We pointed out in 2009 [6] that war is bad for the American economy. We noted in 2012 [7] that military spending as “stimulus” can’t work, because conditions are different than they were in World War II.
We’ve reported for years [8] that economists (like Paul Krugman) who believe that war stimulates the economy are wrong [9]. We exhaustively debunked this claim again just last month [10].
Mr. Krugman has now changed his mind. He wrote [11] yesterday in the New York Times:
If you’re a modern, wealthy nation, however, war — even easy, victorious war — doesn’t pay. And this has been true for a long time. In his famous 1910 book “The Great Illusion [12],” the British journalist Norman Angell argued that “military power is socially and economically futile.” As he pointed out, in an interdependent world (which already existed in the age of steamships, railroads, and the telegraph), war would necessarily inflict severe economic harm even on the victor. Furthermore, it’s very hard to extract golden eggs from sophisticated economies without killing the goose in the process.
We might add that modern war is very, very expensive. For example, by any estimate the eventual costs (including things like veterans’ care) of the Iraq war will end up being well over $1 trillion [13], that is, many times Iraq’s entire G.D.P.
So the thesis of “The Great Illusion” was right: Modern nations can’t enrich themselves by waging war.
This is a huge sea-change from America's best-known Keynesian, and we thank Mr. Krugman for re-examining the evidence.