By Russ Roberts
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.