"War ALWAYS Causes Recession"

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Washington's Blog.

PhD economist Marc Faber predicts that the U.S. will launch a war to distract people from the bad economy.

China's largest media outlet - Sohu.com - wrote
in October 2008 that the Rand corporation, a leading U.S. military
advisor, lobbied the Pentagon for a war to be started with a major
foreign power in an attempt to stimulate the American economy:


According
to French media, well-known U.S. think tank RAND Corporation ... has
submitted [to the Pentagon] an evaluation report assessing the wage a
war to shift the feasibility of the current economic crisis...

Continued
deepening of the U.S. sub-prime mortgage crisis and economic downturn,
developed to a certain extent, is likely to trigger a war in order to
achieve the purpose of the crisis passed.

(Google's translation services are crude approximations, but Yihan Dai confirmed the translation of the original).

Is Faber right? Is the Sohu.com report accurate?

I
don't know. For example, I won't take the Sohu.com claim very seriously
until someone can point to the French media source, so that I can
assess it's credibility.

However, "military Keynesianism" - using military spending to stimulate the economy - has been U.S. policy
for half a century. And the economist who coined that term said that
such a policy always and "inexorably" leads to "an actual war" in order
to justify all of the military spending.

Therefore, any studies which disprove the efficacy of war as an economic stimulus -see this and this - are important for balance.

In addition, contrary to popular belief, some writers say that the reason that WWII actually stimulated the U.S. economy was not because of America fighting the war. Specifically, they argue that America's ramped-up production of armaments for the British before the U.S. entered the war was the thing which stimulated our economy.

To
try to sort some of this out, I spoke with a PhD professor of economics
with a background in international conflict in July 2008 to find out
whether war is really good for the economy.

I asked if
conventional wisdom that war is good for the economy is true,
especially given that all of the spending on the war in Iraq seems to
have weakened America's economy (or at least, greatly increased its debt).

The economist explained the seeming paradox:

"War always
causes recession. Well, if it is a very short war, then it may
stimulate the economy in the short-run. But if there is not a quick
victory and it drags on, then wars always put the nation waging war
into a recession and hurt its economy."

Given that America has been fighting both the Afghanistan and Iraq wars longer than it fought WWII, the exception obviously doesn't apply.

Can America go beat up some poorly-armed country to get a quick war?

It is more unlikely than many assume. Given that many believe that the U.S. started the Iraq war based on false pretenses, and that the Iraq war was really about oil (see this, this, this, this and this), I am skeptical that many would buy America's stated justifications for another war.

Indeed, the Sohu.com article – even if wholly untrue – proves my point.

In
addition, even a war against a small, poorly-armed and resource-poor
country could be considered a proxy war. In other words, other
heavily-armed countries might fight the U.S. through local proxies,
dragging the war out for years, just as the U.S. did with Russia in
Afghanistan. America today is not the empire it was even 10 years ago,
and - as Afghanistan and Iraq show - America no longer has the
financial resources to project force and impose its will world-wide.

The bottom line is that anyone advocating for war to help our economy is mistaken.