Friday, August 3, 2007

Good for the Economy

I have been thinking about the collapsed bridge in the Twin Cities, and the fact that the cost of maintaining our crucial infrastructure seems so expensive that it is out of reach or not politically feasible.

Given that a country has a finite amount of tax revenue to spend, it seems obvious to me that when it is spent on one thing, it is not available to spend on something else. (Of course, the amount of tax revenue available is adjustable, simply by growing the economy and/or raising tax rates. But realistically, it's not easy to squeeze more money out of taxpayers, and being anti-tax and anti-government is a kind of religion in the United States since at least the time of Ronald Reagan.)

So the easy and obvious assumption is that every dollar spent on the military in general and the war in Iraq in particular is one dollar that is unavailable not only for touchy-feely things like education and health care but also harder core things like highways and bridges.

And yet there is a common belief that "war is good for the economy." How can this be? Well, they tell us, war creates jobs, spurs spending, money is transferred from the government (which got it from taxes of course) to corporations, and these corporations then hire workers and pay them wages, and that all this is economic growth. And in a way, I suppose it is. But if the government can create jobs and strengthen the economy by spending money, why would it do so better spending it on tanks and planes that will be used up in a war than it would spending it on roads and bridges right here at home (or schools, or health care, or whatever you care to imagine, museums or monuments)? It appears to my naive eyes that there is no positive benefit to spending government money (ie taxes) on military equipment. And it further appears that once the money is spent, it matters a lot whether that money has gone for something that is durable and will contribute to further economic growth, rather than something that has no real use to our citizens.

If buying airplanes and helicopters Humvees and then using them up is the road to a strong economy, would it be beneficial to build such equipment and just blow them up in our own desert in Nevada? Certainly everyone would agree that buying equipment and materials and then destroying it so that you can build and buy more is a huge waste of taxpayers money.

And surely everyone would agree that a working bridge or highway is of more use to us than a bunch of ruined and used up military equipment. (It's also more use than a bunch of functioning military equipment for that matter.)

So how is war helpful to the economy? The old-fashioned reason for war was to acquire booty. A more modern purpose is to acquire land or resources. If you gain something tangible from the war, such as access to resources (oil, for example), then the cost of warfare may be offset by the expected gain. (And of course, if someone else is trying to take away your liberty or your resources or land, then you fight not to gain something but to keep from losing something.)

Apart from some expected gain if you win a war, war can only hurt the overall economy. Taxing people and then using the taxes to pay them to build materials which are then used for non-productive purposes is a losing game. (If it's not, then why not just tax people and pay them to build materials and then throw the products away. Clearly, while this would increase employment, it's like the New Deal make-work projects only worse. At least the New Deal built hiking paths and wrote books and so forth.)

The overall principle is no different than it would be for the economy of a household. If I spend my money on remodeling my house, then when I'm done, I have a more valuable and usable house. If I spend it on buying materials that will make me more productive (such as a car or a computer or education) then I increase my earning power. If I spend my money on things that are not of lasting value (such as vacations or gambling or fashion) then when I'm done, I have less money and no greater ability to be productive. This is what military spending amounts to. While there may be some beneficial side effects (maybe some antsy young men get trained in some skill or maybe some new technology is invented), the bottom line of military spending is that it is throwing money away. And spending on infrastructure (or education or health or public works) is investing that some money in something of long-term value to the citizens whose money it is.

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