Never Doubt Captain Kirk

Once described as “a giant succubus that takes your money” on Saturday Night Live by a William Shatner impersonator, Priceline has made a huge comeback.

According to MSN Money Priceline has been the best stock over the past five years:

“The company’s stock collapsed from a split-adjusted high of $974 in April 1999 to less than $7 in October 2002; to get the share price up, management had to seek a reverse 1-for-6 split.

Beam yourself to 2010, however, and Priceline is in clover. The stock has jumped more than two dozen times from its low, to $193; $10,000 invested in Priceline in March 2005 would have been worth more than $101,000 exactly five years later.”

It is quite amazing especially given the upheaval 9/11 caused to the airline industry. On June 24th of 2005, Priceline’s stock stood at $22.90, today it’s $191.90; a 738% increase! And that’s after a recent drop from it’s high of $262.05 a share on April 30th.

Sales of New Homes in May Reach Record Low

This comes as one of the biggest non-surprises in all history. According to MSNBC, after the $8000 First Time Home Buyer Tax Credit expired and with a fear of a double dip recession looming, new home sales sunk 33% in May and are down 78% from the all time high in July of 2005. In the county where I live, pending home sales dropped from 470 to 250! I’m sure the recession is almost over though…

North Korea Demands $65 Trillion

ABC News reports that North Korea is demanding about $64.96 trillion from the United States for “the cost of the damage done by the US since the peninsula was divided in 1945.” Yeah, I think that’s rather reasonable. After all, it’s only some four times the annual US GDP or 1625 times North Korea’s economy. Oh Kim Jung…

Yet right now, the world is focused on Greece, which is requiring a massive bailout from the IMF (partially paid for by United States taxpayers). As a stipulation of the bailout, the IMF is demanding Greece raise taxes and cut social benefits, which has predictably lead to rioting in the street.

I’ve had enough of the bailouts, but what’s more concerning to me is where Greece stands on a list of countries regarding their debt situation:

This information, from the CIA Worldfactbook, is actually a little old. A less complete, but more updated list (although still mostly from mid-2009) puts the United States at 96.5% instead of 94%, the United Kingdom at 425.9% instead of 365.4% and Ireland at 1312% instead of 998.9%! Wow, the United States actually looks pretty good, relatively speaking of course.

But look where Greece is on the list; 19th at 153% (at 170.5% as of 2009). That’s no where near as bad as Ireland, Iceland, the United Kingdom or the Netherlands. It’s also not much different than Sweden, Germany, France and Spain. And the United States is certainly doing what it can to catch up.

Greece was engaged in some deceptive tactics to hide their insolvency, such as hiding billions of dollars worth of currency swaps through Goldman Sachs. However, there’s no reason to necessarily think other governments haven’t been engaging in this kind of Enron-like accounting. And regardless, their debt is still multiples smaller than many fellow European nations.

Also, notice the countries who are saving: China, India, South Korea, Singapore, etc. As many have predicted, including myself, we are witnessing the rise of the East and the fall of the West.

Furthermore, it’s interesting how little debt many of the poorest countries have. Part of this is certainly because there are significant doubts as to these country’s credit-worthiness. But doesn’t it say something that while the richest countries in the world drown in debt, Bolivia—the poorest country in South America—has a debt/GDP ratio of 11.31%?

Regardless of the irony, these debt/GDP ratios are unsustainable. In all likelihood, Greece is just the beginning.

Source: CNNMoney.com

All of the heralded economists we look to for answers, predicted October unemployment would be 9.9%. (1) As we warn here on a regular basis at SwiftEconomics.com, always be weary of an economist’s prediction.

The Labor Department reported that the unemployment rate hike was driven by formerly self-employed people no longer using that designation, as well as additional teenagers out of work. (1)

We know, though, that companies like Microsoft and Johnson & Johnson are not finished trimming their workforces. Microsoft announced a layoff of 5,000 employees earlier this year, with another recent announcement to fire 800 more, showing a great deal of confidence in Windows 7. Johnson & Johnson announced two days ago it will cut 7,000 employees worldwide.

The data confirms a SwiftEconomics.com call that the real GDP recovery in the third quarter is a product of companies cutting costs, not increasing revenues. Real GDP increased an estimated 3.5% last quarter, ending a slide of 4 consecutive contracting quarters. Firms have been adjusting to the economic climate, shedding jobs and cutting the fat in their businesses. An expanding economy would be creating jobs, and that is simply not happening. (2)

Source: BigCharts.com

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(1) Unemployment hits 10.2% – CNNMoney.com, retrieved November 6th, 2009, http://money.cnn.com/2009/11/06/news/economy/jobs_october/index.htm?postversion=2009110611

(2) Bureau of Economic Analysis News Release – BEA.gov, retrieved November 6th, 2009, http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_adv.pdf

(3) Gold breaks $1,100 – CNNMoney.com, retrieved November 6th, 2009, http://money.cnn.com/2009/11/06/markets/gold/index.htm

Regulators, Mount Up!

More Power to the Fed

The new regulatory proposal introduced by President Barack Obama and Treasury Secretary Tim Geithner includes giving substantially more power to the Federal Reserve. As the Wall Street Journal states, “The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn’t normally supervise the institution.”

Well that’s just dandy; give the Fed the power to do pretty much anything it wants to any firm it feels might be doing poorly. This is central economic planning folks. And furthermore, one would pretty much have to be a blind, state-worshiping d-bag to not realize the Fed played a major role in the financial crisis. But as it goes, the government is spectacular at rewarding failure and punishing success. So I guess this is, unfortunately, no surprise. Regardless of the absurdity, the more important question is, as Judge Andrew Napolitano asks, “who will regulate the Federal Reserve?” Apparently no one.

Don’t Bother Regulating Fannie or Freddie
Also noteworthy in the new regulations is that neither Fannie Mae nor Freddie Mac are included in them! As Tim Geinther puts it:

“We considered a full range of options and decided that now is the time to pursue the essential reforms. Those that address the core causes of the current crisis, and that will help to prevent or contain future crises.”

Well at least that means there may be some oversight on the way, but how on earth can anyone think that Fannie and Freddie weren’t “core causes of the current crisis.” I guess if that same someone was the Treasury Secretary of the most powerful nation on the planet and also didn’t know how to pay his own taxes, such a mistake would make sense.

More Useless Terminology

Finally, there are certainly thousands of useless terms in today’s political jargon I could have dismantled in my two part series on the subject, that I just couldn’t get to (Part 1 and Part 2), however, I really should have taken on the term, “laissez-faire capitalism.” I have heard over and over again that our current financial crisis has shown that laissez-faire capitalism has failed. As Nouriel Roubini put it:

“…[the financial crisis] has shown the failure of a particular model of capitalism. Namely, the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments.”

OK Nouriel, what do you mean by laissez-faire capitalism? Laissez-faire is French for “to let do” or “leave alone.” So we could imply that it means the government does not interfere in the economy at all, it leaves it alone. Some go this far, say anarcho-capitalists, who claim that laissez-faire means no government at all. Objectivists (followers of Ayn Rand) claim it means the government collects no money from its citizens through coercion (i.e. taxation). These are a bit extreme, though. And while there’s really no settled definition of laissez-faire capitalism, a good rule of thumb is that for a nation to be laissez-faire, government spending must be less than 10% of GDP. There is not a single major, industrial country in which this is the current state of affairs. As of 2008, the United States government spent over 37% of GDP. It will be 45.2% in 2009. Furthermore, back in our non-laissez-faire period, say 1968, government spending as a percent of GDP was only 30.5%. So in many ways we’ve gotten less laissez-faire. Regardless, how is this laissez-faire? How is this being “left alone?”

Finally, it’s not just government spending, government regulation is the antithesis of laizzes-faire capitalism, yet, as economist, Tom Dilorenzo points out:

“…we have 15 cabinet departments devoted to regulating different aspects of the economy. There are over 100 federal regulatory agencies. There are 73,000 pages of regulations in the federal register. And not to mention state and local governments that have hundreds and hundreds more regulatory agencies that regulate everything from zoning to anti-trust, to everything else.”

Thus, it becomes clear that the United States does not have anything that even resembles a laissez-faire, capitalist economy. So can we dispense with that term please? Thanks.

Due to popular demand, the “Funny Money” article has become a series. Please read the first installment before venturing on:

Funny Money Part I

Thanks to “Funny Money” Part I we know that U.S. currency is exactly that: funny money. We know who orchestrates the funny money monetary system and who routinely confuses credit with capital. Convenient, isn’t it?

We also know that currency isn’t immortal. Currencies have failed in the past and they will fail in the future. A currency’s health depends on a government’s monetary and fiscal policy.

A government’s monetary policy decides how money will derive its value: by faith in pieces of paper or backed by a physical asset such as gold. The U.S. monetary system utilizes a fiat currency, or money declared by the government to be legal tender. With fiat money, the Treasury and Federal Reserve can control the money supply. They do this by printing new money or by purchasing securities like Treasury Bills on the open market. This is a way to take money sitting in the Federal Reserve coffers and hand it to an investment bank, or in other words, infuse cash into the system. Notice how the word “cash” was used in the previous sentence and not “capital.” The cash isn’t always capital; it’s often credit. Other renowned aliases include debt and Outlaw Pete.

A government’s fiscal policy determines its cash flow. The politicians budget out their desired spending and project their annual revenue from taxes, tariffs, user fees, etc. If the spending outflows exceed the revenue inflows, money has to be borrowed to finance the bloated budget. That’s where China, Japan, and the oil exporting countries come a-knockin’. Some people argue that deficit spending is healthy for an economy from time to time. A compelling case can be made for that. Though the key phrase is “from time to time” and certainly the amount of deficit spending is at the heart of the issue. What cannot be argued is that at some point deficit spending meets diminishing returns. In the eyes of many, the U.S. hit that point a long time ago. The end effect on currency from huge government deficits is unpleasant; the currency’s value is driven into the ground.

The funny money game will end; either by the government and the Federal Reserve stopping the above actions in time or the dollar collapsing. But what shenanigans would ensue if the dollar did collapse? American’s wealth, now standing on its last legs, would be worthless. Products and services would once again derive its value solely from their necessity for survival. We’d all be playing an impromptu game of Survivor; tribes being our local neighborhoods (never before have school boundaries been so imperative). All amateur athletic statuses and regulations would fly out the window. The “Fightin’ Irish” tribe would gladly trade little Billy to the “Axemen” for some livestock. Heck, the Irish would extort the Axemen by busting out Mr. Jennings’ tool collection. They’d be swinging a big stick alright, only the stick would be a garden hoe. Those babies are sharp.

With a failed dollar we’d have far more church-going citizens eager to stockpile communion crackers. And for the altruistic of the local tribes, the communion crackers might end up back in the offering basket.

Agricultural might would flex its muscles and unite a region. Without that pesky need for the agricultural industry to be globally competitive in dollars and cents, Americans would remember how expansive their farm system could be (especially without corn subsidies).

In the U.S., agriculture made up only 0.90% of GDP in 2008. GDP in the United States is substantial, though, relative to other nations. In addition, developing countries place greater weight on their agricultural sector because industries like “information technology” haven’t quite flourished yet. For example, 65% of Somalia’s GDP comes from agriculture. (1)

The U.S. brings the heat in individual commodity production. We produce more almonds, blueberries, cow milk, cranberries, grapefruits, maize, sorghum, soybeans, strawberries, string beans, and indigenous cattle, chicken, pig, and turkey meat than any other country. We rank second in apples, cherries, game meat, hen eggs, honey, hops, lettuce, mushrooms, oranges, pistachios, spinach, tomatoes, and walnuts. We rank third in asparagus, avocados, carrots, grapes, hazelnuts, linseed, oats, dry onions, peaches, nectarines, pears, green peas, raspberries, safflower seed, sugar beets, and wheat. We rank fourth in green chilies and peppers, garlic, groundnuts in shell, pumpkins, squash, gourds, tobacco leaves, and watermelons. (2)

I see plenty of options to fulfill the food pyramid guidelines, expediently brought to you by the U.S. Department of Agriculture (USDA)! But seriously, almost all of my favorite foods are in that expansive list. I see beer, wine, chocolate milk, protein powder, strawberry spinach salad, and peach-berry smoothies. When can the agricultural self-sufficiency begin?

It doesn’t stop at a nation’s agricultural might. The United States has an embarrassment of riches in natural resources. I’m not sure what’s more embarrassing, the fact that the U.S. is so resource abundant or the fact we’ve been so reluctant to use them, opting to consume other country’s resources instead. Only estimates begin to project the true reach of U.S. resources as many of them remain unexplored. Within the U.S. boundaries lie coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, and timber. The U.S. sits on the world’s largest coal reserves with 491 billion short tons, accounting for 27% of the world’s total. (1)

The climate in the continental United States is moderate across most of the nation. We have the tropical climate covered in Hawaii and Florida. Plenty of moose’s frolic about in the arctic climate in Alaska. We have mountains and valleys as well as vast coastlines and Midwest plains. Wind power can be harvested throughout the west and Midwest as well as solar energy harnessed in the deserts of the southwest (and everywhere else the sun pops out occasionally).

As Barack Obama stated: “We have some beautiful real estate.”

To quantify it even better, here is how the U.S. ranks in various “real estate” resource abundance:

2^nd most water area (only to Canada): 664,707 sq. km.

3^rd most irrigated land (only to India and China): 223,850 sq. km.

3^rd largest country by size (only to Russia and Canada): 9,826,630 sq. km.

4^th total renewable water resources: 3,269 cu. km.

5^th most land area: 9,161,923 sq. km.

6^th most proven natural gas resources: 5,551,000,000,000 cu. meters

10^th coastline: 19,924 km.

11^th most proven oil reserves: 21,760,000,000 barrels (1)

There’s lot of water in that list, a commodity the world will fight for vigorously one day as populations exponentially increase.

If the dollar was to fail the first thing the International Monetary Fund (IMF), United Nations, and G20 would do is attempt to implement a new reserve currency. Whose currency no one knows for sure; it could even be a new currency. That isn’t particularly important after the sunk cost of a failed dollar. Whichever currency was promoted, rest assured it would be a fiat currency, one in which it’s “declared” legal tender by some government body so they can inflate and deflate it at will.

The powers at be will try to press restart on the funny money game. But if the world decided the funny money game would no longer be tolerated, one of two things would happen: an uproar of civil unrest would occur forcing change to a currency backed by a physical asset OR currency wouldn’t be a part of everyday life anymore. If we moved to off the cuff Survivor tribes, the United States could clearly take care of ourselves.

Maybe this is the underlying motivation for the government trashing the dollar. No matter what happens in a non-nuclear world, the U.S. will survive and possibly even flourish. We have military power that can only be rivaled by India and China (those two countries have four to five and a half times as much manpower fit for military service as the U.S.). (1) In our undeniable hubris we test how much money a country like China is willing to loan us. We continue policy that kills the dollar and the value of all the U.S. Treasury Bills sitting in China’s Central Bank. Economists have one universal response: China needs us to buy their products. Maybe they do, maybe they don’t. I’m not educated enough to say in the long run but damnit if we’re not pushing them to the edge. We may need each other now but not in a world of agricultural self-sufficiency. The U.S. will be on its merry way.

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(1) CIA – The World Factbook

https://www.cia.gov/library/publications/the-world-factbook/index.html

(2) Food and Agricultural Organization of the United Nations
Economic and Social Department – The Statistics Division

http://www.fao.org/es/ess/top/topproduction.html?lang=en&country=231&year=2005

In 1759, Voltaire wrote his satirical, Magnum Opus, Candide, eponymously named after the main character, who after leading a sheltered life for many years, comes to the realization that all is not right in the world, and we must do our best to improve it. This is in direct contradiction to his mentor, Pangloss, whose mantra is “all is for the best in the best of all possible worlds.” In other words, we are already living in a utopia, it simply cannot get any better, which he humorously (albeit darkly) explains to someone who just lost his whole family after an earthquake. The idea that war has a good side effect reminds me of the Leibnizian optimism (everything happens for the best) that Voltaire so thoroughly refuted. Some things, such as war, may be necessary, but they are in no way good, and have no silver lining.

War is horrible… but it’s good for the economy. I cannot, for the life of me, think of a more dangerous myth than that. This facade has become so prevalent in the national conscience that it’s simply taken for granted. The reasoning for this myth comes from an offshoot of Keynesian economics, in summary it says war stimulates aggregate demand and thereby gets the wheels of the economy turning again (or turning faster). The key piece of evidence used for this assertion is World War II, which is arrogantly claimed, over and over again, to have ended the Great Depression. As MSN Encarta so helpfully informs us, “the depression ended in the United States only when massive spending for World War II began.” Seriously though, why would anyone actually believe this without at least a little skepticism? Wars are enormously destructive and shift resources from human needs, to human destruction.

The key problem with the theory itself, is that such stimulus, military or otherwise, relies on government spending. The government doesn’t have anything except what it takes, it can do little more than shuffle the deck. Government can tax the population, inflate the currency (another tax) or borrow the money (a deferred tax). Deficits are usually the prescribed course of action, but if you borrow from your own citizens then you’ve simply used up capital that could have been borrowed by private citizens and companies anyways. This is especially true for domestic borrowing, but is also the case with borrowing from abroad. Regardless, as the government borrows more, the reduced supply of available capital will raise interest rates for everyone else. Admittedly, this may provide short-term growth, if investor confidence is low, but such a prescription has long-term consequences, as the debt has to be repaid with interest. And as with the United States, we’re already up to our eyeballs in debt. Furthermore, these benefits are only accrued if that money is spent on projects of economic value. Wars do not provide any economic value.

Keynesian economics can be discussed at further length another time; I’ll instead focus the rest of this article on the conspicuously lonely example proving the splendors of “military-Keynesianism.”

So let’s get to World War II. First of all, it’s obvious that conquest can help an economy in some cases. When the Soviet Union colonized Eastern Europe after World War II, their population, and supply of capital, vastly grew, which is obviously good for an economy. However, that’s simply saying that theft makes one richer. Not really the most provocative insight there. But what we’re discussing here is does the act of war itself stimulate an economy? Let’s for a moment assume that the popular fable behind World War II is correct. War is what got the United States out of the Depression. Okay, who cares? There’s one example of war stimulating an economy…Check that, there’s one example inside of a larger example that illustrates the exact opposite. Everything else points toward war having dire economic consequence. After World War II, Britain was basically bankrupt and had to liquidate their empire. Same goes for France. Germany, Japan and Italy were burnt to the ground. China was a train wreck before and an even bigger train wreck afterward. World War II only “worked” for the United States.

Furthermore look at the rest of the wars our species has, unfortunately, had to endure. The United States went into a severe recession in 1920, just after World War I. Germany’s currency hyperinflated while the Austrian, Ottoman and Russian Empires simply collapsed. In the American Civil War, the South was reduced to rubble and the North suffered runaway inflation. After the Revolutionary War, the American currency hyperinflated (thus the saying “not worth a Continental”). Rome’s collapse was mostly due to corruption at home and military over extension abroad. Napoleon was so strapped for money after the early stages of the Napoleonic War, he had to sell the Louisiana territories to the United States for pennies on the dollar.  The Franco-Prussian War was almost immediately followed by a speculative housing bust, which created the panic of 1873 and a global depression. Spain was more or less left to the ash bin of history, after the Spanish Armada was destroyed (shouldn’t there have been an enormous economic stimulus to rebuild?). The combination of spending on the Vietnam War and the Great Society lead to the stagflation of the 1970′s. In addition, the United States suffered recessions immediately following the Korean War, Gulf War and Serbian War. The Soviet Union collapsed after a long war in Afghanistan. Honestly, have the many sub-Saharan wars in Africa stimulated their economies? Has this economic strategy worked for Middle Eastern countries bogged down in decades of conflict? And really, if war is so good for an economy, why is our own economy collapsing all around us, while we are engaged in outrageously expensive boondoggles in Iraq and Afghanistan?

Perhaps this would prop up real estate prices?

Now correlation does not equal causation; not all the previously mentioned wars were completely, or even mostly responsible, for the corresponding economic upheavals. Regardless, it’s worth noting that I have about a thousand data points to make a trend, and the standard “wisdom” has but one outlier. Well one outlier proves absolutely nothing, so the burden of proof lies not with me, but with the standard “wisdom.” I should be able to end this article victoriously right here, but I feel it’s important to note, that upon closer analysis, even this one outlier is nothing of the sort.

Economic historian Robert Higgs’ work on this subject is simply unparalleled; if you are interested in a more detailed analysis of this issue, see his book Depression, War and Cold War or an overview here. Simply put, the case for World War II getting the United States out of the Depression, primarily lies with two statistics: 1) unemployment went from around 10% to almost nothing and 2) GDP skyrocketed upwards. We’ll start with unemployment, according to Robert Higgs:

“What actually happened was no mystery. In 1940, before the mobilization [for war], the unemployment rate … was 9.5 percent. During the war, the government pulled the equivalent of 22 percent of the prewar labor force into the armed forces. Voilà – the unemployment rate dropped to a very low level.” (1)

Yes, unemployment went down, but that’s because we shipped millions of young men overseas. We could have kept them in the United States and reduced unemployment by having them dig holes in the ground. Or we could have put them in prison, or just shot them. All these things would reduce the supply of labor, and thereby bring the number of jobs and workers back into equilibrium.

This sort of strategy has consequences though. What really happened during the war was the way the Depression affected the American people changed. The main problem during the Depression was deflation; between 1929 and 1932 one third of the money in circulation disappeared. Yet the government, (both Hoover and Roosevelt) tried to prop up wages and prices. This, predictably, caused massive unemployment, since there wasn’t enough money available to pay people their previous wages.  Back in the 1930′s there was a saying that “the Depression was not so bad if you had a job” which makes perfect sense, since wages were kept artificially high. (2)

During the war, the situation reversed itself. Just about everyone had a job, but the standard of living was drastically reduced. Price controls, rationing and shortages became commonplace. Housing starts stopped. Entire lines of products, such as steel, were off limits to the public. Now, instead of the unemployed feeling a lot of pain, everyone felt some pain.

As far as GDP goes, the statistics say the United States grew a total of almost 35% between 1941 and 1945. However, the United States had what could best be described as a command economy during the war. In other words, economic decisions for the whole country were made from the White House. The government set the prices for most goods (and rapidly inflated the money supply) so these GDP figures are all but useless. According to GDP statistics, if the government pays $100 for a hammer instead of $10, the economy gains $90. But that really doesn’t tell us anything about overall economic health. All it would tell us is the government wasted $90. As far as private production goes, things were not good at all. Turning again to Robert Higgs:

“…from 1941 to 1943, real gross private domestic investment plunged by 64 percent; during the four years of the war, it never rose above 55 percent of its 1941 level [and] only in 1946 did it reach a new high.” (3)

To further prove this point, we simply have to look at the end of the war, when the United States started to demobilize. The GDP decreased 20.6% in 1946 alone! This should be recorded as one of the worst years in economic history. However, 1946 saw extraordinary gains in the private sector that have never been repeated since. (4)

Notice the significant dip in 1946 - Source: Bradford Delong, Slouching Toward Utopia, UC Berkeley

So what ended the depression? Well, the fact that the United States was, more or less, the only country left standing after the war may have helped by putting our exports in high demand. However, this has nothing to do with war itself and trying to repeat this strategy to fix our current crisis seems to me just a bit, well a bit unethical. According to Robert Higgs, the actual key was the end to what he called “regime uncertainty.” In the later parts of the New Deal, the Roosevelt administration’s behavior had become unpredictable and many businesspeople were scared to invest. This was amplified during World War II, when much of the economy was simply taken over by the government. However, after the war ended, there was, to borrow a phrase from Warren Harding, a return to normalcy. The uncertainty was more or less over and people could, once again, pursue their personal interests in relative peace. This was what likely got the gears of the economy moving again and finally ended the Great Depression.

But again, even if professor Higgs and laymen, like myself, are wrong, we are only wrong about one example within an example. The rest of the trend points safely in our direction.

It’s also important to note that the burdens of war go on for many years after a war has ended. Completely ignoring the tragic human cost, the overall economy suffers as many soldiers are left wounded and can no longer work or work as productively as they could, before their service. A significant amount of money has to be spent to take care of injured soldiers as well. The Department of Veterans Affairs requested $93.7 billion dollars for 2009. These costs continue year after year. Even today, we see the heart-wrenching scene of disabled Vietnam veterans begging for money on street corners. Decades from now, we may, unfortunately, see the same from veterans of the war in Iraq, who could have lead quite productive lives, if they hadn’t been scarred by war.

Even the simple act of diverting resources away from the productive sector of the economy, into the military is costly. While being a soldier is a very honorable profession, it doesn’t produce much of economic worth. When the military becomes bogged down in a war, we transfer many resources from the production of consumer goods, to a war that is usually thousands of miles from our shores. And this doesn’t only happen in wartime, as the United States currently has about 700 military bases in 130 countries; all of which cost money without providing any sort of economic stimulus.

So war may improve artificially inflated GDP figures, temporarily reduce unemployment and even provide a short-term economic boost, it does not, however, stimulate the economy in any meaningful long-term sense. Quite to the contrary, Voltaire was right, Pangloss was wrong, and war often leads to economic disaster. In addition, the negative effects of wars, both economic and social, linger for years. Perhaps they linger just until we forget about them, so we can then repeat the same mistakes all over again. After all, the only thing we seem to learn from history, is that we don’t learn from history.

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(1) Quoted in Anthony Gregory, The Myth of War Prosperity, LewRockwell.com, April 3, 2007, Future of Freedom Foundation, Copyright 2007, http://www.lewrockwell.com/gregory/gregory132.html
(2) See Amity Shlaes, The Forgotten Man, Pg. 9, HarperCollins Publishers, Copyright 2007
(3) Quoted in Anthony Gregory, The Myth of War Prosperity, LewRockwell.com, April 3, 2007, Future of Freedom Foundation, Copyright 2007, http://www.lewrockwell.com/gregory/gregory132.html
(4) Ibid