NEW YORK (Realist English). Since the beginning of the special operation on the territory of the former Ukraine, Russian President Vladimir Putin has been talking about a direct confrontation with the entire West. Although Western governments have reacted politically and diplomatically to the Kremlin’s actions, they still have to take the necessary steps in economic terms, says Joseph Stiglitz, an American economist, winner of the Nobel Prize in Economics.
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 U.S. 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.” stresses the economist.
Stiglitz is outraged that many sellers of cheap electricity are profiting, as are traders who bought energy at lower pre-war prices:
“As such, many sellers of low-cost electricity are making a killing, as are the traders who bought energy at the lower prewar prices. While these market players reap billions of euros in profits, consumers’ electricity bills are soaring. Electricity prices in energy-rich Norway, with its enormous gas and oil reserves and hydro capacity, have increased nearly 10-fold.
Meanwhile, households and small businesses are being pushed to the brink, and even some big companies have already gone bankrupt. Last month, Uniper UN01, +7.97%, a large company supplying one-third of Germany’s gas, was “nationalized,” effectively socializing its massive losses. The European principle of “no state aid” has been thrown aside, mainly because European leaders moved too slowly in changing a market structure that was not designed for war.”
According to the American economist, the Kiev regime will need additional help to defeat Russia:
“Defeating Russia obviously will require more help for Ukraine. But it also will require a better economic response on the part of the West more broadly. That starts with sharing more of the burden through windfall-profit taxes, controlling key prices—such as those for electricity and food—and encouraging government interventions where necessary to alleviate critical shortages.”
Neoliberalism, based on simplistic ideas about how markets should operate that fail to comprehend how they actually operate, didn’t work even in peacetime. It must not be allowed to stop us from winning this war.