War Is the Health of the Economy

Hyper-influential foreign policy intellectual establishmenteer Frederick Kagan has a long new piece in the National Review attacking, um, "hyper-sophisticates of the American foreign-policy and intellectual establishment." Or at least, the ones who aren't named Kagan.

One of his rebuttals to critics of the Kagans' War is sure to win over you FDR fanboys out there:

Modern economics has long understood that the notion of a one-for-one guns-versus-butter trade-off is simply wrong. A high proportion of money spent on defense goes back into the U.S. economy in the form of salaries paid to the more than 5 million Americans employed directly or indirectly by the Defense Department, and payments to the defense industry and the long and complex supply chains from which they draw their raw materials. Military spending has traditionally been a form of economic stimulus, and wars more commonly end recessions or depressions than start them.

Whole Kagger here; thanks to commenter Don for the link. And for something completely different, a reminder to check out Veronique de Rugy's cover story from reason's May issue. Excerpt:

How much money is $1 trillion? Enough to pay for the entire 1976 federal budget, adjusted for inflation. Enough to write a check for $37,500 to every Iraqi man, woman, and child. Enough to buy 169,492 Black Hawk helicopters, or 455 stealth bombers. Enough, in nominal terms, to pay for the entire federal government from 1789 to 1957. And it's 10 times more than what specialists predict it would take to eradicate malaria once and for all.

To distract people from the real price tag of a two-front war, the president and Congress have used an unprecedented and fiscally irresponsible budgetary trick: a series of "emergency" supplemental spending bills totaling hundreds of billions of dollars. This scheme has allowed them not only to hide the costs of the conflicts but also to avoid painful budget choices while funneling billions of dollars in unvetted goodies to favored interest groups.

Comments

Scott | April 7, 2008, 5:42pm | #

But its a fun argument to throw in the face of a liberal, even if you don't agree w/ the war either.

R C Dean | April 7, 2008, 5:49pm | #

A high proportion of money spent on defense goes back into the U.S. economy

I don't know what the opposite is of rolling over in your grave, but whatever it is, Keynes must be doing it now.

broken window | April 7, 2008, 5:59pm | #

broken window
broken window
broken window...

Pinette | April 7, 2008, 6:00pm | #

OK, so war brings jobs and contracts. And when the war is over those jobs and contracts should dry up right? so you end up in a situation where ending the war could hurt the economy. Adding jobs is good, taking away jobs is bad. Spending goes up much easier than it comes down.

Bingo | April 7, 2008, 6:07pm | #

Ahhh, the death of fiscal conservatism in the National Review.

Cesar | April 7, 2008, 6:15pm | #

Yeah, spending tons of money on national defense is great! The greater % of GDP you spend on armaments, the better your economy will be!

Just ask North Korea. /sarcasm

joe | April 7, 2008, 6:23pm | #

One of his rebuttals to critics of the Kagans' War is sure to win over you FDR fanboys out there:

Hi!

Uh...no.

. A high proportion of money spent on defense goes back into the U.S. economy in the form of salaries paid to the more than 5 million Americans employed directly or indirectly by the Defense Department, and payments to the defense industry and the long and complex supply chains from which they draw their raw materials.

Defense spending is among the least-efficient uses of tax dollars, in if we're defining that in terms of returning money to the economy. Just about anything else - school buildings, teachers, roads, unemployment insurance, foot stamps, Social Security, anything - puts more money back into the economy.

Military spending has traditionally been a form of economic stimulus, and wars more commonly end recessions or depressions than start them. The government inventing money to spend is going to have a stimulatory effect in the short term, so something as big as a war is going to pump a bunch of money out. That doesn't mean that the cost is actually affordable.

Jim Bob | April 7, 2008, 6:23pm | #

My head is going to explode.

joe | April 7, 2008, 6:25pm | #

Yes, even that program where people record your child's foot stamp - even THAT would return more money into the economy than a like amount of military spending.

SMS | April 7, 2008, 6:27pm | #

So the National Review is now publishing term papers by high school juniors? Seriously, that's the last time I heard this argument presented as an idea that should be legitimately considered. In 1987. And I went to public school. In Florida.

Jim Bob | April 7, 2008, 6:29pm | #

So, Kagan's willing to defend spending huge amounts of taxpayer money if it's spent on something he supports.

Military spending has traditionally been a form of economic stimulus, and wars more commonly end recessions or depressions than start them.

Holy fuck. Is he really trying to justify war in terms of economic stimulus?

I can't even talk about this. This should make anybody who wants to reign in government spending vomit like Reagan MacNeil channeling Pazuzu.

joe | April 7, 2008, 6:30pm | #

But before we choose the easier and more comfortable wrong over the harder and more distasteful right, we should examine more closely the two core assumptions that underlie the current antiwar arguments

No, you flabby, corrupt bastard! Before we choose whether to kill another few more thousand people at exorbitant cost, we should examine more closely the case for doing so.

You haven't been able to do that from day one, Kagan. All you've done is keep up a line of patriotic patter.

mick | April 7, 2008, 6:38pm | #

And what about injecting the same cash into the civilian market sector? It has the distinct advantage of producing things that can be consumed afterwards.

Franklin Harris | April 7, 2008, 6:58pm | #

OK, that eclipses "anything by Naomi Klein" as the dumbest thing I've ever read.

Pinette | April 7, 2008, 6:59pm | #

What Mick said,
I'm not exactly a social capitalist, but I weep for what could have been. If 1/10 of that money had been spent investing in certain technologies say in San Jose, America would could have easily been back in the head of the pack economically. Instead we are in a recession, and we have guys like Kagan to blame for it. We desperately need to be competitive again, and this damn war has set us back at least a generation.

Cesar | April 7, 2008, 7:02pm | #

But before we choose the easier and more comfortable wrong over the harder and more distasteful right, we should examine more closely the two core assumptions that underlie the current antiwar arguments

Add some "my friends"in there and that sounds like an opening of a John McCain speech.

John McCain | April 7, 2008, 7:06pm | #

My friends, before we choose the easier and more comfortable wrong over the harder and more distasteful right, we should my friends examine more closely the two core assumptions that underlie the current antiwar arguments.

Yeah, thats the ticket!

Jorgen | April 7, 2008, 7:07pm | #

This is the problem with acting like GDP is an actual indicator of economic wellbeing. A 1 billion dollar order of bombs adds as much to GDP as 1 billion dollars worth of food, or computers, or life saving technology, but it does much less to make life better.

broken window 2 | April 7, 2008, 7:13pm | #

Every form of spending puts money back into the economy. Every dollar is exchanged from hand to hand, and goes around forever and ever. That's how money works.

The resources spent on war are a different matter. The materials, the labor, the lives -- those are lost forever.

Daniel Reeves | April 7, 2008, 7:20pm | #

Speaking of

Daniel Reeves | April 7, 2008, 7:22pm | #

Oops.

Anyway, speaking of playing Devil's Advocate, today my history teacher argued that slavery was good and then got worried because he thought he "had a few of us convinced."

Sorry, spontaneous flashback. I'm done.

Daniel Reeves | April 7, 2008, 7:31pm | #

This is the problem with acting like GDP is an actual indicator of economic wellbeing. A 1 billion dollar order of bombs adds as much to GDP as 1 billion dollars worth of food, or computers, or life saving technology, but it does much less to make life better.

We're supposed to presume that the people who earn the money are also spending it, meaning that the money is used the best it can possibly be used. However, government lacks any incentives to spend your money carefully. So instead of having people spend their own money to benefit themselves, you gave government spending the people's money to suit the interests of a few politicians. That's where the real waste is.

thoreau | April 7, 2008, 8:08pm | #

I know that defense spending does provide a lot of jobs for engineers, but I can't help but think that out economy would be even better off if those engineers were making things that consumers want.

OK, some consumers do want to attack people who pose no threat to them, but those consumers are generally referred to as "murderers" and/or "Bush voters." For the decent people out there, wouldn't it be better if those engineers were figuring out how to make things that you might actually be interested in buying? You'd still be giving them your money (albeit in the store instead of on April 15) but you'd actually get something for it.

Seems pretty sweet to me.

Is it entirely a coincidence that the internet took off in the 1990's, when military bases were closing and all these engineers were looking for something else to do?

Francisco Torres | April 7, 2008, 9:07pm | #

Kagan wrote,

Modern economics has long understood that the notion of a one-for-one guns-versus-butter trade-off is simply wrong.

Off to a bad start - he probably means "Modern economics that agrees with me"

A high proportion of money spent on defense goes back into the U.S. economy in the form of salaries paid to the more than 5 million Americans employed directly or indirectly by the Defense Department

It's easy to opine on what's seen, but Kagan should know better than this: Defense spending stems from direct taxation, which hinders investment and limits economic growth. Howitzers and bombs are not edible.

...and payments to the defense industry and the long and complex supply chains from which they draw their raw materials.

Kagan makes no effort to hide is incredible ignorance of economics. The use of resources by the defense industry bids the prices of those resources upwards, making it more expensive for producers of consumer and capital goods. It is not like you can build a tank without affecting automobile production, or lubricant manufacture.

Military spending has traditionally been a form of economic stimulus

Seems like the Broken Window Fallacy will not go away any time soon.

and wars more commonly end recessions or depressions than start them.

This is an obvious lie. WWI brought a serious recession on the US economy from 1918 towards 1920, because of economic misallocation - the legacy of Woodrow Wilson's Progressive War to Bring Democracy to the World.

That’s not a good reason to start a war, but neither is it a good reason to lose one

This is called the Gambler's Fallacy - we keep at it until we get that winning streak.


The impact of the current war on the U.S. economy, finally, is far smaller than the impact of previous major conflicts.

Ah, so it is a question of degree - the US should only fight wars that the government can afford.

Even granting the simplistic and misleading $3 trillion figure, $3 trillion is about 5 percent of the nearly $60 trillion American GDP over the five years of the war.

Jeez... Considering that the GDP INCLUDES government expenditures as if they were "productive", this number is misleading.


Using mercantilist arguments common in the 18th century but subsequently shown [that the war caused the recession] to be wrong, war opponents have successfully spread the notion that military spending is causing the economy to slow and contract — they have been successful enough that a large majority of Americans believe this falsehood to be true.

Surely, taken from a very narrow vision of the issue, he would be right - the recession was the handiwork of the Federal Reserve's loose monetary policy, that started from 1990 onwards. However, the current expenditures for this war is pushing oil prices up due to a tighter supply, and also is placing increasing pressure on an already weaken dollar.

Broken Window 2 wrote,
The resources spent on war are a different matter. The materials, the labor, the lives -- those are lost forever.

Could not have said it better.

Kolohe | April 7, 2008, 9:08pm | #

I know that defense spending does provide a lot of jobs for engineers, but I can't help but think that out economy would be even better off if those engineers were making things that consumers want.

Exhibit A: the 90's.

Kolohe | April 7, 2008, 9:09pm | #

It helps to read *all* of the comment.

Francisco Torres | April 7, 2008, 9:17pm | #

Just about anything else - school buildings, teachers, roads, unemployment insurance, foot stamps, Social Security, anything - puts more money back into the economy.

Not really, because of the misallocation of resources. It's the same problem with military spending, Joe: Schools buildings, or roads, or unemployment insurance, or food stamps, or S.S. ... those expenditures come from taxation (where else?), which means that the government had to take it from people that could have used that money for other productive endeavors. Even if you think that school buildings are a good way of spending money, the fact that resources were taken for those projects means that those resources were not available for other things, like homes or hospitals. You cannot decide for others what they should do with their resources just as anybody else has no right to tell you how to use yours.

You may think that indicating that there is no difference between military spending and other government expenditures is a minor quibble from my part, but the fact is that both stem from the same source: forced or compulsory taxation of precious, scarce resources from the hands of productive people, into the hands of the unproductive.

joe | April 7, 2008, 10:04pm | #

So running a second grade class is less "productive" than what you think that money would have been spent on in the private sector.

And also, it is precisely as "productive" as if it had been spent on some fraction of a second of the Iraq War.

I get that you, like, totally don't like taxes. Nonetheless, neither of the above statements is close to true.

TallDave | April 7, 2008, 10:17pm | #

Well, we did get the Internet out of DARPA, so that was worthwhile.

How much money is $1 trillion?

Less than 9/11 cost.

Gabe Harris | April 7, 2008, 10:21pm | #

Joe,
I'm not a big fan of public education...especially federalized public education. I also grew up as a republican, but I have to agree with your point here that funding a 2nd grade class cannot come close to being as useless as spending the same amount of money on the war budget. If the 2nd grade funding went to teaching math and reading etc that could even be good as long as they weren't mixing in too much Global Carbon Tax propaganda and fluoride pills.

Bramblyspam | April 7, 2008, 11:05pm | #

All this "broken window" stuff really demands that someone provide a link to Bastiat's little essay on What is seen and what is not seen.

Just in case there actually are Reason readers who haven't read the thing, I mean.

grumpy realist | April 8, 2008, 12:21am | #

If Kagan's argument actually had any validity, then the USSR should have had a great financial boom from all those years it was militarily bogged down in Afghanistan, right?

Whoops, something didn't work out.....

(Can someone sit Kagan down and explain to him stuff like, well, y'know, the fact that if you're spending a lot of money on large hunks of metal that whizz around in the air and then end up turning into scrap in the sand, you're unable to spend the same $$ on other stuff? The technical term for it is something like "opportunity cost", ain't it? Think we could get the few brain cells in Kagan's head to understand that?)

alan | April 8, 2008, 12:43am | #

Even granting the simplistic and misleading $3 trillion figure

So, Kagan would have us believe that Joseph Stiglitz is the simpleton, and Kagan is the sophisticate?

You are a fucking hick, Kagan.

kevin | April 8, 2008, 12:56am | #

I despise guns and butter!

Gonna puke with rage now!!!!1!

alan | April 8, 2008, 1:11am | #

So running a second grade class is less "productive" than what you think that money would have been spent on in the private sector.


Unfortunately, the tertiary nature of resource allocation does make public schools much more expensive than they otherwise would be if price were determined by market forces (scarcity, need).

Basically, the argument for public schools does boil down to the concept
of an equality of opportunity, and even if we take it as a give that purpose would have been better served by directly subsidizing the poor instead of building the systemic structure of public education.

I found the majority decision in the recent California case ruling against
home schooling to be chilling when they voiced the idea that the primary
aims of an education is to make the students feel like they are part of community, and to teach civic responsibility and patriotism.

Education is the process of learning how to think critically. This is undermined by the sentilmentalism that undergirds these collectives we call public schools. Whether the end result of that education is that the student is a liberal, conservative, nationalist, socialist, patriot, heretic, or traitor is irrelevant, so long as the student arrives at those conclusion through developing critical means.

alan | April 8, 2008, 1:14am | #

Whether the end result of that education is that the student is a liberal, conservative, nationalist, socialist, patriot, heretic, or traitor is irrelevant

I think I may have alluded to The Breakfast Club without there without consciously attending to do so.

alan | April 8, 2008, 1:21am | #

bleh

attending to do so?!? Intended or not, that's a foul there, boy.

Brandybuck | April 8, 2008, 1:40am | #

This finally explains the incredibly robust economy the Soviet Union had.

MikeP | April 8, 2008, 2:17am | #

How much money is $1 trillion?

Less than 9/11 cost.

The physical damage of 9/11 was something less than $30 billion. The human loss was something less than $30 billion. The total economic market wealth loss was quite a bit more, but that is -- or ought to be -- transient and largely zero-sum.

The government overreaction, however, is a huge expense we will live with forever. But since the losses in Iraq are part of that overreaction, your assertion appears to be tautologically accurate.

Justin Raimondo | April 8, 2008, 8:22am | #

Another tragi-comic post by the neocon Welch. Don't listen to him folks. Lies, I tell you, lies, all lies LIES LIESRAWRBUSHMCHITLERCHIMPSHRUB!!

robc | April 8, 2008, 9:48am | #

thoreau

For the decent people out there, wouldn't it be better if those engineers were figuring out how to make things that you might actually be interested in buying?

Ive said before (on NASA and global warming threads) but cant prove, that if we hadnt gone to the moon, we would have had cell phones and DVD players by 1980.

Im kidding, somewhat, but it probably did set the "science of things we want" back ten years. Ditto the Manhattan Project and Iraqi War spending. In some cases, it was worth the sacrifice (the Manhattan Project, maybe the Apollo Project), but we really, really need to acknowledge the lost opportunities.

robc | April 8, 2008, 9:54am | #

Spending my money in Iraq: A complete waste. Every dollar spent on dropping a bomb is a completely lost dollar.

Spending my money in 2nd grade: The money provides a real tangible benefit. There is some frictional loss in getting the money from me to the 2nd grade classroom, but it isnt throwing the money away.

Spending my money on what I want: I get what I want. Since I apparently want it more than educating other people's children, it provides more benefit.

So, scoring this on a 0-100 scale:
Me: 100
School: 80
War: 2 (Saddam's death is worth 2 pts)

NeonCat | April 8, 2008, 10:23am | #

"Every gun that is fired, every warship launched, every rocket fired, signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children."

Dwight D. Eisenhower

DannyK | April 8, 2008, 4:48pm | #

Wow, it's not even "blood for oil" anymore, now it's "blood for the GNP." I'm feeling happier and happier about paying my taxes next week.

CSI | April 8, 2008, 11:30pm | #

I always get Frederick Kagan confused with Robert Kagan, two-fisted action reporter, supporter of the American military's superhuman soldier-saints, and promoter of America's benevolent imperial destiny.

Sam Grove | April 9, 2008, 12:27am | #

F. Kagan is making a mercantilist argument in conflating money with wealth.

JB | April 9, 2008, 7:13pm | #

"...but we really, really need to acknowledge the lost opportunities."

Yeah, but what are those lost opportunities in the face of the tremendous satisfaction derived by big government fans? They get so much absolute joy of out bleating about how they care about the poor so much.

If big government tools took half the time they spent bleating online and put it to use volunteering, they might actually make a dent in some social problems.

And my favorite line is when they say they are willing to pay more in taxes. Anytime one of them tells me that lie, I call them on it. I say go get your checkbook and write a check to the US Treasury. I have not had one of the hypocritical liars take me up on it.

See it's not that they want to pay more taxes, they want everyone else to pay more taxes.