US economy can survive a war with Iraq if war is necessary
The growing debate on a possible major military engagement against Iraq is a propitious time to examine what we know about the impact of military activity on the American economy. To begin with, it is necessary to discard notions based on World War II experience. That was literally a different age, and few "lessons" from that era apply to our current situation.
At the start of World War II, the United States had a very small and inadequate military establishment and its defense industrial base was of similarly modest size. Before the nation could engage in major hostilities, it was necessary to invest in the creation of a new defense production industry and to manufacture a wide array of armaments for a massive military force that was being developed. That burst of military demand which was sustained until the end of World War II was a key factor in ending the prolonged depression of the 1930s.
Turning to the period following the end of the cold war, it's clear that the substantial reduction in military spending the procurement of weapon systems was reduced by approximately one-half from the peak achieved in the mid-1980s did not interfere with a prolonged boom. In fact, the shift from military to civilian priorities contributed to the strength and duration of the economic upturn of the 1990s.
On reflection, that should not be too surprising. Producing armaments may have an initial positive effect on the levels of production, employment, and income when the overall economy contains some slack in terms of underutilized resources.
But the economic productivity of defense production is very limited when compared with civilian production. In the civilian sector, the production of "durable" or "capital" goods usually generates a future stream of benefits to the American consumer when those capital goods are used to produce a flow of additional products and services.
In striking contrast, the use of those military capital goods such as aircraft, missiles, tanks, and other ordnance may generate important but far less tangible benefits to society.
Military "hard goods" can contribute vitally to the national security, but the use of tanks or aircraft or missiles does not perform an economic role comparable to the production of equipment in the commercial economy.
Moreover, the more recent Gulf War and the war in Afghanistan were fundamentally different from World War II or even the Korean and Vietnam wars.
In the contemporary high-tech environment, wars are now fought essentially with forces and equipment existing at the outset of the conflict. In both the Gulf and the Afghanistan wars, the US experienced limited recessions, rather than war-induced prosperity. Especially in the case of the war in Afghanistan, it was the successful conclusion of the military effort that gave the nation and the economy a boost.
This line of analysis leads me to reflect on my own earlier studies of the economic role of military expenditures. In a nutshell, two interrelated conclusions arise from evaluating defense spending and national priorities:
The future economic prosperity of the US does not require any particular level of defense spending.
Decisions on the level of military spending, within wide limits, should be made primarily on national security grounds.
An array of macroeconomic policies and tools is available to assist in adjusting to large shifts of spending from civilian to military sectors. This country can afford the level of national defense outlays that it requires.
To bring that reasoning up to date: While a war in Iraq should not be justified on economic grounds, the US could, nonetheless, afford to engage in such a conflict if it decided to do so.
Murray Weidenbaum is the Mallinckrodt Distinguished University Professor at Washington University and author of 'Small Wars, Big Defense.'