Why generals need economists to win long wars

Military planners need to work more closely with economists to better understand resource management and constraints related to waging war.

The United States National Defense Strategy (DoD, 2026), published by the administration of President Donald Trump in January 2026, reassures allies that the European component of the North Atlantic Treaty Organization (NATO) “dwarfs Russia in economic scale, population, and, thus, latent military power”. Non-US NATO GDP is $26 trillion compared to Russia’s $2 trillion. But this one-sided comparison is misleading. At purchasing power parity, which reflects the purchasing ability of different currencies, Russia’s military spending is almost the same as that of the European Union and the United Kingdom combined (Burilkov et al, 2025). 

On the other hand, Russia’s economy is more than 10 times the size of Ukraine’s. Yet, four and a half years into an invasion Moscow expected to finish in three days, Ukraine is still fighting back. 

In a different part of the world, Iran’s economy is barely one percent the size of the US economy. Yet since the US and Israel attacked Iran in February 2026, Tehran has tied down US forces, burned through half to two thirds of US missile defence interceptors – which will take at least five years to rebuild – and is holding global energy markets hostage, all while driving up US inflation. Composite measures narrow the gaps (COW, 2026), but they measure potential, not mobilisation. 

What explains this imbalance between the size of an economy and its ability to wage war? 

If countries seek to convert economic power into military success, economists and the military need to cooperate more closely. Economists’ contributions grow in importance as wars settle into long wars, wars of attrition or asymmetric conflicts. In such cases, economic management must be part of military strategy, not just a backdrop. 

Of course, economists cannot replace the military’s ability to deploy armed forces (Biddle, 2006). Nor can economists replace bargaining: wars still end at the negotiating table. But converting economic power into military power determines how long each side can hold out and how much each side can afford to lose, thus setting the stage for negotiations. 

A proposed new research agenda on the economics of war

However, much of the literature on the economics of war is outdated and siloed in the different disciplines of economics, international relations and political science. A new research agenda is needed to highlight what work has been done and what still needs to be done. Four building blocks – generating resources, converting resources into military capabilities, denying resources to an adversary and staying in power – can help understand how economic size translates into sustained fighting power, where that conversion breaks down and what economists and military specialists need to understand together.

For example, nationwide mobilisation requires paying for production, finding cost-effective ways to wage war, mobilising the right number and type of people, adopting new technologies faster than the adversary and denying the other party resources through economic warfare. These imperatives raise economic issues as much as military ones. Defence studies have recently begun to take an interest in the economics of mobilisation (Harrison, 2026), and the economics profession should refresh its own frameworks for the economics of war. 

Historians of past wars have shown that productive capacity shapes outcomes over the long run. Recent work has advanced individual topics. Federle et al (2025) found that windfall revenue gains raise a country’s odds of winning, enabling them to increase military spending. Cappella Zielinski (2016) explained how states choose to pay for wars. Hufbauer et al (2008), Fishman (2025) and Mulder (2022) traced the rise of sanctions as a tool of modern war. Harrison (2026) distilled lessons for defence industrial policy, among them that costs matter in long wars and autarky is a costly delusion. O’Brien (2026) controversially argued that wars are won by full-spectrum powers able to sustain them. The field even has its own journal, Defence and Peace Economics. Recent wars suggest that it is time to bring the topic back to the mainstream.

The four building blocks that can help in understanding the importance of economics as it relates to war are as follows: 

Block 1: Generating resources 

War finance depends on the speed and credibility of mobilising capital and the trade-offs between taxation, debt, money creation and, increasingly, reliance on external financing. The core choices are how much to finance through taxes versus debt, with which instruments, particularly which taxes and which nominal or inflation-indexed bonds. 

Keynes’s volume How to Pay for the War (1940), written for an economy constrained by supply rather than demand, remains an important part of the debate on rearmament. Central banks make up the financial rear: keeping payment systems running, banks liquid and solvent and monetary policy predictable. Central banks not only help avoid a financial crisis but also help preserve confidence that the state still governs and will survive the war. 

External support has increasingly become an important but still understudied input. We can also think of the absorptive capacity of countries receiving such support as the multiplier: Ukraine converts allied aid into fighting power, while the $145 billion the US spent rebuilding Afghanistan over 20 years did not prevent the Afghan government’s collapse (SIGAR, 2021). Labour mobilisation also requires trade-offs between the war front and the home front. Ukraine lost roughly a quarter of its effective labour force during Russia’s 2022 invasion. Yet wage flexibility, remote work and hiring more women and older workers kept the decline in job-matching efficiency to about 15 percent (Giacomo et al, 2026). In Israel, a prolonged call-up of reservists and the exclusion of Palestinian workers are weighing on the economy (Bank of Israel, 2024). 

Block 2: Converting resources

Choosing where to focus military production is a critical economic choice. Over the past few decades, the US and Germany have tended to invest more in highly sophisticated and expensive materiel that takes years, if not decades, to produce. Ukraine and Iran are at the opposite side of the spectrum. Ukraine has been forced to mobilise production rapidly because of shortages of manpower and financial resources, and Iran because of decades of isolation. 

But these scarcities can serve as an advantage: large corporates in the US and Germany have a history of government contracts for specific types of capital-intensive, bespoke, highly sophisticated military equipment. These companies want to protect their status, so when cheap drones are suddenly needed, it is hard for new companies to enter the market. By contrast, in Ukraine and Iran, there are few incumbents to resist the shift away from capital-intensive military industry. 

Russia lags Ukraine in innovation, though it is closing that gap and is also more successful at scaling production: mostly of older, proven technology. Ukraine’s ability to expand its industrial base across more than 180 European partnerships⁶ should help it achieve scale as well. Finally, recent wars have reversed the traditional defence research and development model: after decades of lower post-Cold-War spending, civilian technology is now being pulled into military use rather than the other way around. 

Block 3: Denying resources 

Denying the adversary its capacity to convert economic power into military advantage is the flip side of building your own. Economic warfare can make an important contribution. Sanctions are one instrument of economic warfare (Broadberry and Harrison, 2026), alongside blockades, strategic bombing and long-range strikes on oil refineries⁷ and shipping lanes. Coalition size, costs borne by the sanctioning country, adaptation and enforcement are the main constraints. US Senate hearings with experts and companies revealed a pressure point: More than 40 percent of 2,500 components in Russian weapons used in Ukraine came from four American suppliers⁸. Meanwhile, Iran’s disruption of the Strait of Hormuz shows how a much smaller economy can wage asymmetric warfare, imposing steep, far-reaching costs on a much richer adversary (Auclair and Mazarei, 2026). 

Block 4: The constraint of staying in power 

Narratives directed at the domestic or international community can reduce the cost of every other input. Credibility with bond markets, the public and allied militaries – whose supply chains can assist smaller states – keeps finance and materiel flowing and people at work. Government can also use its ability to shape narratives to suppress statistics or shape how people understand wars being waged. Leaders’ choices are constrained by the need to keep the support of those who can keep them in power, even when doing so comes at the expense of the wider public (Bueno de Mesquita et al, 2003).

However, what secures the cooperation of elites is not always what is best for the economy (Biddle and Zirkle, 1999): coup-proofing – organising the military to keep a country’s ruler safe from overthrow, rather than for maximum efficiency – and patronage impose deadweight loss on converting economic power into military power. Organski and Kugler (1980) demonstrated how relative political capacity measures how much a government can use its potential. Schweller (2006) showed why fragmented states fail to do enough to counter external threats because internal disagreements prevent them from building defences or forming effective alliances. 

After the Iran-Iraq war, Iran’s Revolutionary Guards understood the need to control resources to continue to militarise; Iranian economists are often left to manage the consequences and the best are often pushed out of government. Venezuela shows how a regime can survive while an important economic resource, in this case the oil industry, decays. It offered no resistance to the January 2026 US intervention⁹. Regime survival and national capability are different things (Goemans, 2000). 

Conclusion

As the US and Europe commit trillions of dollars to increase their military capabilities, they cannot rely on aggregate GDP, or even defence spending as a share of GDP, to deter or win protracted conflicts. They must measure what that spending actually delivers: using purchasing power parity to compare resources and trace how funding, including allied support, becomes production, deployable capabilities and battlefield effects. That work requires economists and military specialists to build a common framework.

Source : Bruegel