May 12, 2026

Hi, I am not a Keynesian per se, but each theory has value in explaining patterns. The standard narrative on Russia’s downturn focuses on sanctions. The deeper story is pure Keynes — and it lives in a single equation.
Y = C + I + G + NX.

My name is Mark Biernat, and I am an economist. Enjoy my visually pleasing video filmed in Germany while listening to an economics lecture.

For three years, every component on the right side of that identity has been doing something Keynes would have recognized instantly. The wartime growth of 2023–24 wasn’t four engines firing — it was G doing nearly all the work and quietly dragging I and C along behind it. Defense spending climbed to 7.3% of GDP by 2025, and that fiscal firehose did two things people don’t talk about enough. Military bonuses, contractor wages, and signing payments to poorer regions inflated household incomes far beyond what civilian productivity would justify — that’s C being subsidized by G. Defense-sector capex, state-directed credit, and below-market loans to military-linked enterprises substituted for genuine private investment — that’s I being subsidized by G. Strip out the budget, and there was never an organic boom underneath. There was a government check written across the demand identity. Nestcentre
Then two things happened, and both are Keynesian to the bone.

First, animal spirits broke. Keynes used that phrase for the irreducible confidence component of investment — the willingness of entrepreneurs to commit capital despite an unknowable future. Russian animal spirits, outside the defense bubble, are now dead. The CBR business climate indicator slipped from 0.2 in January to –0.1 in February — zero marks the line between expansion and contraction. Investment fell 2.3% last year and is expected to decline further in 2026. At a 21% key rate, with sanctions deepening and the duration of the war unknowable, no rational private firm would build a factory. It waits. Multiply that across an economy, and it doesn’t just slow — it withers. The Moscow TimesThe Moscow Times

Second, precautionary savings surged. This is the other psychological pillar of the Keynesian system: when uncertainty rises, households rebuild buffer stocks against the rainy days they can now see coming. Russian households were warned of a possible banking crisis by the state-backed Center for Macroeconomic Analysis and Short-Term Forecasting last December. Workers are going unpaid, getting furloughed, or seeing their hours cut, and consumers are having trouble servicing their loans. In that environment, the household response is exactly what the textbook predicts. Defer consumption. Build the buffer. Demand for consumption falls — not because incomes have crashed yet, but because the expected future has darkened. The paradox of thrift in slow motion. FortuneFortune
Now run the identity in real time.

G is constrained: oil and gas revenues in Q1 were down 45% year-on-year, the budget deficit already exceeded the full-year target, and government spending jumped 17%. The firehose is running on the National Wealth Fund, and bond issuance, and the Economy Ministry just cut 2026 growth from 1.3% to 0.4%. The Moscow TimesInvesting.com

I is dead: animal spirits crushed, 21% rates strangling civilian credit, civilian manufacturing roughly 5% below its December 2024 level. Meduza

C is softening: precautionary savings are rising, real wage gains are plateauing, military bonuses are no longer growing, and defense-related labor demand is stabilizing. NX is bleeding: Ukrainian drone strikes on refineries, the G7 price cap, and deepening Urals discounts.

The punchline: when G is the only real engine, and G is secretly funding both I and C through transfers and subsidized credit, you have a single point of failure. Constrain the fiscal firehose and every component on the right side of the identity rolls over at once. That’s not a sanctions shock. That’s a Keynesian system losing its confidence floor, gaining a savings drag, and discovering that the private economy underneath the war budget was hollow all along. #RussianRecession #RussianDepression #RussianCollapse #Russia #Macroeconomics #Geopolitics #EconomicAnalysis #AnimalSpirits