A small war in Europe has a big impact on gas prices
Gasoline prices have soared past $4 a gallon in western Alabama as the war in Ukraine takes its toll on us at the pumps. It’s the global economy on full display, and it illustrates both the danger of a great war as well as the best hope of avoiding one.
The danger is apparent. If this regional conflict in Ukraine escalates as it seems it could easily do, even if the real battle remains in Eastern Europe, the effect on the global economy would be more like a tsunami.
A hundred years ago, at the end of the First World War, national economies, especially those outside Europe, were isolated and one could almost say that they were autonomous economies, especially when compared to today’s interconnected global economy. Thus, countries experienced the war differently, with those closest to the battlefield being the most deeply affected. As the distance from the war increased, the economic ripples diminished.
The Great Depression changed all that. The prosperity of the 1920s was quickly shattered by economic collapse and even the rudimentary links, compared to today, between national economies caused a domino effect that spread throughout the world. This disaster led to such things as the Marshall Plan in Europe after World War II, a plan designed to quickly rebuild the economies of devastated countries in Europe, partly for humanitarian reasons, but partly for defense purposes.
The rise of the Soviet Union required a strong, independent and fully capitalist economic structure in Europe to counter the Soviet Union. General Douglas McArthur oversaw a similar plan in Japan. Communism had also taken root in China during World War II and stopping its spread required vibrant and free economies that not only allowed for personal prosperity, but also formed a bulwark against centralization, which would have been easy to become the prey in a devastated country.
The growth of the world economy, at least that of the nations of the free world in the years following World War II, proved the validity of what America did to lead the effort to rebuild the economies of old enemies devastated. By laying these financial cornerstones, America has not only erected an effective shield against the spread of communism, but has also created strong markets for American products.
A side effect, intended or not, has been the development of an increasingly integrated global economy. It is both a strength and a weakness. When a pebble falls into the economic pond now, its ripples affect not only the nation in which the troubles began, but virtually every integrated economy in the world.
The nervous investors on Wall Street are not only having an impact on the situation here, they are also being felt in major markets in Japan and Europe. Before long, these nervous investors start driving up prices at the local gas pump or supermarket. All it takes is a small splash in the global economic pond to create serious ripples. When the rock thrown into this pond is a war, the ripples are more like waves.
With this in mind, it is in the interest of every nation on earth to maintain relative peace. A 20-year war in Afghanistan had almost no negative impact on the global economy because Afghanistan plays almost no role in the global economy. A war in Ukraine that affects not only that country but also Russia has a major impact, especially on the production and distribution of oil and gas, especially in Europe.
Since the world’s economies are so fully integrated, gas prices in Alabama are skyrocketing due to what is currently a small regional war on the other side of the world that would otherwise have no impact on us. If this little war turns into a big war, you can bet your bottom dollar, and you’ll probably spend it too, the economic impact across the world will be a global economic disaster.
In the wake of the massive global economic impact of the COVID-19 pandemic, the economic damage could be as severe as that of the Great Depression with rising prices, stagnating wages and massive unemployment as the vicious cycle generated by the war in Europe is spinning tendrils around the world.
War is bad. No one needs to be told, but it’s now as bad as it has ever been in decades past. The integration of the global economy is a great protection against national aggression, until it is not. When it fails, economies around the world begin to shake. Weaker ones can easily fail, causing a ripple effect that is a bit like falling dominoes. Ultimately, an escalation of war in Europe could lead to global economic ruin even if a shot is never fired elsewhere.
What this means for America and for American consumers is that diplomats must find a way to end it as quickly as possible. If this can be accomplished with pen and paper rather than bullets and bombs, the global economy can quickly rebound. Otherwise, we should prepare for quite a severe impact on global economies and our own financial well-being.
Gary Cosby Jr. is the photo editor of The Tuscaloosa News. Readers can email him at email@example.com.