Friday, November 06, 2009

How the Iraq War Destroyed the US Economy

by Len Hart, The Existentialist Cowboy

Wars reduce the GDP, destroy jobs, reduce productivity, and increase the trade deficit! If wars are 'bad' for the economy, then how are they sold so easily? The quick response: they are sold with focus group tested bullshit!

There's a 'living' in killing, we are told! There is a more opulent living in the commission of mass murder which requires the construction of tanks, smart bombs, and fighter jets --the MIC, in other words. But that's all just snake oil for idiots and Republicans!

That wars are good for the economy is just a bald-faced lie cooked up by the defense lobby for whom killing IS a living but only for the shrinking one percent who benefit: the Military/Industrial complex, truly MURDER INC. Fact is war is most often disastrous for the economy.
In fact, most models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment. In this way, military spending is comparable in most models to any other form of government spending, such as spending on public goods or improving the environment.

This paper shows the projections of the impact of an increase in annual military spending equal to 1 percent of GDP (approximately the actual increase in spending compared with the pre-war budget) of the Global Insight macroeconomic model (see Appendix). The Global Insight model was selected for this analysis because it is a commonly used and widely respected model.1 Other models will show somewhat different projections, but it is unlikely that the direction of the long-term impact on any of the key variables will be different. In fact, because of the structure of the Global Insights model, it likely understates the negative impact of military spending relative to other models.

--The Economic Impact of the Iraq War and Higher Military Spending>

At the link (a PDF file) look for Table 1 which shows the key differences in projections, at five year intervals, between the baseline model and the simulation assuming higher levels of defense spending.
The decline in GDP projected for the twentieth year in the high military spending scenario is $42.1 billion. This corresponds to a projected loss of 668,100 jobs. Inflation is projected to be 0.7 percentage points higher in the high military spending scenario, with the interest rate on the 10-year Treasury note 1.1 percentage points higher than in the baseline scenario.

The higher interest rate is associated with a reduction in industrial production of 1.8 percent compared with the baseline scenario. Car and truck sales are projected to be 731,400 in the high military spending scenario compared to the baseline scenario. Residential investment is projected to be 3.5 percent lower, which corresponds to 38,500 fewer housing starts and a reduction of 286,500 in the number of existing homes sold.

--The Economic Impact of the Iraq War and Higher Military Spending>
Given those facts, should anyone be surprised that the US is at the very bottom of the CIA's World Fact Book with the world's largest NEGATIVE currnet account balance. China, which props up the declining dollar, is not surprisingly on top with the world's largest POSITIVE Current Account Balance.

One should not be surprised when millions of jobs are lost as GDP declines. Yet, as a result of right wing/militaristic/jingoistic propaganda and FOX, many people still believe that war and military spending creates jobs. That may be true in the short-term. But, in the long run, increases in military spending cause job loss.
the policy would likely lead to a rise in interest rates and inflation, as higher levels of demand begin to push against the economy’s capacity. The rise in interest rates will lead to less investment, and less demand for cars and houses.
Higher interest rates will also push up the value of the dollar. This will increase demand for imports, since foreign-made goods will be cheaper for consumers in the United States, and decrease demand for exports, since U.S.-made goods will be more expensive for people living in other countries. The result will be that the United States will run a larger current account deficit. Over time, this will lead to a larger foreign debt.

--The Economic Impact of the Iraq War and Higher Military Spending>
As I have maintained for years --military spending is a waste. Millions spent building a tank, for example, is money sucked down a black hole. The rank returns nothing on the investment and will, inevitably, be blown up! We could just throw our dollars upon a heap, set fire to them, and cut out the middle man!

Military spending slows economic growth, increases the budget deficit, increases the trade deficit as can be seen, in fact, in US's NEGATIVE Current Account Balance, formerly called the 'balance of trade deficit'.
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