Wartime reporting typically focuses on troops in combat, civilians in the crossfire or, sometimes, the effect of sanctions. But behind the scenes more decentralized mechanisms are exerting their influence, often based on economic logic. These forces are mostly working against Russia and for Ukraine.
Consider the economic and financial sanctions announced against Russia. Some Russian banks are being cut off from the SWIFT international payments network, while the foreign assets of the Russian central bank are being frozen.
At this stage, it’s hard to know exactly how serious or how extensive those penalties will be. But the perception is a big part of what matters. If you can’t be sure that your bank has access to the broader payments network, or that its central bank can guarantee its solvency, holding money in that bank is less useful and more risky. Maybe you’ll shift into crypto or just stash the money under your mattress. At the very least, you will stop putting new money into the bank.
The natural result is a bank run, and indeed some may have already started. (Even if the visual at the link is phony propaganda, such rumors are exactly what can get real bank runs underway.) Bank runs can paralyze an economy by forcing the banks to close, as lending and payments then become exceedingly difficult. Hyperinflation may set in as individuals seek to store goods rather than money.
Bank runs and closures do not themselves stop Putin from conducting the war. But they are a visible sign to both the public and to the Russian elite that Russia is not coasting to an easy win. That may have a substantial effect on morale. Over the longer run, as businesses run short of cash, supporting Russia’s wartime supply chains may become more difficult. And it is harder for an already ailing Russian economy to afford the war effort. All of this can happen, to repeat, even if the sanctions are vague or poorly enforced.
Another decentralized mechanism is the boycott. Some U.S. states and Canadian provinces are ordering the removal of Russian vodka and spirits from stores. Elsewhere, consumers may simply be more reluctant to purchase Russian goods. The amount of money at stake here is quite small, but the publicity is another signal to Russian elites that the world is not on their side — and perhaps their most promising future does not lie with Putin.
There is a report from Odessa — on Twitter, granted, but from the former Ukrainian ambassador to Austria — that a local businessman offered locals $800 for each captured Russian invader. Shortly thereafter, at least according to this account, nine such individuals were delivered. Again, at this stage of the war it can be difficult to separate fact from propaganda. But even if this anecdote isn’t true, it shows the potential for decentralized local support for Ukrainians.
There are also reports that Elon Musk’s Starlink system is now up and running to help maintain internet access in Ukraine. That could help the decentralized Ukrainian resistance even if Russia knocks out the usual Ukrainian internet connections.
For a point of contrast on how decentralized incentives operate on each side, consider the nuclear alert ordered by Putin on Sunday. The chance of Russian nuclear weapons being ordered into actual use is small. But Putin faces a dilemma as he attempts to manipulate the decentralized systems of the Russian military. If he gave an order for a nuclear strike on a Ukrainian city, would the Russian military obey it? Whoever did would know they could be liable for war crimes.
The outcomes here are impossible to forecast, but the uncertainty works in favor of the Ukrainians. If it became known that Putin ordered a nuclear strike and was ignored, for example, he would become the proverbial “paper tiger” rather quickly and might lose power altogether.
These decentralized mechanisms potentially shift the entire logic of the war. Russia has to win fairly quickly, or these and other forces will increasingly work against it. Ukraine thus can fight for a military stalemate, but Russia cannot. The Russian forces must take increasing levels of risk, even if those risks have what decision theorists call “negative expected value” — that is, they serve as desperate gambles and on average worsen the Russian situation.
Of course that makes the war increasingly dangerous, and not just for the Ukrainians. If Putin is afraid the forces in the field won’t always carry out his orders, for example, he may order the launch of 10 tactical nukes rather than just one.
In both economics and in war, decentralized mechanisms are often less visible — and usually more consequential.
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