On War (Part 3): Is war good for the economy? The Broken Window Theory of Economics
“I think actually the spending in the war might help with jobs…because we’re buying equipment, and people are working. I think this economy is down because we built too many houses and the economy’s adjusting. “ (1)
- President Bush 19 Feb 08
"I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones."
- Albert Einstein
Your had better pay attention to the war. The cost and debt is significant and impact is just starting to be felt. Destroying property is wasteful/unless there is a compelling reason to replace what exists. Destroying lives is never beneficial. War stimulates some portions of the economy, but drains others, leading to stalled or wasteful work. On balance, war is not a good economic stimulator. (2) People fail to consider the hidden costs: the taxpayers are now poorer by exactly that much money. The food, clothing or other items they might have purchased with that money will now not be purchased—but since there is no way to count "non-purchases," this is a hidden cost, sometimes called opportunity cost. (3)
Two-Time Congressional Medal of Honor Recipient
Major General Smedley D. Butler - USMC Retired, 1935 book, War Is a Racket
“WAR is a racket. It always has been.
It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.
A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small "inside" group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.
In the World War [I] a mere handful garnered the profits of the conflict. At least 21,000 new millionaires and billionaires were made in the United States during the World War. That many admitted their huge blood gains in their income tax returns. How many other war millionaires falsified their tax returns no one knows.
How many of these war millionaires shouldered a rifle? How many of them dug a trench? How many of them knew what it meant to go hungry in a rat-infested dug-out? How many of them spent sleepless, frightened nights, ducking shells and shrapnel and machine gun bullets? How many of them parried a bayonet thrust of an enemy? How many of them were wounded or killed in battle?
Out of war nations acquire additional territory, if they are victorious. They just take it. This newly acquired territory promptly is exploited by the few – the selfsame few who wrung dollars out of blood in the war. The general public shoulders the bill.
And what is this bill?
This bill renders a horrible accounting. Newly placed gravestones. Mangled bodies. Shattered minds. Broken hearts and homes. Economic instability. Depression and all its attendant miseries. Back-breaking taxation for generations and generations.
For a great many years, as a soldier, I had a suspicion that war was a racket; not until I retired to civil life did I fully realize it. Now that I see the international war clouds gathering, as they are today, I must face it and speak out.”
Mis Information / Mal Education
Americans are taught in school that War is good for the economy. WW2 is what brought us out of the Depression, we are taught.
The reality is Europe, Japan, China and much of Russia was destroyed in WW2. The US, by remaining out most of the war, was able to sell goods and services to these nations that were destroying each other. There was a Net transfer of wealth from Asia and Europe to the US. With the new wealth the US has enjoyed the “American Century” or PAX Americana. Austria, England, France, Japan and Germany lost most of its’ Empire, lifestyle and wealth. Eastern Europe fell under Soviet Control for +40 years and a shell of its former position.
So many Americans think war and the Invasion and Occupation of Iraq is “good” for the economy. It is the Broken Window Theory of Economics. The parable of the broken window goes back to the 1850 and was created by Frédéric Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen and That Which Is Unseen) to illuminate the notion of hidden costs.
Most Americans are not aware of the hidden cost of the Iraq war. There is no Draft and the costs are hidden from the public with funny accounting and a very supportive Congress. Quote me: The Occupation of Iraq is the largest wealth transfer in US history. IMO the war is leading to a rapid collapse of the US dollar and systemic crisis many unprepared Americans will be caught up in.
From Wikipedia the parable of the broken window on war:
“Some claim that war is a benefactor, since historically it often has focused the use of resources and triggered advances in technology and other areas. The increased production and employment associated with war often leads some to claim that "war is good for the economy." Others claim that this is an example of the broken window fallacy. The money spent on the war effort, for example, is money that can't be spent on food, clothing, health care, consumer electronics or other areas. The stimulus felt in one sector of the economy comes at a direct—but hidden—cost to other sectors.
More importantly, war destroys property and lives. The economic stimulus to the defense sector is offset not only by immediate opportunity costs, but also by the costs of the damage and devastation of war. This forms the basis of a second application of the broken window fallacy: rebuilding what war destroys stimulates the economy, particularly the construction sector. However, immense resources are spent merely to restore pre-war conditions. After a war, there is only a rebuilt city. Without a war, there are opportunities for the same resources to be applied to more fruitful purposes. Instead of rebuilding a destroyed city, the resources could be used to build a second city or add improvements.
Another set of costs of war are the many projects postponed or not started until after the end of the Second World War in America. The pent-up demand for roads, bridges, houses, cars, and even radios led to massive inflation in the late 1940s. The war delayed the commercial introduction of television, among other things, and the resources sent overseas to rebuild the rest of the world after the war were not available to directly benefit the American people.
Play this video of Ron Paul questioning Gen Petraeus at Iraq Surge Hearing. Ron Paul really stuck it to Petraeus. If this does not convince you of the stupidity of the war, nothing will.
Rep Ron Paul: Gen Petraeus Iraq Surge Hearing
1. Bush Dismisses Iraq Recession: The War Has ‘Nothing To Do With The Economy’ 19 Feb 08 abitarecatania, Blog Post
2. Wikipedia, Parable of a Broken Window
3. "Everything we get, outside the free gifts of nature, must in some way be paid for." Robert A. Heinlein