Russias 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 US 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 Russias leaders, most of all President Boris Yeltsin and his economic advisers, recognised that the Soviet communist military-industrial complex could not afford to keep up with the wests superior economic might and technological prowess. Today, with Russias economy less than a twentieth the combined size of the US and EU economies, the same strategy of vastly outspending Russia on defence should be much easier to execute. Unfortunately, there is a hesitancy in many western societies, particularly on the left, to admit that defence 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 defence 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 defence spending as a share of GDP was still at the Vietnam-era level, defence outlays in 2021 would have been $1.5tn (1.1tn) higher more than the government spent on social security last year, and almost triple government spending on non-defence consumption and investment. Even at the level of the late 1980s, defence spending would be more than $600bn higher than today. The extra cost would have to be funded by higher taxes, greater borrowing or lower government spending in other areas.

Europes defence spending has long been far lower than that of the US. Today, the UK and France spend just over 2% of their national income on defence, and Germany and Italy only about 1.5%. Moreover, national interests and domestic lobbying mean that European defence spending is highly inefficient, with the whole being considerably less than the sum of its parts. I am amazed by how many of my otherwise well-informed friends have been asking why Europe does not mount a stronger military response to Russias attack on Ukraine and looming threats to the Baltic states. Part of the answer, of course, is Europes dependence on Russian gas but the larger reason is its egregious lack of preparedness.

Thanks to the Russian president, Vladimir Putin, this may all change. The German chancellor Olaf Scholzs announcement on 27 February that Germany will increase its defence spending to more than 2% of GDP suggests that Europe may finally be getting its act together. But such commitments will have major fiscal implications and, after the large pandemic-era fiscal stimulus, these may be difficult to digest. As Europe rethinks its fiscal rules, policymakers must consider how to make enough space to deal with unexpected large-scale military buildups.

Many seem to have forgotten that wartime spikes in expenditures were once a big driver of government spending volatility. In a war, not only do government expenditures and budget deficits typically increase sharply but interest rates sometimes go up as well. Nowadays, policymakers (along with many well-intentioned economists) have become convinced that big global economic shocks such as pandemics or financial crises will invariably drive down interest rates, and make large debts easier to finance. But in wartime, the need to front-load massive temporary expenditures can easily push up borrowing costs.

True, in todays complex world of drones, cyberwar, and automated battlefields, how governments spend their defence budgets matters greatly. Still, it is magical thinking to assume that every time defence budgets are cut, military planners will make up the difference with increased efficiency.

It would also help if the west could avoid further strategic energy-policy blunders of the sort that led us to this point. In particular, Germany, which relies on Russia for more than half of its gas needs, appears to have made a historic mistake in decommissioning all its nuclear power plants after the 2011 Fukushima disaster. By contrast, France, which meets 75% of its energy needs through nuclear power, is significantly less vulnerable to Russian threats.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

In the US, the cancellation of the proposed Keystone XL oil pipeline may have been based on sound environmental logic. But now the timing seems awkward. Measures intended to protect the environment do little good if they lead to strategic weakness that increases the possibility of conventional wars in Europe leaving aside the large-scale radioactive pollution that would result if neutron bombs or tactical nuclear weapons were deployed.

Stiff Ukrainian resistance, swift and severe economic and financial sanctions, and domestic dissent could yet force Putin to recognise that his decision to invade Ukraine was a spectacular miscalculation. But even if the current crisis subsides, the horrific attack on Ukraine ought to remind even the most committed peace advocate that the world can be harsh and unpredictable.

Everyone hopes for lasting peace. But hard-headed analyses of how countries can achieve sustainable and equitable growth requires leaving fiscal space including emergency borrowing capacity for the costs of guarding against external aggression.

Kenneth Rogoff is professor of economics and public policy at Harvard University and was the chief economist of the International Monetary Fund from 2001 to 2003

Project Syndicate

More:

Putins invasion of Ukraine suggests the peace dividend is fading - The Guardian