12.06.15 5:01 AM ET

No, We’re Not Facing World War III

But this hysterical argument is effectively used by Vladimir Putin to force the West into submission.

“And then we get World War III.” With that crushing rejoinder, most arguments about how to deal with Vladimir Putin move toward a sterile conclusion. The Russian leader sits on the world’s second-biggest nuclear arsenal. He has shown he is willing to use force, and to escalate. So any attempt to confront Russia militarily risks the end of life on the planet and are better not pursued.

People who come out with this sort of argument are only free to do so because we won the Cold War. If we had followed that approach in the years since 1948, history would have looked very different. We would not have saved Berlin during the airlift in 1948. We would not have protected South Korea when it was attacked from the north. We would never have dared fight Communism in Indochina. We would not have defended Western Europe from the overwhelming conventional threat posed by the Warsaw Pact. We would not have armed the Afghan resistance after the Soviet invasion of that country. In short, we would never have tried to resist Communism at all, and the result would have been defeat.

It is true that Russia’s swaggering approach to its nuclear arsenal is worrying. Putin and his senior associates regularly refer to their nuclear weapons in both public and private meetings with foreigners. Most recently the gadfly Vladimir Zhirinovsky, leader of the notionally opposition (but in fact Kremlin-friendly and thoroughly misnamed) Liberal Democrats suggested dropping a nuclear weapon in the Bosphorus to obliterate Istanbul. Other countries do not do that. Even Iran tempers its rhetoric when it comes to its putative nuclear arsenal.

It is also true that we came perilously close to nuclear conflict during the Cold War. At the height of the Cuban Missile Crisis, a Soviet submarine commander called Vasili Arkhipov refused to launch nuclear-tipped torpedoes against American warships that were trying to force his vessel to surface. A technical failure in a new missile-defense radar in Moscow in September 1983 appeared to indicate a massive U.S. nuclear strike against the Soviet Union. A steely-nerved duty officer, Stanislav Petrov, defied procedures and ruled that the alarm was a false one. In the Abel Archer crisis two months later the Soviet leadership became convinced that NATO war games were a cover for a pre-emptive strike by NATO. Only the presence of a British mole, Oleg Gordievsky, in the heart of the KGB, alerted Western leaders to the danger of an accidental nuclear war.

There are plenty of lessons from the Cold War about how to manage deterrence better: arms control, hotlines, confidence-building measures and diplomacy. It is worrying that Russia shows no interest in renewing these, and is actively ripping up the last vestiges of strategic stability bequeathed by the East-West honeymoon which ended the Cold War.

Yet the big point is that deterrence worked, and still works. In fact it works better now than ever. The United States is overwhelmingly dominant in every part of the military spectrum, from space to cyber via conventional and nuclear weapons, just as the Western alliance with its combined GDP of around $40 trillion, and population of 800 million, is overwhelmingly more powerful than Russia (GDP of $1.7 trillion and population of 140 million: both shrinking, incidentally).

Putin is a bully, but he is not insane. He may rattle his nuclear saber, but in any real confrontation with the West, he is the guaranteed loser. He can credibly menace the Baltic states (because in Pentagon war games, the Russians always get to the coast before the allies get to Estonia, Latvia, and Lithuania). But this ignores the wider context. So long as the West responds to a geographically limited provocation with a much broader response, Putin is powerless. He is only able to intimidate us if he frames the conflict in his terms: “Will you risk World War III to protect Estonia?”

The answer to that is (in most Western capitals) clearly no, but it is an answer to the wrong question. Instead, we should frame the conflict in our terms. The apocalypse which we can wreak on the Putin regime has nothing to do with enriched uranium and missiles. It comes from exploiting Russia’s Achilles Heel—its dependence on Western financial markets and systems. The Putin regime steals tens of billions of dollars every year from the Russian people. But it does not stash those ill-gotten gains in its own rotten realms. It puts them into well-run investment vehicles in the West. Capital flight from Russia is running at $100 billion a year.

This gives the West—if it so chooses—the best possible response to Russian military intimidation. We can freeze and if necessary seize the Kremlin’s assets in the West. We can question and if necessary prosecute the bankers, lawyers, and accountants who have facilitated this huge tide of dirty money that washes through Vienna, Cyprus, London, and Dubai. We can also investigate the curious behavior of Russian participants in setting energy prices in world markets.

This does not mean we should neglect the military countermeasures needed to deter the Putin regime from bullying its neighbors. We need more troops in Poland and the Baltic states, with closer integration of non-NATO Sweden and Finland. We need better intelligence—especially about Russia’s battlefield nuclear weapons—better cyber-defenses, and a resilient economic and political system which can withstand sanctions, propaganda attacks, and the targeted use of corruption. All these are the elements of what in military jargon is known as “hybrid warfare”—the use of a wide range of military and non-military means in pursuit of a political goal. Hybrid warfare was waged in Ukraine, initially to dramatically success effect.

But it has not succeeded. Russia did not stoke an insurrection all across southern and eastern Ukraine. It did not best the Ukrainian army (pitifully led and equipped though it was). It did not succeed in breaking the Ukrainian people’s will, or toppling the elected government. All that happened for lessons which we should bear in mind in our far stronger and richer societies: Ukrainians survived because they were not scared. We are losing because we are. The fear of “World War III” is part of the Kremlin’s psychological arsenal, designed to make us think that resistance is futile or suicidally risky.

It is not. Russia is in objective terms a nuisance, not a menace. It becomes a danger only because we let it. Putin is far more scared of us than we should be of him. After all, we’ve got his money.

Edward Lucas is a senior editor for The Economist.