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The War Economy

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posted on Nov, 26 2010 @ 05:42 PM
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I've always thought that war stimulates the economy. In light of the events in SK/NK and the potential for things to explode, I've been thinking more about war and the economy. My initial thought was good lord, how in the world would we fund it....would we just print more money, would we sell t-bills and bonds, a combination on the 2, or something else? I then found the below article, which seems to say that war has the opposite effect on the economy. Now I'm just a simple information technology guy who sees things in 0's and 1's, but I'm curious on other peoples thoughts on this topic.


"One of the more enduring myths in Western society is that wars are somehow good for the economy. Many people see a great deal of evidence to support this myth, after all World War II came directly after the Great Depression. This faulty belief stems from a misunderstanding of the economic way of thinking.

The standard "a war gives the economy a boost" argument goes as follows: Let's suppose that the economy is in the low end of the business cycle, so we're in a recession or just a period of low economic growth. The unemployment rate is high, people may be making less purchases than they were a year or two ago, and overall output is flat. But then the country decides to prepare for war! The government needs to equip its soldiers with the extra gear and munitions needed in order to win the war. Corporations win contracts to supply boots, and bombs and vehicles to the army. Many of these companies will have to hire extra workers in order to meet this increased production. If the preparations for war are large enough, large numbers of workers will be hired reducing the unemployment rate. Other workers may need to be hired to cover reservists in private sector jobs who get sent overseas. With the unemployment rate down we have more people spending again and people who had jobs before will be less worried about losing their job in the future so they'll spend more than they did. This extra spending will help the retail sector, who will need to hire extra employees causing unemployment to drop even further. A spiral of positive economic activity is created by the government preparing for war, if you believe the story. The flawed logic of the story is an example of something economists call The Broken Window Fallacy. "

economics.about.com...
edit on 26-11-2010 by peter_kandra because: added quotation marks to the text from my referenced article.




posted on Nov, 27 2010 @ 01:20 AM
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An explanation of the broken window fallacy:



and



War is "good" for an economy insofar as it creates manufacturing jobs, which is what helped lift us out of the Great Depression. Not to mention, goods and materials are taken AWAY from private consumption and reallocated towards war-based goods, which increases demand for those materials, which causes their prices to increase, which makes consumer based goods more expensive.



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