War Economy, US, WW2, WW1, GDP, WoT

Warfare requires a lot of monetary expenditure, it has a direct relationship with money, and brings about positive trends in the economic graphs. Military spending in various sectors leads to creation of employment and exponential economic growth as well as technological advancements which we cannot ignore. It has a multiplier effect which reiterates the impact of war on other industries. These are some of the accredited positive benefits of amplified fiscal spending on the military. In recognizing these advantages, one should likewise evaluate counterfactuals where attention must be given to the opportunity cost and unintended outcomes of military spending on war.

One look at the condition of global economy during each of the conflictual periods since World War II shows that the beneficial outcomes of expanded military spending were exceeded by their unintended and negative long-term macroeconomic results. While the stimulatory impact of military expenses is clearly connected with financial development, unfavourable impact shows up either immediately or after some time, that is, through elevating price levels, spending deficiencies in a budget, high duties, and a decrease in investment and consumption pattern. Going around or coping with these impacts has required successive and difficult to implement changes, which are neither effective nor desirable in economic policies.

At a point where there is excess unemployment, it is conceivable that expanding military spending could stimulate a positive economic shock. Nevertheless, if the budget is checked by limitations, excessive military spending can uproot more beneficial (non-military) expenses in different sectors, for example, research and innovation, infrastructure, or education. The crowding-out impacts of amplified government spending on the military may disturb development projects, which ultimately affects perpetual growth targets.

While spending on defence is obligatory to ensure security of the country and supporting state partners, it should, like other government expenditures, be scrutinized for its productivity and general success in satisfying its essential goal.

During the last two decades, an increase in the U.S military budget was followed by a decrease because of their withdrawal from Iraq and Afghanistan to some extent, which depicts a direct relation of war and economic figures.

The U.S military is currently spending over $800 billion on its defence. It generates a huge number of jobs with the military services and defence contracting agencies. The fact of the matter is that these expenditures escalate the economic figures in terms of GDP, employment, and technological advancement.  During the last two decades, an increase in the U.S military budget was followed by a decrease because of their withdrawal from Iraq and Afghanistan to some extent, which depicts a direct relation of war and economic figures. That said, the point of discussion still remains: is the spending gainful vis-à-vis its primary objective which is national security? Here comes the problem of war economy. Despite its long-term effects, short-term goals are usually preferred, that is, the economic performance of a country in its national accounting book.  It has been concluded by various economists that the multiplier effects of military spending never leave lasting imprints, whereas the effects of monetary and fiscal policies (infrastructure, tax cuts etc.) leave an everlasting impact on the economy.

Security is not reliant only on ample military capability but also on economic muscles. Various researches show that economic conditions are interrelated with peaceful environments in a country. The market economy is connected to tranquil participation. This changes when the people change into warriors and, instead of trading, fight each other.

Generally, war has been financed with an increase in tax level, government borrowing, prioritized military spending, and most commonly by money printing. All of these modes of financing tend to effect inflation and debt.

Generally, war has been financed with an increase in tax level, government borrowing, prioritized military spending, and most commonly by money printing. All of these modes of financing tend to effect inflation and debt. Furthermore, war reduces confidence of investors in a region which results in the depletion of Foreign Direct Investment (FDI).

The U.S has indulged in war for around 93% of the time since its inception. It has created deterrence by engaging in war to sustain its diplomatic leverage at international forums. War is considered the easiest and most profitable path to become rich. Around 21,000 people became millionaires in the US at the time of the World Wars. But the gains from war have always had to be paid in terms of lives.

Muhammad Ijlal Khan

is a graduate of School of Economics, Quaid-i-Azam University, Islamabad (QAU). His field of expertise is Pure Economics. Currently, he is working at the CSCR. He has also volunteered at World Peace Organization in the Research Section.

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