Preface: Two weeks ago, well-known economist Tyler Cowen (a professor at
George Mason University) argued in the New York Times that wars –
especially “major wars” - are good for the economy.
Cowen joins extremely influential
economists like Paul Krugman and Martin Feldstein – and
various talking heads – in promoting
this idea.
Also, many congressmen assume that cutting
pork-barrel military spending would hurt their constituents’ jobs.
It is vital for policy-makers,
economists and the public to have access to a definitive analysis to determine
once and for all whether war is good or bad for the economy.
That analysis is below.
Top Economists Say War Is Bad for the Economy
Nobel-prize winning economist
Joseph Stiglitz says that war is bad for the economy:
Stiglitz wrote in 2003:
War is widely thought
to be linked to economic good times. The second world war is
often said to have brought the world out of depression, and war has since
enhanced its reputation as a spur to economic growth. Some even suggest that
capitalism needs wars, that without them, recession would always lurk on the
horizon. Today, we know that this is nonsense. The
1990s boom showed that peace is economically far better than war. The Gulf war
of 1991 demonstrated that wars can actually be bad for an economy.
Stiglitz has also said that this
decade’s Iraq war has been very bad for the economy. See this, this and this.
Societies need to buy as much
military insurance as they need, but to spend more than that is to squander
money that could go toward improving the productivity of the economy as a
whole: with more efficient transportation systems, a better educated citizenry,
and so on. This is the point that retiring Rep. Barney Frank (D-Mass.) learned
back in 1999 in a House Banking Committee hearing with then-Federal Reserve
Chairman Alan Greenspan. Frank asked what factors were producing our
then-strong economic performance. On Greenspan’s list: “The
freeing up of resources previously employed to produce military products that
was brought about by the end of the Cold War.” Are you saying,
Frank asked, “that dollar for dollar, military products are there
as insurance … and to the extent you could put those dollars into other areas,
maybe education and job trainings, maybe into transportation … that is going to
have a good economic effect?” Greenspan agreed.
Economist Dean Baker notes:
It is often believed that wars
and military spending increases are good for the economy. In fact, most
economic models show that military spending diverts resources from productive
uses, such as consumption and investment, and ultimately slows economic growth
and reduces employment.
Professor Emeritus of International
Relations at the American University Joshua Goldstein notes:
Recurring war has drained
wealth, disrupted markets, and depressed economic growth.
***
War generally impedes
economic development and undermines prosperity.
And David R. Henderson – associate
professor of economics at the Naval Postgraduate School in Monterey, California
and previously a senior economist with President Reagan’s Council of Economic
Advisers – writes:
Is military conflict really good
for the economy of the country that engages in it? Basic economics answers
a resounding “no.”
The Proof Is In the Pudding
Mike Lofgren notes:
Military spending may at one time
have been a genuine job creator when weapons were compatible with converted
civilian production lines, but the days of Rosie the Riveter are long gone.
[Indeed, WWII was different from current wars in many ways, and so its economic effects are not comparable to those of today's wars.] Most
weapons projects now require relatively little touch labor. Instead, a
disproportionate share is siphoned into high-cost R&D (from which the
civilian economy benefits little), exorbitant management expenditures, high
overhead, and out-and-out padding, including money that flows back into
political campaigns. A dollar appropriated for highway construction, health
care, or education will likely create more jobs than a dollar for Pentagon
weapons procurement.
***
During the decade of the 2000s,
DOD budgets, including funds spent on the war, doubled in our nation’s longest
sustained post-World War II defense increase. Yet during the same
decade, jobs were created at the slowest rate since the Hoover administration. If
defense helped the economy, it is not evident. And just the wars in
Iraq and Afghanistan added over $1.4 trillion to deficits, according to the
Congressional Research Service. Whether the wars were “worth it” or merely
stirred up a hornet’s nest abroad is a policy discussion for another time; what
is clear is that whether you are a Keynesian or a deficit hawk, war and
associated military spending are no economic panacea.
The Washington Post noted in 2008:
A recent paper from the National
Bureau of Economic Research concludes that countries with high military
expenditures during World War II showed strong economic growth following the
war, but says this growth can be credited more to population growth than war
spending. The paper finds that war spending had only minimal effects on
per-capita economic activity.
***
A historical survey of the U.S.
economy from the U.S. State Department reports the Vietnam War had a mixed economic impact. The first Gulf War
typically meets criticism for having pushed the United States toward a 1991
recession.
The Institute for Economics &
Peace (IEP) shows that any boost from war is temporary
at best. For example, while WWII provided a temporary bump in GDP, GDP then
fell back to the baseline trend. After the Korean War, GDP fell below the
baseline trend:
IEP notes:
By examining the state of the
economy at each of the major conflict periods since World War II, it can be
seen that the positive effects of increased military spending were
outweighed by longer term unintended negative macroeconomic consequences.
While the stimulatory effect of military outlays is evidently associated with
boosts in economic growth, adverse effects show up either immediately or soon
after, through higher inflation, budget deficits, high taxes and
reductions in consumption or investment. Rectifying these effects has
required subsequent painful adjustmentswhich are neither
efficient nor desirable. When an economy has excess capacity and unemployment,
it is possible that increasing military spending can provide an important
stimulus. However, if there are budget constraints, as there are
in the U.S. currently, then excessive military spending can displace more
productive non-military outlays in other areas such as investments in high-tech
industries, education, or infrastructure. The crowding-out effects of
disproportionate government spending on military functions can affect service
delivery or infrastructure development, ultimatelyaffecting long-term
growth rates.
***
Analysis of the macroeconomic
components of GDP during World War II and in subsequent conflicts show
heightened military spending had several adverse macroeconomic effects. These
occurred as a direct consequence of the funding requirements of increased
military spending. The U.S. has paid for its wars either through debt (World
War II, Cold War, Afghanistan/Iraq), taxation (Korean War) or inflation
(Vietnam). In each case, taxpayers have been burdened, and private
sector consumption and investment have been constrained as a result.
Other negative effects include larger budget deficits, higher
taxes, and growth above trend leading to inflation pressure. These
effects can run concurrent with major conflict or via lagging effects into the
future. Regardless of the way a war is financed, the overall
macroeconomic effect on the economy tends to be negative. For each of
the periods after World War II, we need to ask, what would have happened in
economic terms if these wars did not happen? On the specific evidence provided,
it can be reasonably said, it is likely taxes would have been
lower, inflation would have been lower, there would have been higher
consumption and investment and certainly lower budget deficits. Some
wars are necessary to fight and the negative effects of not fighting these wars
can far outweigh the costs of fighting. However if there are other options,
then it is prudent to exhaust them first as once wars do start, the outcome,
duration and economic consequences are difficult to predict.
We noted in 2011:
This is a no-brainer, if you
think about it. We’ve been in Afghanistan for almost twice as long as World War
II. We’ve been in Iraq for years longer than WWII. We’ve been involved in 7 or 8 wars in the last decade. And yet [the
economy is still unstable]. If wars really helped the economy, don’t you think
things would have improved by now? Indeed, the Iraq
war alone could end up costing more than World War II. And given the other
wars we’ve been involved in this decade, I believe that the total price tag for
the so-called “War on Terror” will definitely support that of the “Greatest
War”.
Let’s look at the adverse effects
of war in more detail …
War Spending Diverts Stimulus Away from the Real Civilian Economy
IEP notes that – even though the government
spending soared – consumption and investment were flat during
the Vietnam war:
The New Republic noted in 2009:
Conservative Harvard economist
Robert Barro has argued that increased military spending during
WWII actually depressed other parts of the economy.
(New Republic also points out that conservative economist
Robert Higgs and liberal economists Larry Summers and Brad Delong have all
shown that any stimulation to the economy from World War II has been greatly
exaggerated.)
How could war actually hurt the
economy, when so many say that it stimulates the economy?
Because of what economists call the
“broken window fallacy”.
Specifically, if a window in a
store is broken, it means that the window-maker gets paid to make a new window,
and he, in turn, has money to pay others. However, economists long ago showed
that – if the window hadn’t been broken – the shop-owner would
have spent that money on other things,
such as food, clothing, health care, consumer electronics or recreation,
which would have helped the economy as much or more.
If the shop-owner hadn’t had to
replace his window, he might have taken his family out to dinner, which would
have circulated more money to the restaurant, and from there to other sectors
of the economy. Similarly, the money spent on the war effort is money that
cannot be spent on other sectors of the economy. Indeed, all
of the military spending has just created military jobs, at the
expense of the civilian economy.
Professor Henderson writes:
Money not spent on the military
could be spent elsewhere.This also applies to human resources. The more than
200,000 U.S. military personnel in Iraq and Afghanistan could be doing
something valuable at home.
Why is this hard to understand?
The first reason is a point 19th-century French economic journalist Frederic
Bastiat made in his essay, “What Is Seen and What Is Not Seen.” Everyone can
see that soldiers are employed. But we cannot see the jobs and the other
creative pursuits they could be engaged in were they not in the military.
The second reason is that when
economic times are tough and unemployment is high, it’s easy to assume that
other jobs could not exist. But they can. This gets to an argument Bastiat made
in discussing demobilization of French soldiers after Napoleon’s downfall. He
pointed out that when government cuts the size of the military, it
frees up not only manpower but also money. The money that would have gone to
pay soldiers can instead be used to hire them as civilian workers. That
can happen in three ways, either individually or in combination: (1) a tax cut;
(2) a reduction in the deficit; or (3) an increase in other government
spending.
***
Most people still believe that
World War II ended the Great Depression …. But look deeper.
***
The government-spending component
of GNP went for guns, trucks, airplanes, tanks, gasoline, ships, uniforms,
parachutes, and labor. What do these things have in common? Almost all of them
were destroyed. Not just these goods but also the military’s billions of labor
hours were used up without creating value to consumers. Much of the capital and
labor used to make the hundreds of thousands of trucks and jeeps and the tens
of thousands of tanks and airplanes would otherwise have been producing cars
and trucks for the domestic economy. The assembly lines in Detroit, which had
churned out 3.6 million cars in 1941, were retooled to produce the vehicles of
war. From late 1942 to 1945, production of civilian cars was essentially shut
down.
And that’s just one example.
Women went without nylon stockings so that factories could produce parachutes.
Civilians faced tight rationing of gasoline so that U.S. bombers could fly over
Germany. People went without meat so that U.S. soldiers could be fed. And so
on.
These resources helped win the
war—no small issue. But the war was not a stimulus program, either in its
intentions or in its effects, and it was not necessary for pulling the U.S. out
of the Great Depression. Had World War II never taken place,
millions of cars would have been produced; people would have been able to
travel much more widely; and there would have been no rationing. In short, by
the standard measures, Americans would have been much more prosperous.
Today, the vast majority of us
are richer than even the most affluent people back then. But despite this
prosperity, one thing has not changed: war is bad for our economy.
The $150 billion that the government spends annually on wars in Iraq and
Afghanistan (and, increasingly, Pakistan) could instead be used to cut taxes or
cut the deficit. By ending its ongoing wars … the
U.S. government … would be developing a more
prosperous economy.
Austrian economist Ludwig Von
Mises points:
That is the essence of so-called
war prosperity; it enriches some by what it takes from others. It is not rising
wealth but a shifting of wealth and income.
We noted in 2010:
You know about America’s
unemployment problem. You may have even heard that the U.S. may very well have
suffered a permanent destruction of jobs.
But did you know that the defense
employment sector is booming?
[P]ublic sector spending – and
mainly defense spending – has accounted for virtually all of the new job
creation in the past 10 years:
The U.S. has largely been
financing job creation for ten years. Specifically, as the chief economist for
BusinessWeek, Michael Mandel, points out, public spending has accounted for
virtually all new job creation in the past 1o years:
Private sector job growth was
almost non-existent over the past ten years. Take a look at this horrifying
chart:
Between May 1999 and May 2009,
employment in the private sector sector only rose by 1.1%, by far the lowest
10-year increase in the post-depression period.
It’s impossible to overstate
how bad this is. Basically speaking, the private sector job machine has almost
completely stalled over the past ten years. Take a look at this chart:
Over the past 10 years, the
private sector has generated roughly 1.1 million additional jobs, or about 100K
per year. The public sector created about 2.4 million jobs.
But even that gives the private
sector too much credit. Remember that the private sector includes health care,
social assistance, and education, all areas which receive a lot of government
support.
***
Most of the industries which
had positive job growth over the past ten years were in the HealthEdGov sector.
In fact, financial job growth was nearly nonexistent once we take out the
health insurers.
Let me finish with a final
chart.
Without a decade of growing
government support from rising health and education spending and soaring budget
deficits, the labor market would have been flat on its back. [120]
***
So most of the job creation has
been by the public sector. But because the job creation has been financed with
loans from China and private banks, trillions in unnecessary interest charges
have been incurred by the U.S.
And this shows military versus
non-military durable goods shipments: 
[Click here to
view full image.]
So we’re running up our debt
(which will eventually decrease economic growth), but the only jobs we’re
creating are military and other public sector jobs.
PhD economist Dean Baker points out that America’s massive
military spending on unnecessary and unpopular wars lowers economic
growth andincreases unemployment:
Defense spending means that the
government is pulling away resources from the uses determined by the market and
instead using them to buy weapons and supplies and to pay for soldiers and
other military personnel. In standard economic models, defense spending is a
direct drain on the economy, reducing efficiency, slowing growth and costing
jobs.
A few years ago, the Center for
Economic and Policy Research commissioned Global Insight, one of the leading
economic modeling firms, to project the impact of a sustained increase in
defense spending equal to 1.0 percentage point of GDP. This was roughly equal
to the cost of the Iraq War.
Global Insight’s model
projected that after 20 years the economy would be about 0.6 percentage points
smaller as a result of the additional defense spending. Slower growth would
imply a loss of almost 700,000 jobs compared to a situation in which defense
spending had not been increased. Construction and manufacturing were especially
big job losers in the projections, losing 210,000 and 90,000 jobs,
respectively.
The scenario we asked Global
Insight [recognized as the most consistently accurate forecasting company in the world] to model
turned out to have vastly underestimated the increase in defense spending associated
with current policy. In the most recent quarter, defense spending was equal to
5.6 percent of GDP. By comparison, before the September 11th attacks, the
Congressional Budget Office projected that defense spending in 2009 would be
equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to
3.2 percentage points of GDP compared to the pre-attack baseline. This means
that the Global Insight projections of job loss are far too low…
The projected job loss from
this increase in defense spending would be close to 2 million. In other
words, the standard economic models that project job loss from efforts to stem
global warming also project that the increase in defense spending since 2000
will cost the economy close to 2 million jobs in the long run.
The Political Economy Research
Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates
more jobs than military spending.
High Military Spending Drains Innovation, Investment and Manufacturing
Strength from the Civilian Economy
Chalmers Johnson notes that
high military spending diverts innovation and manufacturing capacity from the
economy:
By the 1960s it was becoming
apparent that turning over the nation’s largest manufacturing enterprises to
the Department of Defense and producing goods without any investment or
consumption value was starting to crowd out civilian economic activities. The
historian Thomas E Woods Jr observes that, during the 1950s and 1960s, between
one-third and two-thirds of all US research talent was siphoned off into the
military sector. It is, of course, impossible to know what innovations never
appeared as a result of this diversion of resources and brainpower into the
service of the military, but it was during the 1960s that we first began to
notice Japan was outpacing us in the design and quality of a range of consumer
goods, including household electronics and automobiles.
***
Woods writes: “According to the US Department of Defense, during the
four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in
capital resources. In 1985, the Department of Commerce estimated the value of
the nation’s plant and equipment, and infrastructure, at just over $7.29
trillion… The amount spent over that period could have doubled the
American capital stock or modernized and replaced its existing stock”.
The fact that we did not
modernise or replace our capital assets is one of the main reasons why, by the
turn of the 21st century, our manufacturing base had all but
evaporated. Machine tools, an industry on which Melman was an
authority, are a particularly important symptom. In November 1968, a five-year
inventory disclosed “that 64% of the metalworking machine tools used in US
industry were 10 years old or older. The age of this industrial equipment
(drills, lathes, etc.) marks the United States’ machine tool stock as the oldest
among all major industrial nations, and it marks the continuation of a
deterioration process that began with the end of the second world war. This
deterioration at the base of the industrial system certifies to the continuousdebilitating
and depleting effect that the military use of capital and research and
development talent has had on American industry.”
Economist Robert Higgs makes the same point about World War II:
Yes, officially measured GDP
soared during the war. Examination of that increased output shows, however,
that it consisted entirely of military goods and services. Real
civilian consumption and private investment both fell after 1941, and they did
not recover fully until 1946. The privately owned capital stock actually shrank
during the war. Some prosperity. (My article
in the peer-reviewed Journal of Economic
History, March 1992, presents many of the relevant details.)
It is high time that we come to
appreciate the distinction between the government spending, especially the war
spending, that bulks up official GDP figures and the kinds of production that
create genuine economic prosperity. As Ludwig von
Mises wrote in the aftermath of World War I, “war prosperity is like the
prosperity that an earthquake or a plague brings.”
War Causes Austerity
Economic historian Julian
Adorney argues:
Hitler’s rearmament program was
military Keynesianism on a vast scale. Hermann Goering, Hitler’s economic
administrator, poured every available resource into making planes, tanks, and
guns. In 1933 German military spending was 750 million Reichsmarks. By 1938 it
had risen to 17 billion with 21 percent of GDP was taken up by military
spending. Government spending all told was 35 percent of Germany’s GDP.
***
No-one could say that Hitler’s
rearmament program was too small. Economists expected it to create a multiplier
effect and jump-start a flagging economy. Instead, it produced military wealth
while private citizens starved.
***
The people routinely
suffered shortages. Civilian wood and iron were rationed. Small
businesses, from artisans to carpenters to cobblers, went under. Citizens could
barely buy pork, and buying fat to make a luxury like a cake was impossible.
Rationing and long lines at the central supply depots the Nazis installed
became the norm.
Nazi Germany proves that curing
unemployment should not be an end in itself.
War Causes Inflation … Which Keynes and Bernanke Admit Taxes Consumers
As we noted in 2010, war causes inflation … which hurts
consumers:
Liberal economist James
Galbraith wrote in 2004:
Inflation applies the law of
the jungle to war finance. Prices and profits rise, wages and their purchasing
power fall. Thugs, profiteers and the well connected get rich. Working
people and the poor make out as they can. Savings erode, through the unseen
mechanism of the “inflation tax” — meaning that the government runs a big
deficit in nominal terms, but a smaller one when inflation is factored in.
***
There is profiteering. Firms
with monopoly power usually keep some in reserve. In wartime, if the climate is
permissive, they bring it out and use it. Gas prices can go up when
refining capacity becomes short — due partly to too many mergers. More
generally, when sales to consumers are slow, businesses ought to cut prices —
but many of them don’t. Instead, they raise prices to meet
their income targets and hope that the market won’t collapse.
Ron Paul agreed in 2007:
Congress and the Federal
Reserve Bank have a cozy, unspoken arrangement that makes war easier to
finance. Congress has an insatiable appetite for new spending, but raising
taxes is politically unpopular. The Federal Reserve, however, is happy to
accommodate deficit spending by creating new money through the Treasury
Department. In exchange, Congress leaves the Fed alone to operate free of
pesky oversight and free of political scrutiny. Monetary policy is utterly
ignored in Washington, even though the Federal Reserve system is a creation of
Congress.
The result of this arrangement
is inflation. And inflation finances war.
Blanchard Economic
Research pointed out in 2001:
War has a profound effect on
the economy, our government and its fiscal and monetary policies. These effects
have consistently led to high inflation.
***
David Hackett Fischer is a
Professor of History and Economic History at Brandeis. [H]is book, The Great
Wave, Price Revolutions and the Rhythm of History … finds that … periods
of high inflation are caused by, and cause, a breakdown in order and a loss of
faith in political institutions. He also finds that war is a triggering
influence on inflation, political disorder, social conflict and economic
disruption.
***
Other economists agree with
Professor Fischer’s link between inflation and war.
James Grant, the respected
editor of Grant’s Interest Rate Observer, supplies us with the most timely
perspective on the effect of war on inflation in the September 14 issue of his
newsletter:
“War is inflationary. It
is always wasteful no matter how just the cause. It is cost without income,
destruction financed (more often than not) by credit creation. It is the
essence of inflation.”
Libertarian economics writer
Lew Rockwell noted in 2008:
You can line up 100
professional war historians and political scientists to talk about the 20th
century, and not one is likely to mention the role of the Fed in funding US
militarism. And yet it is true: the Fed is the institution that has
created the money to fund the wars. In this role, it has solved a major
problem that the state has confronted for all of human history. A state
without money or a state that must tax its citizens to raise money for its wars
is necessarily limited in its imperial ambitions. Keep in mind that this is
only a problem for the state. It is not a problem for the people. The inability
of the state to fund its unlimited ambitions is worth more for the people than
every kind of legal check and balance. It is more valuable than all the
constitutions every devised.
***
Reflecting on the calamity
of this war, Ludwig von Mises wrote in 1919
One can say without exaggeration
that inflation is an indispensable means of militarism. Without it, the
repercussions of war on welfare become obvious much more quickly and
penetratingly; war weariness would set in much earlier.***
In the entire run-up to
war, George Bush just assumed as a matter of policy that it was his
decision alone whether to invade Iraq. The objections by Ron Paul and some
other members of Congress and vast numbers of the American population were
reduced to little more than white noise in the background. Imagine if he had to
raise the money for the war through taxes. It never would have
happened. But he didn’t have to. He knew the money would be there. So
despite a $200 billion deficit, a $9 trillion debt, $5 trillion in outstanding
debt instruments held by the public, a federal budget of $3 trillion, and
falling tax receipts in 2001, Bush contemplated a war that has cost $525
billion dollars — or $4,681 per household. Imagine if he had gone to the
American people to request that. What would have happened? I think we know the
answer to that question. And those are government figures; the actual cost of
this war will be far higher — perhaps $20,000 per household.
***
If the state has the power and
is asked to choose between doing good and waging war, what will it choose?
Certainly in the American context, the choice has always been for war.
And progressive economics
writer Chris Martenson explains as part of his “Crash Course”
on economics:
If we look at the entire sweep
of history, we can make an utterly obvious claim: All wars are
inflationary. Period. No exceptions.
***
So if anybody tries to tell you
that you haven’t sacrificed for the war, let them know you sacrificed a large
portion of your savings andyour paycheck to
the effort, thank you very much.
The bottom line is that war
always causes inflation, at least when it is funded through money-printing
instead of a pay-as-you-go system of taxes and/or bonds. It might be great for
a handful of defense contractors, but war is bad for Main Street,
stealing wealth from people by making their dollars worth less.
Given that John Maynard Keynes and
former Federal Reserve chair Ben Bernanke both say that inflation is a tax on the
American people, war-induced inflation is a theft of our
wealth.
IEP gives a graphic example – the Vietnam war
helping to push inflation through the roof:
War Causes Runaway Debt
We noted in 2010:
All of the spending on
unnecessary wars adds up.
The U.S. is adding trillions to
its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.
Indeed, IEP – commenting on the war
in Afghanistan and Iraq – notes:
This was also the first
time in U.S. history where taxes were cut during a war which then resulted in
both wars completely financed by deficit spending. A loose monetary
policy was also implemented while interest rates were kept low and banking
regulations were relaxed to stimulate the economy. All of these factors have
contributed to the U.S. having severe unsustainable structural imbalances in
its government finances.
We also pointed out in 2010:
It is ironic that America’s huge
military spending is what made us an empire … but our huge military is what is
bankrupting us … thus destroying our status as an empire.
Economist Michel Chossudovsky told
Washington’s Blog:
War always causes recession.
Well, if it is a very short war, then it may stimulate the economy in the
short-run. But if there is not a quick victory and it drags on, then wars
always put the nation waging war into a recession and hurt its economy.
Indeed, we’ve known for 2,500 years that prolonged war bankrupts an
economy (and remember Greenspan’s comment.)
It’s not just civilians saying this
…
The former head of the Joint Chiefs
of Staff – Admiral Mullen – agrees:
The Pentagon needs to cut
back on spending.
“We’re going to have to do that
if it’s going to survive at all,” Mullen said, “and do it in a way that is
predictable.”
Indeed, Mullen said:
For industry and adequate defense
funding to survive … the two must work together. Otherwise, he
added, “this wave of debt” will carry over from year to year, and
eventually, the defense budget will be cut just to facilitate the debt.
Former Secretary of Defense Robert
Gates agrees as well. As David Ignatius wrote in the Washington Post in 2010:
After a decade of war and
financial crisis, America has run up debts that pose a national security
problem, not just an economic one.
***
One of the strongest voices
arguing for fiscal responsibility as a national security issue has been Defense
Secretary Bob Gates. He gave a landmark
speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings about
the dangers of an imbalanced military-industrial state.
“Eisenhower was wary of seeing
his beloved republic turn into a muscle-bound, garrison state — militarily
strong, but economically stagnant and strategically insolvent,” Gates said. He
warned that America was in a “parlous fiscal condition” and that the
“gusher” of military spending that followed Sept. 11, 2001, must be capped.
“We can’t have a strong military if we have a weak economy,” Gates told
reporters who covered the Kansas speech.
On Thursday the
defense secretary reiterated his pitch that Congress must stop shoveling money
at the military, telling Pentagon reporters: “The defense budget
process should no longer be characterized by ‘business as usual’ within this
building — or outside of it.”
While war might make a handful in
the military-industrial complex and big banks rich, America’s top military leaders and
economists say that would be a very bad idea for the
American people.
Indeed, military strategists have
known for 2,500 years that prolonged wars are disastrous for the
nation.
War Increases Terrorism … And Terrorism Hurts the Economy
Security experts – conservative
hawks and liberal doves alike – agree that waging war in the Middle
East weakens national security and increases terrorism.
See this,this, this, this, this, this and this.
Terrorism – in turn – terrorism is
bad for the economy. Specifically, a study by Harvard and the National Bureau of Economic
Research (NBER) points out:
From an economic standpoint,
terrorism has been described to have four main effects (see, e.g., US Congress,
Joint Economic Committee, 2002). First, the capital stock (human and physical)
of a country is reduced as a result of terrorist attacks. Second, the terrorist
threat induces higher levels of uncertainty. Third, terrorism promotes
increases in counter-terrorism expenditures, drawing resources from productive
sectors for use in security. Fourth, terrorism is known to affect negatively
specific industries such as tourism.
The Harvard/NBER concludes:
In accordance with the
predictions of the model, higher levels of terrorist risks are associated with
lower levels of net foreign direct investment positions, even after controlling
for other types of country risks. On average, a standard deviation increase in
the terrorist risk is associated with a fall in the net foreign direct
investment position of about 5 percent of GDP.
So the more unnecessary wars
American launches and the more innocent civilians we kill, the less foreign
investment in America, the more destruction to our capital stock, the higher
the level of uncertainty, the more counter-terrorism expenditures and the less
expenditures in more productive sectors, and the greater the hit to tourism and
some other industries. Moreover:
Terrorism has contributed to a
decline in the global economy (for example, European Commission, 2001).
So military adventurism increases
terrorism which hurts the world economy. And see this.
Postscript: Attacking a country
which controls the flow of oil has special impacts on the economy. For example,
well-known economist Nouriel Roubini says thatattacking
Iran would lead to global recession. The IMF says that Iran cutting off oil
supplies could raise crude prices 30%.
War Causes Us to Lose Friends … And Influence
While World War II – the last “good
war” – may have gained us friends, launching military aggression is now losing
America friends, influence and prosperity.
For example, the U.S. has launched
Cold War 2.0 – casting Russia and China as evil empires – and threatening them
in numerous way. For example, the U.S. broke its promise not to
encircle Russia, and is using Ukraine to threaten Russia;
and the U.S. is backing Japan in a hot dispute over remote islands, and backing
Vietnam in its confrontations with China.
And U.S. statements that any
country that challenge U.S. military – or even economic –
hegemony will be attacked are extremely provocative.
This is causing Russia to launch a policy of “de-dollarization”, which China
is joining in. This could lead to the collapse of the
petrodollar … which would wreck the
U.S. economy.