bobbyw24
06-24-2010, 04:40 AM
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.
http://www.amconmag.com/blog/war-makes-us-poor/
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.
http://www.amconmag.com/blog/war-makes-us-poor/