GDP and the Dirty War Business

In the previous few articles we have seen how the GDP approach to calculating economic growth has led to the proliferation of dangerous fallacies.

One particularly dangerous fallacy is that war is good for economic growth. This creates the notion that economics as a science is somehow opposed to human welfare and peaceful living.

Simply put this fallacy projects economics as an anti social science. However, this is not the case. In this article, we will further our case against this fallacy and attempt to debunk this myth.

War Produces Growth in Wastage

War produces growth in the economy. This is an incorrect statement if you consider the true meaning of growth and the true meaning of economy.

In general parlance, growth refers to betterment and economy refers to apt utilization of scarce resources. If you consider these meanings of growth and economy, the above statement is incorrect.

However, if you consider the GDP approach meanings of these words, the situation is different. GDP measures the size of an economy by the amount of resources spent. Were those resources spent effectively ? This question is not considered in the GDP approach.

Since the meaning of “economy” is tacitly interchanged with the meaning of expenditure, the fallacy arises.

War does produce an increase in expenditure. However, most of the expenditure is wasteful and contributes nothing to the well being and betterment of society. Therefore, it can be said that war does produce growth. However, it is not the economy that is growing rather it is the wastage that grows as a result of war.

Losses on Waging War

Firstly, the moment any two countries decide to wage war, an enormous budget has to be laid out to do so. War ends up becoming the nation’s number one priority and all else including economic development takes a back seat.

Resources that could have been utilized to meet genuine human needs like education, welfare, healthcare, recreation etc are diverted towards war expenditures.

Consider the fact that in most countries that go to war shortages arise in almost all goods except for arms and ammunition. Even labor has been in short supply when countries go to war. This is because warring countries often face huge losses in terms of manpower and as a result people who were engaged in civil and peaceful economic activities end up being enlisted in military, often against their will.

War therefore adversely affects every factor of production i.e. land, labor, capital and production. Firstly these factors are wasted during war and secondly after the war is over, there are shortages of these factors.

Losses on Reconstruction

Now, the second big blow pertaining to war comes when the war is over. Regardless of which side has won the war, there is bound to be destruction on both sides. Countries at war systematically strategize at destroying the basic infrastructure of their opponents. As a result, during the war period roads, rails, ports, airports, communication networks and healthcare facilities are systematically destroyed.

Now, once the war is over, countries cannot function without this infrastructure. As a result, there is a necessity to rebuild it.

So, what war does is nullify decades of progress by bombing and destroying the infrastructure. Then an enormous amount of money is spent by the taxpayers for rebuilding these facilities. So the taxpayers have to cough up a huge sum just to take the economy back to where it originally was.

However, the GDP system only counts expenditure. Expenditure on rebuilding something that you already had is a wasteful but nonetheless is expenditure. This wasteful expenditure gets added to the GDP growth and begins showing up as a positive indicator of the economy!

Inflation as a Result of War

To accomplish anything in war monetary resources are required. It is often said that gold wins more wars than armies do! Hence, countries which are at war often find themselves cash strapped because they have already spent too much.

The war spending is an urgent matter and cannot stop. This helps governments justify the printing of more currency and creation of inflation. All the bombs and bullets that hurt the enemy also hurt the state because of the additional money that is introduced into circulation. The common man of warring countries often find their purchasing power severely diminished as a result of war.

Public Losses Corporate Profits

So, is it true that everyone loses in a war? How is it then that GDP system believes that war is beneficial for the economy? Well, war is indeed beneficial for the economy if you look at it from the point of view of certain corporations. These corporations include construction firms and firms that manufacture defense equipment and are often known to have close political connections. In fact most of these firms are interlinked and there have been conspiracy theories that they work as a single cartel.

War, for these firms, means additional sales. They sell more defense equipment at more inflated prices and also undertake reconstruction projects. The money to pay for these spending binges caused by war is made available from the taxes which have been collected.

War, therefore ends up being a diversion of tax funds from welfare related expenditures to destruction related expenditures!

The Aftermath

To conclude, war does not benefit the economy as a whole. The illusion is created because GDP fails to differentiate between productive and destructive expenditure. It simply counts the expenses. The higher the total the better!

Also, some firms have vested interests in war. Therefore, they too perpetuate the myth that war is good for the economy.

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.