Inflation and wartime economies
“In the meantime, our great military is Loading Up and Resting, looking forward, actually, to its next Conquest. “AMERICA IS BACK.”
President Donald Trump, posted on Truth Social, April 08, 2026
America, as the president posted, is back. The question is back to what? In this case, we have not experienced a wartime economy since the Vietnam War.
As the president prepares the armed services for his next conquest, estimates are that the Iran War is costing the U.S. about $1 billion per day. That does not include the economic price tag of a host of other economic variables, from higher energy to the cost of fertilizer.
Beyond those areas, the most serious consequence of a wartime economy will likely be rising inflation. History is clear on that front. War is always inflationary. There are no exceptions — World War I & II, Korea, Vietnam—whether deferred or during the conflict, inflation was inevitable. The combination of enormous fiscal spending, financed by debt, and the unleashing of the monetary printing presses guaranteed inflation. It results in even higher inflation when an economy is already growing. And I can’t even contemplate the impact it will have on the nation’s $38 trillion in debt (138% of GDP), which it now needs to service at more than $1 trillion/year.
My own experience of a wartime economy during the Vietnam era ended in a crazy inflationary spiral as President Lyndon Johnson refused to raise taxes to fund the war. He simultaneously spent billions to expand his Great Society program. This “guns and butter” strategy ended up, several years later, in double-digit inflation followed by years of stagflation.
Aside from inflation, if history is any guide, unemployment would fall, especially if the U.S. instituted a draft next year, which looks increasingly likely. Employment might rise across the. labor force if there were enough recruits to fill the military’s quotas and if there were enough workers to replace them.
The administration has already raised the maximum recruitment age to 42 from 35. There is also a plan to make registering with the Selective Service mandatory for all Americans of draftable age by the end of this year. That may still be a problem unless Trump relaxes his immigration policies to find new recruits for the military and the labor force.
And who will fight these wars? Look no further than the younger generations. The sad fact is that the young have always provided the cannon fodder for nations at war. Incentives are growing. It was no accident that service members received a $1,777 after-tax present from the President last Christmas. He also wants to increase wages for those in the lower echelons of the military.
As for other areas of the economy, labor might see an uptick among defense contractors, arms manufacturers, cybersecurity firms, and energy exporters, but AI would likely reduce the workforce required considerably. The administration has already asked several manufacturers to increase their roles in military production. General Motors, Ford, GE Aerospace and Oshkosh are just some of the companies asked to divert more of their output to the wartime economy.
I date the invasion of Ukraine by Russia during the Biden administration as our entry into a war economy. Up until now, the great powers, the U.S. and China, have used proxy wars rather than face-to-face conflict. Ukraine, our proxy in this ongoing conflict, has received trillions of dollars in aid from the U.S. So much so that Russia (China’s proxy) now spends more than 7% of its GDP on its military fighting them. Since then, our war spending has spread worldwide. It now includes money for fighting in Lebanon, Gaza, Syria, Israel, Venezuela, Iran, Ukraine, and soon Cuba. And that is only a partial list.
Europe is not far behind in entering a wartime economy, with NATO members pledging to spend 5% of GDP on arms and security. And, as in the U.S., this requires deep cuts to social welfare programs and healthcare, as well as the crowding out of private investment.
Over the last year, a strategic plan has also been forming within the EU for a new European-only NATO, excluding the U.S. Germany and France, among others, are already preparing their own military conscription programs.
In this wartime economy here in the U.S., it is the American taxpayer/consumer who will suffer the most. Purchasing power, already eroded by higher prices across the board, especially for fuel, is slowly eroding. Expect more of the same. As for investments, protection will come from owning assets that benefit from wartime and inflation.
Bill Schmick is a founding partner of Onota Partners, Inc., in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. None of his commentary is or should be considered investment advice. Direct your inquiries to his website at www.schmicksretiredinvestor.com. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.