Top of the Pops
Last day I’ll do US election-related columns (barring something we learn with policy implications for markets and Russia etc.). Back to normal programming on Monday.
Things are looking grim for Armenians living in Nagorno-Karabakh. Azerbaijani forces continue to advance and it seems like it’s just a matter of time before Shusha falls. It’s hard to imagine Aliyev is interested in negotiating to allow the Armenian population to stay, and with victory in sight in Shusha, the political rationale for negotiating breaks down. The Iranian government has come out in support of Azerbaijan’s struggle to liberate Nagorno-Karabakh, presumably realizing that it could extract more diplomatic leverage aligning with Turkey’s position and that doing so would head off political blowback domestically. Russia reportedly will consider the Iranian proposal to help lead further negotiations to resolve the conflict. It’s difficult to see this ending in anything other than a near total or total victory for Aliyev and Azerbaijani reunification, but there’s still room for surprises.
What’s going on?
Budget amendments and tweaks have shifted the spending allocation of 1.5 trillion rubles ($19.3 billion) in the 2021-2023 budget plan. Observers note that the changes to the last 3-year budget plan was half that at 751 billion rubles. ($9.7 billion). The changes are primarily driven by attempts to reconcile and better align spending with the national development goals and economic recovery plans put into place post-COVID. The more important tell is that it’s Mishustin leading the charge amending the budget since he’s the one on the line for major policy failures. Overall, though, fiscal austerity still holds sway.
Looks like 56% of Russians don’t see any connection between a weakening ruble and the health of their own finances, with only 18% noting a significant worsening when the ruble dips against the dollar and Euro. It makes a lot of sense that only higher-earning Russians living in major cities buying pricey imports, holding liabilities in foreign currencies, or else who would be traveling abroad (if they could) see a big link. The US election obviously ripples out into both equities and currency traders’ expectations:
Title: How the exchange rate and Moscow Index changed
A spike up has settled down after Tuesday as uncertainty has diminished. Still interesting to see how few visibly react to ruble weakness as a problem since it reinforces the political viability for the regime of economic and foreign policies detrimental to Russia’s economic health. Why? Those people are mainly consuming what Russia produces itself.
Russia’s market for franchises declined by 12% from April to October in year-on-year terms, with fashion franchises taking the biggest hit falling 24% year-on-year. Food retailers, however, grew 23% year-on-year. Set aside the ruble volumes — they aren’t actually that instructive — the bigger message is that larger chains operating on markets that aren’t “COVID proof” are struggling. Size isn’t safety within the retail space, and when you consider just how bad times are for SMEs, that paints a ghastly portrait for what 2021 could look like without income recovery and a successful vaccination campaign. Over 80% of franchises polled per the reporting said they received no aid from the Russian government. That becomes a bigger problem the longer the economic damage continues without a big spending plan.
Non-governmental pension funds delivered average returns of 6.4% for Jan.-Sept., underperforming asset managers and diversified portfolios from VEB.RF. Lack of exposure to risky assets is part of the story, but what’s more interesting is how the yield looks against inflation. Ostensibly a 6+% return is solid when inflation’s under 4% and someone’s looking to be cautious with their money. But given incomes have declined and social support has only risen this year from temporary COVID measures that don’t lend themselves to sustained income improvements, savers are going to have to take a harder look at using other instruments netting better results. And if inflation ticks up again, that yield won’t be enough. Consider the following from BOFIT:
Social support is the only form of income that’s risen this year, and that spike upwards is going to be eased given limited spending for the current wave of infections and the beginning of further fiscal consolidation already underway. That social support lags so far behind the 2009-2010 financial crisis shock is telling. Sanctions fears are the excuse, but inadequate to explain policymakers’ reticence. Improving equity performance from perceived stability post-US election will help with returns for those invested, but given Russia’s wealth inequality, that’s not going to be much in the way of relief.
COVID Status Report
Yesterday saw 20,582 new COVID cases per the operational staff, and the regional breakdowns are telling as infection rates outside of Moscow take off.
Title: Number of confirmed cases
Krasnoyarsk, Irkutsk, the extractive heart of Russia’s oil & gas industry and Siberian industrial base is seeing daily caseload increases equal to or higher than in St. Petersburg now and it’s trending in the wrong direction. Some are now warning that a plateau in cases could last until spring. The situation calls to light just how bad the fiscal response has been in practical terms. Alexei Kudrin is now admonishing the government for claiming to have spent 10% of GDP fighting the economic effects when the real figure is closer to 3%. MinZdrav is now requiring hospitals reserve 20% of their beds for COVID patients, the latest sign that the public health system is struggling to keep pace with capacity.
Marching through Georgia
Now that Biden’s pulled ahead in Georgia (hopefully for good) and Perdue fell under 50% of the vote share, we’re facing an unexpected state flip, two runoffs in January, and a new narrative savior for the Democratic Party: Stacey Abrams. Flipping Georgia would be a psychological blow to the Republicans, not just because it came at great pains to overcome voter suppression efforts, but because it represents the beginnings of a political strategy to be more competitive in the Sun Belt going forward, particularly with a more recent influx of highly educated transplants moving into southern metro areas for work. The basics are straightforward as to why Georgia became competitive. The trouble, however, is making the play that works for general elections stick for state races and House districts. From a House Democratic caucus call put out by a reporter on Twitter. Note Spanberger holds a seat in Virginia that’s not deep blue:
The reality is that the Left within the party doesn’t seem to properly grasp that local politics get drowned out by constant national appeals. The use of social media as the dominant messaging platform, particularly Twitter — logical to reach Gen Z, millennials, and Gen Xers — while Facebook is decidedly more Boomerish creates a constant problem for more competitive districts if reps from big cities or progressive constituencies use their platform too aggressively without thinking through the next steps. Every statement gets picked up and distorted. The traditional excuse progressives, more left-leaning Democrats, or else aspiring dime store Bill Clintons like Pete Buttigeig make is that Republicans will call Democrats socialist no matter what so there’s no point in worrying about what they say. The evidence, however, suggests otherwise.
If you have members of your party using terminology like “defund the police” or else a primary candidate like Elizabeth Warren unequivocally saying “I will ban fracking everywhere” to a national audience rather than in a local, retail setting or else one that’s not going to be grabbed and circulate around, that trickles out to district races where the issues don’t map onto the national platform perfectly. Conversely, the center and establishment wing of the party is too often content to parachute in candidates with little organic appeal or else refuse to play offense in states they write off. If you’re going to be called a socialist no matter what, don’t make it easy to believe you really are one by letting party members run a national education campaign from a completely safe seat while lecturing those in tough races trying to do right by their constituents who might have different needs, views, and beliefs. You can complain that your opponents are always going to shoot you, but you don’t hand them live rounds and pretend that having a killer Insta game or being morally righteous is kevlar.
This video goes back to October 2016, and it’s a damning indictment of the Democratic Party that people in dying coal mining towns recoil at the mention one is a Democrat, not because of any innate hatred, but because of distrust and an all-encompassing sense of abandonment. It’s a pre-emptive sense of insult and despair, not an unwillingness to listen that’s the problem. To their credit, state Democrats have made a push for the legalization of cannabis, crucial to bring in sorely needed tax revenues, reduce the burden on law enforcement, and also provide new opportunities for small businesses. But it’ll take a lot more, and national-level help, to make the party seem credible.
What’s so interesting about Democrats’ success in Georgia this go round with Biden is that even if the issue areas are different and demographics are different, it’s provided an instructive lesson that diligent work on the ground winning trust and building a turnout machine can upend conventional wisdom and expectations. It’s those conversations on porches that get your foot in the door and years of persistence that turn those conversations into full-throated support come election time. In the case of West Virginia — I have a minor sentimental attachment to it since my dad’s family is from Monongalia and Halleck counties as well as Western Pennsylvania — winning over these voters seals PA and OH blue, put Kentucky in play, and can help in the Carolinas. It is just as applicable to returning to organize in states like Louisiana that Bill Clinton won in 92’ (everyone seems to forget that the state has elected Democrats to the senate in the not-too-distant past). It may take many, many years, but it’s worth it.
Abrams led a push to register over 800,000 new voters in the state after 2018 and AP analysis showed that over a quarter of the turnout was new or infrequent voters. She should be heading up efforts at the DNC on that front, and ideally putting her skills as an organizer to work in states Democrats normally cede. I admit my own bias towards policy as the prism I frequently view campaigning and governing errors through, but there are infrastructural needs to win elections. Democrats got wrecked at the state level, thus handing Republicans power over redistricting and likely another decade of massive incumbency advantages as a result. Abrams can help fix that, and it’s why the constant nagging “why so glum, Democrats, we won” BS on Twitter misses just how hollow a victory it could prove to be. I’m looking forward to the bills the New Hampshire Republicans drop to stir up trouble.
We don’t yet know what Trump is going to do. The violence and anger he’s stoking is only going to get worse in the coming weeks. The irony of his position is that he’s doing this, it would seem, to maximize his own leverage, but the further he goes, the harder it will be for a Biden administration not to prosecute him and his allies in Washington not to abandon him and sic the Secret Service on him or else invoke the 25th Amendment. I’m not confident that noble Republicans are going to stand up and say they’re Spartacus, but an attempted power grab is going to be a bridge too far. The next hurdle is going to be maintaining the turnout figures for the runoffs in January, a slightly more complicated affair as the party won’t benefit from any split tickets. Hard to see Trump campaigning hard if he’s on his way out, but he might know his life depends on it.
The factors that led to Abrams’ and the party’s success in Georgia are somewhat idiosyncratic. But that success speaks to the power of organization. Credit where it’s due. I have serious issues with the decision not to canvas and get out there for so long, but Biden’s team got it right in Georgia. Failures in Florida may well be a result of the state party:
It’s difficult to parse out why turnout went so high across the map and attribute to the campaign. Lockdowns and the ubiquity of Trump and COVID’s terrible impacts made the election far more salient than would normally be the case. In the case of a state with voter suppression on the scale of Georgia, it’s clearly down to organizers getting it done. Hopefully the party learns the right lessons from this. 2022 is going to be a gunfight no matter if Democrats pick up two seats and the senate in January. Now the work really begins:
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