War is not an export.(repost)

Posted: January 22, 2012 in Big Government, Economics, Favorite Posts, Politics, Ron Paul, War
Tags: , , , ,

Im going to start a series of posts focused on our current governmental shortcomings. This post will cover the fallacy that war spurs economic growth. Subsequent posts will show that war leads to the rationing of goods, the decline of liberty, as well as growth of the centralized government. I will also touch on the concept that somehow bringing our troops home is bad for the economy, along with several smaller points. Hard hitting stuff I know, but I’m passionate about these topics and want to further the conversation however I can.

Fallacy: War ends recessions and spurs economic growth.

I can’t say this is completely false, because technically it can spur growth in certain economic statistics, and can push a country from an economic “recession”. BUT, this growth is not real economic growth. The recession doesn’t truly end, simply put, some of the numbers used to define a recession change.

The so called economic growth is in all actuality just a reallocation of labor and cash. Think with me. There are 100 unemployed people in city A. The government of City A declares war on City B. As a result a tank factory is needed in city A to produce tanks for the war. City A employs the 100 workers that do not currently have jobs, this is great right? The war has created 100 jobs!

But wait a minute, to pay the 100 workers salaries the government in City A has to raise taxes on the businesses and residents of City A. In turn the residents have more money removed from their wages to support the war. This means that the residents have less money to spend at area businesses.

Now, not only are businesses in City A being hit with higher taxes issued from the government they are also dealing with less demand for their products. The businesses of City A are left with no choice, they must lay off workers to compensate for lost revenues. (other cost cutting measures would likely preceed layoffs, but would likely cause the same effect) Logically if the 100 new government salaries need to be paid then the equivalent amount of cash needs to be removed from the private sector salaries of City A to cover it. That means 100 people who were previously employed are now without jobs. Thus creating a net gain of ZERO. 100 hired – 100 fired = 0

This doesn’t account for the money spent on tank materials, soldiers, ammunition, food for the front, clothing, boots, tents, blankets, etc., etc., etc. All of which are funded by taxes on the private sector in City A. The result of this war is a net loss.

So how does a country successfully wage war without creating negative economic effects? In short,they can’t. Short term bonuses inevitably lead to long term negative trends. Initially City A’s unemployed were all gainfully employed, but in the long term other people lost their jobs to sustain the war effort.

The other angle that I would like to take is a little more touchy and if I don’t phrase it correctly it will sound as though Im anti military. I am not. I support our military, I just don’t want those men and women put in harms way for anything less than the defense of our nation. Going to war to end a recession is not acceptable, it is in fact counterproductive.

By trade John is a carpenter. John earns his money doing handyman work in City A. His friends and neighbors gladly pay for his services because he is performing tasks that they either can’t do or don’t want to do. He is supplying a service to meet a demand. John is upset when he hears that City A has declared war on City B. He is a reservist and is called up to fight. John is no longer able to do repairs because he is fighting in City B. As a result of war City A has lost the productivity of John inside its community. The money that would have typically changed hands is instead sitting dormant in a cookie jar. John is no longer engaged in an activity that benefits the economy of the community he is now taking money out of the community and returning nothing. ( of course we are assuming that the war with City B is not for the defense of City A from City B’s armies; in that case John would be contributing to the defense and welfare of city A)

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Comments
  1. Waymon says:

    None of these examples reflect real life or economic mechanisms of American warfare. War has always been big business throughout history. I would like to know how the 250,000 civilian employees in both the private and government sectors fit into your analysis? That being the truck driver in Illinois that was make $45,000 back home now makes $100,000 doing the same job in the war zone or the USG employee that receives hazardous duty and increased location pay, (same as the soldiers) how is this increase in pay reflected in your story? Did these people hoard that money and take it to the grave or did they pay off their houses and buy a new car?

    I would also like to point out that, necessity is the mother of invention. In my opinion the life and death struggle of war, pretty much satisfies the legal definition of necessity. So let’s look at what war has given us, the jet engine, GPS, X-ray, radar, internet…….should I continue? I guess if we are going to start and stop our study so it supports your view then you did a bang up job. Kind of like saying the drivers of a drag race never went anywhere because, the time you took to observe them only covered what they did before the green lights flashed. They pulled up to the line, spun their tires and then backed up where they started. See I just showed drag racing starts and stops where you began.

    • swburke21 says:

      Thanks for commenting.

      I hope you actually read the post before commenting and didn’t just skim over it, I realize it was pretty long but I think I addressed several of the things you bring up. I will attempt to clarify what I think you are asking me.

      I don’t like the blanket comment you made that “None of these examples reflect real life or economic mechanisms of American warfare. War has always been big business throughout history.”

      Your observation is lacking any real refutation of any of my examples. Honestly I have difficulty understanding what your argument is. My examples show how the flow of money from the individual into government through taxation is spent on war. In what way does this not reflect real life, or previous wars? The only argument that I think you could possibly produce is that WWII was funded largely through the sale of War Bonds not taxes. But even in WWII the Federal Government took personal property (gold) and restricted ownership of property (rationing) in order to fund the war. My analysis is of the fallacy that war is big business and beneficial to the economy in the long term. (here is my equivalent to your drag racing comment) If you are walking around telling everyone that your shirt is blue, and it is actually red and I walk up and say “your shirt is not blue, it is red” and you respond “no, its blue” you are not making a point, you are just arguing the same illogical point, come back with something to back up your statement and I will debate you on your comment that “none of these examples reflect real life or economic mechanisms of American warfare” Which by the way, I would love to have a definition of what the “economic mechanisms of American warfare” are. Also, some historical figures supporting how war has been big business.

      In regard to the “250,000 civilian employees in both the private and government (*public) sectors” that you reference, I assume you mean 250,000 civilian employees working toward the war effort in Iraq and Afghanistan, etc.,etc. Your statement contains a major flaw, if the private sector employees that you are talking about are being paid through government contracts then they are not private sector employees, they are at the least hybrid private/public sector employees. Their wages are coming from funds derived from taxes (because the government is paying the private company to do the work, who in turn pays its employees with those government funds). So as I stated in the post, no economic opportunity is being created, it is merely a reallocation of labor and cash.

      Your truck driver example was covered in the post as well. I used the most simple example I could because it requires the most simple math in existence, addition and subtraction. I will explain it in another way though just in case I wasn’t clear enough in the post.

      When your truck driver is in Illinois he is making $45k for a private company doing work that there is a demand for and can justify the expense of paying him $45k, the work he is doing yields the money to pay his wages, cover the expense of his truck, fuel, food, insurance, and turn a profit for his employer. Now, when that same guy goes to a war zone and gets paid $100k to drive a truck, is the work that he is doing yielding the money to afford paying him $100k? If (as I stated in the post) the war justifies the expense it doesn’t matter if his actions yield the money to pay his wages because if we are talking about a war for national defense then as a nation we have to determine what price we are willing to pay to defend the nation.

      As I covered in the post, the money that pays the truck drivers wage as a truck driver in Iraq comes from the taxed wages of individual tax payers. You have to add his salary to the tax burden and subtract taxes from the wages of individuals to pay him. To address what he does with the increase in his pay, here is an example, I break into your electronics store at night and clean out the cash register of the $500 that was in it. The next day I come into your store and buy $500 worth of electronics from you. Did you just make $500 or did you just get back the $500 that was stolen from you the night before? When the $100k paying the truck driver is taken out of the private sector economy through taxes, him buying a car or house with it is not creating wealth in the private sector, it is simply reallocating it (returning it to the private sector in a different area). Very simple idea, very simple math, very easy to follow. I could complicate it more by discussing how it is worth considerably less once it is returned to the private sector due to inflation, etc. that went on while the private sector waited to get its money back from the public sector, but we will work toward that in a future debate.

      “Necessity is the mother of all invention”, in essence, if by “necessity” you mean demand and by “mother of all” you mean “the driving force behind”

      (paraphrase) “the struggle of war is necessity”. Very true. War is at times necessary, but it is ugly, and when waged for extended periods of time it can destroy the economies of every country involved.

      Let’s do look at what war has given us. The potential for global thermo nuclear holocaust, increased cancer rates in veterans and civilians from the use of depleted uranium, PTSD, millions of civilian deaths since the turn of the 20th century, millions of military deaths as well and millions of injured or maimed veterans, the complete destruction of entire city’s, the raping of innocent women and children, the invention of biological weapons, environmental wastelands created by nuclear testing, the destruction or loss of priceless works of art and books, the destruction of schools, hospitals, libraries, and homes, etc.,etc.,etc………..should I continue?

      I am not an idiot Waymond, I understand that there have been beneficial effects on our society from war, but come on, can you really ignore all of the negative effects in an attempt to discredit an argument over economics?

      If we start and stop our study of war so that it blindly supports war for its potential to create beneficial inventions then you are doing a bang up job, the rest of it just didn’t really make any sense at all.

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