Montreal, December 15, 2008 • No 262


Bradley Doucet is QL's English Editor. A writer living in Montreal, he has studied philosophy and economics, and is currently completing a novel on the pursuit of happiness.






by Bradley Doucet


          Liberty is won and preserved not primarily with guns, but with ideas. Spreading freedom requires that we spread an understanding of the benefits freedom brings, that we explain to whoever will listen how freedom is really in everyone's best interest. In making the case for a truly free society, however, we will inevitably come up against a wide array of illiberal beliefs that keep others from embracing our vision of a better world. The more we seek to understand those beliefs, the better we will be able to counter them and address the concerns that underlie them. In this ongoing series, I address some of the issues we can expect to face, along with brief outlines of the kinds of responses I think can be helpful.


BELIEF # 20: War is good for the economy

December 15, 2008

          Will President Elect Barack Obama bring the wars in Afghanistan and Iraq to an end following his inauguration as many of his enthusiastic supporters hope? Early indicators are not exactly encouraging. Justin Raimondo, editorial director of, writes, "Hillary the hawk at State, Bush's warlord Robert Gates at Defense, and Gen. Jim Jones […] as national security adviser to the president. Yes, antiwar voters took a chance on Obama, reasoning that anything would be better than four more years of Bushian belligerence, yet now they discover to their chagrin that the dice are loaded." Peter Beinart, writing for Time, has a different take: "It's precisely because Obama intends to pursue a genuinely progressive foreign policy that he's surrounding himself with people who can guard his right flank at home. […] To give himself cover for a withdrawal from Iraq and a diplomatic push with Iran, he's surrounding himself with people like Gates, Clinton and Jones, who can't be lampooned as doves."

          With the economy tanking, however, even if pulling out of Iraq and Afghanistan is indeed what Obama intends, it will be harder for him to do so, and not only because he will be distracted by ostensibly more pressing problems. It will also be harder for him to bring the troops home because of a perennially popular misconception: that war is good for the economy.

Jobs, Jobs, Jobs

          It is undeniable that war provides employment for officers and enlisted men, for Pentagon scientists and weapons manufacturers, and for housing contractors and civil engineers who must rebuild whatever is destroyed. The contention that war is good for the economy as a whole, however, simply does not hold water. Whether used as a cynical justification by hawks or a cynical denunciation by doves, the notion that war is good for business in general is one of the more bizarre illiberal beliefs out there, so thoroughly is it demolished by a closer consideration of the facts. It is not for nothing that actual businesspeople overwhelmingly favour peace.

          The first thing to notice is that money spent by government is money that is not spent or invested by consumers themselves. This applies to anything the government spends money on, and it gives lie to the notion that increased government spending of any kind can "stimulate" the economy. Money spent to build bridges to nowhere is money that is not spent by homeowners, say, to repair their roofs; or, alternately, invested to earn interest and thus spent by some other economic actor. Not only does government spending not stimulate the economy; it can be counted upon to be a drag on the economy, as government officials make their spending decisions in disregard of market constraints, and so tend to redirect capital and labour from more efficient to less efficient uses. Some spending, for instance to maintain or repair infrastructure (over which governments retain monopoly control, but that's another story), may be justified by the simple fact that said infrastructure is in need of maintenance. But the added incentive of stimulating the economy is a canard that should in no way influence the decision to spend or not to spend.

          What is true for spending on infrastructure is equally true for military expenditures. Money spent to build fighter jets and aircraft carriers is money not spent by taxpayers themselves, on education or entertainment or any number of other goods or services, or again, invested and thus spent by someone else. As with infrastructure spending, some amount of defence spending may be justified by the actual need to defend against foreign aggression, but the supposed need to stimulate the economy is a ruse meant to fleece taxpayers of a greater percentage of their earnings and a greater share of their freedoms.

The Damage of War

          Unnecessary war spending is actually worse for the economy than other kinds of government spending, however. For one thing, war disrupts trade. All of the benefits that normally accrue from countries specializing based on comparative advantages are diminished or lost when shipping and trade are threatened by the vagaries of war. Exporting industries are especially hard hit, but so are industries that import production inputs, and so are consumers as a whole who must pay higher prices or go entirely without.

          In addition, war is characterized by the deadweight loss of widespread destruction. Buildings and bridges bombed during a war represent a pure loss to the economy. Yes, rebuilding them in the aftermath of war provides employment for labour and profits for capital, but this employment and these profits are not created out of thin air; they are merely diverted from other uses. Human needs and wants are limitless, so there will always be something for labour and capital to do as long as markets are allowed to function freely. In the absence of war, labour and capital would have been used for other purposes, and economic actors would have benefited from other goods and services in addition to the still-intact buildings and bridges that did not have to be rebuilt. In the aftermath of war and reconstruction, on the other hand, we must all forsake those other things in favour of rebuilding those buildings and bridges. The notion that war is good for the economy because of the rebuilding it requires is thus merely Frédéric Bastiat's famous Broken Window fallacy writ large.

          In spite of the above line of reasoning, many continue to believe that war is good for the economy because of the alleged fact that World War II pulled the United States out of The Great Depression. In reality, WWII did no such thing. David R. Henderson, research fellow with the Hoover Institution and associate professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School, addresses this issue in his article "The Myth of US Prosperity During World War II." Henderson writes that US unemployment did indeed fall dramatically throughout the war, from 9.9% in 1941 to a low of 1.2% by 1944. This reduction, however, of around 7 million (given a labour force of approximately 55 million) was achieved entirely through conscription. In fact, "Of the 16 million people who were in uniform at some time during World War II, fully 10 million were conscripted." As Henderson points out, "One can hardly judge people to be better off, based on their having jobs, if they were forced into these jobs." In addition, "Despite various policies of Franklin Roosevelt that extended the Great Depression, the economy was coming out of the Depression in the prewar years." When you factor in the reality that all of the increased "production" of the war years was actually used for purposes of destruction, it is easy to understand how hard times continued right on through to the end of the war. As Henderson concludes, "Whatever the value of U. S. participation in the war, for Americans' standard of living, World War II was a bust."

          And what of the human casualties of war, the dead and wounded? Those killed in battle clearly do not benefit from war-and neither does the general economy benefit from the overall shrinkage of the population of workers and consumers. Wounded war veterans, for their part, require medical attention, which does provide work for doctors and nurses, yes, but again, work paid for with dollars that would have bought other things and thereby provided work for other workers in the absence of war. (Maybe we could call this the Broken Leg Fallacy?) The wounded themselves, in addition, may be unable to work for the rest of their lives, consigned to lives of dependence as reward for their service. The psychological suffering of soldiers and the pain shared by their families only further strengthens the case against seeking employment through war.

The Fallacy Lives On

          And still, even people who should know better continue to embrace the fallacy that war is good for the economy. As Martin Masse pointed out in Le Blogue du QL this past February, one of those people is Paul Krugman, who has since been awarded the Nobel Prize in economics. Krugman wrote, in a blog of his own in January, 2008, "The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression."

          As Mr. Masse noted in his blog, Lew Rockwell, president of the Ludwig von Mises Institute, in an excellent interview with Scott Horton at Radio, put Krugman's statements in the proper perspective: "Paul Krugman is a Keynesian who believes in all the Keynesian myths, one of which is that mass murder and destruction of property and transfer of wealth from working people to the merchants of death in the military industrial complex is good for 'the economy.' Well, of course, it's not good for the economy; it's good for the government, it's good for the special interests that are getting the dough, but it's tremendously destructive. Destruction is not economically helpful." As for the notion that WWII got us out of the Depression, Rockwell says, "We did not get out of the Depression until after the war, until the magnificent year of 1946 when the Federal budget fell by two thirds and Keynesians warned at the time that there was going to be a much deeper depression because all of the soldiers would be coming back into the economy and there were no jobs for them." But the US economy boomed, growing by 30% in the year 1946 alone. "That was because of the shrinking of the government."

          Recounting a comment by 1982 New York gubernatorial candidate Lew Lehrman, who must have been channelling Bastiat himself at the time, Rockwell says that if war is good for the economy, we could get the same good results by having peacetime agreements with, say, the Japanese to meet at regular intervals in the middle of the Pacific Ocean, each with a fleet of the most modern battleships, and carefully evacuate those ships before sinking them all to the bottom of the sea. "Therefore we can have the economic benefits of war without hurting anybody. Well it only takes a minute to realize, 'Wait a minute… This is not… How can this be helpful economically?'"

          A final argument for the economic benefit of war is the scientific advances encouraged by the urgency of warfare, advances which often have peacetime applications. It cannot be denied that this does happen-the development of air travel and nuclear power are two examples that spring to mind-but the same qualification must be reiterated here too: money spent by the government in research and development is money not spent by someone else on some other research or purchase or investment. What might have been developed instead of, or in addition to, air travel and nuclear power if private economic actors had kept all of that money? A cure for cancer? The eradication of malaria? It is simply impossible to say.

          Despite what some will continue to argue, while war may on rare occasions be necessary to repel foreign invasion, it is always on the whole bad for the economy. A few well-connected businesses may thrive in the short term, but in the long term, war produces no winners and many losers. If we could consign this fallacy to a watery grave, we would do humanity a great service.



Current Illiberal Belief >>>


19. We don't care enough
18. Capitalism caused the Great Depression
17. Democracy is a cure-all
16. Self-sacrifice is good
15. Everyone is selfish—and that's bad
14. Free markets are utopian
13. Change is bad

12. You're either with us or against us
11. The environment is steadily deteriorating
10. Resources are limited
09. It's a small world
08. Morality must be enforced
07. The truth is obvious
06. Good intentions are enough

05. Charity must be enforced
04. We are our brothers' keepers
03. Theft can be justified
02. Order comes from above
01. Government is good