Is War Good For The Economy?

As George Bush asks Congress to pass a three trillion dollar budget today, heavy with military spending for Iraq, it's time to undo a damaging cliché. Military spending harms modern economies, it does not help them.

In the 1950s, the rise of the "military- industrial complex" provided Keynesian stimulus at a time when wages were still low if on an accelerating path of growth. It was in fact called military Keynesianism, and created needed demand in an underspent economy.

But that was then. By 1967, war spending in Vietnam without commensurate tax increases was setting the stage for later inflation.

The relevant lesson began with Ronald Reagan, however. In Jimmy Carter's last year of office, the defense budget equaled 4.5 percent of the nation's total income or GDP. In Ronald Reagan's last year, it was 5.5 percent.

Over the Reagan presidency, discounted for the ups and downs of the business cycle, the economy grew slower than in the 1970s (after inflation), and productivity significantly slower. Wages grew slowly as well and became highly unequal. And capital investment remained disappointingly low as a proportion of GDP.

In the last year of Bill Clinton's administration, defense spending fell to 3.0 percent of GDP. But productivity grew rapidly, capital spending returned to former high levels, and wages grew for all income levels. Less defense spending seemed to benefit the economy.

Under Bush, defense spending is way up again, of course. In fact, it was military Keynesianism more than tax cuts that created the economic growth of the first half of the 2000s.

But the economy is not working again. Productivity is now faltering, capital spending has been disappointing, and most stunning, wages have almost not risen at all. Now, we are sliding into recession.

Is there a relationship? It will take some contemporary research to find out more. But it looks like there is a negative relationship.

A lot of defense spending leaks to imports. The goods produced do not add material benefit to Americans; they tragically blow up in the desert. And these days, though some good jobs are created, on balance, defense spending may create profits for those at the top more than wages for those in the middle and at the bottom. Not least because waste and corruption in military spending are so high.

Comments

[oogabooga]

Go to any town or city in America and check out the ramshackle schools and roads. I just hope the next president will sprinkle a little of those Iraq trillions around here at home. Meanwhile, instead of tax refund advances from the $166 billion "stimulus" program, how about using that money to fill potholes and fix leaky roofs at our schools?

[MajorKong]

"Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron."

So which hippie liberal socialist peacenik said this? Abbie Hoffman? Jane Fonda? Tom Hayden? Barbara Streisand?

Actually it was Dwight D. Eisenhower.

[mommadona]

QUICK, EVERYONE!

CALL THE DLC AND TELL THEM THE BAD NEWS!

War, as a POLITICAL AND ECONOMIC TOOL, is no

longer an option in the 21st Century.

TIME FOR JOHN MURTHA TO CUT OUT ALL THE

'BOYTOY' DEFENSE PROJECTS.

TIME FOR JOHN MURTHA TO CLEAN UP HIS ACT.

NO MORE ENABLING OF THE MILITARY/INDUSTRIAL

CORPORATE WHORES.....

IT IS THE DEPARTMENT OF DEFENSE,

NOT THE DEPARTMENT OF OFFENSE.

[Overd0g]

Given that one of the few legitimate functions of the federal government is maintaining a military and defending American interests, I wouldn't say 5% is exorbitant.

[swift_goat_pet_for_truth]

Make stuff. Blow it up.
Make more stuff. Blow that up.

Doing this is really good for the economy.

Huh?

[hellinabucket]

Is it 51% of the total current budget for military spending? And still our troops are woefully unprepared! This is NUTS! All this to go after some rag tag militants that hide out in caves? Big bombs & drones will not catch these criminals but intelligence will. Ah, intelligence-where is it?

[robeson]

I believe you should look at military spending in a different way than how much and what percentage, perhaps what return would be better. For example if GW Bush spent the $1 trillion on infrastructure, science, health and research instead of defense how would the results differ. The last analysis I read said that defense spending creates the poorest return on the dollar mostly because of inefficiency and fraud. That may explain why GW Bush in spite of $3 trillion of new debt has barely kept the nation economically in the same place.

[desmirl]

Decades ago, General Smedley Butler wrote "War is a Racket." It was a definitive statement that led to one inescapable conclusion--only war profiteers profit from war. The rest of us pay with our taxes, our pain, and our blood. And from that, one has to wonder if the war profiteers aren't a whole lot smarter than 'the rest of us'.

[outnow]

The MIC is the pig at the trough that eats up your children's future. For tax cuts, I would take it out of the defense budget. Our military adventurism is making us less safe. The recruiting of terrorists is aided by the wars in Afghanistan and Iraq, according to the NIEs.

So long as the oil economy and the preventative war doctrines prevail, we will be losing ground economically. It is a question of who benefits from this situation. The short answer is the MIC. Ike warned us. I remember his words. The only thing to fear is the MIC itself. Is is a cancer that has spread throughout the body politic. It is a bipartisan fraud.

Maybe we could enlist the mafia to protect us, in effect outsource the MIC. I guess they already tried to "hit" Castro. We need to regain sanity and integrity. Ike warned us more than fifty years ago. Confusing commercial interventions with security issues creates Banana Republics. Finally, America itself is a dictatorship and an empire.

[joebaggadonuts]

Thank you Jeff for putting up this important message. When you look at the shift ot military spending and the failure of this government to act appropriately for the economy and the people, it seems someone should have drawn a line linking the items already. Thank you again.

[Aaror]

The real irony of what you are saying is this:
Government is inefficient, and therefore government spending doesn't help the economy. Now I have some problems with this idea, both because of the economic multiplier effect which says that a dollar of government spending adds $7 to the economy while a dollar of tax cuts adds $6, and because government spending on infrastructure can pay dividends far in excess of that $7 in the long run, however...
Where the military is concerned, you are probably correct. What is ironic is that the party of small government can't figure this out.
Of course I am in the military, so I'm not sure I want to rock this boat (grin).

[realitytrumpsbull]

Well, it may not be good for YOUR economy, but it's extremely good, for theirs! $$$$$$$$$$$$
Wanna work in Iraq? They're hiring!

[Tellmethetruth]

This is one time I must quote Ron Paul - War is destructive to the economy. Peace brings properity, war brings about bankruptcy of countries economies.

First the American taxpayers pay to blow up the bridges in Iraq, then the American tax payers pay to rebuild the bridges in Iraq when meanwhile American bridges are falling down.
How much sense is that. (Ron Paul paraphrase).

Anytime of sustained growth and prosperity in US history came during times of peace (Ron Paul), including having diplomatic and peaceful relations with other nations of the world that we trade with. War destroys trade and causes other nations to not want to do business with us. (Ron Paul).

If Ron Paul goes 3rd party, I'd have to think long and hard.

[Sundialsvc4]

I think it's extremely relevant that one of the strongest warnings ever to be raised about "the military industrial complex" came from the gentleman who first coined the term: General of the Army Dwight D. Eisenhower.

"Ike" had more stars on his lapel .. five .. than did almost any other Army officer. He had them -- he earned them -- long before becoming Commander-in-Chief. Because of this unique position, he saw both the military and the political implications of everything. And he condemned them soundly.

There is no sound military justification for this so-called budget. It is robbery of the public's purse and nothing more. Even as thousands of American soldiers have died, and tens of thousands have had their lives maimed and ruined forever, the cruelty and depravity of these leaders ... and of the Members of Congress and of the high judiciary who give them the "aid and comfort" of now-undisguised collusion ... this cruelty and depravity knows no bounds.

Even as these leaders grasp for more power and gold for themselves, their cohorts relentlessly conspire to ensure that impeachment and punishment will never come near to them. They have sold out their country both to the kingdoms of the west and those of the east as though for a mere thirty pieces of silver -- and yet they are unrepentant for all they have done.

[RadioResearch]

Why is it that the only politician in the current presidential race is Ron Paul, yet, neither you nor anyone else takes notice of this fact. Ron paul has been saying this for quite some time so you are somewhat of a "Jeff come lately" to this idea.
Now, if only Hillary or Obama could make this connection we might actually get somewhere, unless of course they have both sold out to the MIC and their stockholders, the neo-conswervative wing of the republican party.
On the other hand, it may well be that by November the electorate will see this connection on their own and punish both parties accordingly - but then, I wouldn't count on it given the influence of the neoconservative MSM and their big business buddies.