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War Does Not Produce Prosperity

Cold Highway

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Here is Keynesian economics taken to its logical end: government spending is so essential to restarting a stalled economy that a major war — with all its death and destruction — may be the only way to achieve the stimulation needed. It may go too far to say that Krugman and Feldstein would relish a war, but only by a little. They clearly believe that in the current circumstances, war is our only hope.

There is a superficial logic here. If you believe government spending stimulates an economy, then why not war? In a big war government taxes and borrows huge amounts of money in order to buy large quantities of things — airplanes, tanks, Humvees, bombs, guns, bullets, supplies, clothing, food. It also pays lots of people — bureaucrats, soldiers, sailors, pilots, engineers, manufacturing workers — to do things. In turn the recipients spend that money on the necessities of life. Hence, the jumpstart to the economy.

But of course war means death, injury, and destruction. How can making things that will be used to destroy other things, including lives, produce economic well-being? Are we really ready to accept the Orwellian notion that war is prosperity?

If we have reached the point of seeing war as a source of good things, it is time to check our premises. Right away we see that if the government pays people money to make war materiel, private entrepreneurs can’t pay them to make things consumers will want to buy. This is the “broken window” fallacy: being so distracted by the visible “benefits” of a government policy that one overlooks the unseen costs. Government doesn’t create resources; it only moves them around. When government taxes or borrows, it transfers scarce resources and labor from the productive sector to politicians and bureaucrats. The Keynesian will say that since the resources are idle, there is no cost and only benefits from the transfer. That is a shallow response.

War went not waged defensively only guarantees growth of the state.

War Does Not Produce Prosperity by Sheldon Richman
 

Aunt Spiker

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*the war* did not have *the positive* effect.

What did have a positive effect:
1) There was less unemployment nationwide (working males were removed from the country, many never returned alive and quite a few others returned disabled and couldn't continue to work)
2) The government, healthcare profession, deliver (list the postal system) and others prospered due to everyone's increased use and spending in those areas.

WWII just *happened* to be the reason for those two things happening.

Other things could happen that are non-war and could have that same affect if it covered those two areas: employment, economy influx.

But - did that "positive effect from WWII" actually lead the entire country in a positive direction? For many people the answer is no - their lives were ruined and some family lineages were probably ended forever.

Traditionally - war serves to a detrimental purpose where only *few* prosper (the head of the businesses, the lead of the winning side) - and it doesn't equally spread to the common people except for *maybe* in the form of peace.

I can think of various times in history that led to prosperity just the same - without all the death and dying and in the past many of these centered around expansion and physical growth (architecture being the main thing).

In the Gothic period of some parts of Europe the construction of new Cathedrals - and their following tourism from Pilgrims - kept many countries in the economic and job growth for a VERY long time.
The Church had money - Abbot Suger came up with a new design that everyone loved to pieces - and everyone *wanted* one.
The Cathedrals weren't just churches - they were centers of secular activities as well. . . and people came from miles around on their travels to see and stay in them - either as a final destination or just passing through.

This, really, is like the Greeks, Roman's, Muslims, Portuguese, French, Russians. . . all of these traveled and fostered physical-growth in many areas (architecture, expansion of townships - the Greeks invented the Insulaes (apartment complexes) and so on: all these mark periods of economic prosperity and growth: the government and individuals had money they were willing to spend.

And today their efforts still bring in lots of money from tourism.

War to them either was important - but not their *main* reason for prosperity - they were equally or more importantly fueled by innovations in literature, technology, artistry and on and on. . . these *other things* are far more beneficial for societies and less costly to nurture.
 
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Orion

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War can produce prosperity if it involves acquiring more capital, like land... but it's hard to do that in today's world without being called out for being an obvious imperialist. Though, the U.S. has managed to sort of do it through the private sector, especially in the natural resource department.
 

Wiseone

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War "stimulates" an economy in the traditional sense because it reduces the workforce as men are drafted and sent off to war or are otherwise disengaged from traditional jobs and economic activities. This creates a natural inflation of wages which in turn spurs consumption and further production.

There's also the fact that war, assuming like Europe or Japan in WW2, destroys a huge amount or all of the infrastructures, factories, etc. So it doesn't so much as spur economic growth as it destroys previous growth allowing for a nation to grow it back, so that growth isn't "net growth" its just replacement growth.
 

Lord Tammerlain

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War does not produce prosperity or wealth, it does create economic activity, and in the case of WW2 it hada large amount of pent up demand due to the supply restricitions on domestic consumption. So when the war ended you had people at home in the US with a reasonable amount of savings, soldiers coming home with a reasonable amount of savings and 3-4 years of pent up demand.

Combine the savings, the demand and the ability for the US industry to turn from war production to consumer production you end up with a boom.

I doubt that without the quotas during the war reducing consumer consumption, that after WW2 would have seen as much of an increase in economic activty

War tends to destroy wealth, not create it
 

phattonez

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War does not produce prosperity or wealth, it does create economic activity, and in the case of WW2 it hada large amount of pent up demand due to the supply restricitions on domestic consumption. So when the war ended you had people at home in the US with a reasonable amount of savings, soldiers coming home with a reasonable amount of savings and 3-4 years of pent up demand.

Combine the savings, the demand and the ability for the US industry to turn from war production to consumer production you end up with a boom.

I doubt that without the quotas during the war reducing consumer consumption, that after WW2 would have seen as much of an increase in economic activty

War tends to destroy wealth, not create it

But what do you know, that pent-up demand theory is just a myth.

The article correctly notes that there were widespread fears about a return to high unemployment after the reconversion from the war, but it propagates what many economists believe is a long-standing myth about how “pent-up demand” from American consumers helped the economy avoid a post-stimulus depression. Keynesian economists at the time scrambled to find a way to reconcile their model with the reality that massive cuts in government employment and spending–from a value that was 48% of gross domestic product in 1944 to less than 18% in 1946–were accompanied by full employment rather than economic Armageddon, as the Keynesian multiplier theory would suggest.

While pent-up demand from consumers was their response, in separate studies Richard Vedder, Lowell Gallaway (1993) and Robert Higgs (1999) showed that increases in consumer spending weren’t nearly large enough to have meaningfully offset the declines in government spending. Instead, they attribute the post-stimulus economic miracle to the power of the free market to adjust after nearly 15 years of poor government policies by the Hoover and Roosevelt administrations done in the spirit of economic stimulus.

The Crisis that Wasn’t
 

Lord Tammerlain

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But what do you know, that pent-up demand theory is just a myth.



The Crisis that Wasn’t

What is the free market but people buying and selling things to each other?


If people are not buying, then business's are not selling, they would have no need or expectation to invest in new capital equipment.

Post war, people had more money to spend, and wanted to spend it, business had to invest in new capital equipment to produce the goods for the consumers, and to be able to export to Europe.

Generally people and business's were feeling optimistic, were relatively debt free and could both expand consumption and production to meet the consumption both domestically and internationally. The combined effects led to strong growth, allowing the government to reduce the deficit as a % of GDP
 

phattonez

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What is the free market but people buying and selling things to each other?


If people are not buying, then business's are not selling, they would have no need or expectation to invest in new capital equipment.

Post war, people had more money to spend, and wanted to spend it, business had to invest in new capital equipment to produce the goods for the consumers, and to be able to export to Europe.

Generally people and business's were feeling optimistic, were relatively debt free and could both expand consumption and production to meet the consumption both domestically and internationally. The combined effects led to strong growth, allowing the government to reduce the deficit as a % of GDP

You're not addressing the contention. Consumer spending did not make up for the loss in government spending, so what gives? That should have lead to problems in the Keynesian explanation of things.
 

Lord Tammerlain

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You're not addressing the contention. Consumer spending did not make up for the loss in government spending, so what gives? That should have lead to problems in the Keynesian explanation of things.

The multiplier effect, consumer spending drove the construction of stores, expansion of production and transportation facilities, which drover further job growth and more consumer spending
 

phattonez

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The multiplier effect, consumer spending drove the construction of stores, expansion of production and transportation facilities, which drover further job growth and more consumer spending

The multiplier effect only counts when it is done by private individuals, not government? Since when?
 

Lord Tammerlain

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The multiplier effect only counts when it is done by private individuals, not government? Since when?

It works with both, how effective it is, depends on the overall debt loads of everyone involved
 

phattonez

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It works with both, how effective it is, depends on the overall debt loads of everyone involved

Then why does less spending mean more economic activity? Shouldn't activity have been greater during the war instead of after, then, since spending was greater during than after?
 
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