War ALWAYS Causes Recession

Copied from:  http://www.washingtonsblog.com/2009/11/war-always-causes-recession-2.html

PhD economist Marc Faber predicts that the U.S. will launch a war to distract people from the bad economy.

China’s largest media outlet – Sohu.com – wrote in October 2008 that the Rand corporation, a leading U.S. military advisor, lobbied the Pentagon for a war to be started with a major foreign power in an attempt to stimulate the American economy:

According to French media, well-known U.S. think tank RAND Corporation … has submitted [to the Pentagon] an evaluation report assessing the wage a war to shift the feasibility of the current economic crisis…

Continued deepening of the U.S. sub-prime mortgage crisis and economic downturn, developed to a certain extent, is likely to trigger a war in order to achieve the purpose of the crisis passed.

(Google’s translation services are crude approximations, but Yihan Dai confirmed the translation of the original).

Is Faber right? Is the Sohu.com report accurate?

I don’t know. For example, I won’t take the Sohu.com claim very seriously until someone can point to the French media source, so that I can assess it’s credibility.

However, “military Keynesianism” – using military spending to stimulate the economy – has been U.S. policy for half a century. And the economist who coined that term said that such a policy always and “inexorably” leads to “an actual war” in order to justify all of the military spending.

Therefore, any studies which disprove the efficacy of war as an economic stimulus -see this and this – are important for balance.

In addition, contrary to popular belief, some writers say that the reason that WWII actually stimulated the U.S. economy was not because of America fighting the war. Specifically, they argue that America’s ramped-up production of armaments for the British before the U.S. entered the war was the thing which stimulated our economy.

To try to sort some of this out, I spoke with a PhD professor of economics with a background in international conflict in July 2008 to find out whether war is really good for the economy.

I asked if conventional wisdom that war is good for the economy is true, especially given that all of the spending on the war in Iraq seems to have weakened America’s economy (or at least, greatly increased its debt).

The economist explained the seeming paradox:

“War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.”

Given that America has been fighting both the Afghanistan and Iraq wars longer than it fought WWII, the exception obviously doesn’t apply.

Can America go beat up some poorly-armed country to get a quick war?

It is more unlikely than many assume. Given that many believe that the U.S. started the Iraq war based on false pretenses, and that the Iraq war was really about oil (see this, this, this, this and this), I am skeptical that many would buy America’s stated justifications for another war.

Indeed, the Sohu.com article – even if wholly untrue – proves my point.

In addition, even a war against a small, poorly-armed and resource-poor country could be considered a proxy war. In other words, other heavily-armed countries might fight the U.S. through local proxies, dragging the war out for years, just as the U.S. did with Russia in Afghanistan. America today is not the empire it was even 10 years ago, and – as Afghanistan and Iraq show – America no longer has the financial resources to project force and impose its will world-wide.

The bottom line is that anyone advocating for war to help our economy is mistaken.

[end article]

I think this scenario is very likely. Not only does war make money for the rich, but it destroys production that would otherwise have to be given to the poor.

For instance, if the USA turned all their armaments factories into factories that actually produced goods people need, the average standard of living could be easily raised. However, I suspect that the problem is that the Rich want to remain rich in relation to the poor, after all, what's the fun of being rich unless you have a bunch of poor people to wait upon your every whim.

The kind of Jobs that are common in the USA yet virtually unheard of in Europe bear this out. Take greeters for example. The usually disabled people are paid minimum wage or less simply to say 'Welcome to Wal-Mart" every time a customer enters.

This job could be easily done with a computer, but I suspect that from the american point of view, having a human suffering and doing a job that could be done by a machine represents the idea that you are rich enough to have other people essentially slave for you.

Imho the idea of slavery has never really died out in America, the way that many jobs are paid, with a very small wage and a focus on getting tips from customers forces the employees to be obsequies and "give good service" which usually means extra things on the promise of a tip whose monetary value  that cannot be quantified.

Of course, this is different to the kind of slavery that goes on en masse in the first world where we do not even see the slaves who toil tirelessly to make our iphones, reeboks and other consumer items.

However, these are moral points. From a purely financial view, expect major rises and disruptions to basic staple crops including corn, wheat and rice.

Christopher Carrion