NCPA - National Center for Policy Analysis

War Generates Expenses -- Not Prosperity

March 27, 2003

Just a generation ago, Keynesian economists preached that war brings prosperity. Ramped up production of military items, they believed, would employ more workers and increase factory utilization. They even predicted that once war ended, decreased demand would result in the economy slumping back into the doldrums.

But it eventually became obvious that government spending wasn't necessary to stimulate demand; American families could and did supply that.

The theory which economic growth depended on increased government spending was popularized by economist Alvin Hansen of Harvard who promoted the idea of "secular stagnation" -- that held that inefficiencies in the economy were constantly threatening recession, even during booms, unless the government kept spending high.

  • From the stagflation of the 1970s to the prosperity of the 1990s, experience has mostly reversed such perceptions.
  • The 1990s boom demonstrated that a strong economy can persist not only amid budget surpluses, but also after substantial post-cold-war military cuts.
  • Today, policy makers see war not as an economic stimulus, but as a generator of expenses that have to be covered one way or the other -- with negative effects on both the government budget and the private economy.

Economists at the University of Chicago have estimated that the direct costs of the war in Iraq will be $125 billion and compared that to the probable cost of a policy of containment, which might run to $13 billion a year for troops and equipment. But as has transpired in North Korea, containment of Iraq's repressive regime could last for 33 years or so.

Source: Virginia Postrel (author, "The Future and Its Enemies"), "Economic Scene: Today, Policy Makers View War as a Generator of Expenses Rather than an Economic Stimulus," March 27, 2003, New York Times.


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