IMO, that aspect is covered by the declining NM during '41 and I also think it should be beyond players power to influence.
It's another example of game mechanism purporting to represent historical events meeting a fluid game situation which will vary from those events. The result is very ugly, IMO. Why would NM decline if Russia is doing well and holding its major political, economic and population centres? These mechanisms are the fountain of all ahistorical strategies, not least the great Russian summer '41 runaway.
Morale is a difficult thing to represent in game, granted, but avoiding the problem will not create a solution. Reverses can boost determination as well as sap the will to fight, depending on other factors. Look how Churchill made Dunkirk look, to some extent, like a victory.
The effect of an event must be variable and then there's the question of the duration of that effect. Should the loss of, say, Kiev, lose the Russians 1 NM and its recapture gain 1NM? I would argue that any city NM loss/gain should be variable and temporary. People and populations take morale hits and boosts but tend to then settle back to an underlying level, adjusting to the new situation.
Complex interactions like manpower loss, terrain loss, war weariness etc are not so much beyond 2 by 3 as what they do. They just haven't extended what they do to the issue of morale yet, and I hope they remedy that.
“The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations.”
¯ Thomas Jefferson