The internet is all the rage with talk of Alexandra Prokopenko’s recent piece in The Economist. It is a very good summation of the terrible circumstances facing the Russian economy and the logic of the Kremlin. I felt a need to push back on the piece’s governing metaphor — the «death zone» for climbers above 8,000 meters — and by extension the underlying «theory of the macroeconomic case,» both from within Russia and externally
I do not disagree so much as think the metaphor can be pushed more productively to capture the depths from which I do not see the Russian economy recovering, regardless of a peace deal.
If we take the death zone to describe the point at which the economy begins to consume its resources faster than they can be replenished, it is a mistake to think of 2026 as the point at which the regime passed 8,000 meters. Rather, the «death zone» began in 2023 — precisely when the assumed multiplier effect of state spending (the ability of every ruble the state spends to catalyze additional rubles of economic activity) was greatest. The boom planted the seeds of later ruin.
Definitionally, every day of combat, the regime burns through Russia’s most precious resource: healthy, able-bodied workers. Given Russia’s COVID excess mortality through February 2022 ran as high as 1.2 million — a majority of whom were males and people still in the workforce or otherwise working in retirement — the ratchet on labor continued.
Labor-market mismatches and the huge multiplier effect of mortgage subsidies created the appearance of a consumer boom. Families bought new homes, needed new appliances, new cars — whatever they could afford. As wages rose rapidly in nominal terms, there was a period in which incomes rose in «real» terms after accounting for inflation. But that period likely ended by 2024 when looking at the rates of price increases for food and basics that account for approximately 40% of the average household’s consumption basket. Add to that the Bank of Russia’s admission that housing was less affordable in 2024 than it had been in 2019, and it becomes increasingly difficult to believe that the economy was still climbing — if we follow the metaphor.
Most telling was that even during the boom of 2023, investment into infrastructure broadly lagged growth, and a large portion of the construction demand providing a tailwind in aggregate data came from military or civilian contracts profiting off procurements in eastern Ukraine or building housing ventures as speculative investments. The size of the average units completed and sold also shrank. At no point since mobilization was announced in September 2022 has the civilian economy been able to expand supply to meet demand effectively, nor has the physical base of roads, rails, ports, utilities, and telecommunications expanded beyond what is necessary for the war.
In other words, it is not just the military rents the state provides that are driving activity. Huge portions of the wealth increase observed among some Russians were also derived from timing — when they were able to get on the property ladder as prices shot up until the latter half of 2024 — sanctions rents from service providers like mechanics paying a premium for parts and passing it on to consumers, or otherwise small businesses jacking up prices as fast as they could to cover labor costs. No matter how many schemes have been announced, there is no evidence that the economy has attracted enough migrant labor to offset its shortages. The economic body began consuming itself in 2023, disguised by the nature of GDP accounting and uncritical acceptance of wage and income data.
With this inversion in mind, it is a mistake to think of the current negative equilibrium as steady. The wartime economy in this regard is more akin to malignant cancer that has metastasized. What began as more limited symptoms in the early months of mobilization went untreated, allowing those symptoms to grow worse until there is only palliative care. Even then, the Kremlin is uninterested.
The issue is not so much that military rents are internal to the system whereas past oil rents were external (and oil revenues are falling). Rather, it is that the tax base which the regime built in the 2000s weighed far too heavily toward energy in order to avoid imposing taxes on the public and business. While that has been slowly rebalanced since 2014, this last VAT hike showcases the fundamental problem: any tax increase on incomes, profits, and consumption domestically reduces all three structurally unless the regime invests in public goods like infrastructure, healthcare, and education while fostering more competition. The capacity to sustain internal rents through deficit spending is constantly diminishing, with sanctions playing a key role in shaping the regime’s options.
Each month tens of thousands of working-age men are grievously wounded or killed; the economy loses tax contributions via future salaries and consumption while needs that support future growth go uninvested, unbuilt, unmentioned. The state’s spending on the war is not just reducing its multiplier effect over time. It is heightening fragility as the civilian economy — the economy that most Russians live within — contracts. Beyond burning through resources to sustain the war, the Kremlin is pushing most of the economy into a steepening dive, if one still in its early stages. It is not the fall that kills you; it is the landing.
This gets to a crucial shortcoming with the macroeconomic logic of «correction.» Economies do not simply recover from recession because of rest — in this case, the husbanding of resources previously expended to keep going through the death zone. Economists love to speak of equilibria because they are intuitively observable on a market. There is a price for a good or service at which supply and demand meet or rise and fall to meet each other. The same logic is applied to labor and employment. But markets are political constructs, as are the terms of exchange in a society now reliant on military rents for the distribution of wealth.
Without a political intervention to reshape the economy’s new equilibrium and its distribution of rents and economic power, real-terms declines in living standards will become structural — if slow — in the event of a peace deal and repeal of sanctions. There is no rest for the wicked, nor for those watching the cost of nearly everything important increase faster than wages.
Collapse is an unfair bar to set. Enjoying our soft lives in the West, many of us would react to a 5% decline in GDP in one year as a collapse from the visible evidence of business closures, unemployment, and stress about getting by. It is equally unclear how precisely the Kremlin thinks Russia’s troubles are comparatively manageable compared to elsewhere. Europe is on the verge of an economic reacceleration from German fiscal stimulus, normalizing inflation, and improving sovereign debt yields. The US shows signs of a reacceleration, but one that seems likelier to provoke a new round of inflation heightening its already titanic dysfunction. China’s deflationary trap is doing more than anything else globally to drag down Russia’s external sources of revenue and financing sustaining its wartime economy.
None of this is to say I believe the Kremlin’s calculus is based on rational economic expectations. I am not a climber myself and imagine that a certain delirium kicks in when the body tells you that without a change in altitude, you will die. But I do not believe that muddling through the death zone is worse than a recession from which the regime has no compensating stimulatory instruments available, at least within its political construction. That recession has been quietly gaining steam; it simply looks different than traditional aggregate indicators suggest because of how distorted price, investment, and market signals are within the Russian economy. Moscow and Petersburg will be fine. Everyone else is finding out that killing yourself to live makes everything worse — slowly at first and then very suddenly.
