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 negotiate an end to the war would solidify “the path to protracted conflict and human suffering.” As Macgregor observes, even as the tide in Ukraine turns, Washington’s foreign policy continues to feed on the ideological illusions of true believers: “Like the ‘best and brightest’ of the 1960s, they are eager to sacrifice realism. plunge into wishful thinking, one after another leap of publicity and self-promotion on a public visit to Ukraine.

It is indeed a scene eerily reminiscent of events half a century ago, when Washington’s failed proxy war in Vietnam escalated. The US/NATO-led proxy war against Russia in Ukraine has already bankrupted the Ukrainian economy, an outcome some observers saw nine months ago. It will also accelerate the decline of the US international role and global economic prospects. When great powers fail to balance their military strength and strategic commitments with their economic bases, they risk imperialist over-tension. This is America’s core global risk in the 2020s. And because of the role of the USA in the world economy, the global repercussions of such extreme stresses will be negative, extensive and long-lasting.

Inside Best and Brightest (1972), David Halberstam argued that it was the refusal of elite US policymakers and intellectuals to accept the real economic and human costs of the Vietnam escalation that drove them to sacrifice realism for wishful thinking. While the idea that the South could not win against North Vietnam was simply dismissed, Secretary of State Dean Rusk said, “We will not withdraw until the war is won.”

Similarly, in September, Secretary of State Antony Blinken pledged permanent US support to Ukraine during a visit to Kiev, while the Biden administration helped Ukraine retake military territory occupied by Russia. “This is a very important moment, because your counterattack is now ongoing and effective,” he told the Ukrainians, adding: “We will support the Ukrainian people no matter how long it takes.”

Towards the end of the autumn, the status quo was reversed, although it continued to be suppressed in the mainstream media. Chief of Staff General Mark Milley, convinced that a decisive military victory was no longer achievable, pressed for a diplomatic outcome like Biden’s. true believers struggled “to clear Milley’s words about Ukrainian diplomacy.” Later, European Commission President Ursula von der Leyen acknowledged that Ukraine’s losses in the war with Russia were 100,000 soldiers and 20,000 civilians, but her tweet was quickly deleted and a new tweet was published without the death toll.

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Ideological illusions have a price. The climbing of President Johnson’s true believers in Vietnam has shattered his domestic dream of a “Great Society”, and President Biden’s blind faith in his advisers undermines his domestic agenda.

On the eve of the Christmas season, President Volodymyr Zelensky issued an emotional war call to a joint meeting of Congress demanding more military aid from lawmakers. He swore that this was necessary for “final victory”.

Aunt, already half a year agoMonths before Russia’s winter operations, its own government, together with the European Commission, estimated that the Russian invasion caused more than $97 billion in direct damage to Ukraine, and that rebuilding the country could cost $350 billion.

Economic and humanitarian aid to Ukraine in the proxy war has been plentiful and historic. In late autumn, Congress passed three aid packages totaling $68 billion, while the Biden administration requested a new $38 billion in aid, bringing the total to $106 billion. While designed to last through September 2023, it will run out at the current spending rate ($6.8 billion per month) by May. Until then, the Biden White House should seek additional funding amid global prospects in recession.

Internationally, the United States provides the bulk of total aid to Ukraine (62 percent). Aid from non-US sources amounted to $41.4 billion. International total of more than 110 billion dollars, more than half of Ukraine’s pre-war GDP ($200 billion). Also, due to the types of equipment procured to support Ukraine, “the money that Congress allocates in the first year is not fully spent until the fifth year” (read: late 2020s).

The good news: Without help, Ukraine would be a failed state. The bad news: the same aid will prolong the suffering of the Ukrainians.

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Even as the international media touted Ukraine’s mirage of military victory, the country’s real GDP fell by over 35 percent year-on-year in the third quarter of 2022—previous Russia’s last major infrastructure attack.

Just a year ago, the Zelenskiy-led Ukraine was still in a critical position to play a critical role as a bridge between Eastern and Western Europe, thanks to its vital position in China’s Bridge and Belt Initiative (BRI). Prior to the Russian invasion, it had flirted with neutrality until then – Prime Minister Boris Johnson made it clear that this was unacceptable for the United States and its allies seeking to “weaken Russia”, as Defense Secretary Austin later admitted. NATO’s geopolitical plans envisioned Ukraine as a huge military base.

Direct physical damage to infrastructure has already risen to $127 billion in September; that’s more than 60 percent of pre-war GDP. The impact on the production capacity of key sectors due to damage or settlement is significant and long-lasting. The share of the population with incomes below the national poverty line in Ukraine could more than triple to reach nearly 60 percent in 2022, with significant downside risks if war and energy security situations worsen.

The nine-month war resulted in a massive displacement of the population. More than a third of the population was displaced and more than half of all Ukrainian children were forced to leave their homes. As of October 2022, the number of Ukrainian refugees registered in Europe was 7.8 million, and the number of internally displaced persons was 6.5 million.

In 2022, US GDP growth is likely to remain stagnant at between 0.1 percent and 0.2 percent year-on-year, but this is due to unsustainable borrowing fueled by the proxy war in Ukraine.

The key role in this debt belongs to military expenditures; As with Vietnamese climbing, the best and brightest serve mainly as facilitators. For decades, the United States has used partnerships and proxy forces to wage wars under the radar in at least 17 countries. In the last two decades alone, the global war on terror has cost the United States and its partners $8 trillion and 900,000 deaths. The costs in target countries are much, much higher.

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From an economic standpoint, these military expenditures, including US Ukraine aid, should be seen as massive, recurring, perennial bastard Keynesianism: amid a deepening secular recession—not Ukraine’s! A series of military stimulus packages to support the American economy. Contrary to Keynesian incentives that can have a boosting effect on the civilian economy, these packages mainly benefit the Pentagon and the Great Defense—the military-industrial complex and its revolving-door elite.

By the end of 2022, the federal debt owned by the public is estimated to equal 98 percent of GDP. Debt as a percentage of GDP begins to rise in 2024, surpasses its historic peak in 2031 (when it reaches 107 percent), and then continues to climb, rising to 185 percent of GDP in 2052, according to forecasts by the non-partisan CBO.

High and rising debt as a percentage of U.S. GDP will slow economic growth, increase interest payments to foreigners who hold U.S. debt, and increase the risk of a financial crisis. As the Biden administration expands the Ukrainian doctrine from Russia to Iran, Taiwan and elsewhere, defense allocations are increasing rapidly, which will further contribute to rising debt, twin deficits and real interest rates.

soon Foreign affairs Senior economist Mohamed A. El-Erian warned that we are facing not only extraordinarily difficult business cycle fluctuations, but also structural and secular long-term pressures. As a result, “the global economy may never be the same.”

In fact, the “old normal” has been history since 2008, and the resulting debt crises. Over the past decade, the world economy has been driven not by economic priorities but by geopolitical agendas. The results were predictably disastrous. Recession risk casts a dark shadow on the US economy. The eurozone is already facing a deep crisis. Japan’s economy is shrinking. The UK is struggling with the worst decline in living standards since registration began. In the 1940s, war threatened to result in excessive debt. Today, excessive debt risks unwinnable wars with the best and brightest.


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