Walter Block is an American economist of the Austrian School, a professor of economics and holder of the Harold E. Wirth Chair at Loyola University New Orleans. In an interview with The Ukrainian Week, he talked about how Ukraine could rebuild its economy, discussing trade, foreign investment, pension reform, and taxes.
— How can Ukraine get through this war, and what do you think is realistically achievable under the current circumstances?
— The truth is, war doesn’t do the economy any favors. Right now, the path worth taking is negotiations—because it means fewer lives lost.
— Let’s talk about Ukraine’s economy. It’s being devastated, but that also creates a chance to rebuild from scratch. How would you approach that reconstruction?
— I’m not deeply familiar with the day-to-day realities of the Ukrainian economy, but I do have strong views on what makes an economy thrive. This is what Adam Smith, Hayek, Mises, and Murray Rothbard talked about: the more freedom, the better; the stronger the property rights, the better.
Some people mistakenly think that Ukraine’s destroyed infrastructure might somehow benefit the economy in the future. Henry Hazlitt, author of Economics in One Lesson, called this the “broken window fallacy.” Picture this: some lazy person throws a stone through a baker’s window. Most people react, “Oh, how terrible! Kids these days have no respect—it’s awful!”
Then along comes a Keynesian [Keynesianism being the economic idea that the state should play a bigger role in the economy — Ed.] and says, “Hold on. If nobody broke windows, the glaziers wouldn’t have any work.” They go on: “The window is broken, so fixing it will cost $100. Now the glazier can buy a bike. And the bike shop owner now has $100 and can buy a wristwatch.” I’m making up the characters, but you get my point. The truth is, if the window hadn’t been broken, the baker would still have that $100 to buy the bike.
After World War II, Germany and Japan got new factories thanks to the Marshall Plan, because their old factories had been destroyed. In the US, the factories stayed the same, so some people claimed the war had “helped” Germany and Japan. But the US could have had both old and new factories at the same time—something other countries couldn’t. So the idea that war benefits the economy by destroying the old and forcing the building of the new is simply wrong.
As for your question, one reason the US is so prosperous is its huge free trade zone. Every now and then, Minnesota tries to build its own wine industry and slap taxes or bans on Californian imports. Fortunately, the Supreme Court steps in and says, “No, within the country we have free trade.”
Canada is an interesting case, too. Even though it has a highly skilled workforce and rich natural resources, it didn’t always have internal free trade. Shipping beer from one province to another used to mean paying taxes or facing bans. Because of that, until fairly recently, Canada’s richest province was actually poorer than the poorest US state.
My advice to Ukraine is simple: focus on free enterprise, respect property rights, and don’t try to redistribute money from the rich to the poor. Look at California—they’re introducing a “billionaire tax,” supposedly 5 % of wealth or income. What will happen? The rich will just move to Texas or Florida, or find loopholes with the help of accountants and lawyers. That’s not how you grow an economy. Free enterprise—that’s the real path to prosperity, for Ukraine and anywhere else.
— Ukraine exports a lot of agricultural raw materials, but some say it should focus on high-value finished goods and import raw materials instead. Is this kind of transition something the market could achieve on its own?
— Economists call this “picking winners”: the government decides who should come out on top—like banning raw material exports while pushing for new processing plants. But really, that’s the market’s job. The market itself finds the most profitable route. If exporting raw materials turns out to be the most profitable path for Ukraine, then maybe that’s exactly the right choice.
Look at Iowa or Nebraska in the US. They don’t have many factories—they export corn and wheat. Are they poor? Not at all. And other states with lots of factories aren’t struggling either. So the idea that Ukraine, just because it has rich resources, must focus on production rather than export—that’s simply wrong.
Japan doesn’t have many natural resources. Hong Kong doesn’t have a single resource to speak of. And yet, before China took control, both were very wealthy. So the lesson is clear: there’s no single “right path” for economic development.
— What’s your take on trade agreements between countries? For example, was the mineral deal between Ukraine and the US a smart move?
— I’m against any “deals”—whether it’s between the US and Ukraine, or free trade between Mexico, Canada, and the US. The only “deal” worth having is free trade with everyone. Why pick winners among countries, like in individual agreements between Ukraine and the US or Ukraine and Bulgaria? Ukraine should have agreements with every country in the world: “No tariffs in trade with you.”
Let’s say we’re in different countries: I’m in the US, you’re in Ukraine, and we impose a tariff on Ukraine. Should Ukraine hit back with a tariff? The answer is yes and no. A tariff only makes sense if it actually convinces the US to remove theirs. If it doesn’t work, there’s no point in retaliating.
— Right now, Ukraine depends on funding from Europe, the US, and other partners. EU and IMF representatives come and say, “If you want the money, you need to raise taxes on your people and businesses.” How would you advise handling that?
— Right now, you’re caught between a rock and a hard place. In the end, it’s an empirical question: how much money you’ll actually receive, and how much taxes would have to rise. If taxes only go up a little and the funds are substantial, then it might be worth it. But if the increase is significant and the money is relatively small, then it’s probably not.
Another option is to appeal directly to the interests of the donor countries: “Higher taxes don’t help the economy, yet you’re insisting that in order to receive your aid we weaken our own economy. You’re helping with one hand and harming with the other.”
From a libertarian anarchist perspective, taxes are theft; from the perspective of limited government, they can be justified. Milton Friedman (American economist, Nobel Memorial Prize in Economic Sciences laureate — Ed.) once said that government spending should not exceed 10% of GDP. So the first step would be this: if taxes in Ukraine are higher than 10% of GDP, reduce them—even if that means receiving less foreign aid.
From a strictly economic standpoint, though, it still comes down to the same question: how much money you receive and how much taxes would have to rise. It’s an empirical issue, and there’s no single clear-cut answer.
— Beyond war spending, most of Ukraine’s budget goes to pensions and social benefits, and these costs keep climbing. How, in your view, should any economy deal with this problem?
— France has faced a similar pension problem. The government tried to raise the retirement age from 62 to 65, which triggered protests. But in reality, that would have been one way to deal with the issue. The most moderate solution is to set the retirement age at 65 or even 70 for the next generation, which would help reduce government spending.
In the US, there’s the Social Security system, and in many ways it runs counter to the idea of democracy. When the government provides pensions, it essentially assumes that people are incapable of saving for their own retirement. But if people are capable of voting, they’re not that short-sighted—so why should we need a state-run social security system?
If Javier Milei, you, or I were running Ukraine, we’d say: no more state pensions. If you want to live comfortably in old age, you should save for it yourself. State pensions are a form of paternalism toward adults—it’s like saying that a 35-year-old is too foolish to take care of their own future.
Ideally, what Ukraine—or any other country—should do is remove the government from this sphere altogether. Just as we talk about the “separation of church and state,” there should also be a “separation of pensions from the state” and a “separation of education from the state.” From the perspective of limited government, its role should be confined to just three things: an army to defend against external enemies, local police to deal with criminals, and courts to determine justice. Everything else lies outside its proper scope.
— Should this be done all at once, or would a multi-year transition make more sense?
— Ideally, it would happen immediately. But the problem is that if you do it overnight, you’ll have riots in the streets. People will feel the government has betrayed them. They’ll say, “I’ve been paying contributions my whole life. I’m 84 years old — and now you’re telling me you won’t return the money I paid in?”
From a practical standpoint, the French approach makes more sense. If people were promised a pension at 62, that promise should be honoured for them. But for younger generations, the retirement age could gradually be raised to 65, 68, or even 70. That’s a gradual way of phasing the programme out. Young people could simply be told: “You don’t have to pay social security taxes — but you also won’t receive a pension. You’ll be responsible for providing for yourself.”
— How can Ukraine attract more foreign investment, both during the war and after? What steps should the country take to get other nations to put their money here?
— Take the example of Mexico and the US. Imagine you’re a Mexican worker earning $2 an hour. Then you move to the US — and suddenly you’re earning $25 an hour. Your skills haven’t changed. So what explains the difference? The US simply has far more capital equipment, largely because it has a freer economy: people save and invest there. Even Mexicans prefer to invest their money in the US rather than in Mexico.
The lesson for Ukraine is straightforward: create a freer market economy. Ukrainians and foreigners alike will start investing in Ukraine, capital goods will increase, productivity will rise — and the country will grow wealthier.
If, instead, you follow a socialist or communist path, just look at the example of East and West Germany. Same culture, same language, same history, the same skills — yet communist East Germany remained poor, while capitalist West Germany prospered. The same contrast exists between North Korea and South Korea. One clear indicator of prosperity is migration flows: people always try to leave poorer countries and move to richer ones.
So if Ukraine follows the West German model rather than the East German one, it will be far better off. In other words, it’s another way of saying: follow the example of Javier Milei.
