Far from rescuing the economy from recession or depression, needless conflicts drain capital from productive uses.
by David R. Henderson
Many people who aren’t comfortable with the U.S. invading other countries reassure themselves with the belief that at least war creates jobs for Americans. But is military conflict really good for the economy of the country that engages in it? Basic economics answers a resounding “no.”
In a 1953 speech, President Dwight Eisenhower noted, “The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some 50 miles of concrete highway. We pay for a single fighter plane with a half million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people.” His point, quite simply: 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.
If taxes are cut, more money remains in the hands of taxpayers, who can use it to hire the people who were previously soldiers. If taxes aren’t cut but the deficit is, then the government doesn’t need to borrow as much. The money that the government would have borrowed is now available to hire these former soldiers. Finally, if neither taxation nor the deficit is cut, government has more money to hire these former soldiers in civilian pursuits.
Of course, those who get this money will not necessarily want to spend it on what these particular former soldiers produce. But a complex chain of substitutions will take place, and the former soldiers will gradually be reemployed. Consider the U.S. experience after World War II. Between 1945, when the war ended, and 1947, when substantial demobilization occurred, the military fell from about 11.4 million people to around 1.6 million, a drop of 9.8 million people. But the number of unemployed people increased by only 1 million, about 10 percent of those demobilized. To be sure, many women who had entered the labor force during the war to replace men who were drafted decided to return to work in the home. But the number of females in the labor force fell by only 2.4 million. And remember that before demobilization, the military employed a whopping 17 percent of the U.S. labor force. Today, it employs less than 1 percent, if we count active-duty military, and less than 2 percent if we count active-duty plus reserves. That smaller percentage makes laid-off troops that much easier to integrate into the civilian economy today.
Most people still believe that World War II ended the Great Depression. Their case makes sense on the surface. In 1941—essentially a peacetime year because Congress did not declare war until Dec. 8—the average unemployment rate was a hefty 9.9 percent. By 1944, the year of peak military spending, the unemployment rate was a piddling 1.2 percent.
But look deeper. The government imposed military conscription in 1940 and got the draft machinery moving early in 1942. Between 1940 and 1944, the size of the military increased by almost 11 million people. Of the 16 million who were in uniform at some time during World War II, 10 million were conscripted. They had “jobs” because the alternative was jail. And many of the 6 million who volunteered were what military manpower economists call “draft-induced.”
When we say that an economy is doing better than it was, we are saying that people are better off. Can we judge these workers in the military to be better off? No. The only way anyone has to figure out whether a person is better off having a job than being unemployed is to know that he chose the job. But conscription is the antithesis of choice.
To put all this into numerical perspective, the civilian labor force during World War II was only 54 to56 million. It’s not hard to reduce unemployment by 5 million people if you use conscription to raise the size of the armed forces by almost 11 million.
Next, consider Gross National Product. (The U.S. government didn’t switch to measuring Gross Domestic Product until the early 1990s.) Between 1941 and 1944, real GNP rose by 40 percent. But GNP during an all-out war is not the same as GNP during peacetime. GNP is defined as consumption spending, plus investment spending, plus government spending on goods and services. In fiscal year 1945, the government spent 38 percent of GNP on war alone. So, yes, GNP rose—but the increase is misleading.
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 in Asia, not only would the U.S. government be adopting a more realistic foreign policy, but also it would be developing a more prosperous economy.
And war has another burdensome long-run cost that is rarely taken account of in the decision to get into a conflict: the cost of a permanently expanded government. As economist Robert Higgs notes in Crisis and Leviathan, war hurts economies by giving governments the opportunity and the excuse to take on new powers. These powers diminish after the war ends—but do not fall back to their earlier levels. During World War II, for example, the income tax, which previously had applied only to high-income people, was imposed even on those with low incomes. The federal government also introduced withholding to make it easier to collect tax money. After the war, income taxes remained a “normal” part of everyone’s life, and so did withholding. Flush with revenue, the government found other things to spend the people’s money on, including nuclear weapons, NATO, and welfare. This reduced economic well-being because a dollar spent by government typically produces much less value than a dollar spent by the person who earned it—Washington spends our money much less carefully than we do.
Whatever other reasons there may be for war, strengthening the economy is never one of them.
David R. Henderson is an associate professor of economics at the Naval Postgraduate School in Monterey, California and a research fellow with the Hoover Institution at Stanford University. He was previously a senior economist with President Reagan’s Council of Economic Advisers. He blogs at www.econlog.econlib.org.
And shortly thereafter we all get to learn a new language. How about this, a bomber does not costs that much, the corruption at all levels, starting with labor unions makes it cost that much. And the same for a destroyer. And the 200,000 soldiers you mentioned, we can’t even employ our own people due to the overrun in illegal immigrants. Run the immigrants out and then we may ahve jobs for Americans and perhaps the soldiers too.
@David (the commenter)… While your paranoia about language is somewhat humorous, your comment about immigration displays the exact type of economic ignorance that this article describes (even though it’s applied to a different topic). I would suggest starting with “Economics In One Lesson” by Henry Hazlitt.
You can argue that you don’t like what immigration does to change the culture but don’t spew economic fallacies (leave that to the Obama-nomics people).
Why is it that everyone that supports big government (like David the commenter) defends it with economic nonsense. You automatically hurt your cause with anyone that understands basic economics is going to be turned off.
[...] War Makes Us Poor [...]
“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 in Asia, not only would the U.S. government be adopting a more realistic foreign policy, but also it would be developing a more prosperous economy.”
Absolutely, and a foreign policy predicated on realism can be effected by America narrowing the scope of the “Long War” to al-Qaeda and similar groups with pretensions to transnationalist jihad. We must make it perfectly clear that America would no longer have any intention of overthrowing any regime in the Muslim world be it secular or Islamist. This means abandoning all threats to Iran, Syria, Hezbollah, and Hamas–the latter being of utmost importance as recognition of Hamas is vital to the resolution of the inflammatory Israeli-Palestinian conflict which stokes jihadist ardor and imperils the US via linkage. This declaration must be accompanied by a withdrawal of our troops. In our absence, al-Qaeda would be quashed by both secular states and Islamist groups who alike despise radical insurgent groups that threaten fitna. If we disengage from the Middle East and allow the states therein–who view Bin Laden as baleful–to conduct unimpeded their own counterinsurgency campaign against al-Qaeda (with America working in conjunction with them when necessary), then its fate is sealed. To win the “war on terror” we but to step out of the way and let Bin Laden get smashed by the ‘Near Enemy’.
This makes excellent sense. As Regan proved when he drastically reduced taxes, there is an increase in reported income and productivity. Reducing military spending will decrease taxes and the deficit. It’s simple math
Yes, war makes us poor – so also does an unchecked, seemingly limitless influx of ‘undocumented workers’.
When they take my job or undercut my wages and benefits, that literally takes food off my families table. Most medical care, especially preventive care, but also elective care – dentist visits, hearing aids, optometrists etc. then becomes impossible.
Illegals push out the competition, then create racist and exploitative trade ‘mafias’ or guilds that exclude everyone except fellow ethnics. Don’t believe it? Look at the construction industry, for one example.
Don’t tell me about your precious libertarian ‘economics’. It’s as much pie-in-the-sky as Marxism.
Human values such as compassion trump profit-taking any day. I hope you don’t find out the hard way.
The borders should be closed, and a moratorium placed on all immigration.
Very insightful and thought provoking analysis! Its always great to challenge the common sentiments of near-rote (and often Left) thinking about war. “It jump starts economies” even Nester Kirchner, former president of Argentina reports W. Bush saying to him the best way “to revitalize economies is through war.”
A second-look at all the factors and the number-realities is so important especially as our nation rethinks policies, spending, government size and priorities. Thank you for this article–
Ryan McGivern
[...] by David R. Henderson AmConMag.com [...]
It is time to call all those who work for the military industrial complex by their real name – welfare recipients.
Calling them parasites is understatement – they not only live on other people taxes, but also “produce” damage (while parasites usually live in ecological harmony).
And it is even worse, as the writer pointed out – those millions welfare recipients do nothing productive; their only product is an economical black hole. And it is not only the soldiers, it is the scientists and engineers wasted to our education system, who could work instead in a real industry, that could make the American society a producer instead of a consumer.
p.s. I highly recommend Voltaire’s Bastard by John Ralston Saul. It is about common sense, something that the American people have never used, and few chapters are dedicated to the myth of the economical benefit of “defense” and wars.
Throw out the illegals. Cut the military in half. USA rebounds. If not, well enjoy watching it crumble into nothingness.
Reply to “David” on immigration. Spouting worn-out “Laissez-faire” ideology—Hazlett is not an economist, he is a ideologue—is really a denial of the freality of the modern “debt” economy that the US is suffering through. Most of the ‘growth” the US has supposedly enjoyed during the Bush2 years was the result of expansion of credit by the Fed. “Credit” created by debt. Hardly “Laissez Faire”.
Look, the US economy cannot recover from high unemployment as long as the economic policy of the US to to export jobs and import workers. And then try to “fix” the problem it causes by creating credit out of thin air to “stimulate” the economy.
Modern “free market” economics is monetary economics. China sends up a lot Walmart junk and electronic gizmos, and we pay for it by giving them US dollars. Then China gives up back the dollars to pay for our government—including our war-making–and charges us interest for the privilege.
That’s a ponzi scheme, not real economics. So let’s just dump your “Laissez Faire” nonsense and talk reality, not fantasy. Spouting Hazlett is just nonsense.
David correct me if I am wrong. I suddenly realized one day why Hollywood is located in California and it’s not because of the climate. I read an article on cheap labour used in the motion picture industry. Illegal immigration (mostly Mexicans) are given an opportunity for a free lunch and a mention for their resume but that is it, no salary, no hourly wage and certainly no health benefits. Would a typical American work for that compensation plan? See, that is why big industry needs illegal immigration otherwise various industries such as entertainment, military, pharmaceutical, etc. would have to raise their prices to the point no one could afford them and hence business would die a painful death. PS: I don’t like the idea of illegal immigration and I believe it can be stopped but at what cost to industry in the US?
Reply to Strap Buckner’s comment: “Don’t tell me about your precious libertarian ‘economics’. It’s as much pie-in-the-sky as Marxism.”
Libertarians are the mirror image of Marxists—both are dangerous utopians and ideologues that interpret reality by political values not facts. And cause terrible damage to everyone else.
Look, I am for private property and limited government. But let’s be rational and factual.
BTW, if you believe in “supply side economics” then you cannot support the so-called ‘free market’ economic policies that our government and the right-wing is espousing. Bush2 cut taxes and instead of reducing government spending, he went to China to finance the deficits the tax cuts that resulted. Oh yeah, and he also used the Social Security surplus—another idiotic idea by the so-called “libertarian” Alan Greenspan—to pay for the tax cuts. And of course, created the so-called “social security crisis” that the modern right-wing is hollering about.
Look, you can’t give someone $10 in a tax cut, and then borrow it back to pay for the tax cut–there is no net investment to spur the economy. Instead of borrowing the money from American taxpayers, they borrowed it from China and Saudi Arabia.
Ironically, we can’t finance the debt without the huge trade surpluses in Walmart Junk and electronic gizmos made in China as well as OIL from Saudi Arabia.
So talking about Hazlett and his nonsense has no relationship to the reality of modern “free market” economics as practiced by the right-wing.
Fred Napier asked: Would a typical American work for that compensation plan? (no benefits, no health care, no pension)
Why should they?
Labor cost is not the biggest cost in manufacturing—or the price of goods. But reducing labor costs and applying the savings to PROFIT can boost PROFITS considerably. And since profits are a small part of cost of goods, then the reduction in labor costs is irrelevant. Higher labor costs do NOT increase costs of goods to the point that “nobody could afford it”…
Look, the outsourcing of jobs to China has more to due with the monetary policies of the US government–you can’t pay for government budget deficits unless there is large trade deficits to generate the excess dollars to lend back to the government.
Importing low wage workers from Latin America might benefit SOME businesses at the expense of other businesses that pay decent wages and benefits. And then using debt to create credit to “stimulate” the economy to employ the American workers that are displaced is not sustainable in the long run.
“In the long run” the market is going to adjust. The Fed’s monetary polices are going to collapse the economy eventually. China and Saudi Arabia are in control of our jobs and fortunes–thanks to the “free market” ideology that the right-wing and you are espousing.
What is with the Immigration issue in this….Those politically powerless people who most likely benefit the the economy by keeping prices down and paying social security taxes that they probably will never collect…And of course don’t mention the politically powerful that receive billions in the form of corporate welfare, no bid contracts, and foreign aid(nothing to see here, move along)….
It is politicians and their ditto head yes men(Rush, Hannity) who get this immigration angle started to blame economic woes on the powerless…,and then the dummies pick it up and run with it…
Im having a hard time figuring out if David is a neocon or a paleocon. Anyway the article is a good read and the more people realize this the better, Alan Grayson introduced a bill a few weeks call The War is Making you Poor Act, which will draw alot more attention to the cost of Neoconservative/Liberal Military Socialism.
http://www.dailypaul.com/node/135271
It makes me sad to read comments like that left by David, blaming unions and immigrants for America’s precipitous decline.
I would consider militarism and zionism to be the two leading causes, particularly of 9/11 and the ensuing downward spiral.
It’s nice to see the Wing Nuts sticking to the Corrupt Media’s talking point scripts. Even on a True Conservative website. Which, as an America Loving Progressive Liberal who Gives a Rat’s Ass about his fellow citizens, I like quite a bit.
“immigration” “tax-cuts” (evil) “Unions” (HOW DARE them people make a decent living doing something I am too stupid, fat & lazy,or Better than ‘them’ to-do)! FEAR!
War IS a Racket, Politicians are Corrupt (and getting worse thanks to Reagan thru Obama) “Free trade” is NOT Free! and the Dumbed-Down SHEEPLE just guzzle down fox ‘news’ and call themselves (stupidly) ‘conservatives’ and think the tea party was really, Really started by soem grass-roots folks in their backyard and not by the Evil Dick Armey and his NWO think tanks.
Besides.. they are NOT “wars”! they are illegal, immoral Occupations and America SHOULD be ashamed…. as our education systems and infrastructures suffer!
[...] 2. “War Makes Us Poor [...]
War makes us poor.
True that.
And that same process costs lives. By being poorer American families must give up some things in a way that increases mortal risk. One family will put off getting new tires on the car. Another will keep the potato salad in the fridge a little longer. Another will wait until morning to get the medication to save money. The result is the loss of lives.
Federal taxes cost about 80 lives over the next two years per billion collected. The federal deficit costs over 200 lives over the next five to ten years per billion collected.
When war makes us poor, part of that is war making us dead.
Funny how anytime anyone has the nerve to criticise US militarism or corporatism, neocons immediately play the immigration card. It’s particularly amusing (and ironic) that persons like David (commenter #1) don’t realize how silly they sound when they criticize labor unions while simultaneously demanding that the state protect them from immigrants who are willing to work harder and for less pay than spoiled, lazy Americans like themselves.
Anyway, regardless of your position on immigration and regardless of the effects of illegal immigration, it has nothing to do with the fact that wars are not good for the economy. Changing the subject isn’t a convicing counter-argument.
This is an excellent analysis, which I hope enjoys a broad audience. But as this is an election year, I must ask: What can We the People do about this, even once we are made aware of the truth by wonderful essays such as the above? Where are the candidates who understand the argument that David Henderson makes, and who are pledged to reflect the truth of that argument in future legislation and policy decisions?
According to the media, this is the year of “anti-incumbent fever.” Yet you would hardly know it to look at recent election results in my county of Santa Cruz (or elsewhere on the Central Coast that Mr. Henderson and I share). Many incumbents won re-election by running UNOPPOSED. In other races, the incumbents won by the usual lopsided margins of victory that we have become used to seeing in our highly-gerrymandered districts.
If we keep putting politicians-as-usual into office, we should not be surprised, much less shocked, shocked, to get more politics-as-usual. “And this,” as Daffy Duck used to say in the cartoons, “means war.”
Everybody likes to talk about “free-market”, but do any of you self-professed professors of economics realize that there CANNOT be a free-market when there is a centrally-controlled currency? By definition this is true. Anyone who can control the currency can take advantage of said control, and most here see the disastrous effects (central banking).
Yes, the counter-argument: but then I’d have to carry a side of beef with me when I wanted to buy a pair shoes and hope the shuster was hungry…
So look, the closest we came was when Art. II Section 8 of the Constitution was still intact: Congress shall have the power to coin money and regulate the value thereof. But even this was only a compromise, and we haven’t even lived it in the last nearly 100 years.
In conclusion, “free-market” is as much a pie-in-the-sky Utopian vision as Marxism or libertarianism. Nevertheless, I’ll go to war to get it back, especially that pre-1913 model, because given everything that’s been tried, its still the best. And those who violate the “Thou shalt not steal” Commandment shall be held accountable.
Econ 101, guns or butter. The war party crowd made it unpatriotic to be for butter, so we get more guns. The deficit goes up, Tea Partiers and others revolt, but no one points the finger at guns, but at bailouts, social security, healthcare, etc.
The day is coming when we will no longer have a choice. The day is coming when we won’t be able to afford both guns and butter. As Pat B reported awhile back, we borrow money from China and Japan so we can continue to fight our wars.
You can wrap anything around a flag and sell it.
[...] [...]
hopes you didn't think 2 years was going to be enough for President Obama to turn around 8 years of destructive policies.