War Would End the Recession?
In his September 28 New York Times blog post, Paul Krugman announced that “economics is not a morality play.” That turn of phrase is his way of defending the idea that in unusual times, such as the sort of deep recession we are in, we can get strange relationships between economic cause and effect. The result is that actions which we might find highly distasteful can have positive effects. Thus we cannot afford to be overly concerned with morality if the goal is to get out of the recession.
Specifically, Krugman defends the claim that World War II got us out of the Great Depression, because “this is a situation in which virtue becomes vice and prudence is folly; what we need above all is for someone to spend more, even if the spending isn’t particularly wise.” Even spending on something destructive like war, he argues, is what is needed to solve the problem, especially when the “political consensus for [domestic] spending on a sufficient scale” is not available. In Krugman’s version of Orwell’s Newspeak, destruction creates wealth, and war, though not ideal, is morally acceptable because it produces economic growth.
Thankfully, we can get behind his Newspeak to see the fallacy of his economics. To believe that spending—any kind of spending—is the cure for what ails us is to ignore the subjective nature of wealth and the microeconomic basis of economic growth in favor of an absolute reification of economic aggregates such as GDP and unemployment. Spending trillions of dollars fighting a war can certainly bring idle capital and labor into employment, driving up GDP and lowering unemployment. But this does not mean we are any wealthier than before.
Wealth increases when people are able to engage in exchanges they believe will be mutually beneficial. The production of new goods that consumers wish to purchase is the beginning of this process. When instead we borrow from future generations to spend on goods and services connected not to the desires of consumers, but rather to the desire of the politically powerful to rain death and destruction on other parts of the world, we are not allowing individuals the freedom to do the things they think will make themselves better off. And we are certainly not extending that freedom to those killed in the name of our economy-enhancing war. At a very basic level, the idea that any kind of spending is desirable overlooks the fact that spending on war (and, I would argue, public works as well) actively prevents people from enhancing their wealth through production and exchange linked to consumer demand.
Employing people to dig holes and fill them up again, or to build bombs that will blow up Iraqis, will certainly reduce unemployment and increase GDP, but it won’t increase wealth. The problem of economics is the problem of coordinating producers and consumers. This coordination happens when we produce what consumers want using the least valuable resources possible. That is why it is wealth-enhancing to dig a canal using earth-movers with a few drivers rather than millions of people using spoons, even though the latter would generate more jobs.
Sending soldiers off to war is a waste of human and material resources, and is almost by definition wealth-destroying, no matter what it does to GDP or unemployment rates. The only way one can view economics amorally, as Krugman wishes to, is if one is only concerned with total GDP and not its composition. However, it is the composition of GDP, in the sense of how well what we’ve produced matches consumer wants, that ultimately matters for human well-being. It’s easy to create jobs and generate spending, but those do not constitute economic growth, and they are not necessarily indicators of human betterment.
So yes, Professor Krugman, it does matter how we try to get ourselves out of depressions. The world is not upside down and vices aren’t virtues. War isn’t peace and destruction isn’t creation. The real solution to digging out of a recession is to remove the barriers to the free exchange and production that actually comprise wealth creation. Borrowing trillions more from our grandchildren to spend on building the equivalent of pyramids or on blowing up innocents abroad only digs the hole deeper. And when one is reduced, as Krugman is, to saying we “needed Hitler and Hirohito” to get us out of that hole in the 1930s, one has abandoned morality to worship at the altar of economic aggregates.
No critic of free-market economics can ever again accuse us of being irrational and immoral when it is Paul Krugman who says destruction creates wealth, and war is an acceptable second-best path to economic growth. Don’t let Krugman’s Newspeak fool you: War and destruction are exactly what they appear to be. To argue as Krugman does is to abandon both economics and morality. Big Brother would be proud.
Comment by William Anderson on 22 December 2010:
I agree wholeheartedly with your commentary. With Krugman, there is nothing about PEOPLE in his economic analysis. The economy is nothing but a circular entity in which people make goods so that they have something to do, and then they “spend” in order to clear the shelves so that producers can make more goods and repeat the process.
There is no connection between production and consumption with Krugman. Instead, he just sees this as a mechanistic creature in which the only thing that matters is the aggregation of numbers. This is not economics, not even close.
Comment by Andrew du Boulay on 22 December 2010:
The accumulation of wealth is a long steady process. From capital accumulation society benefits because monetary resources are available for productive purposes. It is crazy to think that engaging in war is a productive process; it is anathema to the human condition and economically wasteful. That in turn is not an efficient use of scarce resources so in terms of economics, war should be the last thing any economist with a social conscience should think of.
But as we all saw at the onset of the Afghan and Iraqi wars, numerous US corporations connected with military hardware manufacturing experienced substantial growth in share prices.
Boeing Common Stock Nov 2001 $32 to $107 in Oct 2007.
Halliburton July 2002 $7.41 to $53 in May 2008.
Lockheed Martin 2000 $18 to $116 in 2008.
Obviously there were many people who saw their wealth increase due to the activities of the Military Industrial Complex but it came at the expense of increasing the US deficit by $3 trillion to fund those wars.
That is not economic growth or wealth creation, it is living beyond the US’s means. That ultimately ends in bankruptcy.
Somewhere along the way, the American tax payer will have to foot the bill and that’s when the ‘dead weight loss’ will be realised.
When will those guys learn?
Comment by Richard Briggs on 22 December 2010:
The prosperity that emerged in the late 40′s and 50′s many US citizens bought government debt during the war and endured forced rationing of consumer goods. Almost 4 years of deferring gratification means a huge accumulation of relative wealth for us. I suspect that the World Wealth, if there is such a statistic, was somewhat diminished since many were less better off than before.
Comment by Drik on 22 December 2010:
Bastiat’s Ce qu’on voit et ce qu’on ne voit pas (That Which Is Seen and That Which Is Unseen)
The Parable of the Broken Window: Bastiat argues that people actually do endorse activities which are morally equivalent to the glazier hiring a boy to break windows for him (specifically the burning of Paris):
Comment by Dudley Horscroft on 23 December 2010:
Were Krugman correct in his view that WW2 got the USA out of the Great Depression (GD), there would be the countervailing example that the Iraq and Afghan wars did not prevent the 2007-10 recession.
Part of his problem is that the Roosevelt spending did not get the USA out of the GD, things seemed better after 1941 and possitively good after 1946. Ergo, the revival MUST have been due to WW2, hence ‘war’ is a ‘GOOD’ thing.
Can I suggest that the straitjackets put on the economy by Hoover and Roosevelt had been partially, at least, relaxed during WW2 (the War Effort comes FIRST!). And as others (Murray Rotherbard?) have said, the poor investments made prior to 1929 because of the distortion due to inflation had been largely liquidated in the intervening 16 years to 1946.
Mr Krugman (he doessn’t deserve the title ‘Professor’) must surely know better?
Comment by Dan Freeman on 23 December 2010:
Thank you for the debunking of Krugman.
It’s very interesting to note that Krugman believes that “Economics is not a morality play”. And yet Economics is at the center of virtually all moral debate.
Krugman—champion of the Statists—views the economy as one big collective. The individual does not exist according to Krugman’s inverted moral view. It’s perfectly OK to take from one to give to another if it benefits the collective. In fact, he has advocated recently for 90% tax on the wealthy.
http://biggovernment.com/dfreeman/2010/11/01/the-new-axis-of-evil/
Comment by tim stevens on 24 December 2010:
Paul Krugman, like Al Gore, Jimmy Carter and lately Barak Obama is simply proof that many if not most of the Nobel awards are worthless.
Comment by Champion on 24 December 2010:
Thank you. I appreciated your article. The worst thing that ever happened to Paul Krugman was Obama winning the Nobel Peace Prize. Before, people who knew nothing of economics trusted Krugman because the nobel committee gave him their seal of approval. But once Obama was given one, people realized that a nobel prize is not a measure of competence. Going by their measure then, Paul Krugman has done as much for economics as the President has for world peace.
Comment by jojo on 27 December 2010:
War does bring good tidings.After WWI– roaring twenties, after WWII, roaring 50-60′s
WWI-WWII millions died and trillion$ of dollars in property destroyed
The Paul Kruman would be correct if he stated–the killing of millions is a sure cure for good times again :^(
Comment by R. Ferguson on 27 December 2010:
What is scary is how many people read Mr. Krugman over Mr.Horwitz!The U.S. Defence budget is already $725 billion and counting other hidden cost,closer to $1 trillion of wasteful production.The warfare and welfare system is too much a burden of the 15% of the work force that actually produce a product.The ponzi game is over.Make everyone dirt poor and I guess the only way is up.Mr. Krugman sounds like the craze Illuminati, NWO or some other radical groups.Maybe Pol Pot should be Mr. Krugman Poster Boy,that is Urban Renewal at the highest degree!
Comment by I. West on 27 December 2010:
Paul Krugman’s rap is a good example of the policy-maker conspiracy in motion. His position supports the bankers, military-industrial complex, “mainstream” media, etc. Not the U.S.A. or its people, but it’s obvious they don’t count for Krugman except as cannon fodder and taxable entities.
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Comment by James Houle on 27 December 2010:
Steven Horwitz most decisively demolishes Paul Krugman’s defense of war as a lovely way to enhance our GDP and create new wealth in a foundering economy. Unfortunately, Professor Horwitz seems to catch his foot in the same trap as Krugman when he extolls “wealth-enhancing” as our economic goal. The increase in total private-sector wealth in America has in recent decades been shown to merely widen the disparity between the haves and the have-nots, and seems to be instrumental in the accelerating demise of the middle class as well.
Should not our focus be upon was to lessen the income disparity between classes? Should not our economic goal be to lessen the suffering of those who are becoming more impoverished by our myopic emphasis upon mere “wealth enhancement”, regardless of the beneficiary? Will not this move us closer toward the our ideal of liberty and the pursuit of happiness?
Comment by John on 27 December 2010:
Very well, Paul Krugman should be the first to be shot at and paced over fields full of land mines. Unless he promises to do that, forget it he is a windbag. People create value, a piece of paper worth a penny at most with Satan symbols on it or a picture of a dead Communist does not create value or people. When people wake up to this fact that without the human being behind the paper, the paper is worthless, then we will see who the thieves are and remove them from influencing society for the worse. There is no reason to constantly create imaginary debt (aka global fractional reserve Ponzi scheme + new fake accumulating debt) unless the intention of the banker is to enslave new countries via some old lunatic “I control the money, I control the planet, you are my slave” Rothschild arrogance. When there are no more countries or people to try to enslave or subject to covert or open, fast or slow genocide, the system implodes as is currently happening with the EU operating under the Ponzi fractional reserve + fake accumulating debt added banking system, and basically a DEFICIT CREATION SYSTEM. It is no wonder the debts will never be paid, they are penned out of thin air by a banker who says you suddenly owe something whereas before you did not owe anything. What do people owe? Fake numbers penned by somebody who arbitrarily decided to collateralize that imaginary deficit with something of real value. It is unnecessary that people are being FORCED to service imaginary debt that never was in existence until people like Paul Krugman penned it arbitrarily. This causes entire countries such as Ireland to be plunged into a fabricated debt situation to the great suffering of hapless and bewildered families and children. What will war do other than DEPLETE commodities, cause genocidal murder, deplete real futures (not paper ETF but the actual commodities), destroy infrastructure, reverse social progress, and reduce manpower below their current reserve while Paul Krugman scribbles some imaginary 1′s and 0′s into his own bank account that the dead armies owe him? Pompous arrogant morons rule the planet.
Comment by Satan Cluas on 27 December 2010:
Great stuff, let the U.S. military drop the first bomb on Krugman and his loved ones. Making those bombs will provide much needed jobs and they cost lots of money but best of all it will make Krugman an instrument of his own morality and his own mortality and it would provide some much needed humor in these oh so troubling times. Krugman is about as much Taliban as the heaping pile of civilian corpses that he thinks our economy needs to survive, the U.S. military should lay him and his to waste. We may as well be building bombs and dropping them in the ocean, lol, what’s the difference? At least we don’t have to build schools and wells for the fish at great expense and calling all the fish Taliban is about as believable as calling a little dead kid an “insurgent”.
Comment by Bianca on 27 December 2010:
What Krugmans of this world do is the defense of the concentration of wealth in few hands. Every time in history this happens, depressions, revolutions and wars provide for the destruction of such systems. And it will happen again and again, when the wealth becomes concentrated. The reason is simple. The nation depends of those few to be the fountain of all good investment decision, of all the innovation and entrepreneurship. The rest of the population is deprived of the means, resources, capital and even time. They are either employees or small businesses that struggle to survive. At the same time, the wealth is concentrated in trans-national corporations, that do not employ Americans, but expect US budget to be maximally available to them in the forms of “contracts” — the free gifts courtesy of taxpayer cash, land, natural resources or airwaves. No wonder Paul Krugman believes in population reduction. Those at the top just want to enjoy the ride, not be responsible for the economic development and the wellbeing of US citizens. Until citizens wake up, nothing will change. Ruthlessly, any corporation that is registered in tax havens, or employs majority of its workforce abroad, should be denied the status of US corporation. They need to be subjected to the foreign corporation laws, prohibited from taking part or paying for political activities, and pay higher taxes for any business in US. Any corporation performing services or delivering goods to US government must have a joint venture partner representing taxpayer, so that every penny of public capital invested in such commerce is reimbursed, and profits shared. Examples of corporations developing products using 100% of taxpayers money and then selling it back to the same taxpayers are too numerous to count. It is time to put some capitalism in the relationship between the public and private capital.
Pingback by War Would End the Recession? | Sovereign Independent on 27 December 2010:
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Comment by Dr Taylor on 27 December 2010:
We would do well to understand that we (The U.S.) profited from WWI & WWII becuase we basically supplied Europe with arms, munitions, resources as they expended their own. We profited while they plundered their own. We did get involved certainly, but made a handsome profit none the less. In our current “Wars”. I dare say the ysame can be said considering the billions upon billions being spent and budgeted. Quite a difference, a huge difference.
Comment by David Smith on 27 December 2010:
The obvious point here is that we are already involved in two wars and spending enormous amounts of money, so his argument has thus been falsified.
Pingback by A Couple of Krugman Kicks - Hit & Run : Reason Magazine on 27 December 2010:
[...] other kicking-Krugman news, Steven Horwitz in The Freeman on Krugman's call: "Let's Have a War! We could all use the [...]
Comment by Pabloso on 28 December 2010:
Wars can be profitable if you win them. WWII was a huge victory for the us. Note that even our allies were destroyed in this war. We were the sole winners. Also, consider various colonial wars. Many of these produced great wealth for the victors. Of course in each case the losers suffer great deprivations, so this hardly an economic win win.
Comment by Bishop Dent on 28 December 2010:
Recessions are created by the banksters by withdrawing money from circulation, which is exactly what is happening now, as their circle-jerk-lending-for-profit bubble deinflates, taking everyone down with them.
WW2 was just a ploy to set up israel, the petrodollar exchange, and to fleece the people of asia and europe into a debt spiral.
If you look at the world distribution of wealth, before and after WW2, you can clearly see that what was going into a flat prairie, became a steep valley, pointing to america. America became the place to “put all your money into”, and that is the only reason the bankster-generated recession ended.
WW2 has absolutely nothing to do with US citizens working themselves out of a recession by making bombs and their delivery methods (aka airplanes, tanks and ships).
yea!
Pingback by Mario Burgos » Blog Archive » Solving Unemployment with Spoons on 28 December 2010:
[...] is the result of a lack of understanding regarding how wealth is actually created. Consider this from Steven Horowitz: Employing people to dig holes and fill them up again, or to build bombs that will blow up Iraqis, [...]
Comment by Richard J. McKenzie on 28 December 2010:
Now, Mr. Krugman cannot possibly mean that the way out of recession is for armed forces to ravage their way across America, or for large American cities to be firebombed and flattened. He cannot possibly mean bringing war to the North American continent. I refuse to believe he meant that, no matter how many times you point out his callousness and zeal for amorality.
He must mean, when he talks of ‘waging war’, the ravaging of OTHER places.
Because that generates work and money for the destruction industries and the rebuilding industries.
And as for any new jobs, those are in the armed forces, being village-stompers and bullet-stoppers (drawing fire to identify the enemy).
Why doesn’t he just come out and say that he wants more money to be given to Boeing and Halliburton? And a draft?
Oh, I get it. He was being subtle.
Comment by j r on 28 December 2010:
The most obvious point here is that Krugman is a shithead.
Comment by James Madison Fan on 28 December 2010:
Mr. Horscroft has it right in his December 23, 2010 post. Krugman is completely missing what cured for the Great Depression.
In reading Rothbard and others, including Churchill the “Roaring 20′s” was a bubble that was financed by investment in war debt in much the same way as the modern housing bubble. When the war debt went toxic the economy it nourished withered and died. Banks went bankrupt. The stock market crashed. Businesses closed. People lost their life’s savings.
Krugman and Obama are under the mistaken belief that the Depression ended because the US started spending scads of money on the bullets, bombs, ships, planes, and other consumables but the relationship between government spending on these items and economic recovery is limited.
The thing that ended the Depression was post war investment in rebuilding infrastructure in Europe, Asia, as well as in the US and providing consumer goods that were at a premium during the war. The first thing most GI’s did when they got back was get married, pop out a bushel of kids (Baby Boom), and buy a homes, car, and other goods.
The end of the Depression was due to entrepreneurs, speculators, businesses, and banks having a secure place to invest their money such as rebuilding Europe and Asia as well as new technologies such as radio and TV not government spending.
Pingback by Would War End the Recession? | Truth Is Scary on 28 December 2010:
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Comment by JosephConrad on 28 December 2010:
When white Americans make up their collective mind to arrest, indict, try, convict & jail the 1,000 Wealhiest Old White Men and their minions for Looting the US Treasury of over $15 TRILLION & Robbing Taxpayers of over $10 TRILLION since 2004 will this nation’s & the world’s economies ‘turn around’. Until then, the US will continue to careen into CHAOS like it’s an Olympic event!
Comment by Libertarian on 29 December 2010:
What?! Paul Krugman is ADMITTING that FDR’s Keynesian policies did not end the depression; Krugman is admitting that it took a WAR to end the depression?!
You buried the lede. And, Krugman’s desperation is clear.
Comment by Libertarian on 29 December 2010:
What?! Paul Krugman is ADMITTING that FDR’s Keynesian policies did not end the depression?!
You buried the lede. But great column: Krugman’s desperation is clear.
Comment by Anonymous on 29 December 2010:
Some of you should go and read krugman’s actual blog post.
Comment by James Madison Fan on 29 December 2010:
Libertarian,
That’s not what Krugman is saying. Krugman is offering that war (World War II) is the ultimate expression of Keynesian Economics.
He incorrectly links massive government spending on the war with the end of the Great Depression.
As pointed out in a couple posts above the logic of this connection is flawed or the trillions we spent on the wars in Iraq, Afghanistan, bailouts, and stimulus should be driving the strongest economy in US history instead of one of the weakest.
A perfect example of the inability of defense spending to stimulate the economy is the US and USSR in the 1980’s. During this period military expenditures on both sides skyrocketed but rather than stimulating the economy it nearly bankrupted both nations. The US national debt – tripled – from 900 billion to 3.2 trillion dollars and the Soviet Union’s economy collapsed in an effort to keep pace.
The actual end to the Great Depression is better linked to the post war economy. Investment in rebuilding Europe and Asia as well as new technologies and consumer goods such as washing machines, dryers, refrigerators, radios, commercial air planes, talking movies, colored movies, televisions, cars, and housing is what fueled US prosperity, not government programs.
Pingback by Common Sense with Paul Jacob - Brought to You by Citizens in Charge Foundation » Archive » Study War Some More? on 31 December 2010:
[...] trotted out the old chestnut that World War II brought America out of the Great Depression. In The Freeman: Ideas on Liberty, Steve Horwitz provides a concise, reasoned [...]
Comment by Peter de Luca on 5 January 2011:
WWI was a major contributing factor to the Great Depression. The gold standard was abused during that war and countries like England spent beyond their means.
Comment by HenryCT on 9 January 2011:
Regarding ending the Depression and WWII, Krugman’s big economic error is fixing a direct link between increasing production on the one hand and production of war materiel on the other. What ended the Depression and put money back into the economy was the massive government spending on industrial production, hiring and rehiring hundreds of thousands of workers and paying their wages. This went far beyond the WPA and CCC in the ’30′s in numbers of people put to work. That this industrial production was destroyed in the war was not a gain but a net loss. Yet putting huge numbers of people back to work worked. If private industry or the government had massively increased industrial production of consumer and capital goods in 1941 in absence of a war, that also would have ended the Depression. But capitalist economies and capitalist “democracies” don’t work that way. Of course since consumer goods weren’t made in massive amounts during the war, workers weren’t able to spend their money until after it ended when, on a dime, industry converted back to consumer and capital goods for consumption here and abroad. The current spending on weapons of war is, similar to WWII, a net negative. And increasing such spending, as Bush 2 and Obama have done is economically more negative.
Comment by Alec Smithers on 9 January 2011:
It is good to see criticism of the idea that war will bring mass prosperity. I believe that there are people out there who follow that line of thought, or at least preach it because they can achieve individual prosperity through war, and want to be “free and unrestricted” to profit off of destruction.
I question, though, how Mr. Horowitz believes that the removal of barriers–to put it another way, deregulation–will magically make the quality of life better for everyone. We have tried, time and again, to allow business and the economy to regulate themselves, and inevitably a few people prosper while other people lose their jobs and overall wealth decreases. Nobody reasonable expects things to improve overnight, but in this digital age, indicators of improvement should have appeared quickly, and none did. (And nevermind that before the era of high-speed communication, to say nothing of instantaneous communication, the stock market took one day to crash.)
Comment by Craig S Wright on 8 February 2011:
WHEN?
“We have tried, time and again, to allow business and the economy to regulate themselves”
Again, I say when? I have a masters degree in international commercial law. I do not see ANY period in the last 100 years when any regulation has been relaxed. Rather, I see more law and regulation piled on old laws.
This confusing and often contradictory state of affairs is one of more and more regulation and not one point of any regulation being removed or the enforcement being made more lax.
Not even 20-20 in hindsight (blindsight?) and yet we allow more and more regulators to make business more and more difficult.
Come on, really. I fail to see how any sane person could even start to state that we have allowed business to thrive without regulation.
Pingback by In The Papers: Economic Conditions and US National Security « 36 Chambers – The Legendary Journeys: Execution to the max! on 27 February 2011:
[...] one of the first people to take apart this fallacy, but the idea is so widespread that others, like Steve Horwitz, need to keep making the point. If you don’t want to read articles, check out a post that [...]
Pingback by Gallows Humor « Antiwar.com Blog on 19 September 2011:
[...] I say sharks gotta eat, same as worms, but I’m waaaaay further out than The New York Times editorial page can even imagine. Back in the realm of red and blue, wacko wingding extremist Ron Paul calls for reducing the national debt, preferably by scrapping the most harmful, counterproductive government spending (hint: it’s not on Grandma’s prescriptions). Sober, wise, compassionate Nobel laureate Paul Krugman and other serious liberals have a different moral vision. [...]
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