This Is Your Economy on War

How sustainable is Russia’s conflict economy? Dmitri Alperovitch on appearance and reality in the Kremlin’s new growth model. Brought to you by [Meco]( Recently at The Signal: Robin Kolodny on [how new sources of money are shaping this year’s U.S. election](. … Today: How sustainable is Russia’s wartime economy? Dmitri Alperovitch on appearance and reality in the Kremlin’s new growth model. … Also: Gustav Jönsson on what’s happening in a New York City shelter system overwhelmed by the migrant crisis. Subscribe to The Signal? Share with a friend. … Sent to you? Sign up [here](. War, Inc. Aleksandr Popov As the war on Ukraine nears the 30-month mark, with hundreds of thousands of deaths and colossal, mounting expenses, Russia's economy continues to boom. This spring, the International Monetary Fund forecast that the country’s GDP would grow more in 2024 than any other advanced economy’s. Sure enough, in early August, Russia’s central bank announced that its GDP had grown by 4.4 percent in the second quarter, far outpacing the world’s wealthiest countries. The EU’s economy grew by only 0.3 percent. Germany’s contracted by 0.1 percent. Europe has tried to wean itself from Moscow’s oil and natural gas exports, and the West has attempted to cap sales of Russian oil at US$60 a barrel—to little avail. Sales are still strong, and Russia often nets nearly the market rate—which has been between $75 and $85 a barrel for most of the year. In May, Russia surpassed the U.S. as the largest supplier of natural gas to Europe. But beneath these GDP numbers, there’s a complicated dynamic. The Kremlin is pumping money into the economy through military spending: Defense now makes up about a third of the country’s budget. The United States, which spends more on its military than China and all European countries combined, dedicates only about 13 percent of its federal budget to defense. And all that state spending has pushed inflation up to 9 percent—and forced Moscow to raise taxes on the middle class to maintain the ballooning budget. Meanwhile, the country depends increasingly on China, both for exports of oil and gas and for imports of products it can no longer get from the West. How long can Russia keep this up? Dmitri Alperovitch is the co-founder and chairman of Silverado Policy Accelerator, a nonprofit working on geopolitical cybersecurity, and the author of [World on the Brink](. As Alperovitch sees it, the war in Ukraine and sanctions from the West have forced the Kremlin to transform the Russian economy: The state is now acting as its prime mover—through massive spending. This model is driving enormous GDP growth, but it’s also, Alperovitch says, leading the country into long-term decline through high inflation, a weak currency, deteriorating productivity, and the decay of every industrial sector—except Russia’s now-central industrial sector: war … [Read on]( The Signal is a new current-affairs brand for understanding democratic life, the trend lines shaping it, and the challenges confronting it. Learn [more](. And [join](—to be a valued member, support our growth, and have full access. Advertisement From Dmitri Alperovitch at The Signal: - “The government often has no choice but to take a bigger role in the economy. In some cases, it’s the impact of sanctions. In other cases, Putin is unhappy with how things are going and wants to get more involved, particularly in military spending. The state is unquestionably becoming a huge part of the Russian economy—a much bigger part than it’s ever been in the last 30 years.” - “We should dispel the notion that the West imposed really dire sanctions on the Russian economy. Up until the last few weeks, most sanctions were related to the military sector. Those were easy to impose because the West doesn’t buy many Russian weapons. But much of the rest of the economy—especially the oil and gas sector—hasn’t been affected.” - “This dynamic is going to have a very negative long-term effect on Russian civilian industry, because so much focus and so much money is being directed to the military. That means increased salaries and benefits for executives there. Who would want to work for a car manufacturer when they can go work for a tank manufacturer for a much higher salary?” [Read on]( The world is complex, ambiguous, and inherently uncertain … That’s why we look at it the way a detective would: Everything The Signal does starts with good questions, and every answer leads us to more of them. Become a [member]( to unlock this full conversation and explore the archive. Advertisement Managing email newsletters shouldn’t be so tough. What if you had a distraction-free space, outside your inbox, for discovering and reading them? [Learn more]( NOTES Homeless in New York Cory Woodward This summer, authorities in NYC began evicting migrants from the city’s shelter system. While New York State is the only U.S. state recognizing a universal right to shelter, New York City is facing an [overwhelming capacity crisis](—with some 64,300 migrants in tents, hotels, and dormitories—that’s forcing it to restrict this right: Adult migrants who can’t secure any exemption will now only get 30 days of shelter—or if they’re young adults, 60 days. More and more are now sleeping rough—on streets, in parks, or on the subway. And it isn’t just New York: Massachusetts also began evicting migrants this month. Meanwhile, California’s Governor Gavin Newsom has ordered local officials to close homeless encampments across his state. And the U.S. Supreme Court has ruled that local governments may ban people from sleeping outdoors. Of course, the problem is that people who sleep outdoors would like to sleep indoors but can’t. The context for all of this is 2023’s historic spike in American homelessness, now accounting for more than 650,000 people. As Dennis Culhane explains, [roughly three-quarters of the United States’ newly homeless are from an influx of migrants over the southern border](. Which Texas’ Governor Greg Abbott responded to by ordering tens of thousands of migrants bussed to other parts of America—including New York City. In total, more than 200,000 migrants have passed through the city’s shelter system since early 2022. With fewer crossing the border now, that system is now a little less strained than it was at its peak in January—but not much less. —Gustav Jönsson [Explore Notes]( Want more? Join The Signal to unlock full conversations with hundreds of contributors, explore the archive, and support our independent current-affairs coverage. [Become a member]( Coming soon: Matthew Connolly on government secrecy in America … This email address is unmonitored. Please send questions or comments [here](mailto:concierge@thesgnl.com). Find us on [Linkedin]( and [X](. 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