David Broder perpetuates the fallacy that war is good for the economy
Last Sunday’s Washington Post had veteran journalist David Broder suggesting that President Obama starting a war with Iran could be the trigger to bring us out of our economic doldrums.
He of course uses FDR and World War II as the means of the United States getting out of the Great Depression.
Yes we’ve all heard this myth in our high school and college history classes and the fallacy is continued to this day with Broder’s plainly dangerous and totally incorrect analysis of economic history and the war.
True unemployment essentially vanished as 12 million men went off to war but this is hardly real prosperity. As economist Thomas DiLorenzo accurate points out; consumer good production was replaced with production of military goods, price controls were pervasive, and rationing was imposed on consumer goods.
So what actually happened was the citizen’s economic well-being actually declined during the war years.
In addition, wartime price controls skewed the Gross National Product and inflation numbers as useless.
As DiLorenzo goes on to explain, prosperity wasn’t restored until 1947 when wartime economic controls ended and government spending fell dramatically.
Interestingly, Federal government expenditures fell from $98 billion in 1945 to $33 billion in 1948. The Keynesians expected the massive drop in government spending would put us in another depression, instead the economic recovery too off.
To consider the war as a time of prosperity is ludicrous as the Independent Institutes Robert Higgs clearly explains:
In fact, conditions were much worse than the data suggest for consumers during the war. Even if the price index corrections considered above are sufficient, which is doubtful, one must recognize that consumers had to contend with other extraordinary welfare-diminishing changes during the war. To get the available goods, millions of people had to move, many of them long distances, to centers of war production. (Of course, costly movements to areas of greater opportunity always occur; but the rate of migration during the war was exceptional because of the abrupt changes in the location of employment opportunities.) After bearing substantial costs of relocation, the migrants often found themselves crowded into poorer housing. Because of the disincentives created by rent controls, the housing got worse each ear, as landlords reduced or eliminated maintenance and repairs. Transportation, even commuting to work, became difficult for many workers. No new cars were being produced; used cars were hard to come by because of rationing and were sold on the black market at elevated prices; gasoline and tires were rationed; public transportation was crowded and inconvenient for many, as well as frequently pre-empted by the military authorities. Shoppers bore substantial costs of searching for sellers willing to sell goods, including rationed goods, at controlled prices; they spent much valuable time arranging (illegal) trades of ration coupons or standing in queues. The government exhorted the public to “use it up, wear it out, make it do, or do without.” In thousands of ways, consumers lost their freedom of choice.
The health of the private economy, where true wealth exists, was very poor during the war, but after the war and the expenditures, price controls, etc that went with it was over, the economy improved dramatically.
To demonstrate the silliness of the “war is good for the economy” fallacy, historian Thomas Woods writes the following illustration concerning the United States and Japan:
If war spending is good for the economy, “both the US and Japan should build the most spectacular naval fleet in history, an enormous armada of gigantic, powerful, technologically advanced ships. The two fleets would then meet in the Pacific. Since nobody wants loss of life, all personnel will be evacuated from the ships. Then both navies can sink each other’s ships. Then they could celebrate how much richer they had made themselves by devoting labor, steel, and countless other inputs t the production of things that would wind up on the bottom of the ocean”.
What David Broder, Paul Krugman and that ilk believe is that spending brings prosperity. Just the mere act of spending, no matter what the money is spent on, grows our economic prosperity. This is the basis of the war spending and consumer spending fallacies for boosting the economy.
The other thing that is absolutely frightening about Broder’s column is the following paragraph: 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.
Would the new Republican congress go along with a war with Iran? I’m afraid the answer is yes. However, where Mr. Broder is wrong is again is that the war spending will improve the economy.
If that was the case, why didn’t the $1 trillion plus we spent on wars this past decade not brought the economy out of the doldrums?
David Broder’s column is politically dangerous, economically foolish and historically naïve and should be ignored or rebuked.