War and Stimulus

I had an argument about the (economic) stimulative effect of war the other night.  As usual, I was not entirely happy with how I argued my point in real time (which is why I blog).  Here is an attempt at an improved, brief answer:

One of the reasons that people often believe that war "improves" the economy is that they are looking at the wrong metrics.  They look at unemployment and observe that it falls.  They look at capacity utilization and observe that it rises.  They look at GDP and see that it rises.

But these are the wrong metrics.  What we care about is if people are better off: Can they buy the things they want?  Are they wealthier?

These outcomes are hard to measure, so we use unemployment and GDP and capacity utilization as proxies for people's economic well-being.  And in most times, these metrics are reasonably correlated with well-being.  That is because in a free economy individuals and their choices guide the flow of resources, which are dedicated to improving what people consider to be their own well-being.  More resources, more well-being.

But in war time, all this gets changed.  Government intervenes with a very heavy hand to shift a vast amount of the resources from satisfying people's well-being to blowing other people up.  Now, I need to take an aside on well-being in this context.  Certainly it is possible that I am better off poor in a world with no Nazis than rich in one dominated by Nazis.  But I am going to leave war aims out of the concept of well-being.  This is appropriate, because when people argue that war stimulates the economy, they are talking purely about economic activity and benefits, and so will I.

What we find is that in war time, unemployment is down, but in part because young people have been drafted (a form of servitude) to fight and die.  Are they better off so employed?  Those who are left find themselves with jobs in factories with admittedly high capacity utilization, but building things that make no one better off (and many people worse off).  GDP skyrockets as government goes deeply in debt to pay for bombs and rockets and tanks.  This debt builds nothing for the future -- future generations are left with debt and no wealth to show for it, like taking out a mortgage to buy a house and then having the house burn down uninsured.  This is no more economically useful than borrowing money and then burning it.  In fact, burning it would have been better, economically, as each dollar we borrowed in WWII had a "multiplier" effect in that it destroyed another dollar of European or Asian civilian infrastructure.

Sure, during WWII, everyone in the US had a job, but with war-time restrictions and rationing, these employed people couldn't buy anything.  Forget the metrics - in their daily lives Americans lived poorer, giving up driving and even basic staples.  This was the same condition Soviet citizens found themselves facing in the 1970s -- they all had jobs, but they could not find anything to buy.  Do we consider them to have been well off?

There is one way to prosper from war, but it is a terrible zero-sum game -- making money from other people's wars.  The US prospered in 1915 and later 1941 as Britain and France sunk into bankruptcy and despair, sending us the last of their wealth in exchange for material that might help them hang on to their existence.  Ditto in 1946, when having bombed Japanese and German infrastructure into the stone age. we provided many of the goods to help rebuild them.  But is this really the way we want to prosper?  And is this sort of vulture-like prosperity even possible with our inter-woven global supply chains?  For example, I can't see a China-Japan war being particularly stimulative for anybody nowadays.

  • Angel Zachriel

    Coyote Blog: One of the reasons that people often believe that war "improves" the economy is that they are looking at the wrong metrics. They look at unemployment and observe that it falls. They look at capacity utilization and observe that it rises. They look at GDP and see that it rises.

    It's a common misperception. A stimulus trades wealth for economic activity, and even then, only works when the economy is working below capacity.

  • morganovich

    not that i advocate this, but there is one other way to make money from wars: conquest. this was the most common reason for wars in a lot of history. you have something, i want it, i'm going to take it. sure this is (at best) zero sum in the short run, but one could certainly see how, say, conquering canada would yield a big windfall to the us in terms of mineral wealth.

  • Angel Zachriel

    Ah, the good ol' days of rape and plunder!

    In the modern world, though, most wealth is tied up in the productive capabilities of the people—even in Canada.

  • HenryBowman419

    This is an important question, if for no other reason that to provide a good argument against such looney-tunes economists as Krugman. World War II and the recovery from the Great Depression provides a case in point, as explained by Robert Higgs.

  • Angel Zachriel

    Despite some recent historical revisionism, the vast majority of scholars believe that WWII ended the Great Depression.

  • http://profiles.google.com/maruadventurer john mcginnis

    Your observations are aptly captured by Frédéric Bastiat in his cobbler's window parable, 1850. What many economists miss is the unique situation the US faced in WWII. For the first two years of that conflict we were not a combatant and so incurred no losses. But we made massive sales to those that were. Even during the conflict only the US and Argentina (the other large economy at the time) were not impacted by the conflict on their own soil, a distinct advantage economically and postwar.

  • bigmaq1980

    The corollary to "war is good for the economy" is that we must therefore go to war with someone. Sounds nonsensical, but I've heard that line of thinking from some people.

    The argument against is along the lines you have gone.

    It is like the old "broken window" type of fallacy. The recent example is the similar discussion re: Sandy of its stimulative effects. The crux is precisely that capital (productive assets and resources) gets destroyed first, only to be recreated - the economy as a whole has not grown when the loss is accounted for. Simple illustration in a two person world - one takes his wheat and makes bread with it for both to eat, the other stomps on it making it inedible - are they collectively better off because the first person has to take a new batch of wheat and make more bread?

    It gets more convoluted with war, as the assets destroyed are not directly productive assets that provide some ROI in their employment, but instead a forced reallocation of money that would otherwise be used. Furthermore, labor and resources get "destroyed or damaged" - also a hit on the productivity of the economy in the long run. Two people are at war - each takes their supply of wood to make spears with which to fight each other, but they must forgo making bread because they don't have time, and they cannot use the same wood for their stove - are they collectively better off?

    Simplistic, and perhaps better analogies could be made (I'm not wedded to these, if others have better suggestions).

  • bigmaq1980

    Ah, just missed your cobbler's window comment - I mentioned something similar with my comment above.

  • marque2

    The NAZI's are still living in the Center of the Earth!

    http://en.wikipedia.org/wiki/Nazis_at_the_Center_of_the_Earth

  • marque2

    Going to war does make us poorer because of the broken window principal, but it can make us richer in the long run, due to 1: Opening markets 2: creating certainty.

    If I can't ship my goods to Europe for sale because some maniacal dictator is sinking all the cargo ships - because he hates us. That makes us poorer too. By going to war to stop the activity, I get more certainty and can ship my goods again - opening the market.

    The other market that might be opened is the dictator's home market, which was probably closed to us in the first place.

    As it says in Ecclesiastes 3

    There is a time for everything,
    and a season for every activity under the heavens:
    ...
    a time to kill and a time to heal,
    ...
    a time to tear down and a time to build,
    ...
    a time to love and a time to hate,
    a time for war and a time for peace.

    I think that covers it.

  • NormD

    Your observation is not limited to war and by referring to war you cloud the issue.

    Government spending is part of GDP. Any time a government borrows and spends money GDP will go up and unemployment will go down.

    If the government hires a bunch of people to dig and fill in holes, GDP will be high and unemployment low, but the long term value of the work is zero.

    The only important question is what is the long term value of what the government is buying? If it adds no value, then it probably should not be done.

    The Hoover Dam and interstate highway system probably added value.

    Most (all?) passenger rail projects have no or negative value.

    The problem is lots of people have cherished ideas about what the next Hoover Dam is but most of these ideas have no payback. The projects with real payback never get discussed.

    Examples of "high return" projects not even being considered:

    CA's population has doubled since the 1960s, but we have added no dam capacity since then.
    SFO (the airport) desperately needs another runway.
    Adding lanes to highways in congested areas.
    Pipelines for gas, oil, water
    Improved rail for freight

    Examples of "low return" projects that get our politicians all excited:

    HSR
    Windfarms
    Bike paths
    Welfare in all its forms

    The problem is not just that our politicians want to spend money. They want to spend it stupidly.

  • marque2

    scholars vs Economists. It is sorta like the vast majority of scientists believe in Global warming, but then we find 95% are just in tertiary fields at best.

    Also your comment involves two logical fallacies
    1: Appeal to Authority
    2: Argumentum Ad populum.

    I do think, there is fact that the rest of the first world was bombed and so for a few years the USA was the only country left with industry did help us. I don't think it was the sending our boys overseas and making Liberty ships.

  • marque2

    We would get zero mineral wealth from Canada, cuz as soon as we conquered the country the eco-nuts would put the forests and oil fields completely off limits to spare the environment. You think Owning Canada, would make Obama approve Keystone faster? Guffaw.

  • http://twitter.com/tmitsss Louis Nettles

    After WWII (1945-1950) government spending went way down, wealth creation went way up. Boom. In the 1960's government spending went up, no late 60s boom except in inflation

  • bigmaq1980

    I could agree that might be the case under very specific conditions, however, our experience shows that the outcome of war is rather speculative to predict. It is arguable about whether Iraq, Afghanistan, Vietnam (just to name recent examples) have made the markets (more) open or created more certainty.

    Instead, I'd suggest that there is an "insurance" aspect for supporting a strong military, such that the incentive for war by (rational) adversaries is close to zero due to overwhelming superiority. That, I think has been more effective than actual war for bringing the results you mention, as it opens the door to diplomacy and later trade.

  • Angel Zachriel

    marque2: Appeal to Authority

    An appeal to authority is valid when
    * The cited authority has sufficient expertise.
    * The authority is making a statement within their area of expertise.
    * The area of expertise is a valid field of study.
    * There is adequate agreement among authorities in the field.
    * There is no evidence of undue bias.
    The proper argument against a valid appeal to authority is to the evidence.

    As we responded to an appeal to a singular authority who is not speaking for the consensus within the field, an appeal to authority was appropriate.

    marque2: It is sorta like the vast majority of scientists believe in Global warming, but then we find 95% are just in tertiary fields at best.

    That's the problem with becoming untethered from the evidence, there's no stopping.

    marque2: I do think, there is fact that the rest of the first world was bombed and so for a few years the USA was the only country left with industry did help us.

    The effects of stimulus were amply demonstrated during the period. From 1929-1932, there was little stimulus, and negative growth. From 1933-1936, the New Deal led to rapid growth. Growth dropped in 1937, as the Roosevelt Administration cut back the New Deal in order to balance the budget. Growth resumed when they reversed course again, and the recession ended with the Great Stimulus of WWII.

  • marque2

    I would like to point out that in 1950 99.9% of geologists thought the continents did not move relative to the face of the earth , even though in 1911 one person came up with some pretty compelling evidence based on fossil records and geology that the continents did indeed move. They were ALL wrong.

    But your flaw is this. You didn't reference anything specific you said "Most scholars believe X therefore X must be true. That is false logic and is an Appeal to authority argument.

    And as far as I know "very few scholars believe the growth From the great depression to WWII was particularly strong," <- (back at ya with Appeal to Authority) in fact 1937 was no minor recession, It was the second worst depression in the 20th century. After the war the economy boomed (after a minor recession) and that is where the War creates great stimulus myth appeared. So in order to debate the War myth - you need to talk about events during and after the war, not before, so all that info you gave is completely irrelevant.

    Not bagging on you, just please try to think of ways to make your arguments stronger. the 4/5 doctors whose patients chew gum recommend sugarless gum argument is just not going to work.

  • http://twitter.com/maymount Richard Harrington

    War is negative-sum game, not a zero-sum one because one of the main side effects is the destruction of people and property.

  • Todd Ramsey

    Did the U.S. really "prosper" when sending goods to Germany and Japan after WWII without receiving compensation? Yes, people had jobs providing those goods, but putting Americans to work while receiving no goods or services in return is akin to digging holes and re-filling them with dirt. Choosing the example of sending goods to Germany and Japan after WWII runs counter to the logic of the rest of your post -- which is spot on, as usual.

  • obloodyhell

    }}} One of the reasons that people often believe that war "improves" the economy is that they are looking at the wrong metrics.

    No, not really -- they aren't even LOOKING at the whole problem is the problem.

    This is a classic example of Bastiat's "Broken Window Fallacy", Warren. I can't believe this isn't the first response you used to the false meme, it is a well-known and often used example of it.

    That Which Is Seen, and That Which Is Not Seen.

  • obloodyhell

    MMM, depends. One thing you might argue is that research goes through the roof, which often leads to prosperity down the road if the techs have additional usages (e.g., the miniaturization the cold war forced led to the entire modern computer industry, with all its secondary and tertiary benefits, too)

  • obloodyhell

    }}} It is like the old "broken window" type of fallacy.

    It's not like, it's not the "type" -- It IS the Broken Window Fallacy.

    ***EXACTLY*** IT.

  • obloodyhell

    }}} It is sorta like the vast majority of scientists

    1) Most of the people who call themselves "scientists" AND believe in AGW (the intersection of the two) wouldn't be able to define "science" if Zombie Feynman came up to them and ripped off their heads.

    2) Anyone who thinks or even suggests that "consensus" is even remotely relevant to ANY scientific endeavor is a quack or a charlatan or both.

  • obloodyhell

    The best example of the failure of consensus lies in Phlogiston Chemistry and Lumniferous Aether Physics... especially the latter, which was overthrown virtually overnight by a single experiment by two scientists named Michelson and Morley.

    In the latter case, the notion of "Lumniferous Aether" was almost uniformly accepted as how light propagated. But it only took a single experiment (repeated, of course, by others for verification) by two scientists to completely destroy it. In 1886, there was "consensus". By 1888, there was very little.

  • marque2

    I wasn't aware of this. That is why I use the plate tectonic example where Alfred Wegner was a lone voice and scorned, it wasn't until 1959 - 48 years later, that the scientific community came to believe in plate tectonic in a similar rapid fashion - when a survey ship discovered magnetic lines in the Atlantic ocean on both sides of the mid Atlantic ridge - which matched on both sides and showed that the Atlantic ocean was expanding.

  • LarryGross

    You don't need "war" to spend a ton on National Defense - which is what we are doing right now. We take in about 1.5trilion in taxes and we spend about 1.5 trillion on National Defense.

    You don't need to fight a single way to spend god awful amount of money on National Defense - just the idea that we need to do it and the money is well spent.

    isn't this the basic argument right now for our defense spending?

  • Zachriel

    marque2: I would like to point out that in 1950 99.9% of geologists thought the continents did not move relative to the face of the earth

    That's correct, and they were wrong. (Wegener lacked a plausible mechanism.)

    marque2: You didn't reference anything specific you said "Most scholars believe X therefore X must be true. That is false logic and is an Appeal to authority argument.

    That's false logic, but not a valid appeal to authority, which is there is a consensus of scholars in the field who claim X, therefore X is more likely true than not, absent reasons otherwise.

    marque2: After the war the economy boomed (after a minor recession) and that is where the War creates great stimulus myth appeared.

    No, it comes the direct relationship of on and off of the stimulus leading to on and off GDP growth. That, and generations of additional economic research.

  • Zachriel

    obloodyhell: The best examples of the failure of consensus

    Consensus is often wrong, but more likely right than not, absent additional information.You don't get to see the results, the data, or the methodology.

    obloodyhell: AGW doesn't allow this to happen. You don't get to see the results, the data, or the methodology.

    That's silly. There are entire journals with climatology data and methodologies, including papers in Nature, Science and PNAS.

  • WillusM

    I have always found this such a bizarre line of argument. It seems patently obvious that war is negative sum. War reallocates resources from the private sector to public sector, usually with selfish political motives as the motivation. Any net economic benefit derived is purely coincidental.

    I'd suggest these questions for those who disagree: is peace good for the economy? Or, if war is good for the economy, how much war is the best amount? Total war, a few bug splats here and there, or something in between? How do we know? Is war good for the economies of the nations that lose the wars? How about for those killed?

  • MingoV

    War's effect on the economy is just the broken windows fallacy on a national scale. Manufacturing items that will be disposed of (ammunition, bombs, missiles) or lost (planes, tanks, ships) within months does not improve the economy. Resources (materials and labor) were used, but few enduring capital goods were created. That's not an economic boost.

  • Zachriel

    Had a copy & paste error in the previous comment. "You don't get to see the results, the data, or the methodology" should be attributed to obloodyhell.

  • Zachriel

    marque2: That is why I use the plate tectonic example where Alfred Wegner was a lone voice and scorned, it wasn't until 1959 - 48 years later, that the scientific community came to believe in plate tectonic in a similar rapid fashion - when a survey ship discovered magnetic lines in the Atlantic ocean on both sides of the mid Atlantic ridge - which matched on both sides and showed that the Atlantic ocean was expanding.

    Yes, seafloor spreading is evidence of the mechanism. That's why there was a change in nomenclature. Continental drift is the phenomenon. Plate tectonics is the mechanism.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    GDP is the wrong metric, just as the stock market is the wrong metric.

    They used to be somewhat reliable metrics, but the more leftist government economic intrusion, the more these metrics became distorted.

    They are no longer useful aggregate measures of activity, precisely because government and legal interference controls most of what they do.

    This is called corporatism/neofascism.

    Obamalini is a corporatist/neofascist.

  • http://www.facebook.com/matthew.slyfield Matthew Slyfield

    Defense is less than 1/4 of total federal expenditures. Entitlements (SS, Medicare, welfare) + interest payments on the long term national debt are around 51 percent of total federal expenditures. Defense spending is around 45% of what is left over. (45% of 49% of total federal expenditures.)

    Are we overspending on defense? Yes.
    Will cutting just defense back to reasonable levels balance the budget? Not so much.

  • LarryGross

    "National Defense" includes much more than just DOD. It includes first and foremost - the entitlements that the military receive after active duty -they are also legitimate "defense" costs including the VA and health care and I assume you realize that the military and civilian DOD do get social security and Medicare, right? Then you need to add to this - Homeland Security, the NASA military satellites, the DOE work for weapon systems and ship reactors, the FBI/CIA anti-terrorism efforts, our Border Security, etc. Keep in mind also, National defenses legitimate share of the interest debt.

    The amount of Money we spend on Medicare from General Revenues is about 300 billion and that number can be substantially reduced just by further means testing of premiums and benefits - and it should be.

    Don't count SS and Medicare Part A as part of the budget issue because they are not. They are financed not from general revenues but from FICA. One might argue about FICA/SS as a concept but right now - they have almost nothing to do with our spending and general revenues.

    check this chart: http://en.wikipedia.org/wiki/File:U.S._Federal_Receipts_-_FY_2007.png.
    realize that the 845 billion is FICA and not general revenues and not spent on general revenue spending. Subtract that 845 billion from the total 2.5 billion and you get 1.655. Out of that certain taxes like your gas tax - are also dedicated to specific spending - roads and you are down to essentially 1.5 Trillion.

    that's your available revenues - for Medicare Parts B,C,D, MedicAid, DOD, National Defense and the rest of govt.

    Now allocate percentages of where you want that 1.5 trillion to go. Remember - right now - DOD and National Defense themselves spend 1.5 Trillion so how much of the available 1.5T would you give to DOD/ND?

    see - this is the problem. We play the percentage game from way up top and we never get down to this level where he numbers are undeniable and stark.

    You would not cut entitlements to zero just so you could fully fund DOD/ND- right? Would you cut entitlements in HALF ... AND DOD/ND in half? would that work?

    so what's the answer? See.. the sound bite stuff falls about when you get down to real numbers.

    so all these years, we've been told we have a spending problem and we need to cut - now look at the real numbers and say what we can cut. It looks to me to be an impossible task without more revenues but I will say that in 2000 the spending for both entitlements and DOD/ND was about 1/2 what it is now.

  • Gil

    You're playing the Galileo Fallacy.

  • bigmaq1980

    That assumes these things would not come on their own (or with something similar) "organically" from the resources used, if they were left in their original place.

    Of course, this is "unprovable" directly, but rests on the notion that a capitalist society self-organizes to maximize the output from the resources it has.

    I'd argue that computers were an inevitability despite government involvement. The productivity gains were/are too great to ignore.

    With government so pervasive in our society, one can tie almost anything to government having some hand in it, as though it was a necessity for the creation of something that would not have otherwise existed in its absence.

    As one politician, aspiring for greatness through radical change, once addressed all business owners:

    "You didn't build that!"

  • LarryGross

    Capitalism moves as a slow pace for technology than the military does because the military is interested in obtaining technology faster in order to prevail over their adversaries - and "productivity" is not a real focus except for the kinds that directly relate to the military's force projection capabilities.

    So.. all technologies - would _ eventually_ be developed and implemented by the private sector but on a much more drawn out time-frame.

    For instance, potential of civilian uses of GPS did not really drive development of that technology - the military did and once they did - and had the resources to build and deploy satellites, it took off in the civilian sector - actually game changing technology in many areas that likely would have ended up like Sat phones are now - slowly moving ... and ultimately will likely replace pure cell-phones but who knows.

    Drones - are purely satellite-based, not only GPS, but communications and now we're starting to see drones in civilian applications - and rapidly expanding but again - somewhat limited by access to enough civilian satellite bandwidth.

  • bigmaq1980

    Agree on the deteriorating usefulness of the traditional metrics.

    This is either because of direct manipulation, redefinitions over time, or simply because basic underlying assumptions of what they are or mean don't hold up.

    For example, GDP measures the dollar value of output. It includes government expenditure. So, the assumption is that ceteris paribus, that number going up is a good thing. Therefore, more government expenditure which moves it up must be a good thing.

    But we don't live in a ceteris paribus (all other things remain the same) world. Government expenditure comes at the expense of either current use of the funds, or at future use of the funds (if borrowed). What is missing is an NPV type of measure that folds in the opportunity and capital cost of those considerations. Don't forget that the future benefits need to be discounted by the higher risk premium required as the level of borrowing approaches default levels. Throw in the the human factor related to government (i.e. inefficiency, waste, adverse special interest and political influences) and more than likely the payback is dismal.

  • bigmaq1980

    First off, it is pure folly to think that capitalism moves at a slow pace. It is the other way around. Just one example: Who mapped the human genome first? A private company did vs a government funded program. The time line for drug approvals is increasing because of regulation. Government is what slows capitalism down.

    If capitalism is so slow, explain why USSR/Russia and China have not kept pace with the USA on the technological front. They were the ultimate non-capitalist systems America was competing with for decades. If capitalism is so slow - they should be ahead, but are not - why? Our military won the technology race because of the speed fostered by capitalism, not because of our military's inherent government run technological prowess.

    Fact is, I don't know of many, if any, new drugs or technology coming out of USSR/Russia or China. Seems like the West's capitalist based systems had an overwhelming win in these areas.

    You get to pick and choose cases to demonstrate the merit. In absence of an alternative history to point to I cannot.

    That is not unlike the debate on trade. One can point to the "jobs lost" because of companies losing to foreign competitors, but it is extremely difficult to be as specific to show the gains overall from trade. If we had an alternate history where we prohibited trade with anyone but Europe and they did likewise, would we all be better off?

    Either we accept capitalism as a path to our prosperity or we are arguing that some form of socialism is really what is needed. And for that, I'd refer folks to the good writeup by Warren at the top link to the right under Past Favorites.

  • marque2

    No, Wegner was vilified but he turned out to be completely correct, and I was using it as a factual example. That is why I didn't do an example with, say, accused witches.

  • marque2

    I don't think your statement that consensus is more often right than wrong is valid by a long shot either.

    Just think of all the valid notions from the year Y1000, that are known to be complete bunk today. IN fact most of science from Y1000 has been debunked by now.

  • marque2

    But Wegener had gathered considerable evidence that it happens. Just because folks were too incredulous to look at the evidence objectively is not his fault. You are now making excuses for bad behavior amongst scientists. Your second point is demonstratively false.

    Your third point is bizarre, I have never heard before that the years leading up to WWII were some kind of stimulus induced boom years. The most I have heard from Kenesians is that the stimulus prevented the economy from being worse and the war pulled us out. So when did the leftists rewrite this part of history?

  • Zachriel

    marque2: I don't think your statement that consensus is more often right than wrong is valid by a long shot either.

    So, if three teams of doctors say you have cancer, the odds of them being right are about the same as, say, your bartender or plumber?

    So, if the vast majority of astronomers and geologists believe the Earth is billions of years old, their opinion has as much value as, say, the preacher on the street corner?

  • Zachriel

    marque2: But Wegener had gathered considerable evidence that it happens.

    Yes, he did collect considerable circumstantial evidence.

    This is similar to Galileo, who had strong circumstantial evidence, but no idea of a mechanism. Trying to find direct evidence led Galileo to propose a poorly thought-out theory of tides. But he was correct in the main, and many scientists recognized this, even if the mechanisms were not understood until Newton.

    marque2: You are now making excuses for bad behavior amongst scientists.

    Not at all. Scientists tend to be conservate. Wegener wasn't persecuted. He published, and had some supporters. As we mentioned, it wasn't until the mechanism was understood that continental drift became widely accepted.

    marque2: Your third point is bizarre, I have never heard before that the years leading up to WWII were some kind of stimulus induced boom years. The most I have heard from Kenesians is that the stimulus prevented the economy from being worse and the war pulled us out.

    They were hardly "good times", but not stagnant as you suggest. Growth rates from 1933-1939 averaged ≈7%.

  • Zachriel

    bigmaq1980: I'd argue that computers were an inevitability despite government involvement.

    Sure, but they came sooner than they would have otherwise. Some technologies require strong centralization of resources to develop, such as nuclear power. On the other hand, some technologies develop in the more nimble market system.

    Some things governments do better. Some things markets do better. Every modern developed country has a mixed system, with government representing no more than about half of economic activity. This includes providing a safety net, as well as investment in technology and infrastructure.

    As for the original point of the blog, a stimulus trades wealth for economic activity, and even then, only works when the economy is working below capacity. With countercyclical policy, the budget effect can be revenue neutral.

  • LarryGross

    re: bad behavior

    scientists have disagreed vehemently since time began - and will continue to do so - and like other humans - some are precise and careful and honest and others are not and it takes time for consensus and agreement to settle out.

    But I will point out that science to understand the world around us - so we can benefit and progress from that knowledge is different from science that detects a potential future catastrophe and I give some examples. the link between cigarettes and lung cancer. ozone holes over the poles. an asteroid discovered heading for us.

    In each case - the question is - if you cannot prove with absolute certainty - do you disregard the potential should it turn out to be true?

    In each of these cases, you could spend time arguing over whether the scientists were getting it right, were misusing data, had "agendas", etc.. but the germane point is - what if it might turn out they are right - what do you do about it right now? do you just reject it totally because there is doubt and take the gamble?

    To this day there is still disagreement among some scientists as to the precise factors that cause lung cancer and it can be pointed out that some people can smoke their entire lives and not get lung cancer. So, do you reject the consensus because you do not have air-tight irrefutable proof and there are still scientists who disagree?

    How about the Ozone holes? Was there 100% total agreement among science that really bad stuff was definitely going to happen if we did not act? Nope. But what did we do? We took the "better safe than sorry" path. Finally, would we deny that we could ever be hit by an asteroid so we do nothing ? Or do we work on what we might do - and we spend money on that possibility - money that could be spent on other things?

  • marque2

    7% that boom times. I wonder why all those scholars thought the depression didn't end until we started the war? Seems like there is a revision of history amongst modern progressives. Whatever, it is quite apparent that adding over a trillion every year today does squat. Maybe Obama should start a good war.

  • marque2

    Even then the 1/4 is a gross exaggeration of defense, because homeland security, and various other non-defense items are included in the total. the 800 billion we allegedly spend on the military in a, is really only about 500billion, or 1/6 of federal expenditures.

  • marque2

    Hmm actually we gave Germany a loan which they paid back with interest. And no, if you just give stuff away, it actually doesn't help the economy. Otherwise with all the food stamps and welfare/UUI we have been giving away the economy would be booming. I think Pelosi said that for every $1 of UUI we give we get $1.80 or so back. I never figured how encouraging folks to sit on the asses longer encourages anything. In fact many economist have said that the extended UUE probably lowered our economic gains by 1/2 point every year, and increased unemployment by about 2% over what it should be now. I think that is a more reasonable assumption.