Do Wars Cure Ailing Economies?
APRIL 01, 1991 by MARK AHLSEEN
Professor Ahlseen teaches economics at Cedarville College, Cedarville, Ohio.
The military action in the Persian Gulf has rekindled the belief that war can stimulate the American economy. No one, to be sure, is claiming that this is an acceptable trade-off—American lives for American prosperity—but it is argued that this positive effect cannot be ignored. After all, didn’t World War II pull the United States out of the Great Depression?
The World War II mobilization did, to be sure, put people back to work—some into the armed forces, some into war production industries. Unemployment, which stood at 14.6 percent in 1940, was reduced to 1.9 percent by 1943. However, the idea that war improves the economic welfare of a people is a dangerous error.
Advocates of the “war-is-good-for-the-economy” doctrine surely must limit this to foreign conflicts. If a war is fought on domestic soil, the destruction of production facilities can only worsen the economic welfare of the citizenry.
But can foreign wars help a domestic economy? Many people argue that increased government spending will put Americans to work and reduce, if not prevent, the effects of a recession. This, however, is nothing but Keynesian economic thought dressed in patriotic garb. It is the notion that increased government spending, on national defense in this case, will stimulate aggregate demand and prevent an economic downturn.
If reduced unemployment is the key, it is less costly, in terms of lives and resources, for the government to hire one group of unemployed workers to dig holes and another to fill them. Few would argue that this would benefit the U.S. economy. It is not employment but productive employment that is beneficial. In fact, the true indicators of economic well-being are the lifestyles enjoyed by Americans, not their employment status. Included in these are the goods and services consumed by Americans as well as the leisure time they enjoy.
The crux of the matter is whether war production can stimulate domestic production so as to improve the welfare Of the general public. Ignoring the possible benefits from an increased sense of security, war production creates no good or service for the civilian population to enjoy. In fact, real per capita Gross National Product (GNP), excluding defense spending, grew at a relatively slow rate in World War II—from $1,774 in 1940 to $1,866 in 1944 (these numbers are adjusted for inflation, using 1967 as the base year). By way of comparison, real per capita GNP, again excluding defense spending, was $1,124 in 1932, $1,538 in 1936, and $2,307 in 1948. World War II was no bonanza for the domestic economy.
It is not my intention to debate the validity of American involvement in the Persian Gulf—that will be left to foreign policy experts. However, to suggest that a war can pull the United States out of a recession must be vigorously opposed.