Why War Economies don't collapse (until they do) - why Russia and Ukraine won't collapse tomorrow

By popular vote, welcome to a bit of war economics 101.

There are few things people have been keener to predict throughout history than 'quick' wars. Pro Russian commentators after February 24th 2022 expected a rapid victory - while Western media was quick to suggest that Russia's economy was collapsing soon after sanctions were implemented.

Instead, both Ukraine and Russia show signs of increasing their wartime production and scaling up their armed forces. That should not come as a surprise. Historically, the process of converting from a civilian to a wartime economy has yielded more than enough results to overcome even significant trauma inflicted on the industrial base (for example, strategic bombing attacks).

Russia's economy is suffering, it's long term economic prospects have been badly wounded by a collapse in international trust, market denial, and a barrage of sanctions. Ukraine's economy is likewise under immense pressure - primarily from physical attacks by the Russian armed forces.

But it would be naïve to think that either is likely to collapse in the coming weeks and months. As long as the will to go on (and foreign support) remains in play, there is every reason to think that both nations will find a way to keep their economies going.

In this episode, we look at the basics of war-economics, industry conversion, and try to understand why 'short wars' are so hard to win between peer opponents, once the economic struggle begins in earnest.

This video is obviously not financial advice - and a discussion of certain economic ideas or techniques should not be taken as an endorsement of them.


A few major ones on this video:

Economic data coming out of Ukraine and Russia is obviously suspect (I have covered the issues with official RU statistics before) and external statistics are highly uncertain - all figures should be taken as just indicative as a result.

Describing techniques does not equal endorsement of them - Just because I can explain why you might be able to spend 40% of GDP on defence, doesn't mean I think that is a good idea.

All jokes at the expense of particular careers or product categories are just that, jokes, and very much not meant.

Finally - this is an exploration of historical experiences and the economic status of Russia and Ukraine - it is is focussed on the economic element of endurance while at war and makes no findings as to the point where political or social endurance might fail.

Further reading/sources:
To be included post publication (apologies, source list held locally on a different computer, it'll follow shortly).

00:00:00 — OPENING WORDS
00:04:07 — War Economics 101
00:04:21 — Prior Planning
00:06:08 — The Demand for Materiel
00:06:55 — Productive Resources
00:08:12 — Illustrating the Point
00:09:02 — Mobilisation & Conversion
00:09:17 — Ploughs to Swords
00:11:04 — Conversion Models
00:12:26 — Productivity & Coordination
00:13:56 — Resource Prioritisation
00:14:55 — Informal Conversion
00:16:22 — The WW2 Exp
00:18:23 — ENDURANCE
00:18:50 – Gains Under Pressure
00:19:50 — Pushed to the Extreme
00:20:58 — What is a Collapse
00:21:34 — Endurance: Non-essentials
00:24:16 — Expanded Resources
00:25:33 — Expended Resources
00:26:44 — Will to endure
00:29:18 — "You Will Grow Tired of It"
00:32:05 — Temporary Measures
00:33:01 — Hard Choices
00:33:07 — Even Harder Choices
00:34:20 — Funding a war: Business as Usual
00:35:58 — Funding War: Mortgaging tomorrow
00:39:33 — Funding War: Money Printer go BRRRRR
00:41:44 — Papering Over the Cracks
00:42:34 — Currency Tanking
00:45:25 — Critical Resources shortages?
00:46:57 — Out of Cash?
00:48:07 — Inflation Out of Control?
00:50:23 — Ever Heard of the Office of Price Administration (OPA)?
00:51:22 — So Why Do They Fail?
00:51:31 — Failure Mode 1: Overrun
00:51:57 — Mode 2: Functional Collapse
00:52:43 — (Mode 3): Capitulation or revolution
00:53:53 — RUSSIA
00:54:06 — The Russian Economy 2021
00:55:03 — Escalating Spending
00:55:48 — Russian Assumptions
00:56:29 — Economic Hardening
00:57:34 — Options & Endurance
01:00:50 — A Brief Word on Ukraine
01:02:18 — CONCLUSIONS
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