Wars aren’t won with peacetime economies

Politically, the G7 and like-minded countries around the world have adopted a war footing to stop Russian aggression. Russian President Vladimir Putin violated the most fundamental principle of international law by launching an unprovoked attack on another member of the United Nations — an institution created explicitly to prevent such aggression. The dangers of appeasement should be obvious. Even a little empathy should make us shudder in horror at the prospect of having to live under Putin’s rule.

It is a peculiar war. While Putin has described his project as a confrontation with the entire West, Ukrainians alone are doing all the fighting and bearing the full brunt of Russian attacks on civilians and civilian infrastructure. Meanwhile, Europe and the US have provided economic and military assistance, and the rest of the world has been dealing with the war’s fallout, including higher energy and food prices.

But it is a mistake to think that the war can be won with a peacetime economy. No country has ever prevailed in a serious war by leaving markets alone. Markets simply move too slowly for the kind of major structural changes that are required. That’s why the US has the Defense Production Act, which was enacted in 1950 and invoked recently in the “war” against Covid-19, and again to address a critical shortage of baby formula.

Wars inevitably cause shortages and generate windfall gains for some at the expense of others. Historically, war profiteers have typically been executed. But today, they include many energy producers and traders who, rather than being marched to the gallows, should be subjected to a windfall profits tax. The European Union has proposed such a measure, but it would come too late, and it is too weak and too narrow for the challenge at hand. Similarly, while several members of Congress have put forward bills to tax big oil’s superprofits, the Biden administration has so far failed to move on the issue.