Thanks for the exceptional comments on Russia in the mid-nineties, Ed. ED:
I'm not sure of what else might have been done. LAWRY: What might have been done was: 1. Recognize that the threat of hyper-inflation was the number one issue in transforming the Soviet/Russian economy 2. recognize that the hyperinflation threat arose from the 'ruble overhang' - a huge excess of ruble currency far surpassing the value of goods and services. This overhang was being hidden on a day-to-day basis through the artificial control of prices and currency exchange, but even so there were pretty good estimates of the magnitude of the overhang readily available. 3. 'Absorb' the ruble overhang by selling off state properties - buildings, equipment and coops, especially. There were plenty of rubles floating around Russia at the time. Without anything else to do with them, people would gladly have bought tangible items. The state would then collect vast ruble sums, thus getting the overhang rubles back (having printed a vast excess of them to begin with. The sale of state properties would continue until it was estimated that the rubles still in circulation roughly equaled the value of goods and services being produced. (All this requires honest sales, priced at the value of the property being sold, and this would have required careful management by honest administrators. This was quite do-able, if attended to properly.) Now comes the tricky part: 4. Destroy 85-95% of the rubles that have been retrieved. Of course, it is tempting to pretend that these rubles have value, and to put them into some account that will be used for something, but in reality, they are hyperinflationary excess and the government could have destroyed them without the sense of loss that an individual might have. 5. Use the remaining 5-15% of the overhang rubles to create a social services 'net' for anyone so dislocated or harmed by the coming transition to a free market economy that they simply cannot maintain a minimum standard of living. Yes, the use of these rubles will be inflationary, but if the program is managed carefully and the rubles only dispersed on a real need-basis, the inflationary impact would be minimal and perhaps not even perceptible. Meanwhile, the people are given one more reason to have confidence in the way the economic transition is being handled. 6, Let the dynamics of the free market prevail. 7. Seek and punish individuals who launch scams or defraud investors and consumers. I do believe this approach would have worked. It was proposed in 1990-91, but internal political turmoil was already such that clear thinking and implementation was difficult. Under Yeltsin, the intellectual discipline was quite poor, and initiatives requiring this kind of thoughtful and dedicated management were probably impossible, not to mention that Jeffrey Sachs had got their ear by then and, ignorant of how to handle the overhang, he was endorsing economic policies that were to lead to Russia's ruin. A variant on this was proposed to the Georgians and successfully implemented by them. Lawry
