There is a myth that wars are good for economies, and as evidence people point to World War I and World War II. This is not the case. It is important when discussing the extreme budget deficits and borrowing during World Wars 1 & 2, that America was mainly borrowing from its own banking system. More importantly, America was neutral during much of both of these wars, and during that time Europe was purchasing weapons and borrowing money from us, and it was the eventual repayment of these loans enabled the post war booms in America following both wars. America was doing great after the World Wars, but Europe was not. England and France lost their empires, and Russia and Germany lost even more.
Some have said that the only way to get out of our current economic funk is by entering into a war, or using an equivalent amount of government spending. The fact is we've been at war for seven years. The problem is that we've borrowed all of the money to conduct those wars, and thus our economy worsens.
Looking back at the example of World War II, the United States is playing the role of the European countries, while China is playing the role of America - sitting back and lending as we get in way over our heads.
Speaking macro-economically, war and long term overspending is not good for the economy. It is good for the lenders, but not the debtors.
Wednesday, March 4, 2009
Are Wars Good for the Economy?
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4 comments:
The thing is that government spending is generally good for the economy, regardless of what the money is being spent on. Wartime spending can actually stimulate the economy, particularly if you're spending on a war that's somewhere far away.
European economies were trashed after each World War not because war is economically bad per se, but because a lot of the things that go along with having a war in your backyard are bad. It took decades for Europe to recover from the drop in production and the destruction of basic infrastructure--not to mention repayment (partial in almost all cases, as I recall) of wartime loans from the U.S.
Getting into a major war in order to revitalize our economy is a stupid idea, because wars are destructive and their outcome uncertain. However, government spending--no matter how high the deficit gets--is actually not a terrible idea. The rising deficit is a terrible problem, but it's not as terrible as the current economic trends are.
The trick is to go ahead and spend whatever we have to in order to reverse the economic slowdown, and then when we've recovered, actually focus on reducing the deficit.
While both world wars did stimulate the US economy, it is not a universal constant. It depressed the economy in the Civil war, and the Vietnam War, and perhaps the First Iraqi War. The Korean War didn't really make an impact at all, nor did the Spanish-American War. 2-2-3 Is not really that good of a record. Idiots. Really, war for economy, while we're in a war? Who says shit like that?
Anyone saying that we need to enter a war must have been living under a rock for the past eight years, or they are just supremely stupid. Or both.
Government spending does help the economy, but it would bolster it further if the spending was used within the country, and not to worsen our nation's situation globally.
In hindsight, I wish I'd posted who said it; I remember it riled me up enough to write a post about it. I'll agree, it was pretty dumb thing to say. But more to point it points out the absurdity of a lot of the things you hear in school like "wars are good for the economy" and "democracies don't go to war with each other."
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