Posts Tagged ‘Economics of war’

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)


Very long and might need to be read in installments because of that fact. This article is a very in depth and detailed analysis. Check it out!