I hear all the time about GDP. GDP this! GDP that! NATO trolls all seem to think GDP is a giant pile of free money but that’s not how it works. GDP is simply the sum of all economic activity that year. You can’t just say “No one is allowed to get a haircut this year and we’re sending all the haircut money to Ukraine,” that’s just not how it works.
Yes, there is the “guns for butter” scheme and there are cases of NATO countries somewhat literally doing this, like when Starmer cut the pensioners’ winter fund and sent the money to Ukraine. But arbitrarily cutting spending hurts GDP and usually produces little to no tangible positive results. It is possible to raise taxes, but that can cause investors and corporations to flee the country, hurting GDP and actually reducing tax revenue. Bottom line, governments can’t just decide they want to spend a higher GDP percentage on weapons, the money has to come from somewhere. And just because GDP is a hundred gazillion dollars a year doesn’t mean it is easier for the government to increase spending.
The bigger problem is that nominal GDP is pretty unhelpful for the things commentators try to measure with it. To illustrate, apply the concept of GDP to personal households. One household has two working parents and four children with a net income of $150k a year. Then there’s a second household of one guy who’s unmarried with no children and makes $40k a year. On paper, the family is a lot richer; they have a much nicer car, a bigger house, and send their kids to private school. But when it comes to deciding to spend more money, the single guy might have more disposable income than the family. He might decide to spend $5,000 on a month-long exotic vacation and the $150k family can’t because they live paycheck to paycheck and have high debt. So just observing that one household spends more money every year than a second household doesn’t give you much actionable information (like determining if they can afford a vacation) without additional context.
Besides not understanding what GDP means, NATO trolls typically don’t even understand the value and purpose of currency. Currency is simply a token for facilitating trust between unrelated people, and that’s it. There needs to be an easy way for a merchant to sell to a farmer, or to buy boots from a shoemaker, without anyone worrying about being cheated.
Perhaps the even more important purpose of currency is to establish the value and repayment of credit, as credit has been the foundation of basically every human civilization since the invention of agriculture. Farmers by definition don’t have money and can’t buy anything until after the harvest. So there needs to be some unit of value that everyone agreed to, like “I’ll borrow $100 from you now and pay you back $120 next year.”
Early currency used to be made from substances with a literal intrinsic value like gold or silver. Then eventually people realized even this limiting factor is unnecessary. Currency can just be paper or 1s and 0s on a computer with just the imaginary value declared by a state. This works just fine and is far more efficient than walking around with bags of gold, as long as people don’t lose confidence in the state.
The point I’m making is that currency is completely arbitrary and imaginary and simply exists to facilitate the transfer of goods and services. How much currency changed hands in an economy in a given year doesn’t matter at all. What does matter is how many things of tangible value they produced. So even if a country has a GDP of a hundred gazillion dollars, if they have very little industry, then it’s not a strong country, even if they’re “big” on paper.
Almost every day I see some NATO person declaring “Russia has an economy the size of Spain” or “Russia has an economy the size of Texas.” I ask these people what did Spain and Texas produce that is comparable to Russia. Do they have their own space program? Do they build nuclear ships and submarines? Do they export nuclear power construction to neighboring countries? It’s very funny because these people 100% of the time ALWAYS say “Well the USA has a space program” and “The EU has a space program.”
My dear trolls, if Spain is only comparable to Russia when combined with a bunch of other countries, then it’s not really comparable at all. Ha, I’m stronger than Mike Tyson because I can lift more weight than him when 30 other people help me!
GDP PPP (purchasing power parity) isn’t a perfect measuring system either, but is more useful because it accounts for what one unit of the state currency can purchase in the local economy. Like a hammer that costs $500 for the Pentagon to buy costs only 500 rubles for the Russian Defense Ministry. Measuring by GDP PPP, Russia is not only stronger than any other one European country, it is stronger than all of them combined.
And that is why every month, Ukraine gets increasingly outgunned. This is simply because Russia continues to expand their military industry, while NATO tries to keep up by sending their GDP haircut and divorce budgets. At the end of the day, you can’t eat money, and you can’t put it in a cannon and shoot it at the enemy.
Ian Kummer
All text in Reading Junkie posts are free to share or republish without permission, and I highly encourage my fellow bloggers to do so. Please be courteous and link back to the original.
I now have a new YouTube channel that I will use to upload videos from my travels around Russia. Expect new content there soon. Please give me a follow here.
Also feel free to connect with me on Quora (I sometimes share unique articles there).
I was the Quora commentator (Edward S) that suggested reposted here.
I started writing for Quora in March, and though people are viewing my content, there are two problems with the platform where its a good idea to also have your own blog (which I don’t yet) and cross post.
The first is that you need to have a Google or Gmail account to easily view Quora content (there is a workaround if you don’t, but its clunky), and not everyone has one.
The second is that it is difficult to link to a Quora answer on other websites.
This one is some of your best writing and definitely needed to be cross-posted here.