The Western World's Disconnect From Reality - The Result of the Russia/Ukraine War

NATO's recent response, under pressure from the US and the UK, to the Russian incursion into Ukraine provides an example of how a failure to consider reality can lead to consequences that are disastrous both for Ukraine and eventually the nations of the Western world.

In February 2022, the Russian army launched an invasion of sections of the Ukraine. This occurred after almost a year of pronouncements, warnings and menacing maneuvers by the Russians near the Ukrainian border.

The warnings and pleas from Russia for the West to refrain from a NATO-style militarization of Ukraine went unheeded by some Western nations as well as by the current government of Ukraine. The presence of a well-armed and potentially hostile force between them and the Black Sea, which threatens access to their only warm water ports, had been deemed intolerable by four centuries of Russian leaders.

In an attempt to bring Russia to its knees, the West, again led by the US, the UK and Canada, applied unprecedented levels of economic sanctions against Russia. It was thought that by preventing Russia from utilizing US dollars for trade and sanctioning key Russian financial and industrial leaders and corporations, the Russian currency, the market for its commodity exports, and its internal economy, would quickly collapse. These Western leaders felt would result in a breakdown of the Russian administration and a humiliating defeat for Russia in Ukraine.

It is interesting that while some economic stress has been felt, neither Russia's economy nor its currency have collapsed. In fact, the value of Russian trade in numerous commodities, in particular energy, has increased.

In September 2022 an article was published reporting on the analysis of the prominent French economist Jacques Sapir.

He demonstrates how the West has grossly miscalculated the impact of sanctions. Clearly, they are not having the desired effect, and Sapir explains not only why, but also that the Western leaders seem to no longer understand the fundamentals of economic theory.

We often hear statements that the Russian economy is about the size of Spain's, and thus Russia is not worthy to be called a world economic power. Great efforts are made to portray Russia as economically very weak. Sapir points out that this is because Western leaders compare economies of nations in terms of GDP (Gross Domestic Product), which includes the value of services. Because Russia is less dependent on the service industry, its economy looks much smaller when compared to Western nations using a GDP measure.

Sapir however demonstrates how GDP alone is not a good measure of a nation's true economic capacity. He recommends that the economic worth of a nation be calculated on PPP (Purchasing Power Parity). This is the primary measure used by the IMF and the OECD (Organization for Economic Co-operation and Development).

PPP compares the currencies of different countries through the value of commodities produced by that nation and what goods and services can be acquired as a result. When using PPP, Russia's real economy is worth $4 trillion, very close to that of Germany at $4.4 trillion.

Sapir and other economists warn that in Western economies, the service sector is grossly overvalued when compared to the industrial sector and resource commodities, such as oil, gas, metals and agricultural production. The service sector really better represents wealth consumption rather than wealth production.

"If we reduce the proportional importance of services in the global economy, Sapir says that 'Russia's economy is vastly larger than that of Germany and represents probably 5% or 6% of the world economy' more like Japan than Spain." (Arnaud Bertrand, "Is America the Real Victim of Anti-Russia Sanctions", Tablet, May 24, 2022)

Ultimately "things" are what we really need, whether food, energy, houses or clothes. When a service entity like Facebook trades many times higher than Nestlé, the world's largest food company, it is an example of a disconnect from reality, and a lack of understanding of what constitutes wealth.

The West imposed unprecedented sanctions hoping to destroy the value of Russian currency and its internal economy. But what has been the result? The ruble has not collapsed, and Russia's export revenue has in fact grown. Why?

When an economy is based on production of commodities that are in high demand, that economy is actually creating new and real wealth. Sapir places the true reality of Russia's global trade at 15% of the world's total. (Bertrand).

"While Russia is not the largest producer of oil in the world, for example, it has been the largest exporter of it, ahead even of Saudi Arabia The same is true for many other essential products such as wheat—the world's most important food crop, with Russia controlling about 19.5% of global exports—nickel (20.4%), semi-finished iron (18.8%), platinum (16.6%), and frozen fishes (11.2%)." (ibid)

Russian commodities make the country essential to the modern world and a lynchpin of global trade. Sanctions may work against Venezuela, but Russia is too necessary to the world.

No wonder Western pressure on nations to cease trade with Russia is falling on deaf ears. These essential products are just not readily available elsewhere at an affordable price. Hence Russia partnering with other countries to establish an alternative reserve currency and bypassing the US dollar may be a consequence of Western failures to perceive reality. It would lead to a weakening of their own position.

This begs a question about the wisdom and economic awareness level on the part of Western leadership. It appears the West's decisions are being made more on ideological grounds apart from global economic reality and regional history—perhaps to its own detriment.

Perhaps we all would do well to consider the wisdom contained in the writings of an ancient and wise king:

"A wise man will hear and increase learning, and a man of understanding will attain wise counsel" (Proverbs 1:5).