From Vedomosti (via JRL):
Federal TV networks, the prime media agency in Russia, make a point to ignore the crisis. There is no saying how advantageous this policy will turn out to be. Only one thing is clear. Should discrepancies between what the people see outdoors and what TV networks tell them become profound and impossible to ignore, the population will stop trusting TV networks and start regarding the current exchange course as the only trustworthy source of information.
This mum’s-the-word policy will become pointless then because trust in the source of information will be lost.
. . . .
Unfortunately, there are essentially no institutions in the country the population trusts enough to let them discuss the problem and suggest a solution to it. With the kind of Duma we have in Russia, expecting it to come up with anything worthwhile is pointless. As matters stand, anti-crisis measures are mostly decided on within small groups of decision-makers. Their traditional disinclination to discuss it with anyone else ups the risk of mistakes.
It is necessary to remedy this situation and therefore to alter information policy.
Continuation of TV networks’ current policy may eventually undermine trust in the principal line of communications between society and the powers-that-be. The latter will then have to pretend that the crisis has taken them by surprise. Also importantly, this whole situation serves as a reminder to all of us that it is wrong to have TV as the only channel connecting the population and the authorities.
There must be other channels as well – independent parliament where all civil forces and represented, non-governmental organizations with experts of their own, independent media… No better cure for distrust and panic has ever been invented.
Russians are living on a volcano. All may have looked placid mere months ago, but there were tremendous forces hidden from sight capable of exploding at a moment’s notice. The risk of an explosion is increasing dramatically , but as the Vedomosti article notes, and as I have argued on SWP, the government’s attempt to control the information flow is an extremely dangerous policy that could make the effects of the explosion far worse.
Failure to deal with the situation in a forthright way dramatically heightens the risk of massive disenchantment and a fatal loss of trust if–as is highly likely–the evidence at the exchange kiosk or the workplace or the bank gives the lie to the official line that all is well. Unrest of some sort–say, coal strikes or other industrial actions, as occurred in 1998–may well result. What then? The government will be forced to choose between capitulation and crackdown. If it chooses the latter, things will spiral further downward economically–but I have little doubt that is the choice that the Putin government would choose.
The exchange rate is doubtless a more reliable source of news than the TV news. Prices aggregate vast amounts of information . The problem is that getting information from a market price runs the risk of creating information cascades. A group of people panic and frantically sell rubles. This drives down the ruble, instilling fear in those who use the exchange rate as their gauge of the health of the economy. They sell rubles . . . and on and on.
This can happen even in circumstances when people have access to other sources of information, but it is most likely to occur when most everybody is using the same single source of information, and that source of information responds to the behavior of the people watching it. Then self-fulfilling, positive feedback, information cascades are relatively easy to start and very hard to stop. This is a danger of depriving people of multiple sources of information and news.
So, the government’s “information” strategy is extremely dangerous on at least two grounds: (a) it threatens to undermine the trust in the government, thereby increasing the risk of widespread civil unrest, and (b) it raises the likelihood of an information cascade that could precipitate a 1998-style ruble collapse. (This last is also another reason why trying to manage a “soft landing” of the ruble is probably a bad idea. People will be on the lookout for a faster than anticipated decline, and if they see it, will try to get ahead of the run on the currency–creating a self-fulfilling prophecy. If it is going to fall, it is better to let it fall quickly and decisively.)
There is a difference between Russia and a volcano. Volcano eruptions are exogenous–people can’t do anything to affect their likelihood or their severity. Economic collapses can be endogenous, or made more severe by the endogenous responses to exogenous shocks. Virtually the entire Russian policy response to the crisis seems designed to make the explosion catastrophic if it in fact comes.