Russ Roberts

Steil Follow-up

EconTalk Extra
by Russ Roberts
Continuing Education... Mike M... David Zetland on Water...

I want to thank everyone who responded to the Benn Steil continuing education post. Most of the responses were related to the question about war's impact on GDP and why I thought war was bad for the economy even though it boosts GDP.

Listener/reader David Hurwitz did a nice job on these topics. He wrote:

Wartime spending meant less of everything consumers would want like cars, refrigerators, more housing square feet per person, etc. Thus in a real sense, the economy is worse off in terms of both production goods that exist in the world, and net global economic capability as a consequence of the destruction. Production to replace the destruction of war only means time is wasted to get back to where one was before. Those that died or were physically or spiritually maimed don't show up in such calculations.

Such thinking means for one thing that poor thinkers would see the horrible effects of war as a solution to some future mess that leaders brought on the world.

People are not better off when their GDP is higher if a large enough part of the rise is the cost of weapons that were not deemed necessary or desirable before the war.

He then added:

Seeing something as having good attributes that don't exist creates false signals which leads to pressure in the direction of achieving that erroneously identified good.

Exactly. When we talk about benefits of war, we encourage war. Sometimes war is necessary. But there's no reason to think that it has a silver lining of creating economic prosperity.

I encourage everyone to go back and listen to this EconTalk episode with Robert Higgs and to read his work on the true state of the economy during WWII. And watch the Keynes-Hayek rap Fight of the Century for another treatment of these issues.

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COMMENTS (3 to date)
Warren writes:

Today I received in the mail a 2 Volume Set of "An Inquiry Into the Nature and Causes of The Wealth of Nation" and the book "A Treatise on Political Economy" by Antoine Louis Claude and translated by Thomas Jefferson.

These gifts were the prize for having written the winning comments on the Summer Follow-up Continuing Education entry question.

Thank you very much for the books. They are a wonderful prize and a nice incentive to continue learning economics.


Andy O writes:

You can not watch that video enough! It's awesome. Thanks for the reminder that it's time to watch again! Love love love both of them.

Michael Byrnes writes:

I think there's a narrow view that the war really did help to end the recession, in the sense that during the recession there were millions of people who wanted to work but could not find employment. Entry into the war, first by lend-lease and then by joining the allies officially, certainly did change this story. During wartime, there were vanishingly few people who wanted to work but could not find employment. So in that very limited sense, WW II was beneficial in ending the recession.

There are 2 problems with this limited view, however.

The first is... did the war make people better off in real terms? No. Maybe some individuals were made better off, but for the most part, people were worse off. Part of what "solved" the employment problem was the massive swellng of the ranks of the military, by both voluntary enlistment and by conscription. In the latter case, people were forced invloluntarily to "work" in a setting that they did not choose and that put their lives at risk. Even in the former situation, with voluntary enlistment, this was probably often a case of choosing the best available option from a poor set of alternatives. Beyond this, the war effort made people worse off by massive destruction of property and because the war effort commandeered massive amounts of real resources (eg commodities, labor, land). So even those who were employed and not in the military found that wartime quotas, rationing, and price controls severely limited their command of real resources. The level of production during wartime was extraordinary - but precious little of that production flowed to members of the working, taxpaying public. The fruits of their efforts were largely diverted into the war.

The second problem is that, even though the US war effort could be narrowly viewed as a gargantuan fiscal stimulus program that helped to restore employment - there is no good reason to believe that, if restoration of employment was a worthy goal, that the war effort was the only or best way to achieve that. That is a dangerous view, for the reasons cited by Russ Roberts.

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