The Economist December 18th 2021 Leaders 15Some are economic. Joe Biden, America’s president, spoke to
Mr Putin on December 7th. Mr Biden says he threatened severe
economic sanctions were Russia to attack Ukraine again. (It has
already annexed Crimea and helped proRussian rebels carve
out an enclave in Donbas, in eastern Ukraine.) There is talk of
cutting Russia off from swift, an international payments sys
tem. This would harm Russia, but it is a bad idea as it would dis
rupt other economies, and start a rush of autocratic regimes to
find nonWestern alternatives (see Finance & economics sec
tion). The same deterrence could be achieved, with less collater
al damage, by threatening to blacklist Russian financial institu
tions individually. Meanwhile, America should present a united
front with European allies. For starters, Germa
ny should not approve Nord Stream 2, Russia’s
newly built gas pipeline that bypasses Ukraine.
A second means of deterrence is military. Al
though Russia could easily overrun Ukraine,
occupying a country for the long term is a dif
ferent matter, as America found in Iraq. Uk
raine needs to make itself indigestible. The
West should supply it with more financial aid
and defensive weapons to help it become so. Mr Putin’s actions
since 2014 have ensured that the vast majority of Ukrainians,
even most of those of Russian ethnicity, would resist Russian
control of their country.
At the same time, Western diplomats should seek ways to de
escalate the looming conflict. This is tricky, because so many of
Mr Putin’s demands are neither reasonable nor sincere. He says
that natoposes a threat to Russia. It does not. He makes that
claim because a functional, democratic Ukraine on his border
discredits his authoritarian system, and because his talk of de
fending Russia from imaginary external enemies is a good way
of drumming up support. In a recent poll, only 4% of Russianssaid the tensions in eastern Ukraine were Russia’s fault, whereas
half blamed America and nato.
Mr Biden is right to talk to Mr Putin, and should keep doing
so. He should try to find facesaving ways for Mr Putin to back
down. Since Mr Putin controls how his actions are portrayed on
Russian television, this should not be impossible. Mr Biden
could make clear again that Ukraine is not about to join nato,
for example, though he should not give Russia a formal veto.
Mr Putin wants America to get Ukraine to implement his vi
sion of the Minsk accords, a peace deal forced on Ukraine at gun
point after Russian forces routed Ukrainian ones seven years
ago. He hopes to create a federal state in Ukraine, with Russia
pulling the strings in the east, controlling part
of the border and having a large say over foreign
policy. Ukraine has resisted this by ringfencing
Donbas, making no effort to recover its lost ter
ritory and forging a unitary, decentralised state
that, in effect, excludes it. After many casualties
and the displacement of 1.5m people, reinte
grating Donbas into Ukraine is now more or less
impossible, and many Ukrainians no longer de
sire it, though they would not say so aloud.
There is no clean solution to this mess, so the best strategy is
to keep talking, with two provisos. First, the Ukrainian govern
ment must be in the room. Mr Putin should not be encouraged to
treat it as a puppet of the West, since it is not. Second, the aim
should be to make even a minor war unattractive for Mr Putin.
He may calculate he has more to gain and less to lose from
threatening Ukraine, rather than invading it. But he is adept at
finding pretexts for smaller acts of aggression, which he brazen
ly denies he is committing even as they unfold on the world’s
television screens. So long as MrPutinis in charge, Russia will
remain a danger to its neighbours.nI
n the “Society of the Spectacle”, published in the 1960s, Guy
Debord, a leading theorist in a group of provocateurs known as
the Situationists, depicts a culture in thrall to mass media where
appearance is more important than fact and representation is
preferred to reality. It is an unsettling book and not one that fi
nance types would normally reach for. But after a strange year,
the idea of the markets as spectacle has an appealing logic. A De
bordian might say that their primary role is no longer capital al
location, or even enrichment, but entertainment. How else to
make sense of stock prices driven haywire by socialmedia mobs
or celebrities selling shares in shell companies?
A reckoning feels due. And as 2021 draws to a close, markets
seem nervy. Speculative assets, such as bitcoin, are down from
their peaks. Even habitual bulls agree that 2022 will be difficult.
On December 15th the Federal Reserve talked tough on inflation
and signalled that it would end its asset purchases by mid
March and then start raising rates.
Yet there is an even more troubling possibility: that investors
conquer their nerves and bid prices of stocks still higher. Amer
ica’s stockmarket has proved surprisingly resilient. The economy has had a banner year, fuelled by a $1.9trn fiscalstimulus
package and an indulgent Fed. The s&pindex of leading compa
nies rose by 25% in the year to December 15th. It is around 40%
higher than it was before the pandemic took hold in February
2020—and few thought then that stock prices were unduly low.
The bull market has kept going in spite of some big challeng
es. China’s tech backlash and propertymarket troubles seem
only to have reinforced the desire to own American shares. And
although inflation in America is at its highest for decades, that
has not hurt the profits of big listed firms. Indeed, bumper earn
ings have helped lift share prices in 2021.
Take a longer view, though, and shares look terrifyingly ex
pensive. A valuation measure popularised by Robert Shiller of
Yale University puts the United States stockmarket on almost
times its earnings adjusted for the business cycle. Cryptocur
rencies have moved from the investment fringes to the main
stream. America has seen a rush of initial public offerings, often
a signal that a bull market is coming to an end. So is the growing
presence of retail investors. New smartphone apps and lowcost
exchangetraded funds and brokerages that cater to small invesWhat doesn’t kill the bull market only makes it strangerSituation normal: all bid up
America’s investors