THE ECONOMICS OF SUPPORTING THE WAR IN THE UKRAINE

Audio version available on YouTube, BitChute, and Odysee 

Tasty!

by Daniel Barge

President Zelenskyy has just paid another visit to Britain's bountiful shores, and, once again, he has returned home with an armful of military goodies in the form of promises and agreements. Russia has been feebly flailing at this with its online propaganda, claiming that helping the Ukrainians defend themselves will impoverish the British taxpayer. But will it?

I don't think so. In fact, I'm pretty sure it will have the opposite effect. Here's why.

Let's say Britain agrees to provide 100 units of a certain weapons system that is manufactured in the UK, and each weapons unit has a market value of, say, £1 million. To the average person that looks like £100 million of taxpayers money down the drain, money that could be spent on schools, hospitals, pensions, tax cuts, etc., going East to be "wasted" in big explosions of dead Russians. 

But those weapons systems have to be built (or replaced) and so by donating them to the Ukraine, the UK government is creating demand for them or a superior upgrade. Of course that demand is now UK government demand from a UK-government-funded industry, and the money has to be raised either by new taxation, spending cuts, or money printing.

Guess which one the government prefers.

While most money printing, like the one caused by the UK's covid furlough support scheme, creates generalised consumer inflation, money printing that allows the UK government to buy weapons and then send them overseas, does not. Instead, it creates well-paying jobs, rising stocks, and dividend payments, as well as an end product that can't saturate the market as it keeps blowing up conscripted Russian prisoners.

Of course, you might fear that the money that now enters the general economy from the well-paying jobs, dividends, and cashing in on rising stocks will unleash an oversupply of cash into the UK economy and add to inflation that way. But this kind of stimulus works quite differently from just printing money and, say, handing it out to the welfare class to spend at their local Aldi.

The new money has been pegged to an actual growth in economic activity (namely the production of 100 weapon systems for £100 million), so it now has intrinsic value, not an artificial value. 

Here is a simple analogy of how fiat currency economics works:

It is just like making pizza. You have two main ingredients -- base and topping. The more you can roll out the pizza base, the more pizza topping you can lay on top. In this analogy pizza topping is money creation, while the pizza base is the underlying level of economic activity.

In the furlough, the "pizza base" was actually constricted, while the "pizza topping" was ladled on top, creating a rather soggy, tomatoey concoction (=inflation).

With Britain's gradually accelerating military assistance to the Ukraine, however, the pizza base is being rolled out by hard economic activity that cannot create an unprofitable oversupply. This allows the creation of the cash that pays for it.

The net result for the British taxpayer is therefore probably zero with the added bonus of increased tax revenue from people working in well-paid jobs in the military industrial sector.

But make this point and Russian propaganda will simply switch its line from "supporting Ukraine is bad because it will impoverish UK taxpayers" to "supporting Ukraine is bad because it will enrich people."

Hilarious!