If Europe and the U.S. want to win the war in Ukraine, they must enlist their economies in the fight

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New York (Project Syndicate) – Politically, the G-7 and like-minded countries around the world have gone on a war footing to stop the Russian invasion. Russian President Vladimir Putin violated a most fundamental principle of international law by launching an unprovoked attack on another member of the United Nations – an institution explicitly created to deter such aggression.

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dangers of appeasement should be clear. The slightest sympathy will terrify us at the prospect of a Putin regime.

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This is a unique war. While Putin has described his project as a confrontation with all the westUkrainians alone are waging all the battle and bearing the full brunt of Russian attacks on civilians and civilian infrastructure. Meanwhile, Europe and America have provided economic and military aid, and the rest of the world is dealing with the fallout of the war, including the high energy CL00,
+0.30%
and food W00,
+0.06%
prices.

, Wars inevitably lead to shortages and generate windfall gains for some at the expense of others. Historically, war profiteers have usually been executed. But today, they include many energy producers and traders who, rather than being hanged, should be subject to windfall gains tax. ,

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But it is wrong to think that a peacetime economy can win a war. No country has ever won a serious war except the market. Markets move too slowly for the kind of major structural changes that are needed. So in the US there is the Defense Production Act, which was enacted in 1950 and Applicable recently in the “war” against COVID-19, and again to address a Severe shortage of infant formula,

According to Ukrainian officials, footage shows police officers shooting at a drone in Kyiv as Russia targeted the city with a new wave of attacks. Rescuers pulled people out of the rubble of a residential building damaged by the attack. Photo: Yasuyoshi Chiba/AFP/Getty Images

windfall profit

Wars inevitably lead to shortages and generate windfall gains for some at the expense of others. Historically, war profiteers have usually been Execution, but today they Involved Many energy producers and traders should be subject to windfall tax, rather than being hanged.

the European Union as proposed Such a measure, but it will come too late, and it is too weak and too narrow for the challenge at hand. Similarly, while many members of Congress submit Bill to tax Big Oil’s super profits, the Biden administration has so far failed to move forward on the issue.

This is understandable, given that President Joe Biden has been busy garnering support for signal achievements like the Inflation Reduction Act and the CHIPS Act. Furthermore, seeking the cooperation of the private sector in limiting the price rise, they are pained not to appear.anti trade,

,It is not anti-business to tax windfall profits and use the proceeds to support those hurt by necessary war expenses and high prices; This is responsible wartime governance.,

But it is not anti-business to tax windfall profits and use the proceeds to support those hurt by the war’s necessary expenses and high prices; This is responsible wartime governance, essential to maintaining popular support for the war effort. Such temporary taxes harm neither investment nor employment, and there is nothing unjust about taxing extraordinary gains that companies did nothing to deserve. (Also, generally, taxes on corporate profits are not distorted, because the costs, including capital, are deductible.)

Marginal cost pricing unsuitable for wartime

Even more comprehensive measures are needed in Europe, where today’s electricity market was not designed to deal with a war situation. Instead, it follows the principle of marginal-cost pricing. This means that the price of electricity reflects the highest-cost source of production needed to meet current demand. As gas prices have risen, marginal cost has gone up Much higher than the average cost. cost of Renewable energy For example, little has changed.

As such, many sellers of low-cost electricity are making a killing, as are merchants who buy energy at low prewar prices. While these market players make billions of euros in profits, consumers’ electricity bills are Soaring, Electricity prices in energy-rich Norway, with its vast gas and oil reserves and water potential, are increased almost 10 times,

Meanwhile, homes and small businesses are being pushed to the brink, and even some large companies have already gone bankrupt. Last month, Uniper UN01,
+7.97%,
a large supply company A third Germany’s gasnationalized“Effectively Socializing Your Loss of Mass.” “European Theory”no state aid” has been thrown aside, mainly because European leaders were too slow to change a market structure that was not designed for war.

, As the Vietnamese understood, wars are won on the political front as much as they are won on the battlefield. ,

Economists prefer marginal-cost pricing because it provides reasonable incentives, and because its distribution results are small and easily manageable in normal times.

But now, the incentive effect of the system is small and its distribution effect is very high. In the short term, consumers and small businesses will have to turn down their thermostat in the winter and turn it up in the summer, but planning and implementing comprehensive energy-saving investments takes time.

nonlinear pricing

Fortunately, there is a simple system (already discussed in some countries, and already partially implemented in others) that will retain the incentive effects of marginal cost pricing without distribution effects. Under a non-linear pricing structure, households and firms may be allowed to purchase 90% of their previous year’s supply at the previous year’s price, and 91–110% of the supply, at 150% of the previous year’s price. , before marginal- cost price begins.

While non-linear pricing may not be used in many markets – because of the potential for “arbitrage” (buying a good at a low price and immediately reselling it at a much higher price) – electricity is not one of them. That’s why some economists (like me) have long standing advocacy Its use in cases where major market failures are having a significant distribution effect. It is a powerful tool that governments can and should use, especially when faced with war situations.

something should be done about this too rise in food prices, After half a century of paying American farmers not to farm (an old method of agricultural price support), now we must pay them to produce more.

Such changes have become necessary. As the Vietnamese understood, war is won on the political front as much as on the battlefield. The purpose of the 1968 Tet Offensive was not to gain territory but change political math of war, and it worked.

share the burden of war

Defeating Russia will clearly require more help for Ukraine. But it will also require a broader economic response from the West. This windfall begins with greater burden-sharing through taxes, controlling key prices – such as for electricity and food – and encouraging government intervention where necessary to reduce significant shortages.

Neoliberalism is based on simple ideas about how markets should work who fail to understand how they really operated, did not work even in peacetime. We should not be allowed to stop winning this war.

Joseph E. Stiglitz, Nobel laureate in economics, is a university professor at Columbia University and a member of the Independent Commission for International Corporate Taxation Reform.

This comment was published with permission Project Syndicate , Wars are not won with peacetime economies

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Credit: www.marketwatch.com /

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