1
00:00:00,400 --> 00:00:03,720
Hello and welcome you are 
listening to Patrick Boyle on 

2
00:00:03,720 --> 00:00:08,080
Finance, a podcast exploring 
ideas from quantitative finance,

3
00:00:08,320 --> 00:00:11,640
examining events occurring in 
markets right now and financial 

4
00:00:11,640 --> 00:00:15,400
history to see what lessons can 
be taken away, including 

5
00:00:15,400 --> 00:00:18,200
interviews with some of the most
interesting people in the world 

6
00:00:18,200 --> 00:00:20,960
of finance. 
To learn more about the podcast,

7
00:00:20,960 --> 00:00:29,880
visit on finance.org. 
The peace dividend was an idea 

8
00:00:29,880 --> 00:00:33,560
popularized by George Bush 
senior and Margaret Thatcher in 

9
00:00:33,560 --> 00:00:36,120
the wake of the collapse of the 
Soviet Union. 

10
00:00:36,480 --> 00:00:40,480
The term was used to describe 
the economic benefits of reduced

11
00:00:40,480 --> 00:00:43,120
defence spending. 
It meant different things to 

12
00:00:43,120 --> 00:00:46,760
different people. 
To summit meant lower taxes, but

13
00:00:46,760 --> 00:00:50,640
the most common interpretation 
was the government spending on 

14
00:00:50,640 --> 00:00:54,440
social needs would increase as 
defence spending was cut. 

15
00:00:55,040 --> 00:00:58,920
After the fall of the Berlin 
Wall, Western countries did 

16
00:00:58,920 --> 00:01:03,160
indeed spend a lower and lower 
share of their GDP on defence, 

17
00:01:03,320 --> 00:01:07,440
which you can see in this chart.
And if we look at defence 

18
00:01:07,440 --> 00:01:10,880
spending as a multiple of 
healthcare spending, we can see 

19
00:01:10,880 --> 00:01:14,920
that in both the United States 
and the UK, the peace dividend 

20
00:01:14,920 --> 00:01:18,760
helped fund other popular 
spending priorities, the 

21
00:01:18,760 --> 00:01:22,480
trillions of dollars that had 
been spent on Cold War armies 

22
00:01:22,480 --> 00:01:25,800
and weapons systems. 
We're slowly being diverted to 

23
00:01:25,800 --> 00:01:28,720
things like healthcare, housing 
and schools. 

24
00:01:29,120 --> 00:01:33,080
In the 30 years since the fall 
of the Iron Curtain, Western 

25
00:01:33,080 --> 00:01:37,600
democracies came to believe that
the era of global confrontation 

26
00:01:37,600 --> 00:01:41,200
was in the past. 
The new era when security took a

27
00:01:41,200 --> 00:01:45,720
backseat to trade and economic 
growth ended abruptly with 

28
00:01:45,720 --> 00:01:48,320
Russia's invasion of Ukraine 
last year. 

29
00:01:48,640 --> 00:01:53,160
Of course, it's not just Russia.
The US National Defense Strategy

30
00:01:53,160 --> 00:01:57,480
released last year bluntly 
stated that China represents the

31
00:01:57,480 --> 00:02:01,360
most comprehensive and serious 
challenge to US National 

32
00:02:01,360 --> 00:02:04,520
Security. 
On top of that, the recent 

33
00:02:04,520 --> 00:02:08,440
events in Israel and Gaza have 
the potential of turning into a 

34
00:02:08,440 --> 00:02:12,880
larger regional conflict. 
The threat of nuclear armed Iran

35
00:02:12,880 --> 00:02:17,760
and North Korea continue to grow
and instability in West Africa 

36
00:02:17,760 --> 00:02:22,600
has reached a six year high. 
The peace dividend may well be a

37
00:02:22,640 --> 00:02:25,920
thing of the past. 
It's not the first time that 

38
00:02:25,920 --> 00:02:29,720
we've taught that we were in a 
new era of peace, either. 

39
00:02:29,960 --> 00:02:34,280
In 1910, the British journalist 
Norman Angel published an 

40
00:02:34,280 --> 00:02:37,680
extremely influential book, The 
Great Illusion. 

41
00:02:37,920 --> 00:02:41,480
It sold more than a million 
copies and was translated into 

42
00:02:41,480 --> 00:02:45,120
22 languages. 
It was discussed by the leading 

43
00:02:45,120 --> 00:02:47,680
statesman and diplomats of the 
day. 

44
00:02:48,120 --> 00:02:51,920
Even Kaiser Wilhelm was said to 
have expressed some interest in 

45
00:02:51,920 --> 00:02:55,080
its theories. 
The book argued that new 

46
00:02:55,080 --> 00:02:59,000
economic factors meant that we 
had reached the point in history

47
00:02:59,160 --> 00:03:01,680
where there would be no more 
wars. 

48
00:03:02,000 --> 00:03:05,400
The book didn't focus on the 
cruelty of war, but on its 

49
00:03:05,400 --> 00:03:10,080
economic futility, which made it
unacceptable as an instrument of

50
00:03:10,080 --> 00:03:13,920
state. 
The core argument was that in 

51
00:03:13,920 --> 00:03:17,440
the new, interconnected global 
economy that had recently 

52
00:03:17,440 --> 00:03:21,120
developed, commercial and 
financial linkages between 

53
00:03:21,120 --> 00:03:25,120
countries had become so 
extensive that no rational 

54
00:03:25,120 --> 00:03:29,040
leader could contemplate 
starting a war, as the economic 

55
00:03:29,040 --> 00:03:33,240
chaos that would result from a 
conflict would harm all sides 

56
00:03:33,240 --> 00:03:36,440
and the victor would lose as 
much as the vanquished. 

57
00:03:37,000 --> 00:03:41,120
The British Committee of 
Imperial Defence had hearings on

58
00:03:41,120 --> 00:03:45,960
trade in the time of war. 
In 1912, the Chairman of Lloyd's

59
00:03:45,960 --> 00:03:49,760
testified to the committee that 
much of Germany's merchant 

60
00:03:49,760 --> 00:03:53,720
marine was insured through 
Lloyd's of London and that in 

61
00:03:53,720 --> 00:03:57,320
the event of war, were German 
ships to be sunk by the Royal 

62
00:03:57,320 --> 00:04:01,720
Navy, Lloyd's would be both 
honour bound and, according to 

63
00:04:01,720 --> 00:04:05,440
its lawyers, legally obliged to 
cover the losses. 

64
00:04:05,880 --> 00:04:10,560
Conflicts between modern nations
were all cost and there was no 

65
00:04:10,560 --> 00:04:14,200
benefit. 
According to Angel, the economic

66
00:04:14,200 --> 00:04:17,680
interdependence between 
industrial countries would be 

67
00:04:17,680 --> 00:04:22,160
the real guarantor of the good 
behavior of 1 state to another. 

68
00:04:22,560 --> 00:04:26,800
Angel was right about the meager
benefits and high costs of war, 

69
00:04:27,000 --> 00:04:30,160
but was wrong about the 
rationality of nations. 

70
00:04:30,400 --> 00:04:33,760
The years that followed saw the 
worst conflicts in human 

71
00:04:33,760 --> 00:04:36,600
history. 
A new edition of the Great 

72
00:04:36,600 --> 00:04:41,200
Illusion, which is today known 
as the Interwar edition, was 

73
00:04:41,200 --> 00:04:46,320
published in 1933, the year 
Angel was awarded the Nobel 

74
00:04:46,320 --> 00:04:50,160
Peace Prize. 
Military spending by European 

75
00:04:50,160 --> 00:04:55,680
NATO members and Canada reached 
a low point in 2014 as the 

76
00:04:55,680 --> 00:04:58,400
demand for military hardware 
plummeted. 

77
00:04:58,880 --> 00:05:03,920
After Russia annexed Crimea that
year, defense budgets started to

78
00:05:03,920 --> 00:05:08,840
rise, but most countries still 
fell well below NATO's target of

79
00:05:08,840 --> 00:05:13,440
2% of national output. 
Last year, we saw the largest 

80
00:05:13,440 --> 00:05:17,280
increase in military spending in
Europe in 30 years. 

81
00:05:17,640 --> 00:05:21,600
These defense demands, which are
likely to last well beyond an 

82
00:05:21,600 --> 00:05:25,320
end to the war in Ukraine. 
Come at a time when many 

83
00:05:25,320 --> 00:05:29,600
countries are facing huge 
spending needs for rapidly aging

84
00:05:29,600 --> 00:05:33,880
populations, as well as having 
made large financial commitments

85
00:05:33,880 --> 00:05:37,400
to green policies. 
Once the Cold War had ended, 

86
00:05:37,680 --> 00:05:41,320
there was an idea that we were 
living in a unipolar world where

87
00:05:41,320 --> 00:05:44,920
the United States had no pure 
military rival. 

88
00:05:45,200 --> 00:05:49,640
In the 1990s, political leaders 
around the world believed that 

89
00:05:49,640 --> 00:05:53,200
China would move towards 
liberalization over time. 

90
00:05:53,600 --> 00:05:57,240
This was already happening 
economically and was expected to

91
00:05:57,240 --> 00:06:01,120
happen politically too. 
There was a similar expectation 

92
00:06:01,120 --> 00:06:04,080
of Russia. 
The more countries traded with 

93
00:06:04,080 --> 00:06:07,600
each other, the less likely 
conflict seemed to be. 

94
00:06:07,920 --> 00:06:11,800
This point of view made perfect 
sense, just like angels 

95
00:06:11,800 --> 00:06:16,120
arguments had in 1910. 
But just because something makes

96
00:06:16,120 --> 00:06:19,080
sense doesn't mean it is what 
will happen. 

97
00:06:19,600 --> 00:06:25,080
In the early 2000s, Germany 
spent as little as 1% of GDP on 

98
00:06:25,080 --> 00:06:29,520
defence because, as the thinking
went, why maintain a large 

99
00:06:29,520 --> 00:06:33,240
Defence Force when all our 
neighbours appear to be friends?

100
00:06:33,560 --> 00:06:37,280
A German finance ministry 
assessment this summer showed 

101
00:06:37,280 --> 00:06:43,160
that the nation only had a stock
of 20,155 millimetre artillery 

102
00:06:43,160 --> 00:06:47,360
shells in stock, enough for less
than three days fighting. 

103
00:06:48,040 --> 00:06:51,400
Last year, the Center for 
Strategic and International 

104
00:06:51,400 --> 00:06:55,840
Studies conducted a war game 
involving a Chinese invasion of 

105
00:06:55,840 --> 00:06:59,000
Taiwan. 
The exercises revealed how 

106
00:06:59,000 --> 00:07:03,120
quickly the United States would 
run through its current supply 

107
00:07:03,120 --> 00:07:07,880
of weapons defending Taiwan. 
Certain critical supplies like 

108
00:07:07,880 --> 00:07:12,000
long range precision guided 
munitions would likely run out 

109
00:07:12,000 --> 00:07:15,840
in less than a week. 
The United States is not set up 

110
00:07:15,840 --> 00:07:18,320
to quickly replenish those 
stocks. 

111
00:07:18,720 --> 00:07:22,720
The urgent need to fortify 
defenses in Europe against 

112
00:07:22,720 --> 00:07:27,040
Russia has now forced European 
leaders to make extremely 

113
00:07:27,040 --> 00:07:31,280
difficult budgetary decisions 
that can be expected to affect 

114
00:07:31,280 --> 00:07:34,320
people's everyday lives in the 
coming years. 

115
00:07:34,600 --> 00:07:37,840
Will the increased military 
spending come at the cost of 

116
00:07:37,840 --> 00:07:42,160
reduced public services? 
And if not, how will it be paid 

117
00:07:42,160 --> 00:07:44,640
for? 
Through higher taxes, more 

118
00:07:44,640 --> 00:07:48,680
borrowing, or both? 
There appears to be public 

119
00:07:48,680 --> 00:07:52,400
support for at least some of 
this renewed defence spending in

120
00:07:52,400 --> 00:07:56,520
Europe, as illustrated by 
Finland and Sweden's new desire 

121
00:07:56,520 --> 00:08:00,320
to join NATO. 
In most of Europe, however, the 

122
00:08:00,320 --> 00:08:03,640
painful budgetary trade-offs 
that would be required to 

123
00:08:03,640 --> 00:08:07,720
significantly increase defence 
spending have not yet trickled 

124
00:08:07,720 --> 00:08:11,520
down to daily life. 
Much of the belt tightening last

125
00:08:11,520 --> 00:08:15,320
year that affected households 
was the result of rising energy 

126
00:08:15,320 --> 00:08:20,280
prices and inflation, a senior 
NATO official was quoted in the 

127
00:08:20,280 --> 00:08:24,160
FT recently as saying. 
Leaders have signed up to a 

128
00:08:24,200 --> 00:08:28,240
generational shift in defence 
policy, but I wonder if they 

129
00:08:28,240 --> 00:08:31,680
fully understand the costs or 
have told their finance 

130
00:08:31,680 --> 00:08:35,240
ministers. 
Governments around the world, on

131
00:08:35,240 --> 00:08:39,799
both sides of any conflict, are 
realizing that the technological

132
00:08:39,799 --> 00:08:43,320
sophistication of modern 
weaponry can make defence 

133
00:08:43,320 --> 00:08:48,160
spending cripplingly expensive. 
Russia's war on Ukraine has 

134
00:08:48,160 --> 00:08:52,040
shown that modern conflicts are 
not all about high tech 

135
00:08:52,040 --> 00:08:55,120
weaponry. 
Tanks, artillery and ground 

136
00:08:55,120 --> 00:08:58,160
troops are still as necessary as
they've ever been. 

137
00:08:58,760 --> 00:09:03,120
Being fully prepared in this day
and age means having both modern

138
00:09:03,120 --> 00:09:07,720
sophisticated weaponry, along 
with traditional weaponry and 

139
00:09:07,720 --> 00:09:09,880
the industrial base to support 
them. 

140
00:09:10,560 --> 00:09:14,760
Western governments have not yet
communicated to their citizens 

141
00:09:14,960 --> 00:09:19,640
the costs or the implications of
this new military expansion. 

142
00:09:20,160 --> 00:09:23,960
Boris Pistorius, the German 
defence minister, told his 

143
00:09:23,960 --> 00:09:27,440
counterparts in Europe this 
summer that convincing 

144
00:09:27,440 --> 00:09:31,400
electorates of the need to spend
more on defence requires a 

145
00:09:31,400 --> 00:09:36,560
totally changed mindset. 
Defence specialists argue that 

146
00:09:36,560 --> 00:09:40,320
investing in deterrence is less 
expensive than dealing with the 

147
00:09:40,320 --> 00:09:45,080
costs of conflict, and that by 
preparing for war, peace can be 

148
00:09:45,080 --> 00:09:48,120
preserved. 
Of course, one of the risks of 

149
00:09:48,120 --> 00:09:52,680
rearming is that opponents might
see increased military spending 

150
00:09:52,680 --> 00:09:56,640
as a provocation. 
While all NATO members have 

151
00:09:56,640 --> 00:10:02,360
committed to spend 2% of GDP on 
defence, currently only 11 of 

152
00:10:02,360 --> 00:10:06,360
the 31 members do. 
But that might be already in the

153
00:10:06,360 --> 00:10:10,440
process of changing. 
President Emmanuel Macron of 

154
00:10:10,440 --> 00:10:15,520
France promised to increase 
French military spending by 40% 

155
00:10:15,520 --> 00:10:20,640
through 2030 and to transform 
France's nuclear armed military.

156
00:10:21,000 --> 00:10:24,960
France has entered into a war 
economy that I believe we will 

157
00:10:24,960 --> 00:10:29,840
be in for a long time, Macron 
said in a speech shortly after 

158
00:10:29,840 --> 00:10:34,160
announcing his spending plans. 
In France, government spending 

159
00:10:34,160 --> 00:10:38,480
as a percentage of GDP is 
already the highest in Europe, 

160
00:10:38,720 --> 00:10:42,480
and almost half of that spending
went on the nation's social 

161
00:10:42,480 --> 00:10:46,040
safety net, which includes 
unemployment benefits and 

162
00:10:46,040 --> 00:10:49,400
pensions. 
Debt has rapidly increased in 

163
00:10:49,400 --> 00:10:53,240
the wake of the pandemic, yet 
Makran has promised not to 

164
00:10:53,240 --> 00:10:57,440
increase what is already one of 
the highest tax levels in Europe

165
00:10:57,640 --> 00:10:59,920
for fear of scaring off 
investors. 

166
00:11:00,320 --> 00:11:04,040
There's no way that the French 
will not feel a pinch with this 

167
00:11:04,040 --> 00:11:07,880
increased military spending. 
The British Prime Minister, 

168
00:11:07,880 --> 00:11:13,000
Rishi Senak, pledged in March to
increase military funding by $6 

169
00:11:13,000 --> 00:11:17,640
billion over the next two years 
in response to Russia's invasion

170
00:11:17,640 --> 00:11:22,120
of Ukraine and the epoch 
defining challenge posed by 

171
00:11:22,120 --> 00:11:25,320
China. 
This increase was only half of 

172
00:11:25,320 --> 00:11:28,720
what its Defense Secretary 
reportedly wanted. 

173
00:11:29,280 --> 00:11:33,080
Britain is one of the few NATO 
members that actually meet 

174
00:11:33,080 --> 00:11:37,880
NATO's guideline of spending at 
least 2% of GDP on defence. 

175
00:11:38,280 --> 00:11:41,560
On the same day that the British
government announced this 

176
00:11:41,560 --> 00:11:45,640
additional spending, teachers, 
doctors and transport workers 

177
00:11:45,800 --> 00:11:49,320
went on strike over pay and 
working conditions. 

178
00:11:49,680 --> 00:11:53,960
The budget did include a $4 
billion increase for the NHS 

179
00:11:54,040 --> 00:11:57,880
over the same two year period. 
But as you can see, there are 

180
00:11:57,880 --> 00:12:01,400
difficult trade-offs to be made 
and lots of people will be 

181
00:12:01,400 --> 00:12:04,360
unhappy no matter what decision 
is made. 

182
00:12:04,800 --> 00:12:10,240
The USUK and Australia have also
unveiled plans for an expensive 

183
00:12:10,240 --> 00:12:14,000
fleet of nuclear powered 
submarines in the Pacific as 

184
00:12:14,000 --> 00:12:18,960
part of their Aucus alliance. 
Germany, the largest and most 

185
00:12:18,960 --> 00:12:23,080
powerful economy in Europe, has 
consistently spent less on 

186
00:12:23,080 --> 00:12:27,280
defence as a percentage of GDP 
than either France or Britain 

187
00:12:27,280 --> 00:12:29,760
did since the reunification of 
Germany. 

188
00:12:30,040 --> 00:12:33,120
Now, at times in the more 
distant past, they've been quite

189
00:12:33,120 --> 00:12:36,320
big military spenders, but not 
recently. 

190
00:12:36,960 --> 00:12:40,760
Germany shift in spending is 
possibly the most dramatic in 

191
00:12:40,760 --> 00:12:45,040
Western Europe, with the German 
Chancellor Olaf Schultz having 

192
00:12:45,040 --> 00:12:50,000
announced a special $112 billion
defence fund last year. 

193
00:12:50,320 --> 00:12:54,000
The German defence minister 
asked for an additional $11 

194
00:12:54,000 --> 00:12:57,880
billion for next year. 
And this pot of money does not 

195
00:12:57,880 --> 00:13:01,920
include any spending for 
ammunition, which as I mentioned

196
00:13:01,920 --> 00:13:05,880
earlier, they are quite low on. 
When this fund is depleted, 

197
00:13:06,040 --> 00:13:11,080
Germany will need to find an 
additional $38 billion to level 

198
00:13:11,080 --> 00:13:16,080
up with its NATO partners. 
Japan's defence ministry asked 

199
00:13:16,080 --> 00:13:21,760
in August for a record $53 
billion for the 2024 fiscal 

200
00:13:21,760 --> 00:13:28,200
year, seeking to double defence 
spending to 2% of GDP by 2027. 

201
00:13:28,560 --> 00:13:32,120
As it faces an increasingly 
assertive China and an 

202
00:13:32,120 --> 00:13:36,200
unpredictable North Korea, the 
question of how to fund this 

203
00:13:36,200 --> 00:13:40,280
increase has divided the nation.
Already struggling with 

204
00:13:40,320 --> 00:13:45,200
ballooning Social Security 
costs, Denmark's parliament 

205
00:13:45,200 --> 00:13:49,320
voted earlier this year to 
abolish a springtime public 

206
00:13:49,320 --> 00:13:52,400
holiday to boost spending on the
military. 

207
00:13:52,800 --> 00:13:57,520
The cancellation will provide an
additional $400 million to be 

208
00:13:57,520 --> 00:14:00,800
used on the defense budget, 
according to the government. 

209
00:14:01,120 --> 00:14:04,280
There were protests, but 
Denmark's government said the 

210
00:14:04,280 --> 00:14:08,360
extra money was needed to raise 
the defense budget to NATO's 

211
00:14:08,360 --> 00:14:15,000
target of 2% of GDP by 2030 
instead of 2033 as had been 

212
00:14:15,000 --> 00:14:19,160
previously planned. 
This change of plan was due to 

213
00:14:19,160 --> 00:14:22,400
Russia's invasion of Ukraine, 
according to the Danish 

214
00:14:22,400 --> 00:14:25,680
government. 
Sweden, which has applied for 

215
00:14:25,680 --> 00:14:29,760
NATO membership, announced in 
September that it planned to 

216
00:14:29,760 --> 00:14:34,720
raise defense spending by more 
than 25% to meet the military 

217
00:14:34,720 --> 00:14:40,560
alliances target of 2% of GDP. 
Obviously, the closer you get to

218
00:14:40,560 --> 00:14:43,960
Russia, the more you see 
countries start to worry. 

219
00:14:44,440 --> 00:14:48,800
Poland has pledged to spend 4% 
of its national output on 

220
00:14:48,800 --> 00:14:52,600
defense. 
Russia's budget for 2024 

221
00:14:52,720 --> 00:14:57,520
provides for an increase of 68% 
for defense compared to the 

222
00:14:57,520 --> 00:15:01,680
previous year. 
This would bring spending to 6% 

223
00:15:01,680 --> 00:15:05,080
of GDP. 
In contrast, spending on 

224
00:15:05,080 --> 00:15:10,000
education and health in Russia 
has been frozen at 2023 levels, 

225
00:15:10,200 --> 00:15:14,480
which corresponds to a spending 
cut when adjusted for inflation.

226
00:15:14,920 --> 00:15:18,960
Due to the high rate of injuries
of Russian soldiers, healthcare 

227
00:15:18,960 --> 00:15:22,800
expenses and financial aid for 
relatives of those killed 

228
00:15:23,040 --> 00:15:28,080
increased over the year. 
Taiwan's 2023 defense budget of 

229
00:15:28,080 --> 00:15:35,560
around $25 billion represents 
around 2.6% of GDP and is a 10% 

230
00:15:35,560 --> 00:15:39,800
increase from the prior year. 
Taiwan unveiled its first 

231
00:15:39,800 --> 00:15:43,800
domestically built submarine 
last month, demonstrating its 

232
00:15:43,800 --> 00:15:47,200
determination to push back 
against growing military 

233
00:15:47,200 --> 00:15:51,680
pressure from China. 
Many US defense experts see the 

234
00:15:51,680 --> 00:15:55,720
project as a distraction from 
Taiwan's need to quickly build 

235
00:15:55,720 --> 00:16:00,000
stocks of cheap and mobile 
munitions and strengthen its 

236
00:16:00,000 --> 00:16:02,960
defenses against a ground 
invasion force. 

237
00:16:03,440 --> 00:16:07,440
Taiwanese strategists argue that
the submarines could greatly 

238
00:16:07,440 --> 00:16:12,000
complicate operations by China's
Navy in the Straits North and 

239
00:16:12,000 --> 00:16:16,360
South of Taiwan. 
China claims to be spending $300

240
00:16:16,360 --> 00:16:20,240
billion a year on defense. 
But assessments by U.S. 

241
00:16:20,240 --> 00:16:24,480
intelligence agencies and the 
highly regarded Swedish defense 

242
00:16:24,480 --> 00:16:29,880
think tank CIPRI put the number 
at $700 billion per year. 

243
00:16:30,120 --> 00:16:35,440
This is not too far from the US 
defense budget of $900 billion 

244
00:16:35,440 --> 00:16:39,760
per year. 
North Korea spends 26% of its 

245
00:16:39,760 --> 00:16:44,080
GDP on military, the highest 
proportion of any country in the

246
00:16:44,080 --> 00:16:46,880
world. 
The rest of the budget is spent 

247
00:16:46,880 --> 00:16:49,680
on haircuts and food. 
For Kim Jong Un. 

248
00:16:50,760 --> 00:16:54,880
US spending grew by less than 
inflation last year, though it's

249
00:16:54,880 --> 00:16:59,640
set to accelerate in 2023. 
Surveys in the United States 

250
00:16:59,640 --> 00:17:04,760
show that only 1% of respondents
cite national security as their 

251
00:17:04,760 --> 00:17:08,359
main concern. 
The US is military budget is 

252
00:17:08,359 --> 00:17:12,400
already twice that of all other 
NATO members combined. 

253
00:17:12,520 --> 00:17:17,960
US is forecast to run budget 
deficits of 6% of GDPA year for 

254
00:17:17,960 --> 00:17:23,839
the next decade, and by 2053 
federal debt will be twice GDP, 

255
00:17:23,839 --> 00:17:27,079
according to estimates from the 
Congressional Budget Office. 

256
00:17:27,720 --> 00:17:31,840
The US makes a significant 
contribution to the defence of 

257
00:17:31,840 --> 00:17:36,080
its allies around the world, but
if these countries refuse to 

258
00:17:36,080 --> 00:17:40,400
shoulder more of the cost as the
geopolitical situation heats up.

259
00:17:41,040 --> 00:17:46,000
The US could lose enthusiasm. 
While the US does have a huge 

260
00:17:46,000 --> 00:17:50,600
defense budget, a recent article
by Michael Brennes of Yale 

261
00:17:50,600 --> 00:17:54,800
University in Foreign Policy 
magazine argued that the war in 

262
00:17:54,800 --> 00:17:59,120
Ukraine revealed serious 
problems in America's ability to

263
00:17:59,120 --> 00:18:02,920
manufacture weaponry. 
Following Russia's invasion of 

264
00:18:02,920 --> 00:18:06,640
Ukraine, the United States 
provided the Ukrainian military 

265
00:18:06,800 --> 00:18:10,200
with a range of weapons that 
were critical in helping halt 

266
00:18:10,200 --> 00:18:13,520
Russia's invasion. 
But the rate at which soldiers 

267
00:18:13,520 --> 00:18:17,760
are using ammunition in Ukraine 
strained the US defense 

268
00:18:17,760 --> 00:18:21,560
industrial base. 
This isn't really new, as U.S. 

269
00:18:21,560 --> 00:18:26,040
soldiers in Afghanistan and Iraq
complained in the past about 

270
00:18:26,040 --> 00:18:30,560
being undersupplied. 
The conflict in Ukraine has so 

271
00:18:30,560 --> 00:18:34,360
far been a war of warehouses, 
where many of the weapons 

272
00:18:34,360 --> 00:18:38,880
systems and munitions came 
directly from US inventories, 

273
00:18:39,120 --> 00:18:41,400
depleting the nation's 
stockpiles. 

274
00:18:41,760 --> 00:18:45,320
Brenice argues that the United 
States needs to have the 

275
00:18:45,320 --> 00:18:49,800
industrial base to ramp up 
production in times of conflict.

276
00:18:50,160 --> 00:18:53,920
The war in Ukraine has 
demonstrated that great power 

277
00:18:53,920 --> 00:18:59,360
wars are industrial conflicts. 
The effort to deploy arm feed 

278
00:18:59,360 --> 00:19:03,520
and supply forces is a huge 
task, and the consumption and 

279
00:19:03,520 --> 00:19:07,560
destruction of military 
equipment requires a large scale

280
00:19:07,560 --> 00:19:12,640
industrial base for resupply. 
the US Army plans to increase 

281
00:19:12,640 --> 00:19:17,920
production of artillery shells 
by 500% within two years to 

282
00:19:17,920 --> 00:19:20,480
replenish stockpiles sent to 
Ukraine. 

283
00:19:20,800 --> 00:19:25,120
This is the largest production 
expansion since the Korean War. 

284
00:19:25,760 --> 00:19:29,760
A lot of difficult financial 
trade-offs lie ahead in every 

285
00:19:29,760 --> 00:19:33,080
country in the world. 
Reduced defense spending in 

286
00:19:33,080 --> 00:19:36,680
countries around the world 
helped governments to increase 

287
00:19:36,680 --> 00:19:40,840
spending on social programs 
without big tax or debt 

288
00:19:40,840 --> 00:19:43,480
increases. 
Over the last 30 years, 

289
00:19:43,880 --> 00:19:48,080
governments have done little to 
explain to their populations the

290
00:19:48,080 --> 00:19:52,640
implications of the geopolitical
tensions that we see today and 

291
00:19:52,640 --> 00:19:55,400
the increased military spending 
that is happening. 

292
00:19:55,760 --> 00:20:00,480
In every large country in the 
world, Norman Angel was right in

293
00:20:00,480 --> 00:20:05,640
1910 about the futility of war, 
both from an economic and social

294
00:20:05,640 --> 00:20:08,880
perspective. 
But one of the flaws in economic

295
00:20:08,880 --> 00:20:12,640
thinking is to assume that 
people always make rational 

296
00:20:12,640 --> 00:20:15,680
decisions. 
If you found today's podcast 

297
00:20:15,680 --> 00:20:19,040
interesting, I'd love if you 
could write a short review in 

298
00:20:19,040 --> 00:20:22,800
whatever podcast app you listen 
on, as that would really help me

299
00:20:22,800 --> 00:20:25,280
grow. 
Have a great week and talk to 

300
00:20:25,280 --> 00:20:26,720
you again soon. 
Bye. 

301
00:20:27,720 --> 00:20:31,160
If you enjoyed this episode, be 
sure to subscribe so you're 

302
00:20:31,160 --> 00:20:33,160
notified when a new episode is 
posted. 

303
00:20:33,560 --> 00:20:36,280
Thank you to everyone who is 
supporting this content on 

304
00:20:36,280 --> 00:20:38,760
Patreon. 
If you enjoyed this content, you

305
00:20:38,760 --> 00:20:42,880
can find more like it on YouTube
on the Patrick Boyle on Finance 

306
00:20:42,880 --> 00:20:46,640
channel or follow us on Twitter 
at Patrick E Boyle. 

307
00:20:46,960 --> 00:20:48,280
Thanks for listening. 
Bye.