ReArm Europe: Another Sugar High
From The Same People Who Said: "Clean Energy is Cheap"
In the mid-1800s, a Hungarian doctor named Ignaz Semmelweis made a shocking discovery. Women were dying in maternity wards by the thousands and no one knew why. Semmelweis noticed that doctors often performed autopsies in the morning and then delivered babies in the afternoon — without washing their hands.
He ran a simple experiment: he made doctors wash with chlorinated lime. The death rate plummeted. Problem solved, right? No. Semmelweis was mocked, sidelined, and ultimately driven mad. Because he challenged the medical orthodoxy of the time.
His theory that tiny invisible particles kill people didn’t fit the dominant worldview. Accepting his conclusion meant admitting that respected professionals were the problem, that their behavior was causing death. So they ignored him. And the dying continued.
Today, we like to think we’re smarter. But economics still runs on orthodoxy. The dominant doctrine when it comes to government spending is Keynesianism.
It tells us that spending creates growth and prosperity. That government action is the way out of a slump. The more, the better. And if a measure is successful, GDP will tell us.
That same story is now being told about Europe’s plan to shell out €800 billion under its ReArm Europe program. As Olli Rehn from the European Central Bank puts it:
The expected increases in defence spending and investment are […] likely to support GDP growth over the medium term.
And Reuters:
A defence spending surge could boost Europe's sluggish economy as long as it provides a springboard for a broader industrial revival and if governments convince the sector that the funding is there for the long haul.
Yes, rearmament may be necessary. Ironically, it’s exactly what Trump demanded from Europe for years. Whether he pushed the EU into doing it through 3D chess or sheer coincidence, that depends on how allergic you are to giving the man credit.
But the claim “defense spending will make us richer” sounds eerily familiar. It’s the latest in a string of feel-good narratives from European institutions: from “clean energy is cheap” to “inflation is transitory.”
So let’s take a closer look. Has the EU stumbled onto a nutritious new source of wealth? Or is this another sugar high with long-term costs no one wants to talk about?
Just Wash Your Damn Hands
Like Semmelweis was ignored by the mainstream in his time, so too is Austrian economics—think Mises, Hayek—in today’s policy world. It plays the role of the gadfly: shouting that government spending and central planning distort markets, misallocate resources, and set us up for inevitable busts. Meanwhile, Keynesians—comfy in academia and policy circles—wave GDP charts and stimulus checks like it’s gospel.
Austrians push a back-to-basics logic: let prices signal. Let markets clear. It’s like Semmelweis’s “Just wash your damn hands.” Semmelweis was vindicated posthumously. Germ theory won. Austrians are still waiting for the mainstream’s acknowledgement that they’re right.
From that Austrian perspective, defense spending doesn’t improve quality of life. It’s not investment, it’s insurance. You build tanks, drones, and bombs to deter an attack. Aside from that, they just sit there. They don’t bake bread. They don’t build homes. They don’t raise living standards.
In economic terms, they’re not productive capital. They’re a hedge. A necessary one, maybe, but still a cost, not a step up. And if it’s overdone—overcapacity, like idle bases post-Cold War—it’s not even good insurance, it’s waste.
Ditch Digging
Of course, you could argue all day whether the Austrians or the Keynesians are right. But for capital allocators, truth isn’t settled in academic debates. It’s revealed in market signals. And that’s where the Keynesian case starts to fall apart.
Because defense spending isn’t market-driven. It’s politically directed. Resources—labor, capital, materials—aren’t flowing to where they’re most needed. They’re flowing to where government money waits. This isn’t organic growth. It’s capital misdirection.
The result isn’t more wealth. It’s what the Austrians would call “ditch digging with better PR.” The illusion of stimulus. The reality is waste, inefficiency, and long-term drag. Think F-35 cost overruns ($1.7 trillion and counting) or Europe’s obsolete Eurofighters.
Or look at Germany’s Energiewende: a state-led energy transition that bulldozed market signals in favor of political targets. The result? Rising energy costs, supply shocks, and a growing dependence on coal when the wind doesn’t blow.
But maybe the idea that “more tanks = a better standard of living” is a distraction, something to mask the deeper narrative collision now unfolding.
Contradiction at the Core
Because EU leaders keep telling us that climate is the existential crisis of our time. That Net Zero is our moral duty. But war is one of the most carbon-intensive activities on Earth. Last time I checked, tanks don’t run on solar and militaries don’t pause exercises because it’s a cloudy day in Bavaria.
If Net Zero were truly the top priority, peace would be the policy. Every negotiation, every compromise, every fallback would be justified as “for the planet.” But that’s not what’s happening.
The EU wants to be both a climate priest and a military power. It wants to lecture the world on emissions while ramping up the industrial machinery of war. These narratives don’t just clash, they cannot coexist without hypocrisy, distortion, and eventual reckoning.
And that’s not even the biggest contradiction.
Running on Fumes
In response to Russia’s invasion, Europe (mostly) cut itself off from Russian fossil fuels. It was meant as punishment and a show of strength. But now the EU wants to ramp up production of steel, munitions, and defense logistics.
Yet, those industries run on heat, scale, and dispatchable energy. You can’t electrify war. These aren’t theoretical problems, they’re physics problems. And no one in Brussels has explained how this circle will be squared. Because it can’t be. Either Net Zero will give way or rearmament will. More likely: both.
Europe’s energy policy is already crippling its steel, chemical, and manufacturing sectors. These are core industries and they’re struggling to stay globally competitive. How EU leaders think they’ll build a thriving defense industry on top of that, one that depends on those very inputs, is anyone’s guess.
The Cycle Beneath the Hype
For now, the defense industry is booming and stocks are up. But this surge is running on political signals.
History isn’t kind to sectors built on government-cash-fueled urgency. They tend to overbuild, underdeliver, and eventually collapse under the weight of their own expectations.
The deeper risk here is policy dependence. If your business model hinges on staying in favor with Brussels or Berlin, you’re in regime risk territory. And that risk only grows when conflicting policies stack on top of each other.
Because the real elephant in the room is energy. Net Zero and defense reindustrialization are fundamentally at odds. The military buildup will almost certainly drive fossil fuel demand, directly or indirectly. Either the EU adjusts its climate stance to accommodate this, or it pushes defense contractors into an impossible corner.
That doesn’t mean the defense industry doomed. Stocks have trended upward over the long run, thanks to steady government contracts, reliable margins, and geopolitical relevance.
But even strong sectors can become crowded, overbought, and policy-distorted. Especially when they’re being sold as engines of growth rather than tools of deterrence.
The real opportunity isn’t in chasing the defense boom. It’s in positioning for what comes after. Because when the urgency fades, the budgets tighten. That’s when the market remembers what real productivity looks like.
Sweet Now, Sour Later
Let’s be clear: if the EU wants to rearm itself, it should. Security and deterrence are a legitimate concerns. But then it should also have the courage to disclose the real costs to its citizens. Because just like with “cheap” clean energy, the benefits are marketed while the burdens are buried.
You hear about resilience, jobs, GDP. You don’t hear about inflationary pressure or the fact that defense spending does nothing to improve daily life, except in the abstract hope that it won’t be needed. Sure, the EU might stumble on the next GPS or internet while funding its rearmament push. But don’t hold your breath.
Ultimately that’s what this is: a sugar high. It’ll lift the numbers, dull the pain, and keep the story alive for a while. But the come down is coming. In budgets, in credibility and in the quiet realization that none of this made people better off.
Like Semmelweis, those warnings of economic distortion may be vindicated, just not in time to stop the harm.
Send this to anyone bullish on tanks and ESG!
Great article. You mentioned that spending does not create growth and prosperity, which I have always believed. But after reading your article I'm forced to agree with you. My question is what actually fuels growth and prosperity?
Military spending—at least in the United States—has long been sold as national defense, but in practice, it’s become just another arm of bloated government redistribution. Once the sacred cow of bipartisan patriotism, the Pentagon’s budget has been quietly co-opted by political operatives to serve agendas that range from climate ideology to DEI theater, often bearing no relation to combat readiness or national survival.
The inclination to misuse public funds is not new, but the brazenness of it today—especially as it relates to the military-industrial complex—has become impossible to ignore. Every branch of the federal government now operates as a tributary of centralized fiscal indulgence. The military is no exception.
Let’s be clear: government spending is not inherently good or bad. But it is inherently unaccountable when separated from market forces. Price signals—those sacred messengers of scarcity and value—are replaced with votes, lobbying clout, and campaign contributions. The result? Inefficiency. Waste. Rent-seeking. And a citizenry increasingly footing the bill for a system that doesn’t serve them.
Most military spending is, to put it bluntly, fiscal dynamite. Bombs, in their most literal and figurative form, are destroyed upon use—ephemeral, expensive, and rarely regenerative. But not all military outlays are equal. A few—precious few—have produced second- and third-order effects that significantly improved the standard of living across society.
This is where the story gets interesting.
1. The Internet
Born out of Cold War paranoia, ARPANET was a Pentagon experiment to build a communication system that could survive a nuclear strike. It worked—maybe too well. That same infrastructure now underpins everything from telemedicine to e-commerce to the very social media platforms attacking the institutions that created them.
2. GPS
Initially developed to guide submarines and missiles with unerring precision, GPS was declassified and released to the public in the 1990s. It now powers your Uber ride, your crop harvester, your dating app, and your dog’s smart collar. In terms of downstream productivity, it’s one of the greatest ROI plays in history.
3. Drones
Once relegated to surveillance and surgical strikes, drones now monitor crops, deliver packages, film weddings, and rescue lost hikers. The military created the tech, the private sector scaled it, and consumers embedded it into everyday life.
4. Medical Innovation
Wartime necessity accelerates triage innovation. From modern prosthetics to battlefield trauma care, countless medical advancements trace their origins to the pressure cooker of combat zones. These are hard to quantify but easy to appreciate when you're the one on the stretcher.
5. Aviation & Aerospace
Military aircraft R&D gave us more than fighter jets. It gave us safer commercial airliners, satellite communication, accurate weather forecasting, and, ultimately, space exploration. NASA may wear the civilian uniform, but its DNA is military through and through.
6. Everyday Consumer Products
Radar gave us microwaves. WWII gear innovation gave us duct tape and super glue. Velcro came from the space program. Even digital cameras began as reconnaissance tools. The military’s weirdest side hustles often become consumer gold.
7. Computing and Cybersecurity
Military cryptography and mainframe computing laid the foundation for everything from modern finance to online health records. The arms race to protect and crack codes seeded the multi-trillion-dollar digital economy.
8. Semiconductors
The crown jewel of military-driven innovation. DARPA and the Pentagon didn’t just fund chips—they birthed Silicon Valley. Early integrated circuits were built for missiles, not MacBooks. But from that came smartphones, AI, precision agriculture, and the information economy. The Cold War’s arms race quietly laid the infrastructure for the **digital age**.
We’re not here to celebrate bombs. We’re here to track value creation, and most government spending—especially in the military—fails that test miserably. But in rare cases, military R&D has produced technologies so transformative that they elevated the global standard of living in ways no stimulus package or ESG policy ever could.
The challenge now? Stop funding performance art. Start funding second-order innovation. Spend less on optics and more on opportunities. And maybe, just maybe, remember that true national strength is measured not just by how hard we can hit—but by how well we can live.