Is War Good For The Economy? - By Walrus.

 

Is war good for the economy? According to Tyler Cowan writing in the New York Times on Friday, the lack of war may be hurting economic growth.

“The world just hasn’t had that much warfare lately, at least not by historical standards. Some of the recent headlines about Iraq or South Sudan make our world sound like a very bloody place, but today’s casualties pale in light of the tens of millions of people killed in the two world wars in the first half of the 20th century. Even the Vietnam War had many more deaths than any recent war involving an affluent country.

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth." NY Times

-----------

Of course Tyler really means other peoples wars. For Americans by and large, war is something that happens overseas. European cities are destroyed or funny looking brown people die in their thousands. As far as the American economy is concerned, war is good for business says Tyler because there is nothing like the threat of imminent death to stimulate our creative juices.

We can sit comfortably at home and devise new and more lethal means for destroying the current “other”.This presupposes of course that ones country wins the war and has any prospects at all. How long has Britain taken to recover from WWII? France? Germany? Russia? The only economic victor of WWII was the United States for whom the costs of war, in terms of destroyed cities, poisoned countryside and shell shocked population was almost zero.

In addition according to Tyler “ war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.” I see no evidence for that whatsoever, quite the reverse. War is an excuse not to fix the health, education and welfare systems. War is simply another distraction, like Gay Marriage and Abortion law reform from what a real government agenda should be the provision of a decent standard of living for all its citizens.

To put that another way, if what Tyler said is true and considering the number and cost of Americas wars, then American standards of living should be much higher than their developed yet peaceful peers. 

Why are these people allowed to write this rubbish? 

http://www.nytimes.com/2014/06/14/upshot/the-lack-of-major-wars-may-be-hurting-economic-growth.html  

 

Comments

[Highlander]

I don't often find common ground with the Times, but this time I have to agree with them.

Look at the history of man, war occurs like clock work as does economic activity. There has to be some degree of correlation. Positive if you win, negative if you don't. So far the US has won a lot more than it has lost. Especially the critical wars.

With the export of much of our civilian manufacturing base by our corrupt and incompetent elites, what we mostly have left to sell the world is the protection racket. ( With Obama even that is now coming into doubt ).

The United States is now a security state, and must have constant threats (real or imaginary, it doesn't really matter) so the elites can keep all of us schmucks in line, while they slowly drive the country downward as the empire winds down. Following roughly the same trajectory that the UK already headed down.

The ascendancy of first England and then the United States was directly related to the war like nature of the tribes, who made up the core population base of these two nation states. Both countries are now in the mist of huge demographic change, and are changing at a rate I personally never thought possible. Same thing happened to Rome another security state. And like Rome,when we start winding down the legions, we will wind down the economy.

[steve]

The chicken or the egg.

Perhaps our poor economy is causing our military empire to wind down rather than the reverse.

As Walrus alluded to, many developed nations have standards of living which by some measures are better than the US, yet don't have a global military.

[steve]

I should add--of course the armaments industry is an important part of the US economy, but a good chunk of that is for export. And what is sold for the domestic market may well decrease in volume, but tends to go up and up in price and technology per unit.

[Fred]

walrus,

"This presupposes of course that ones country wins the war."
We need look no further than the Carthaginians, whose leaders were quite happy to have their charismatic and influential opponent Hannibal far afield fighting those upstart Italians while they remained home - getting richer every year of the second Punic war. That fine wealth did them no damn good at all when Scipio arrived to explain to them what war was all about.

Professor Cowen should also know Keynes made his argument in the midst of the great depression while the National Socialists were rearming Germany and Mussolini conquering Ethiopia. We should take Tyler at his word though and require all the students receiving federal student aid at George Mason to be armed; boy wouldn't that stimulate everyone's creative juices. I won't even ask if he's looking forward to that war with nuclear armed Russia the neocons may soon get us into over Ukraine, Syria - you know, freedom!

[JohnH]

This sounds like an updated version of military Keynesianism--the theory that military spending stimulates economic growth.

I've asked various prominent economists how much DOD spends abroad. Answer: they don't know. They don't even know how to get the information. They have never studied it.

This is very important because economic stimulus must stay in the hands of Americans, if it is to stimulate the economy. For example, if you give average Americans a $100 tax cut, and they spend it all at Walmart, which supplies itself heavily from abroad, much of that $100 goes to stimulate other economies, not the US economy.

If you spend that $100 on healthcare, education, or infrastructure construction, the money stays in America, circulates at home, and has a high probability of stimulating the economy.

The same is true of military spending. Dollars spent abroad stimulate foreign economies. With 700+ military bases around the world, a lot of money paid for leasing those bases is being left abroad. Even if foreign bases buy ordinary supplies from US corporation, these corporations source heavily abroad and leave the profits offshore.

Based on the magnitude of US foreign involvement and the large amount of military spending done abroad, I suspect that overall defense spending actually depresses US economic growth--it takes money from American taxpayers and gives it to foreigners.

Unfortunately, no economists appear interested in investigating this. The results would probably not be conducive to their career growth.

[PeterHug]

If the disruption caused by war is somehow an economic good, then I'm sure we will be seeing absolutely WONDERFUL times as the effects of Global Warming begin to kick in. This time, in the Continental US as well...

NOT sure that's how this will play out, however.

[kao_hsien_chih]

Keynes' argument was predicated on underutilization of the resources due to economy-wide uncertainty. He felt that, by taking very public and "symbolic" actions, government could spur people to spend and get the economy going. War makes sense for such an action only because it is, well, so "symbolic." The potential for destruction inherent in war would actually add to the uncertainty that causes resources to be underutilized...unless the government actually seizes those resources itself and does whatever it wants to do with it--which is how wars destroy liberty. The trick worked in World War 2 US because we were wrapped in a big bubble, mostly unaffected by its destructiveness. I suspect it's extremely unlikely that we will be so spared, with so much of our wealth and consumption dependent on international economic system and all.

[b]

There seems to be some maybe coordinated effort to implement the ridiculous argument "War is good" in the American public mind.

In April the Washington Post published similar nonsense.

http://www.washingtonpost.com/opinions/in-the-long-run-wars-make-us-safer-and-richer/2014/04/25/a4207660-c965-11e3-a75e-463587891b57_story.html
"In the long run, wars make us safer and richer"

Any historian or economist able to look beyond the war-winners border will be able to counter such argument.

Who pays the writers of such nonsense and why to opinion page editors publish it?

[confusedponderer]

Tyler Cowan can be fortunate that he was born when and where he was. The US population IMO apparently has forgotten what war means from close by.

This looks quaint and folksy:
http://en.wikipedia.org/wiki/File:AndersonvilleCemetary.JPG
http://en.wikipedia.org/wiki/American_Civil_War_reenactment#mediaviewer/File:BattleOfChancellorsvilleReenactment.jpg

It wasn't:
http://en.wikipedia.org/wiki/American_Civil_War#mediaviewer/File:Conf_dead_chancellorsville_edit1.jpg
http://en.wikipedia.org/wiki/Sherman%27s_March_to_the_Sea#mediaviewer/File:Sherman_railroad_destroy_noborder.jpg
http://en.wikipedia.org/wiki/Charleston,_South_Carolina#mediaviewer/File:Charleston_sc_1865.jpg

When one goees to the Battlefields of WW-I these days, one can see land still bearing the scars of the battles.

http://en.wikipedia.org/wiki/Zone_rouge

This is Verdun today:
http://en.wikipedia.org/wiki/Zone_rouge#mediaviewer/File:Battelfield_Verdun.JPG

But what progress all the carnage brought!

In my city they dig out unexploded allied bombs on a weekly basis during construction works. Local evacuations because of bomb disposal happen on a roughly monthly basis. Recent example: A 500 pounder was found in a neighbourhood that was dropped 60 years ago, requiring the evacuation of 2500 people.

http://www.express.de/koeln/entschaerfung-um-13-uhr-10-zentner-bombe--evakuierung-in-lindenthal,2856,25640826.html

Sometimes it doesn't go so smoothly, as a couple years back in Munich:

http://www.faz.net/aktuell/gesellschaft/muenchen-fliegerbombe-gesprengt-11871704.html

These days we see the US celebrate D-Day and their victory over Nazi Germany. Not to belittle Normandy and the Bulge, but it was the Russians who fought and ground down 75% of the Wehrmacht.

How many military casualties did the US have in WW-II? According to Wikipedia then US lost 407,000 soldiers, and 12.000 civilians were killed. Russia lost 8,700,000 to 13,850,000 soldiers, and 7,000,000 to 12,000,000 civilians. It seems the Russians had their greatest generation, too.

I got the impression that the Western participants in this years D-Day celebrations were either unaware of that or, if they were, they must have decided to ignore it, lest to accidentally 'legitimise' Putin or somesuch nonsense.

To rid people like Tyler Cowan of their joyful enthusiasm for the creative impulses that war brings they either need to participate in it (unlikely, probably for lack of Latte in the trenches) or, god forbid, war would needs to knock on their doors to rid them of their delusions.

One could settle for less, and send Tyler Cowan on a speaking cirquit to Syria, Iraq and Afghanistan, to persuade the locals of just how beneficial their civil wars are for US creativity and that these warlets, lamentably, they are still not quite what he has in mind.

[Ulenspiegel]

"To put that another way, if what Tyler said is true and considering the number and cost of Americas wars, then American standards of living should be much higher than their developed yet peaceful peers."

My cynic reply is that the "good", i.e. profitable, wars like WWI and WWII destroyed the economy of American competitors.

After WWII more than 50% of the global industrial production capacity was located in North America and for the next two decades the USA had without any doubt a much higher standard of living compared to former friends and foes.

The next wars did not deliver in this respect, because they were IMHO fought against the wrong "economic" enemies.

From a historic perspective there are indeed wars that support TC'S hypthesis, e.g. the Netherlands around 1635. Especially the city of Amsterdam grew like hell, econimically and cultural, during the second half of the eighty year long war against Spain, simply by providing "useful" logistic services, some say even for her enemies. :-)

However, these wars are the exception (by chance?), therefore, I clearly support the basic tune of Walrus' post.

[confusedponderer]

Re: "From a historic perspective there are indeed wars that support TC'S hypthesis, e.g. the Netherlands around 1635. Especially the city of Amsterdam grew like hell, econimically and cultural, during the second half of the eighty year long war against Spain"

Amsterdam wasn't sacked. That must have helped.

kao_hsien_chih hi the nail on the head when he wrote: "The trick worked in World War 2 US because we were wrapped in a big bubble, mostly unaffected by its destructiveness."

The same now. The US is paying for war in form of inflation and opportuinity cost for their wars of choice, but the odd 9/11 is the exteption, and the most of the time the destruction happens strictly abroad. That is why folks like Tyler Cowan don't see the costs. It's of of his field of view.

It is a different story entirely when your entire city with its wealth and recources, acquired over a long time, turns to ashes and rubble.

One does not need to be a romantic to understand that war in ones own land is inevitably involved with loss of life, loss of traditions and culture and destruction of cultural goods and property.

The thirty year war didn't really benefit Germany, considering that about a third of its population as wiped out in it.

One libertarian told me that joke: 'Ok, I have a great plan to fix the economy - we buy a couple thousand GPS guided bombs, real big ones, for a million dollars apiece - and then we blow them up!'

http://en.wikipedia.org/wiki/Opportunity_cost
http://en.wikipedia.org/wiki/Broken_window_fallacy

Probably the people who call for war because it is good for the economy are just one step away from a more formalised process of human sacrifice to appease the obviously ill tempered God of Wealth Generation and Technological Progress.

[Tyler]

Unsurprisingly, I believe Cowan also posted on his blog that we should all prepare to eat beans because Open Borders (which he enthusiastically supports) is going to drive down the price of labor.

What I'm saying is, he's yet another ivory tower eggheaded idiot.

[bison]

You make an important, valid point, consistent with my argument that most military spending is consumptive rather than investment. Therefore, our economy suffers from war. Spending the same money on education, health, and infrastructure (excluding bridges to nowhere) would generate long term benefits.

[Fred]

kao_hsien_chih,

I don't think Keynes meant for that stimulus to be perpetual. You are correct that there was no destruction of manufacturing capacity in the US during WW2 and virtually no civilian casualties outside of the Philippines, Guam and the attack on Hawaii.

[charly]

“ war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy "

War may lead to investments in science but liberalizing the economy is not what usually happens during war times.

[kao_hsien_chih]

He didn't. In fact, from Keynes' own writings, it is not even clear that he meant for gov't stimulus to be even "real." The real driver of economic recovery in Keynes' formulation was the private capital making use of the underutilized resources, not government appropriating them. The role of the government was to make appropriate noises and to provide a direction to reduce the uncertainty that leads to the underuse, not to mobilize (most of) the resources themselves.

This becomes complicated in times of war: war itself introduces very real uncertainties that would depress productive use of economic resources. However, a grand war for some great cause far away from home does make for a great appeal that helps mobilize underused economic resources...as long as the bombs (or other negative effects of the war) don't come home.

I think this is where the subtlety in the original Keynes argument is often abused by statists. When government claims the right to appropriate economic resources for its own purposes away from potentially productive private use, this oversteps the bounds of economic stimulus into the realm of tyranny.

[readerOfTeaLeaves]

For once, I agree with you.
Cowen recently blamed the languishing economy on NIMBY's (Not in My Backyard). Who knew that PTA moms and homeowners are the culprits in America's languishing economy?
http://www.nytimes.com/roomfordebate/2014/03/30/was-marx-right/our-economic-problems-are-in-sectors-not-the-system

Cowen's lack of imagination suggests that he is better off in his Ivory Tower than attempting to create a new business.

[confusedponderer]

NIMBY becomes quite understandable when one thinks of Bhopal or Seveso or Fukushima. But then:

I come from an area where open cast coalmining is undertaken. The impact is significant - changing groundwater level from 1m to about 500m, largest baggers on earth, 300m high mine dumps, relocated villages, resulting 'restlakes' that will take a decade or longer to fill, springs where I used to play as a kid have run dry, etc.

http://de.wikipedia.org/wiki/Rheinisches_Braunkohlerevier#mediaviewer/Datei:Sunrise_over_Rheinbraun.jpg

In the big city 25km off nobody cares a bit as long as they get their electricity cheap. As long as only rural communities get screwed ...

[Tyler]

Cowen also has an amazing tendency to go straight for overemotional sentimental hyperventilating whenever the economics of open borders are considered and dismissed.

He is the poster child for libertarianism and economists in general being populated by high functioning austists who can't figure out people are more than just consumers and have other concerns than simply "Is it good for GDP?".

[Fred]

Tyler,

George Mason needs to competitively bid professor Cowen's position in the economics department and see which PHD economists world wide would like the job -and at what rate of compensation. There are plenty available with even better credentials - um education+publication+experience than his.

Needless to say Mr. Libertarian is protected by tenure (and connections)soooo...... much for his theoretical beliefs.

[Tyler]

If economists started being replaced by cheaper economists from India and China they'd become massive closed border enthusiasts over night.

[Fred]

Exactly. Mr. Cowen is adhereing to his most important principles - "got mine".

[charly]

Not really. Economics is more theology than science. Telling the wrong gospel gets you fired.