The Fallacy of “Mutually Assured Economic Destruction”

In an excellent War on the Rocks article last week, Eric Lorber and Jacquelyn Schneider argued that economic sanctions cannot serve as standalone deterrents against aggression by another state. They noted in particular how prospect theory and credibility considerations affect the utility of threatened economic punishments as a deterrent within an opponent’s decision-making:

“…while these new, sophisticated sanctions often cause medium- and long-term damage to a country’s economy, the prospect of such damage may not deter aggressive actors from taking immediate actions contrary to U.S. interests. For example, in the case of Russia, while the sanctions have certainly taken a toll, the Russian economy, when supported by capital reserves, is sufficiently resilient to put off the worst impacts of the sanctions for a few years. In the short-term, however, Russia has been able to annex Crimea and exercise significant influence in rebel-controlled areas deep in Eastern Ukraine. Thus, while the prospect of economic damage may loom down the road, this risk may be insufficient to deter an aggressive actor from pursuing short-term benefits...

…Likewise and in the Russia context, given the discord among European Union member states about how to respond to additional Russian aggression, Russia may not believe that the United States and the European Union will impose additional, extremely painful sanctions on the country, and therefore may not be deterred from engaging in additional destabilizing action in Ukraine.”

They conclude that a defender must understand “the aggressive actor’s intentions and motivations” in order to determine whether deterrence by economic punishment is likely to succeed:

“Policymakers in Washington need to do better than conclude that ‘these sanctions will cause economic pain, therefore they will deter.’ Rather, they must analyze whether the particular sanctions on the table will influence a malicious actor’s decision-making.”

In other words, the opponent’s leaders’ political objectives and perceptions of the strategic circumstances (including pressures stemming from domestic popular passions) are central variables in determining a deterrence policy’s probable efficacy.

While all deterrence policies face this challenge to some degree, it tends to especially impact deterrence by punishment. The amount of threatened pain must significantly exceed the opponent’s discomfort with continuing to honor the status quo. A threat of certain national economic catastrophe is not sufficient if opponent’s leaders value some other political objective more highly or suffer from exceptional ‘strategic desperation.’ Japanese leaders proved that exact point in their decision for war during the late summer and early fall of 1941.

This does not change if a threatened economic catastrophe would affect both the aggressor and the defender. This is the premise behind ‘mutually assured economic destruction,’ a concept rooted in the longstanding idea that the likelihood of war between competing states decreases as their economic interdependence increases. In theory, two competing countries should be mutually restrained by the risk of devastating their entwined economies. One does not have to look that far back into history to see the fallacy in this thinking: the aggressors in both World Wars valued other objects more highly than the prospects of economic disaster (to the extent economics factored into their calculus at all).

From my perspective, and consistent with Lorber’s and Schneider’s findings, deterrence based on fear of economic damage (whether inflicted on just the competitor or shared with the defender) probably only functions in encouraging a competitor’s restraint from escalation in the event of a 'salami tactics confrontation gone bad' over some low-stakes political object. Even then, it would seem that the latent threat of conventional military forces becoming entangled—and the associated threat of unleashing an ill-controlled process of escalation that might carry the players to the nuclear threshold against their preferences—likely provides a more readily-perceived deterrent pressure on an opponent’s leaders.

The views expressed herein are solely those of the author and are presented in his personal capacity. They do not reflect the official positions of Systems Planning and Analysis, and to the author’s knowledge do not reflect the policies or positions of the U.S. Department of Defense, any U.S. armed service, or any other U.S. Government agency.

--Updated 4/24 9:39AM to correct type in last paragraph--