This Is What a War Economy Would Actually Look Like

On March 18, U.S. President Donald Trump joined world leaders in declaring that their countries were at war with COVID-19. But are they really?

Sure, Trump invoked the Defense Production Act, a piece of legislation forged in the crucible of the Korean War to mobilize private industry for arms production. But he still refuses to use the act systematically instead of haphazardly to order production of scarce and essential medical equipment. Trump has also joined French President Emmanuel Macron, German Chancellor Angela Merkel, and British Prime Minister Boris Johnson in their use of wartime rhetoric. Calls for collective solidarity or a general mobilization of society are unprecedented since the days of World War II; the glorification of emergency workers as “heroes,” the framing of general citizens as “warriors,” and Trump’s escalation of anti-immigration policy resemble wartime propaganda. All this rhetoric seeks to fortify the population to bear the sacrifices required of them to fight the pandemic. The problem now is that the propaganda is not being paired with true wartime leadership.

A genuine war against COVID-19 would not look like the hands-off, conservative, and woefully inadequate response of the Trump administration. It is high time for the government to mobilize and coordinate all of its national resources to fight the pandemic and mitigate the shutdown’s socioeconomic costs. There is no better policy template than the war economies of the last century.

In a strange sense, it’s precisely the current shutdown of large parts of the national and global economy that beckons the analogy to wartime economic organization. Selective suppression of economic activity is fundamental to war economies. The reallocation of capital, raw materials, and people to factories for military-industrial production and to the front lines required a deliberate demobilization of civilian economies in both World War I and World War II. Car manufacturers, such as Renault in France and Ford in the United States, stopped mass-producing automobiles and began turning out tanks. Comprehensive rationing also forced civilians to spend less on consumer goods. This suppression of the consumer economy increased household savings and encouraged the purchase of war bonds. In Nazi Germany, where the war economy was arguably taken furthest, the Reich economic ministry and Reichsbank devised a sophisticated system of “silent war finance” (geräuschlose Kriegsfinanzierung) as an alternative to raising taxes. Extreme rationing forced households to deposit their surplus savings in local banks. The banks then invested the surplus in government bonds and other debt instruments to finance rearmament.

[Mapping the Coronavirus Outbreak: Get daily updates on the pandemic.]

But if current shutdown policies do not disqualify the war economy model, there is a more urgent reason to embrace it more fully. The United States is suffering the costs of an unprecedented demobilization of the civilian economy, without the remobilization necessary to win the battle against COVID-19. Unemployment claims have hit record highs, unmatched since the Great Depression. The Federal Reserve reported a whopping drop of 5.4 percent in total industrial production in March, the largest since 1946. The automotive industry has been hit hardest, as all major factories have shut down across the nation. But the U.S. government is not organizing—neither directly through mass purchasing and mass production, nor indirectly through mass investment and partnership with private business—any national reallocation of capital, labor, and vital materials toward the health care economy: the front-line sector. Trump’s symbolic invocation of the Defense Production Act plus the issue of a one-time $1,200 stimulus check to eligible U.S. residents and his pretensions of being a “wartime president” do not come close to a war economy. Just contrast that with the steps taken by the United States upon entering World War II, when the War Production Board gave the federal government powers to order procurement and production of armaments. This included the authority to organize the supply of vital raw materials.

Until the United States sees a similar kind of government mobilization of the economy, its present crisis may never end. Select industries that have closed shop should be systematically incentivized to produce test kits, ventilators, personal protective equipment, and, when the time comes, vaccines. Production and wage subsidies, tax deductions, and guaranteed government contracts could all encourage this conversion. Instead, conversion of existing industries has only occurred voluntarily and haphazardly. Without this remobilization, infection rates will continue to soar. Dire shortages of medical supplies will continue to delay the conditions for a sound reopening.

The United States currently faces the costs of an incomplete war economy, without its benefits. Hoarding, profiteering, shortages, inflationary pressures, business concentration, depleted morale, curtailment of civil liberties, sharpened inequalities, and increasing protests have become fixtures of our pandemic society. These are classic pathologies of a war economy. The shutdown has already become unbearable for those suffering its greatest economic hardships. Popular protests pressuring authorities to reopen before it is safe to do so are perhaps already becoming irresistible. Yet despite all their leaders’ war rhetoric, virtually no OECD government has adopted signatory war measures to mitigate the crisis.

Read More

The Coronavirus War Economy Will Change the World

When societies shift their economies to a war footing, it doesn’t just help them survive a crisis—it alters them forever.

Argument |

Nicholas Mulder

Biden’s State Department Needs a Reset

The administration’s diplomacy has underperformed—except at time-wasting talk about democracy.

Argument |

Stephen M. Walt

What Taiwan Can Learn from Honduras’s Switch to China

Taipei’s last diplomatic stand may well be in the Americas.

Analysis |

Leland Lazarus, Ryan C. Berg

Neither price controls nor rationing has been introduced. The price of N95 masks in the United States has jumped at least sixfold from $1 to $6 apiece. In Europe, it easily surpasses 10 euros, nearly $11. To combat rocketing price inflation and mitigate scarcities during World War II, the United States joined other belligerents in creating a price control agency, the Office of Price Administration, which set maximum price and wage regulations. Panicked hoarding of essential medical products and foodstuffs is now contributing to critical shortages and price-gouging. France has made the first move to impose price ceilings on surgical masks (capped at 0.95 euros) after mounting calls from the political opposition. Such interventions have remained off the table in the United States. Rationing in both world wars had two purposes: to manage real shortages and to establish a sense of fairness and mitigate discontent among those who suffered disproportionate economic hardship. Without an overall policy, grocery stores, distributors, and producers have taken the initiative to implement their own quotas on the sale of staple foods. This haphazard approach to rationing not only is inefficient, but it also risks fueling popular discontent and encouraging further supply chain imbalances.

Corporate excess profit taxes may also be called for. Studies confirm that the COVID-19 crisis is exacerbating economic inequalities. The United States, the United Kingdom, France, and Germany all began taxing what they defined as excess profits at the end of World War I. They did so again in World War II. This helped to allay popular outcries against profiteers and speculators who enriched themselves from the wars. The measures helped promote a sense of fairness by redistributing some of the war’s unequal sacrifices, while also raising needed government revenue. Although most companies are suffering severe losses under the pandemic, a few are racking in massive gains. Big business—and big tech first of all—has expanded its market power as brick-and-mortar shops across the nation go under. Amazon’s share price has risen 30 percent this year, and sales soared by 50 percent in March. Meanwhile, Standard & Poor’s 500 index reported one of its strongest monthly returns in April since 1987, though the market dipped again in May. In a true war economy, the government would step in to attenuate these growing inequalities, arrest rising monopoly power (by directing perhaps more bailouts to small and medium sized business), and manage distributional conflicts to maintain popular morale.

We should not be fooled by Trump’s high-minded rhetoric of being at war against an “invisible enemy.” He may certainly be waging a war against immigrants and threatening war with China and Iran. But this is to distract Americans from the economic war his administration refuses to wage. Overcoming the COVID-19 crisis will require a version of wartime mobilization led by government coordination of the national economy. A reorientation toward productivity-enhancing policies that also redistribute the costs and benefits of the shutdown in a more egalitarian way are essential to sustaining the fight against this virus. Unfortunately, a Republican government ideologically hostile to state intervention in the economy may prefer only to preach the urgency of war. A rising death toll, galloping inequalities, more monopoly power, mounting protests, and potential revolt all await inaction.