Monday, November 01, 2010

Wars and Stimulus Spending

Pat Buchanan raises an argument I've seen elsewhere, in relation to David Broder's push for a military confrontation with Iran:
Cynicism aside, what is wrong with Broder’s analysis?

First, how exactly are “preparations for war” on Iran going to improve our economy when two actual wars costing $1 trillion have left us in the deepest recession since the 1930s?

Were those wars just not big enough?
The eye-popping cost aside, it would appear that, yes, spending on the two wars wasn't enough to have had a significant impact on the economy.
Initially, the war in Iraq made a substantial contribution to the widening of the budget deficit. During a period of economic sluggishness, this would be expected to stimulate aggregate demand. However, any stimulative effect was minor since military outlays increased by only 0.3 percentage points of GDP in 2003 and an additional 0.2 percentage points in 2004 (if measured by the supplemental appropriations, the increased outlays equaled about 0.6 percentage points of GDP in 2003 and 0.7 percentage points in 2004).
Also, the financial industry collapse that precipitated the present crisis occurred many years into those wars - they may have had some stimulative effect during the bulk of Bush's Presidency but, as they say, that was then, this is now.

No comments:

Post a Comment