigation. CPJ alleges that "officials have changed their theories several times", more specifically that the first theory was that the murder was based on professional activities of the journalist, which on 24 July was changed to robbery, and on 5 September the investigation was closed without any theory. In reality, three theories were worked on from the start: a) robbery; b) professional activity; c) hooliganism. On 24 July it was finally determined that professional activity could not have been the reason for the murder because a) no evidence was found; b) Skryl's publications were of "informational nature and could not have had any effect on the social and political situation." A suspect was detained, made a confession which he later disavowed, but he was found to be deranged and no further evidence could be gathered. The case was closed. The Center for Journalism in Extreme Situation, used by CPJ as the main source, conducted its own investigation, and concluded that it is highly unlikely that Skryl was killed in a professional hit, and that the most likely motive for the murder was "hooliganism" (that is, for no reason, based on the nature of the neighborhood where the crime was perpetrated). CJES's experts who made the finding were Sergey Plotnikov and Grigoriy Bochkarev (!!! - who CPJ identified as "Grigory Bochkarov" and used as their main source to make the opposite claim). By any reasonable standard Skryl's murder does not belong on the list of journalists murdered for their professional activities, and this clearly amounts to a complete falsification on the part of CPJ.

Premeditated murder of Valery Ivanov, editor of Tolyatinskoye Obozreniye in Togliatti, committed by a criminal group on 29 April 2002. CPJ justifies Ivanov's inclusion as follows: "Ivanov's colleagues believe the killing was connected to his work. Tolyatinskoye Obozreniye is well known for its reports on local organized crime, drug trafficking, and official corruption." Both official investigation, and the one conducted by the CJES, concluded that Ivanov was killed for his criminalized commercial activities not related to his work as a journalist. Therefore, CPJ's inclusion of Ivanov in the list amounts to a complete falsification.

Combat related death of Roddy Scott, a cameraman, perpetrated by the military on 26 September 2002. According to CPJ, "Russian soldiers found his body in Ingushetia's Galashki Region, near the border with Chechnya, following clashes between Russian forces and a group of Chechen fighters. Scott had accompanied the Chechens as they crossed from Georgia into Russia, United Press International reported." Facts are not in dispute, besides the obvious question of how CPJ managed to figure out that Scott was killed by the military, and not the criminal group he was accompanying. But the interpretation of these facts should raise a few eyebrows. Let's see: Scott joins an illegal armed formation that infiltrates another country with the purpose of committing murder and staging a few terrorist acts. And that is called "professional activity"? If he went to rob a bank with some gang, and died in a shootout with security guards, that would also be "death in the line of duty"? Sorry, but as an accomplice to a crime he cannot be in this list. This is a complete falsification.

Premeditated murder of Yuri Shchekochikhin, deputy editor of Novaya Gazeta, on 3 July 2003, perpetrated by unknown persons through poisoning. CPJ claims that Shchekochikhin was murdered due to his professional activity because "Shchekochikhin’s relatives and colleagues believe the journalist was poisoned to prevent him from further uncovering the truth about a high-level corruption case involving officials from the Federal Security Services (FSB) and the Prosecutor General’s Office. Based on the circumstances and secrecy surrounding Shchekochikhin’s death, and the dangerous subject he was investigating at the time, CPJ also believes there is sufficient reason for launching a murder probe." As usual, no evidence, merely unsubstantiated claims and wishful thinking that smell of propagandistic intent. Moreover, while in the description CPJ believes that there is merely a "sufficient reason for launching a murder probe", in their database they already treat the murder as a given. Based on the facts of the case, it is not disputed by anyone that Shchekochikhin died of Lyell's Syndrome, also known as Toxic Epidermal Necrolysis (TEN). What remains unknown is which agent caused the syndrome, which is normally induced by drugs and is basically an allergic reaction. That's where the problem lies for conspiracy theorists: allergies vary from person to person, agents that are safe for most people cause allergic reactions in others, and in rare cases the reactions are extreme enough to cause death, which is what happened to Shchekochikhin. The question, then, is how did the alleged perpetrator know what the victim was allergic to in order to allegedly poison him with a substance that would've guaranteed his death? Therefore, there is no reasonable cause to suspect foul play in Shchekochikhin's death, and this case's inclusion amounts to а complete falsification.

Premeditated murder of Aleksei Sidorov, another editor of Tolyatinskoye Obozreniye, who replaced aforementioned Valery Ivanov, committed by a criminal group on 9 October 2003. CPJ's reasoning is pathetic as usual: "Journalists at Tolyatinskoye Obozreniye-a newspaper known for its investigative reporting on organized crime, government corruption, and shady corporate deals in the heavily industrialized city of Togliatti-are convinced the murder is in retaliation for Sidorov's work." Is there any evidence besides "belief"? CJES's investigation concluded that Sidorov's murder was related to his predecessor Ivanov's murder, and both were connected with their criminalized commercial activities not related to their profession. Therefore, this is another case of a complete falsification on the part of the CPJ.

Adlan Khasanov, a camera operator, killed by a terrorist bomb on 9 May 2004 together with Chechnya's president Akhmad Kadyrov, by a "political group". At least now the CPJ is not trying to blame the militants' work on "the military". A more correct classification would be a "criminal group", but it would be tough to expect too much professionalism here. Otherwise, nothing to dispute.

Premeditated murder of Paul Klebnikov, editor of Forbes Russia, gunned down on 9 July 2004 by a criminal group. Nothing to dispute. The murder was basically solved, even though the prosecution was unable to get a guilty verdict from a jury. Forbes's own investigation alleged jury tampering on the part of the defense.

Premeditated murder of Pavel Makeev, a camera operator, who was run over by a criminal group on 21 May 2005. Makeev's death was the result of being hit by a vehicle while he was on assignment to film illegal drag racing. Per CPJ, "authorities initially classified the death as a traffic accident, but colleagues believed Makeev was killed to prevent his reporting, according to CPJ interviews." It cannot be denied that Makeev was killed while on duty. The fact that Makeev's camera was allegedly disposed of by throwing it in the river lends certain credibility to claims of foul play. Therefore, no dispute in this case.

Premeditated murder of Magomedzagid Varisov of Novoye Delo on 28 June 2005, when he was gunned down by "military officials". The case of Varisov's murder was solved in July, the perpetrators were a "religious extremist group" led by Rasul Makasharipov. Varisov was allegedly killed for his criticism of Wahhabis, an extremist Islamic sect. How CPJ managed to blame this on "military officials" remains a mystery. Therefore, this amounts to partial falsification.

Murder of Vagif Kochetkov, a reporter in Tula, perpetrated by unknown persons on 8 January 2006. CPJ claims that the murder was work related because only his bag and cell phone were stolen. "The bag was believed to have contained Kochetkov’s passport, press card, credit card, and work-related documents. The attackers did not take Kochetkov’s money or an expensive fur coat he was wearing." However, this is disputed by CJES's investigation of the case, which does mention that the money was in the bag. CJES also classifies Kochetkov's murder as non-work related. Per media reports, the bag was found without the money, while the money that wasn't touched was a small amount in Kochetkov's pocket. The perpetrator, Tula resident Yan Stakhanov, was caught because he used Kochetkov's cell phone. He had three previous convictions, the last one for robbery. Therefore, the prosecution's position that the motive for the murder was robbery is more justified than CPJ's claims. Kochetkov clearly does not belong in this list, and his inclusion amounts to a complete falsification of the case.

Premeditated murder of Anna Politkovskaya, a Novaya Gazeta reporter, shot to death by an unknown assailant on 7 October 2006. The fact that it was a professional hit gives reasonable cause to believe that the murder was related to Politkovskaya's work as a journalist. Even if she had been killed for propaganda effect, as it has been speculated, her choice as a target was based on her professional activity anyway. CPJ's claims are, therefore, not disputed.

Maksim Maksimov, a reporter for Gorod in St. Petersburg, was declared dead on 30 November 2006, after disappearing on 29 June 2004, apparently murdered. CPJ admits that "investigators and colleagues did not initially focus on Maksimov’s journalism as a reason for his disappearance. At the time, Maksimov was seeking to trade his apartment in downtown St. Petersburg for a bigger one. Colleagues believed that he might have fallen victim to the organized crime gangs that control the real estate market in St. Petersburg." However, based on media speculation without any concrete evidence, CPJ claims that Maksimov was murdered for his professional activity. No one was charged with the murder, even the fact of murder has not been established, the investigation is still ongoing. CPJ's claim of Maksimov's disappearance as a confirmed murder case amounts to a complete falsification.

Murder of Ivan Safronov, a reporter for Kommersant, by persons unknown on 2 March 2007. The only known fact in this case is that Safronov fell from a fourth story window. Investigation declared his death a suicide, since not a single external cause of death could be found. CPJ claims Safronov's death was a murder because "Safronov had worked on a number of sensitive issues... Relatives, friends, and colleagues said Safronov had no reason to commit suicide. He had no personal enemies, no debts, and no life-threatening disease. He had been married for many years, had two adult children, and was expecting his first grandchild. He did not leave a suicide note." The reasoning is utterly pathetic. There isn't a single shred of evidence of murder, much less that it involved Safronov's professional activities. This, therefore, is a complete falsification on the part of CPJ.

In summary, CPJ claims that 17 journalists were killed in Russia in since 2000 due to their professional activities. Examination of each case found that out of 17 claims, only 5 were correct (Domnikov, Khasanov, Klebnikov, Makeev, Politkovskaya), 8 were complete falsifications (Skryl, Ivanov, Scott, Shchekochikhin, Sidorov, Kochetkov, Maksimov, Safronov), and 4 were partial falsifications (Yatsina, Yefremov, Markevich, Varisov). If we assign the truthfulness value of 50% to partially falsified claims, the overall truthfulness rate of CPJ, given this sample, is 41%. Clearly, CPJ's definition of "strict journalistic standards" as being only 40% truthful is at variance with what any reasonable person would expect. But it is very much in line with what one would expect from a propaganda outlet.

Of course, the desire to protect journalists' lives is very noble. But the end does not justify the means. Engaging in outright falsifications while making the outrageous claim that "strict journalistic standards" are being followed discredits journalism as a profession and raises the obvious question of why should any special emphasis be placed on protecting that kind of people?

Convergence of the West with... Brezhnev era USSR?

Edward Lucas asks the epic question of "Why kowtow to brutal, cynical Russia?" and sounds the alarm: "We have a new Cold War and we're losing it. The West must stand up to the Kremlin now".

While this diatribe is too silly to seriously comment, it did remind me of a 1970s Soviet Jewish joke:

An old Jew immigrated to Israel from the USSR, but keeps reading Soviet
newspapers. His friends ask him: "Moishe, why do you keep reading Soviet
newspapers if you live in Israel now?" Moishe replies: "Well, you see, when I
tried reading Israeli newspapers, I found out that Israel is suffering from
infaltion, uneployment, and is very vulnerable to attacks from its neighbors.
But Soviet papers tell me that Israel is a powerful state that is about to take
over the Middle East, if not the world. And it makes me feel so much better!"

Many Russians also have the unpleasant tendency to giggle whenever they see excerpts from the State of the Union speeches by American presidents on the news. They claim that these remind them of Brezhnev's speeches at Communist Party congresses. But then they point out that even Brezhnev did not receive so much applause. Hmm, in light of Lucas's propaganda effort, maybe they're onto something?

A Kremlinologist in Dire Need of Econ 101 Textbook (Part 1)

A while back (on 17 December of last year to be precise), former Clinton advisor turned Kremlinologist Stephen Sestanovich tried an epic feat of measuring Russia's economy on the pages of the Wall Street Journal. Back then I ignored this attempt as barely competent and an obvious manipulation of well-known statistics, but I shouldn't have. It turned out that Sestanovich's bizarre economic theories became a revelation to other professional and amateur Kremlinologists who have never before come face to face with a macroeconomics course. If Sestanovich's article was barely competent, the extent to which some of his followers took his conclusions and misrepresented their new messiah's words is simply ludicrous. For that reason, let's take a look at Sestanovich's own claims.

Sestanovich takes exception to how those uppity Russians view the size of their economy by claiming that "Russian economy has overtaken that of Italy, and will overtake France in 2009" and "Russia will become the world's fifth largest economy by 2020". He correctly points out that these estimates are based on the ruble to dollar conversion using PPP (purchasing power parity) method, rather than the market exchange rate. At least he's not denying the apparent correctness of the estimates. No, Sestanovich is more sophisticated -- he's denying the validity of the PPP method for making comparisons between national economies. In particular, he writes:

PPP inflates the size of poor economies in which food and the other basics of life are cheap. In the Russian case, black bread, vodka and run-down apartments pump up GDP.

Apparently, Sestanovich hasn't bothered to actually look up what goods might make up a basket of goods and services normally used to derive comparative price levels if he thinks that it would include something as specific as "black bread" or something that isn't used in GDP calculations at all, i.e. "run-down aparments". Only new housing is calculated in the GDP under investment (when expenditure method is used). Something tells me Sestanovich slept through his macroeconomics class, if he ever took one.

But even if he were right, he still managed to demonstrate his incompetence in another area. By relying on tried and true propagandistic cliches from the 1990s (which weren't necessarily true even then), he forgot to mention that "run-down aparments" in Moscow might look like this. Or that if we compare the prices of a well-known Russian vodka brand, such as Stolichnaya, with a well-known American vodka brand, such as Gordon's, we will inevitably conclude that PPP comparison paints a picture of the American economy that is far too rosy -- the US GDP is inflated by cheap vodka. And as for "black bread", doesn't Sestanovich realize that this ain't the 19th century anymore? The whiter the bread, the cheaper it is. Russians' favorite bread (as implied by Sestanovich, not by me) is actually quite expensive. Doesn't Sestanovich read the news anymore, did he miss the fact that Moscow is the most expensive city in the world, while St. Petersburg is quite a bargain in comparison, "only" in 12th place in the world? What other conclusion can we draw if not the fact that the PPP method deflates Russia's GDP due to overly expensive black bread, vodka, and aparments that are not so run-down? Ridiculous, you might say? There are many other variables that need to be taken into account, you might say? Don't blame me, I do this analysis within the framework that our new economic guru has set up. Blame the framework. Blame the guru.

The sad reality of the matter is that no reliable methodology exists for comparisons of the relative sizes of world's economies. Sestanovich even managed to make some good points about the problems of PPP -- such as the assumption of the same price on products that might be substantially different (e.g. due to quality issues). One might also point out the limited scope of the basket used, or the effect from welfare policies that might subsidize certain goods and services, or non-tradeable goods and services for which no global equilibrium price can exist. All of these can distort the comparison, sometimes significantly. But Sestanovich's logical fallacy stems from the fact that by demonstrating the problems with PPP calculations, he smoothly transitions to a claim that the market exchange rate calculations are what needs to be used, ignoring the tiny fact that whatever problems there may be with PPP calculations, they pale in comparison with the can worms that market exchange rate calculations open.

True, Sestanovich does mention that "which system of measurement is 'right' depends on what you want to know", as well as makes a couple of other disclaimers. But these disclaimers are hardly credible due the simple fact that he started out by claiming that "PPP inflates the size of poor economies". The terminology used makes it abundantly clear which method Sestanovich considers to be "the one true method", and which one merely "inflates" (i.e. distorts) the alleged "real" picture.

So what is the problem with exchange rate methodology? The basic problem is that it calculates anything but GDP. GDP's purpose is to measure the amount of goods and services produced in the economy. By necessity, due to extreme variety of goods and services normally produced, this is expressed in terms of currency. In the market, exchange rates have nothing to do with the amount of goods and services produced, but everything to do with numerous other factors such as supply and demand of a certain currency, relative openness of the economy (stimulates demand), manipulation by central banks (affects supply), perceived political risks, etc. If the currency of country A tanks because hot money investors from country B rush for the exits due to their domestic liquidity problems, does it mean that country A now produces less VCRs or rice? No, its economy keeps chugging along, and even the quality and the price of its domestic products is unaffected. Yet, by exchange rate calculations in terms of the currency of country B, it would appear that the GDP has shrunk. The obvious conclusion is: Do not ever use the currency of country B to describe the GDP of country A. Or if you do, at least convert using the purchasing power parity between country A and country B, in order to eliminate unrelated factors such as a spike in supply of country A's currency while it is being dumped by country B's fearful investors.

The problems posed by central banks are even more significant. This, incidentally, relates to the paranoia toward PPP exhibited by so many Americans as exemplified by Sestanovich. If one looks at the GDP by PPP country ranking, one will soon find an unpleasant (for the Americans) reality: that reality is called China. If current trends persist, the world's #1 economy within the next five years or so will be China. The US will be #2. And since so many Americans suffer from the "we're #1" complex, this simple fact scares them. Hence this wide following that Sestanovich's article generated, which was completely unforeseen by me. Fear can be a powerful driver for the chattering masses, capable of mobilizing them into all sorts of unseemly statistical manipulations. Specifically with China, its Central Bank, and Sestanovich's claims, we run into a fundamental contradiction. According to Sestanovich and his followers, China's GDP is significantly "inflated" by PPP conversion. But at the same time the US government insists that China deliberately manipulates the exchange rate in order to keep the RMB weak compared to the USD, and thus its enterprises are able to outcompete US manufacturers on cost. In effect, while the sufferers from the "we're #1" complex keep trying to convince themselves that China is tiny, the US government is trying to convince China that it is much bigger than it pretends to be (since its GDP will "magically" expand as soon as its currency is revalued). Well, you can't have it both ways: either PPP rate is where the exchange rate should be, in which case you can keep pressing China to allow its currency to revalue, or market exchange rate is "the one true measure", in which case stop pestering China about the alleged "unfairness" of the exchange rate.

Russia's Central Bank manipulates RUR exchange rate to a significant extent as well, as is apparent from the growth in foreign currency reserves and the corresponding expansion of the money supply (i.e. CBR buys up dollars that enter the country to prevent revaluation of the ruble). For that reason, there is a significant (but shrinking due to market pressure) difference between the market and PPP value of RUR. How does this affect the size of Russia's economy, the amount of goods and services produced, expressed in fixed rubles or PPP dollars? That's right, it doesn't, at least not directly. Russia's GDP growth helps illustrate it. If calculated in current dollars, it turns out that between 1999 and 2006 Russia's GDP grew from USD 195.9 bln to USD 984.9 bln, or almost 26% annual growth rate. If calculated in PPP dollars, it increased from USD 923.7 bln to USD 1,739.0 bln for the same period, or 9.5% annual growth rate. Which of these numbers is more credible? And which one more closely matches the real GDP growth rates reported by Russia's own statistical service, once USD inflation is factored out? Obviously, it is PPP.

Even more ridiculous is Sestanovich's assertion that

Measured in conventional terms, Russia, far from overtaking France in two years, is actually less than half its size -- $1.22 trillion vs. $2.52 trillion. At current growth rates, their GDPs will not be equal for 17 years.

That's some bizarre math, but let's try to work through it anyway. Sestanovich's data for current GDP comes from IMF estimates for 2007 (estimates, not real data). IMF estimates real GDP growth for Russia to be 7.0% and France -- 1.9%. So if we take IMF estimates at face value and project them into the future, we will find out that Russia will surpass France in 2022, 15 years from now, rather than Sestanovich's 17.

But Sestanovich's problem is even greater than his inability to multiply numbers correctly. Remember, the source data used are estimates, not real numbers. I don't know about France, but Russia's GDP growth for 2007 is expected to come significantly higher than 7.0% -- somewhere around 7.4% expected by the Economy Ministry, which habitually underestimates to be on the safe side (for example, they started 2007 expecting only 6.4% growth, and in the end revised it to 7.4% -- first real estimate from Rosstat will be available only somewhere in April 2008, and judging by the Economy Ministry's previous predictive record, it should be higher than 7.4%). Another factor is that the dollar collapsed even further against the ruble after the IMF made their estimate; thus, these two factors will likely bring Russia's exchange rate GDP to USD 1.34 trillion in 2007 (my rough estimate). If we plug in these new numbers, this further brings down the expected "catch-up time" to 12 years. For what possible reason Sestanovich would use 2007 estimates rather than real data from 2006 remains a mystery. Maybe he can't tell them apart?

But in the end none of these gross errors are important. Sestanovich's biggest misunderstanding of the numbers he operates with is the fact that he uses real growth rates which, as we have established, more closely correlate with PPP numbers, to project GDP that was calculated using market exchange rates. And, as we found out, Russia's "growth" in 1999-2006 came out to 26%, rather than 7.4%, if market exchange rates are used. If we plug that number in, we'll find out that Russia will catch up with France in 2010, which is 3 years from now. Of course, France's number will need to be recalculated as well, but such an exercise was pointless to begin with. The simple fact that got lost on Sestanovich is that real GDP growth figures cannot be used with market exchange rate GDP without assuming that USD to RUR exchange rate will remain constant. But we cannot make that assumption because RUR has been appreciating even in nominal terms (before factoring out inflation) against the USD for a number of years now, and will continue to appreciate for the foreseeable future. Its appreciation in real terms has been even greater, and outpaced that of the EUR.

Consequently, Sestanovich's own projection is not only based on mathematical errors and basic misunderstanding of the source data, but is also utterly incompetent methodologically.

But Sestanovich really begins to shine when it comes to manipulation of numbers, where numbers themselves are not in dispute. For starters, trying to demonstrate just how "unimportant" Russia is to Europe, he quoted another genius: "Russia's exports to the EU are, apart from energy, 'about the same as those of Morocco or Argentina'". That's all great, but why would you subtract energy from Russia's exports? Energy exports make up the bulk of Russia's exports precisely because Russia has a comparative advantage in energy production. If Russia did not have a comparative advantage in energy, then Russia's exports would be similar to those of any other East European country, except bigger. Otherwise, specialization occurs. This effect is described in any introductory macroecon text, which Sestanovich apparently hasn't gotten around to reading. Somebody get this man a textbook!

Moreover, do energy exports make Russia more important or less important? Imagine the situation where US exports, such as software or Hollywood movies, disappeared from the world market. What calamity would follow? Something tells me that the world would hardly blink. Now, imagine that Russian oil disappears from the market. What's going to be the consequent price of oil? $200/barrel? $400/barrel? I don't know, but I do now that with the current tight supply, it will shoot into the stratosphere. Next time you fill up your tank, you might want to consider the relative importance of Russia's trade with the rest of the world in between the sobs about your rapidly emptying pockets. Not to mention the effect oil prices will have on every other product on the market.

Sestanovich goes on to play with more numbers: "Just consider per-capita GDP growth in Russia, France and Italy. Under Mr. Putin, Russian per-capita income -- even in PPP terms -- has gone from somewhat less than a third of the level of France and Italy to somewhat more than a third." Translated from propagandese into normal human language, it means that Russia's GDP per capita increased from 26% of France's level at the time Putin took office, to 41% last year. If I were into propaganda, I'd say that it increased "from a quarter to almost half". Fortunately, I prefer real numbers. Does it mean that Russia remains "Europe's poor relation"? Sure, except it's Western Europe's. Russia, along with the whole of Eastern Europe, and most of the world too, is Western Europe's "poor relation". I wouldn't say it's a major discovery. But the level of 40% does not make for such a poor relation anymore. If you add the current dynamics to the mix, and project it into the future, as Sestanovich has so poorly attempted to do, the picture that emerges might be disconcerting for some.

This is precisely why Sestanovich and his followers now have a favorite new mantra: "Russia [China] is poor, Russia [China] is unimportant, let's pretend that Russia [China] will always remain this way." Well, they do sound convincing. Unfortunately, only to themselves.

P.S. On an unrelated note, it wouldn't hurt Sestanovich to brush up on his Soviet history as well. I know that the subject is considered optional in Kremlinological circles (as well as any other subject that might be described as a "science"), but still, claiming that there was some mysterious "Red Army" during the Cold War doesn't look good when coming from a supposed expert on Russian affairs. Hint: use Wikipedia to look up in what year the Red Army was renamed into the Soviet Army.