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New Now that the US will spend 40? Billion; Effect on economy?
CBS is asking what effect it will have on the US/World economy.

Any opinions?
New Bad, especially in the long run.
War materials are by definition a waste of money. They are either expended (at great expense) with no economic return or they are surplused out at three cents on the dollar, or they actually cost a whole lot to dismantle and dispose of.

Actually using them is probably the worst of the three deals.

A very few make a great deal of money and perpetuate the myth that war is good for the economy.
[link|http://www.aaxnet.com|AAx]
New Waste of money, yes. But the side effects.
Wars do in fact boost the economy. I don't know why. I don't think anyone knows why, least of all those who claim to be experts.

The economy is a profoundly complex, nonlinear system, a rats nest of feedback loops both postive and negative. Nobody understands it. Nobody. All macroeconomics is voodoo economics.
[link|http://www.angelfire.com/ca3/marlowe/index.html|http://www.angelfir...e/index.html]
New Two possibilities
Either you waste your money on war material, or your money gets wasted by the enemy. What was the cost of those twin towers, again?

Or, as someone else said, "those who won't feed their own army will feed the enemy's".
New Not so complex, no more a waste than many other things
Modern economies to a large extent *depend* on "waste of money" production. Once enough of the "basic needs" (food, clothing, housing) are being produced, it all becomes largely a question of *distributing* the wealth. And with modern production systems, a tiny minority of the population is enough to produce all that we "really need". So why doesn't all the money end up in the pockets of those few? Well, because modern society has successfully indoctrinated them (along with everybody else) that they need a lot of "strictly speaking useless" frippery, like fashion clothing and PlayStations and manicures and... and so on and on and on, ad absurdum.

So the money circulates -- and thus, stimulates production as well as distributing the means necessary to live -- from the ones one might naively think would be the only ones to "deserve" or be able to get any (farmers, miners, workers and employees in "non-frippery" industries) out among everybody else, be they hairdressers, telephone sanitation technicians, or polishers of pet rocks and Barney-doll marketing VPs. And martial equipment is just one more kind of the same wider category; not-strictly-necessary stuff that nevertheless "gets the wheels of the economy rolling faster".

Quite contary to what you may think at first, this "waste" does not mean you get less "real useful" production out of the economy (though you might get fewer manicures and pet rocks and Barney dolls for a while; there *is* after all *some* "crowding out"), but more: All the people, from miners and smelters to weapons-industry technologists and executives, who are building those tanks and guns and rockets -- they're getting paid in money that's just as real as anyone else's! And they, too, are queuing up to buy food and cars and jeans and hair-cuts! (Albeit possibly Barney dolls and pet rocks.)

Which stimulates those industries to produce more, not less.
   Christian R. Conrad
The Man Who Knows Fucking Everything
New Re: Now that the US will spend 40? Billion; Effect on econom
$40 Billion isn't such a big deal in a budget that tops out at nearly $2 trillion. It does though represent $40 billion not spent on something else. To the extent that it is taken out of the economy in new taxes, then it distorts that part of the economy that got taxed. The problem with government expenditures is that it is very difficult to determine ROI. Highway systems are fairly easy to evaluate because they provide a direct economic benefit. But $40 billion on the millitary is has a very low ROI for the economy (in general) because it provides no direct increase in economic activity. The $40B spent represents $40B taken. Net sum there is $0. Of course being defenseless can be a big cost too. So in general, we might look at it as the fixed cost of doing business in the U.S. just went up by $40 billion. In a $5 tillion economy, that's not a big deal...but it could buy a lot of science, roads for Sen. Byrd, hairplugs for Sen. Biden, TV appearences for Sen. Clinton, etc.
Gerard Allwein
New Multiplier effect, directed activity
The ultimate impact of an expenditure of X is greater than X. This is known as the [link|http://www.cnmi-guide.com/info/essays/economics/33.html|multiplier effect]. It's based on the marginal propensity to consume -- the amount of money that's spent rather than saved or otherwise withdrawn from circulation. Given an MPS of 0.8, the impact of $40b would be $800b. This starts to get significant.

The other side of the coin is directed spending. We've currently seen "pump priming" in the sense of reducing interest rates to stimulate investment...but the investment hasn't happened. The other tack (the first is called "monetary policy", it influences the money supply) is direct government expenditure directed at specific projects. This is Keynsian "fiscal policy", and has the advantage of specifying exactly where the economic activity will occur (or disadvantage if you're opposed to direct government meddling with the economy). In a situation in which the private sector won't step in and start increasing activity, such a leadership role may have advantages.

Peace.
--
Karsten M. Self [link|mailto:kmself@ix.netcom.com|kmself@ix.netcom.com]

What part of "gestalt" don't you understand?
New Wars seem to always be good for an economy
World War 2 brought us out of the Depression. There was a boom immediately after World War 1. During the Vietnam War, the 60's were a time of prosperity - which, coincidentally, tanked when we started pulling out. (Yes, I know the oil embargo had a lot to do with that... but hmmm.....)

$40 billion is not empty spending, as I saw someone else say. Every dollar spent goes to someone even if it is spent for munitions, fuel, training, transportation, or whatever. The $40 billion earmarked so far won't have nearly the bad effect envisioned by some.

Furthermore, you have to remember that we are (supposedly) still running a surplus, even if it is a lesser surplus than originally projected.

I think the biggest economic impact will still be the shattering of the World Trade Center; figuring out how that will effect the economy is near impossible.
That no man should scruple, or hesitate a moment to use arms in defense of so valuable a blessing [as freedom], on which all the good and evil of life depends, is clearly my opinion; yet arms ... should be the last resource. - George Washington
New Possibly not this time
Issue being: we already *have* a butt-load of planes, tanks, etc. needed to fight this war. This means no new jobs to fund the massive production required for WWI or II.

Admittedly, this is only a part of wartime economics.
That's her, officer! That's the woman that programmed me for evil!
New That's your problem with never fighting your wars at home
A large part of the revitalization of economies by war comes from all the rebuilding you have to do *after* them. (This also has the advantage of leaving you with a nice and shiny new modern infrastructure; viz Germany and Japan after WWII, compared to, say, Great Britain and France (which had seen a lot less destruction of their property)).

But, hey, if you'll forgive me for looking at it crassly for a moment: The demand for high-rise office space in NYC just shot up significantly. That ought to bring some stimulation for the building industry in the North-East... And according to standard "Multiplier" theory, it ought to spread from there to the general economy.
   Christian R. Conrad
The Man Who Knows Fucking Everything
New Not good
A war can have a positive effect on the economy when the primary economic problem is unemployment, resource shortages or excessive government regulation. However, the primary problems faced by the US right now economically are not going to be helped. The primary problems I see with our economy right now are excessive debt, over assimilation into a handful of large companies, and hyper stock volatility. None of these will be helped by a war, and both debt and stock market volatility are liable to get worse.

If we do come out of this fairly quickly in a positive manner the confidence building aspect of 'winning' a war may do us some good. But that's about all I can see that might be good.

Jay
     Now that the US will spend 40? Billion; Effect on economy? - (brettj) - (10)
         Bad, especially in the long run. - (Andrew Grygus) - (3)
             Waste of money, yes. But the side effects. - (marlowe)
             Two possibilities - (Arkadiy)
             Not so complex, no more a waste than many other things - (CRConrad)
         Re: Now that the US will spend 40? Billion; Effect on econom - (gtall) - (1)
             Multiplier effect, directed activity - (kmself)
         Wars seem to always be good for an economy - (wharris2) - (2)
             Possibly not this time - (tseliot) - (1)
                 That's your problem with never fighting your wars at home - (CRConrad)
         Not good - (JayMehaffey)

It is a weapon of mass distraction to keep us away from the real issues at hand.
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