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Military stimulus

I'm pretty skeptical that a war with Iran would do much for the economy. It's not just that the inevitable spike in energy prices would grind everything to a halt (and what if Russia or Venezuela or OPEC decide to stand with Iran?), but the war itself wouldn't be large enough. It's easy to forget, but we've spent the past seven years fighting two separate wars, and the economy isn't exactly roaring.

When people think of war-as-stimulus, they're usually thinking about World War II. But when you want to think about World War II, you need to really think (pdf) about World War II:

The deficits were run during an all-out war when 40 percent of GDP was spent on munitions, the military made most of the allocation decisions in the economy, over 15 percent of the workforce was in harm's way in the military, there were widespread wage and price controls, and rationing ruled the day. In essence, the World War II deficit experience tells us more about fiscal stimulus in the Soviet Union's command economy during the Cold War than it does about the modern U.S. mixed economy.

Nothing on the size of World War II is on offer right now -- and lucky thing, too. If we're talking about more modest expenditures, however, you don't need to have a war to have a military stimulus. A few months ago, I spoke to a Brazilian economic official who said that his government was placing some big orders for advanced aircraft because it would help them build a domestic airplane-manufacturing industry. It was industrial policy masquerading as defense policy, he explained.

That seems like the right way to use the military for economic ends: Since it's unpalatable to simply subsidize certain industries or marshal hundreds of billions for certain investments, but it's indisputable that you need to give the military anything it asks for, you have the military decide every tank needs to run off solar panels, or, to use an even more unlikely example, that we need a national highway system "to allow for mass evacuation of cities in the event of a nuclear attack." You could imagine both infrastructure investments and energy independence fitting the bill today. Then you get your stimulus but you don't need to have your war.

By Ezra Klein  | November 1, 2010; 9:02 AM ET
Categories:  Economic Policy  
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A national interstate highway system is not the only thing that has been underwritten as a defense expense. The student loan program was part of the National Defense Education Act.

Posted by: freckleface412 | November 1, 2010 9:22 AM | Report abuse

Also, Harry Truman began the school lunch program in 1946 as a national security program.

Posted by: freckleface412 | November 1, 2010 9:26 AM | Report abuse

I stand corrected. Notice, however, that the critique isn't that the argument is morally bankrupt and casually bloodthirsty - it's that it wouldn't work. In this view, warmongering isn't wrong because of the human toll of suffering it would inflict but because it wouldn't be economically efficient. Sheesh, this guy is a liberal? I suppose 1/8 of a loaf is better than none.

Posted by: redscott1904 | November 1, 2010 9:30 AM | Report abuse

All I can say is that if war is good for the economy, then Bush left us with a thriving economy, what with 2 wars under way.

How was it?

Posted by: AMviennaVA | November 1, 2010 10:10 AM | Report abuse

"That we need a national highway system to allow for mass evacuation of cities in the event of a nuclear attack."

An interesting point. As our current interstate system would only barely be up to the task of allowing for mass evacuation of even a single area.

War is not inherently good for the economy, any more than stimulus is. The what and where and why matters, and one of the economists I respect most, Timothy Taylor (do yourself a favor and check out his economics course from The Teaching Company) makes the argument that WWII was a net negative, and the healthier economy afterwards came from many factors, but almost none of them had anything to do with war spending.

Which kind of makes sense. We consider economic growth to be products for consumers and peacetime business products--all the conversion to munitions would be a drag on the peacetime economy, not a boost. Factories would have to be converted back, supply chains reworked--it's a lot of extra effort and expense.

The Cold War was probably a bigger boost to the US economy, with consistent military build up, fat R&D budgets, the space race, communications satellite . . . indeed, the entire GPS industry kind of depends on the infrastructure laid down by cold war military investment. Not as much of that coming out of WWII.

Although War with anybody should never be recommended as a form of economic stimulus. War is a net negative, and, if it can be avoided, should be. Just don't be Neville Chamberlain.

Posted by: Kevin_Willis | November 1, 2010 10:24 AM | Report abuse

"It's easy to forget, but we've spent the past seven years fighting two separate wars, "

It is?

Posted by: wiredog | November 1, 2010 10:47 AM | Report abuse

So... let's start pitching "Secure our drinking water from the TERRORISTS*!" (*agricultural and industrial runoff, fracking, drought). And "Protect our Power Supply from the TERRORISTS*!" with smart grid and distributed production technology (*peak demand, wind storms, ice storms, etc.)

And not more highways for mass evacuation (we saw how that worked with Katrina -- you have to have a CAR and GAS) but HSR (yeah, too commie, I know).

Posted by: kcar1 | November 1, 2010 11:12 AM | Report abuse

"Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran's ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve."

Are you kidding me?

War is a broken window.

Look at what happened to private consumption and investment spending from 1941-1943 (which accounted for 75% of the WW2 surge in military spending). It fell 9.2% - more than the 6.8% decline we saw in 2008-2009.

Total production was up, sure, but total welfare was down because we had a whole lot of tanks, planes, bombs and such, but not a whole lot of consumer goods or new business investment (that's before we even consider the people being killed and maimed by the war).

Posted by: justin84 | November 1, 2010 12:31 PM | Report abuse

"I have, therefore, chosen this time and place to discuss a topic on which ignorance too often abounds and the truth too rarely perceived. And that is the most important topic on earth: peace. What kind of peace do I mean and what kind of a peace do we seek? Not a Pax Americana enforced on the world by American weapons of war. Not the peace of the grave or the security of the slave. I am talking about genuine peace, the kind of peace that makes life on earth worth living, and the kind that enables men and nations to grow, and to hope, and build a better life for their children -- not merely peace for Americans but peace for all men and women, not merely peace in our time but peace in all time."

-President John F. Kennedy

Posted by: peace4mankind | November 1, 2010 2:53 PM | Report abuse

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