Is the Peace Dividend Over?

CAMBRIDGE – Russia’s brutal invasion of Ukraine should be a wake-up call for Western politicians, corporate leaders, and economists who advocate a green and equitable future but lack any practical or strategic sense of how to get there. Regardless of what short-term tactics Europe and the United States use in responding to the current crisis, their long-run strategy needs to put energy security on a par with environmental sustainability, and funding essential military deterrence on a par with financing social priorities.

The Soviet Union collapsed in 1991 in no small part because Russia’s leaders, most of all President Boris Yeltsin and his economic advisers, recognized that the Soviet communist military-industrial complex could not afford to keep up with the West’s superior economic might and technological prowess. Today, with Russia’s economy less than one-twentieth the combined size of the US and EU economies, the same strategy of vastly outspending Russia on defense should be much easier to execute. Unfortunately, there is a hesitancy in many Western societies, particularly on the left, to admit that defense spending is sometimes a necessity, not a luxury.

For many decades, Western living standards have been boosted by a massive “peace dividend.” For example, US defense spending fell from 11.1% of GDP in 1967, during the Vietnam War, to 6.9% of GDP in 1989, the year the Berlin Wall fell, to just over 3.5% of GDP today. If US defense spending as a share of GDP was still at the Vietnam-era level, defense outlays in 2021 would have been $1.5 trillion higher – more than the government spent on social security last year, and almost triple government spending on non-defense consumption and investment. Even at the level of the late 1980s, defense spending would be more than $600 billion higher than today. The extra cost would have to be funded by higher taxes, greater borrowing, or lower government spending in other areas.

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