Sep 9, 2026
Hey folks, Mark here. Future: Ukraine wins, and Russia loses — not by outproducing Russia, but by making Russia’s marginal cost exceed its marginal benefit. Mark Biernat, PhD economist, lays out the pathway.
Most commentary treats the outcome as a production race: whoever scales output faster prevails. This video argues that framing is Soviet-style, top-down command thinking (Kornai 1980, 1992) and that the decisive variable is microeconomic, not aggregate. Nominal GDP comparisons tell you very little; the theory of the firm tells you the destiny.
Part one uses a simplified production-capacity model adapted from the 1970s conflict-simulation designs of Simulations Publications, Inc. (SPI) and Avalon Hill. The headline ratio of 10 to 4 in Russia’s favor falls well short of the roughly 3:1 margin conventionally required to overwhelm an opponent (Epstein 1989). The relevant comparison is coalition capacity: roughly 144 to 10 once European capacity is counted, with China contributing only the fraction its own marginal calculus justifies.
Part two applies the theory of the firm. A producer that covers its variable costs but not its fixed costs continues operating at a loss; it shuts down only when price falls below average variable cost (Marshall 1890, Book V; Mankiw). By all indicators, Russia is now in the first condition. Ukraine’s strategy — low-cost interceptor drones and strikes on refining, fuel exports and logistics — is cost imposition in the sense of A. W. Marshall (1972): it raises the Kremlin’s marginal cost at minimal marginal cost to Ukraine, until the state can no longer meet its variable costs, above all wages. The video also covers the depletion of the National Wealth Fund’s liquid assets and why an elevated oil price postpones, but cannot cancel, the shutdown condition. Nobody has infinite resources.
References
Epstein, J. M. (1989). “The 3:1 Rule, the Adaptive Dynamic Model, and the Future of Security Studies.” International Security, 13(4), Spring 1989.
Harrison, M. (2014). The Economics of Coercion and Conflict. World Scientific.
Kornai, J. (1980). Economics of Shortage. North-Holland.
Kornai, J. (1992). The Socialist System: The Political Economy of Communism. Princeton University Press.
Mankiw, N. G. Principles of Economics (latest edition), chapter “Firms in Competitive Markets” — shutdown and exit conditions.
Marshall, A. (1890). Principles of Economics, Book V — prime vs. supplementary costs. Macmillan.
Marshall, A. W. (1972). Long-Term Competition with the Soviets: A Framework for Strategic Analysis. RAND Corporation, R-862-PR.
Data sources
Bank of Finland Institute for Emerging Economies (BOFIT) — Russia statistics and BOFIT Weekly.
KSE Institute (Kyiv School of Economics) — Russian Oil Tracker (monthly).
Centre for Research on Energy and Clean Air (CREA) — Russia fossil fuel export tracker.
Ministry of Finance of the Russian Federation — National Wealth Fund monthly data.