Wednesday, June 30, 2010

War Makes Us Poor

Many people who aren’t comfortable with the U.S. invading other countries reassure themselves with the belief that at least war creates jobs for Americans. But is military conflict really good for the economy of the country that engages in it? Basic economics answers a resounding “no.”

Today, the vast majority of us are richer than even the most affluent people back then. But despite this prosperity, one thing has not changed: war is bad for our economy. The $150 billion that the government spends annually on wars in Iraq and Afghanistan (and, increasingly, Pakistan) could instead be used to cut taxes or cut the deficit. By ending its ongoing wars in Asia, not only would the U.S. government be adopting a more realistic foreign policy, but also it would be developing a more prosperous economy.

And war has another burdensome long-run cost that is rarely taken account of in the decision to get into a conflict: the cost of a permanently expanded government. As economist Robert Higgs notes in Crisis and Leviathan, war hurts economies by giving governments the opportunity and the excuse to take on new powers. These powers diminish after the war ends—but do not fall back to their earlier levels. During World War II, for example, the income tax, which previously had applied only to high-income people, was imposed even on those with low incomes. The federal government also introduced withholding to make it easier to collect tax money. After the war, income taxes remained a “normal” part of everyone’s life, and so did withholding. Flush with revenue, the government found other things to spend the people’s money on, including nuclear weapons, NATO, and welfare. This reduced economic well-being because a dollar spent by government typically produces much less value than a dollar spent by the person who earned it—Washington spends our money much less carefully than we do.

Whatever other reasons there may be for war, strengthening the economy is never one of them.