The Economy of Losses: Why War Has Become the Most Profitable Business of the Century

That, in essence, is what the world economy looks like in 2025.

The numbers from the Stockholm International Peace Research Institute are honest: $2.887 trillion in direct military spending, the eleventh consecutive year of growth, 2.5 percent of global GDP - the highest share since 2009. But direct figures are only the visible part. Each dollar spent on war, according to the Davis-Nordhaus model, generates between four and sixteen dollars in cumulative losses through broken supply chains, demographic damage, and forgone investment. Do the math: ten to fifteen trillion dollars in economic damage every year. Seventeen or eighteen Marshall Plans that humanity burns through annually instead of building a future.

And here is where it gets interesting. Because when all that money disappears, it does not really disappear. It flows somewhere.

The penalty loop with no exit

Thirty years ago the Italian sociologist Giovanni Arrighi described a pattern that medieval merchants had already noticed: when everyone rushes into the same business, profits in that business collapse. Capital begins to exceed the available profitable outlets. And so smart money does something counterintuitive - it stops investing in real production and moves into finance.

That is how Genoa worked after the fall of Constantinople. That is how the Dutch worked when they were squeezed out of colonial markets. That is how Britain worked when American and German factories proved more efficient than the mills of Manchester. And that is how America has worked since the 1980s. Each cycle ended the same way: financial expansion, then systemic chaos, then a great war, then a new hegemon with a qualitatively new form of capital organization.

Genoa lasted 290 years. The Dutch, 220. Britain, 190. The American cycle was supposed to end somewhere in the 2000s or 2020s. Japan, which controlled forty percent of global finance in the 1980s, was supposed to be the next leader. The Plaza Accord of 1985 broke the Japanese model, and the West never built an alternative.

The result is an abnormally long financial phase. Forty-five years without structural renewal. Who benefits? Those who have learned to make money from the act of running in circles itself.

Look at the doses of monetary stimulus after each crisis. In 2000 the Federal Reserve injected two hundred billion dollars. In 2008, three and a half trillion. In 2020, four and a half trillion in a matter of months. Each dose is ten to twenty times larger than the last. Meanwhile the intervals between crises shrink: from thirteen years to five, then to three. The average American wage adjusted for inflation grew a pathetic 3.7 percent over fifty years, while productivity grew 250 percent. Where did the difference go? Into the financial assets of the top one percent.

This is not a crisis of the system. The system itself is the crisis. Permanent, managed, profitable for some and crushing for everyone else.

Why missiles climb faster than stocks

On the morning of February 24, 2022, when Russian tanks crossed the Ukrainian border, the S&P 500 fell 7.4 percent over the first weeks. A normal market reaction to a major war: panic, flight to safety, repricing of risk.

Now look at another metric. The SPADE Defense Index, which tracks defense industry stocks, gained 8.6 percent over that same year of 2022, while the broader market lost twenty percent. A spread of roughly thirty percentage points. This is not a measurement error. This is a business model.

The Hamas attack of October 2023, by contrast, produced almost no abnormal returns for defense stocks. Markets had learned to distinguish: a regional conflict is a small story, a global rearmament of NATO is a story for decades. The longer the war, the scarier the rhetoric, the bigger the state contracts, the fatter the pie.

The year 2024 was a feast for defense. The S&P Aerospace and Defense ETF added thirty percent, beating the broader market. Palantir Technologies - the company that packages artificial intelligence for the Pentagon - became the best-performing stock in the S&P 500 with a 340 percent gain. Behind contracts for Maven Smart System (480 million dollars) and the Vantage platform (401 million) stood the killing of very specific people in very specific cities. Investors paid no attention. They saw cash flow.

Lockheed Martin sits on a backlog of 173 billion dollars - more than two years of sales booked in advance. The company has raised dividends for twenty-nine consecutive years, including in crisis years. Northrop Grumman in the third quarter of 2025 reported earnings of $7.67 per share against expectations of $6.46. Defense Systems sales rose fourteen percent. RTX Corporation lifted its revenue forecast to "high teens" growth. Every major contractor synchronously raised guidance for 2025, citing "higher demand."

Demand for what? For death. For ruined buildings. For burned-out substations. For children pulled from rubble in Kyiv, Kharkiv, and Dnipro.

And here is the truly elegant part. Korea, which builds K2 tanks and K9 howitzers, gave investors even prettier numbers last year. Hanwha Aerospace - up 193 percent. Hyundai Rotem - up 278 percent. LIG Nex1 - up 91 percent. The Koreans grasped a simple thing: American defense is too slow, Russian defense is drowning in blood and sanctions, European defense has not yet warmed up. That leaves an empty niche - the arsenal for those who no longer want Russian and cannot wait for American. A textbook Arrighi move: sell the means of production, do not slip into the role of the great purchaser.

Is defense overpriced? Yes. Enterprise Value-to-Sales ratios trade forty to ninety percent above historical norms. That is overvaluation. But it stops nobody. When states have been raising military budgets for eleven straight years, when contracts are predictable for decades, when barriers to entry for new players are insurmountable - overvaluation simply becomes the new normal.

Who spends what, and what it actually means

It is worth running an arithmetic operation that neither propagandists nor peace activists particularly like. Divide a country's share of global military spending by its share of global GDP. The result is a simple but merciless overspending coefficient - a measure of whether a country lives within its means or has already turned defense into a form of cannibalism.

The United States: 33 percent of global military spending, 26.1 percent of global GDP, coefficient of 1.27. Overspending by twenty-seven percent. The classic picture of a late-stage hegemon in Arrighi's framework - there is never enough money for education and healthcare, but always enough for "containing China." In 2026 Trump is proposing one and a half trillion dollars. Which means the coefficient will climb sharply. The British behaved the same way before the First World War. The Spanish in the seventeenth century. An empire that can no longer finance dominance from its productive economy starts pushing money into the military sector. It is the last card.

China: 11.6 percent of spending, 16.6 percent of GDP, coefficient of 0.70. Underspending by thirty percent. Thirty-one consecutive years of military budget growth (plus 7.4 percent in 2025), but the proportion holds. This is the behavior not of an aggressor but of a contender. The Americans behaved this way in the 1880s through the 1910s: accumulate industrial power, do not convert it prematurely into guns. The Japanese in the 1930s had similar numbers - until Manchuria. What happens when a contender finally decides the moment has come, everyone remembers.

Russia: 6.6 percent of spending, 2.17 percent of GDP, coefficient of 3.04. Overspending by a factor of three. Seven and a half percent of GDP on war. Twenty percent of the entire state budget on defense. This is not "great-power behavior." This is auto-cannibalism. Arrighi's theory has a separate niche for such regimes - the parasitic intermediary that lives off the rent it extracts from other people's resources passing through. When the cycle ends, this intermediary stops getting its cut and starts eating its own body. The National Wealth Fund melts away. Oil and gas revenues fall. The central bank rate has strangled the private sector. Inflation refuses to retreat despite all incantations. This is the textbook dynamic of a cycle that has run out of breath. The Soviet Union ended exactly this way in 1991.

Germany: coefficient 0.92, up twenty-four percent in a year. For the first time since 1990 above the two-percent-of-GDP threshold. Berlin formally rewrote its fiscal rules to exclude military spending from the debt brake. What happened? The client realized that the suzerain no longer guarantees security for free. You have to pay for it yourself. Poland with its 4.5 percent of GDP is a separate story: when the distance from your border to a Russian flag is two hundred kilometers of flat plain, geography becomes destiny. Japan, which lived for decades under the cheapest security umbrella in the world (Article 9 plus the American fleet), is finally raising its defense budget toward two percent of GDP and lifting the embargo on lethal weapons exports. The era of free security is ending.

And then Ukraine. Coefficient of 16.1. Forty percent of GDP on defense - the highest share in the world. This is not even "overspending." It is a separate category, one for which peacetime models have no name. When you are the arena where the great players settle whose cycle continues, your metrics fall outside the framework of any theory.

The double profit: on destruction and on reconstruction

Here is the real genius of the system. It has learned to earn twice.

The first profit comes from destruction. Two trillion eight hundred billion dollars in direct contracts. Thirty percent annual gains in defense stocks. Dividends to the defense aristocrats. This is the visible part.

The second profit comes from reconstruction. Ten to fifteen trillion dollars in cumulative damage are future contracts to rebuild infrastructure. State loans. Flows of international aid that pass through Western consultancies, Western construction firms, Western banks. The arithmetic is straightforward: by spending roughly three trillion on war, the owners of military capital secure guaranteed access to fifteen trillion in state reconstruction budgets.

This is not a bug in the system. This is its architecture.

And while the fire burns, there is still a third way to earn. Goldman Sachs in the fourth quarter of 2008, at the very peak of the financial crisis, made 2.3 billion dollars on trading. How? Short sales, derivatives, scooping up assets at fire-sale prices. The general scheme runs like a clock: the financial industry creates instruments for profiting from collapse (CDS, shorts, VIX derivatives); the crisis arrives; ordinary people lose their savings while big players profit on the way down; the state prints money, ninety percent of which lands with the largest banks; assets soar - and only those who already have money can buy them; concentration of wealth grows; five to ten years later it all begins again, only the stakes have grown by an order of magnitude.

The proof is in the numbers: the share of the top four American banks in banking assets stood at ten percent in 1990 and fifty-five percent in 2020. Each crisis raises concentration. Each dose of QE makes the rich richer and everyone else more dependent.

This is what the economy of losses means. Economics used to be the science of allocating scarce resources. Now it is the science of monetizing catastrophe.

Three traps in one snare

Watch how all of this congeals into a single system.

The first trap is the penalty loop. Capitalism cannot move to a new cycle, because nuclear weapons block the mechanism of the great war as the historical sanitation worker. It cannot move backward, because planetary limits no longer permit extensive expansion. It cannot stand still, because artificial intelligence and automation are eroding the very foundation: labor, wages, consumption. All that remains is to walk in circles, escalating the doses of QE.

The second trap is the security dilemma. Each player acts rationally: the United States tightens pressure on China, China expands its navy, Japan rearms, Korea buys Polish tanks, Poland buys Korean ones, Germany rewrites its constitution, Russia turns into a military budget with a state attached. Everyone responds correctly to everyone else's actions. But the aggregate result is collective irrationality. The more everyone spends, the less general security exists. No one can stop, because whoever stops first stands disarmed before everyone else.

The third trap is the economy of losses itself. Crisis has become more profitable than stability. For systemically important players, the gains from volatility exceed the losses from volatility. A natural incentive emerges - to cultivate instability. Not to solve crises, but to optimize them for maximum extraction.

And here is the most disturbing part: these three traps feed each other.

The penalty loop generates the security dilemma. When the system fails to renew, the hegemon weakens, allies rearm, contenders accelerate. The security dilemma feeds the economy of losses. An arms race produces contracts for defense, stocks rise, even more can be squeezed out of volatility. The economy of losses closes the penalty loop. Crisis is profitable - which means another dose of QE - which means more surplus capital that has to go somewhere - and militarization becomes the perfect way to dispose of it. A self-sustaining machine in which every gear turns the others.

What to do when the system does not work for you

The question is not whether this construction will break. It will. The question is what it will become and who will decide.

The most likely scenario is neither apocalypse nor breakthrough. The most likely is a slow Japanese-style decay across the entire developed world. Permanently low rates. Half a percent of growth. Central banks as direct financiers of budget deficits. Young people "lying flat," refusing to have children. An endless autumn without winter or spring. This will go on for twenty to thirty years, until the debt load turns toxic or hyperinflation finally destroys the currency.

A less likely scenario is controlled fragmentation into blocs. The United States with the Five Eyes and Japan. China with the Global South. Europe attempting autonomy. Russia, or what remains of it. Competing currency systems, deglobalized trade, fragmented technology. Each bloc exports crisis to the others, and the risk of escalation grows.

Less likely still is a technological breakthrough. Fusion energy that becomes too cheap for a market economy. A genuine artificial intelligence that changes the nature of labor itself. Or something we cannot imagine right now. The chances are slim, but this is the only real way out.

And the last scenario, with maybe a one-in-ten probability, is systemic collapse. A cyberattack on SWIFT. Irreversible climate change. A pandemic with ten percent lethality. A limited nuclear war. Low probability, infinite consequences.

What can you do? Understand. That sounds banal, but it is not. Most people live with the illusion that crisis is an accident, that war is madness, that financial collapses are force majeure. They are not. They are products. Someone manufactures them, someone trades them, someone earns from them. Knowing this will not save you from the system, but it will let you make decisions with your eyes open.

Diversify. Not just assets (they correlate during crises) but life itself. Real value over financial paper. Local trust networks over global institutions. Skills that cannot be automated over diplomas that lose their value fast. Geography - where you are comfortable, not where it is "prestigious."

Do not believe magic recipes. If someone tells you they know how to escape the system through one big idea - cryptocurrency, MMT, a new gold standard, universal basic income, anything - they are either wrong or selling you an illusion. The system is more complex than any single idea.

And remember the main thing. We are the first generation in history with SIPRI data in open access, with Arrighi's academic models, with transparent financial markets and the ability to watch the figures in real time. Earlier generations stumbled in the darkness of their own epochs. We have a flashlight. The only question is how many of us will hold it up long enough to make a difference.

The world of 2026 is a world where the American cycle is gasping for breath, the Chinese is stockpiling powder, the Russian is convulsing, the European is converting under duress, and Ukraine burns as the arena where the fate of an era is decided. Around them defense corporations multiply profits, financial giants harvest volatility, the middle class drowns, and inequality climbs back to levels of the century before last.

Arrighi wrote thirty years ago that the moments between hegemonies have always been periods of war. The SIPRI numbers confirm it. The defense stock charts confirm it. Ten trillion dollars of annual losses confirm it.

The clock is ticking. The only question is for whose benefit it ticks - and on whose account.