The Long-Term Economic Implications Of The Ukraine War

Douglas Macgregor recently argued in these pages that Washington’s refusal to acknowledge Russia’s legitimate security interests in Ukraine and to negotiate an end to the war will cement “the path to protracted conflict and human suffering.” As Macgregor observed, even while the tide is now turning in Ukraine, Washington’s foreign policy continues to be fueled by the ideological self-delusion of the true believers: “Like the ‘best and the brightest’ of the 1960s they are eager to sacrifice realism to wishful thinking, to wallow in the splash of publicity and self-promotion in one public visit to Ukraine after another.”

It is indeed a spectacle eerily reminiscent of events over half a century ago, when Washington’s proxy war in Vietnam was escalated even as it was failing. Some observers believe that the U.S./NATO-led proxy conflict against Russia in Ukraine has already led to the bankruptcy of the Ukrainian economy. nine months ago. It will also accelerate the U.S.’s decline in international leadership and global economic prospects. If great powers fail in their ability to balance their military power with their economic base, and their strategic commitments, it can lead to imperial excess. That is America’s key global risk in the 2020s. Due to America’s role in the global economy, such overstretch could have devastating, long-lasting consequences.

In The Best and Brightest (1972), David Halberstam argued it was the failure of U.S. elite policymakers, intellectuals and officials to see the true economic and human cost of Vietnam escalation which led them to sacrifice realistic thinking for wishful thinking. Secretary of State Dean Rusk stated that the notion that South Vietnam could not win against North Vietnam had been dismissed. “We will not pull out until the war is won.”

Similarly, in September, Secretary of State Antony Blinken pledged lasting U.S. support for Ukraine during a visit to Kiev, while the Biden administration helped Ukraine’s military recapture territory occupied by Russia. “This is a pivotal moment,” he declared Ukrainians “as your counteroffensive is now underway and proving effective,” adding: “We will support the people of Ukraine for as long as it takes.”

The status quo had been reversed by late fall, although it was not widely reported in mainstream media. Convinced that an outright military victory was now out of reach, Gen. Mark Milley, chairman of the Joint Chiefs of Staff, pushed for a diplomatic outcome, even as Biden’s true believers struggled “to clean up Milley remarks on Ukraine diplomacy.” Later, European Commission President Ursula von der Leyen acknowledged Ukraine’s losses in the war with Russia amounted to 100,000 soldiers and 20,000 civilians, though her tweet was quickly deleted and a new one was released without the death count.

The price for ideological self-delusions comes with a price. Just as the Vietnam escalation of President Johnson’s true believers demolished his domestic “Great Society” dream, President Biden’s blind faith in his advisers is undermining his domestic agenda.       

On the eve the Christmas season, President Volodymyr Zelesky made an emotional wartime appeal at a joint Congress meeting in which he pleaded for more military support. This, he declared, was essential. “eventual victory.”

Yet, It was already half an year ago—months before the Russian winter operations—his own government, together with European Commission, estimated that Russia’s invasion had caused over $97 billion in direct damages to Ukraine and it could cost $350 billion to rebuild the country.

The proxy war has seen a flood of humanitarian and economic aid to Ukraine. In late fall, Congress passed three aid packages totaling $68 million. Meanwhile, the Biden administration submitted a $38 billion aid request, bringing the total to $106 billion. It was intended to last until September 2023 but will run out by May at the current spending rate ($6.8 million per month). Due to global recessionary prospects, the Biden White House will need additional funds.

The majority of international aid to Ukraine comes from America (62%) Aid from non-U.S. sources amounts to $41.4 billion. International totals exceed $110 billion More than half of Ukraine’s pre-war GDP ($200 billion). Due to the types of equipment purchased to support Ukraine, this is even more impressive. “money Congress appropriates in year one does not get fully spent until year five” (read: in Late 2020s.

The good news is: Ukraine without the aid would be a failure state. The bad news: The very same aid will prolong Ukrainians’ suffering.        

Even as international media touted the mirage of Ukraine’s military triumph, the country’s real GDP declined over 35 percent on an annual basis in the third quarter of 2022—Before Russia’s recent massive attack on its infrastructure.

Only a year ago, Ukraine, under Zelensky ’s leadership, was still positioned to play a critical role as a bridge between Eastern and Western Europe itself, thanks to its vital position in China’s Bridge and Belt Initiative (BRI). Before the Russian invasion he flirted with neutrality until then–Prime Minister Boris Johnson made it very clear that was not acceptable to the U.S. and its allies, which wanted to “weaken Russia,” as Secretary of Defense Austin acknowledged later. U.S./NATO’s geopolitical plans envisioned Ukraine as a large military base.

The direct physical damage to infrastructure soared to $127 billion already in September; that’s over 60 percent of pre-war GDP. The long-lasting impact of occupation and damage on key sectors is significant. Below the income share of the population the national poverty line in Ukraine may more than triple reaching nearly 60 percent in 2022This is a risky proposition, as there are significant downside risks in the event that energy security and war situations get worse.

The nine months of war caused massive population displacement. More than a third of the population of Ukraine has been forced to flee their homes, and more than half of all children in Ukraine have had to move. The number of Ukrainian refugees in Europe stood at 7.8 million as of October 2022. There were 6.5 million internally displaced persons.

U.S. GDP growth is expected to stagnate between 0.1 percent – 0.2 percent in 2022. However, this is predicated upon unsustainable debt-taking which is accelerated through the proxy war with Ukraine.

Military expenditures play a key role in the creation of this debt. as with Vietnam escalationThe brightest and best serve mainly as enablers. The U.S. used this method for decades. partnerships and proxy forces to wage war under the radar In at least 17 other countries. In the last two decades, the U.S. has spent $8 trillion on its global war against terror and caused 900,000. Target countries have much higher costs.

From the economic standpoint, these military expenditures, including U.S. Ukrainian aid, should be seen as massive, recurrent, multiyear bastard Keynesianism: a series of military stimulus packages to prop up the American economy—not Ukraine’s!—amid deepening secular stagnation. Unlike Keynesian stimuli that can have an accelerator effect in the civilian economy, these packages mainly benefit the Pentagon and Big Defense—the military–industrial complex and its revolving-door elites.

The federal debt that the public holds is expected to reach 98 percent GDP by 2022. The following nonpartisan CBO’s projectionsIn 2024, the debt percentage as a percent of GDP starts to rise. It surpasses its historic high of 107 percent in 2031, and continues to climb thereafter, reaching 185 percent in 2052.

A rising and high-interest debt percentage in the U.S. will slow down economic growth, increase interest payments to foreign holders U.S. bonds, and increase the likelihood of a fiscal crises. Defense allocations are rising as the Biden administration extends its Ukraine doctrine to Russia, Iran, Taiwan, etc., which will contribute to rising debt and twin deficits and real interest rate.

Recent research has shown that Foreign Affairs Commentary: Mohamed A. El-Erian, an economist veteran, warned that we aren’t facing only extremely difficult business-cycle fluctuations. We also face structural and secular long-term challenges. This has led to the following: “the global economy may never be the same.”

In fact, “old normal” History has been made since 2008 and the subsequent debt crises. The world’s economy has been driven by geopolitical agendas over the past decade and not economic priorities. The results have been predictably catastrophic. The U.S. economy is at risk from a recession. Already, the Eurozone is facing a serious crisis. Japan’s economy is shrinking. The United Kingdom is experiencing the largest drop in living standards since records began. In the 1940s, war was possible due to excessive debt. Excessive debt today is a risk of wars that have no winners. This is thanks to the best, brightest, and most talented.