Is All This Military Spending Really Good for the Economy?
Is war and military spending really good for the economy?
A lot of people seem to think so. In fact, President Joe Biden is selling the latest proposal to send military aid to Israel and Ukraine as an economic stimulus plan. But this notion that spending money for war somehow boosts the economy is rooted in a pervasive economic fallacy.
When Biden rolled out his latest military aid package, he explained it like this.
We send Ukraine equipment sitting in our stockpiles. And when we use the money allocated by Congress, we use it to replenish our own stores, our own stockpiles, with new equipment. Equipment that defends America and is made in America. Patriot missiles for air defense batteries, made in Arizona. Artillery shells manufactured in 12 states across the country, in Pennsylvania, Ohio, Texas. And so much more.”
What a deal right?
Except it isn’t.
This only sounds good if you buy into the “broken window fallacy” first explained by French economist Frédéric Bastiat in his essay That Which Is Seen and That Which Is Not Seen, and later expanded on by Henry Hazlitt in his book Economics in One Lesson.
In a nutshell, people who make claims about the economic boom created by war are only considering the visible effects of military spending. They are ignoring all of the economic activity that never happens because the government is manufacturing artillery shells in 12 states.
Imagine that somebody throws a rock through a shop window. Many economists will argue that’s good for the economy because the shop owner will have to pay the window fixer to repair the window. As Bastiat put it in his essay, “If you have been present at such a scene, you will most assuredly bear witness to the fact, that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation: ‘It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?’
You see, the shopowner’s misfortune is the glass fixer’s good luck.
With the money he makes fixing the window, the glazier can go buy a new suit. The tailor will then have money in his pocket to go to a baseball game. The owner of the baseball team benefits from another fan in the seats, and on and on it goes. The broken window led to a string of economic transactions. As Bastiat put it, the careless child “spurred trade to the amount of six francs.”
On the surface, it does seem as if the broken window led to a small economic boom. But when you dig below the surface, it becomes clear that the boom is a mirage.
But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, ‘Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen.’”
What have we missed?
We don’t see the money that was never spent.
If the shopkeeper hadn’t had to spend 6 francs on a new window, he would have bought a pair of shoes. Now, that transaction won’t happen and the cobbler won’t receive that income. As a result, the cobbler will have to postpone buying a new book for his library.
Bastiat sums it up this way.
Let us take a view of industry in general, as affected by this circumstance. The window being broken, the glazier’s trade is encouraged to the amount of six francs: this is that which is seen.
“If the window had not been broken, the shoemaker’s trade (or some other) would have been encouraged to the amount of six francs: this is that which is not seen.”
A good economist always tries to account for the unseen. But sadly, most people aren’t good economists — and that includes a lot of economists.
It should be clear breaking a window does not make society better off. It becomes even more clear when you magnify the destruction to the level produced by a war. Sure, countries spend billions making stuff to blow things up and later repairing the inevitable damage. Military contractors reap the benefits. But you have to stop and consider the cost to others. I doubt anybody in Ukraine or Gaza will claim they’re better off because the US sent over some artillery shells. And just stop and imagine what would have been done with those billions had these wars never been waged.
Destruction isn’t progress. This is just silly, Keynesian claptrap.
And as Connor O’Keeffe pointed out in an article published by the Mises Wire, the fundamental economic problem goes beyond the destruction caused by war. It’s the fact that people are forced to pay for things they don’t really want.
When the American people are forced to pay for weapons and equipment to replace those sent to Ukraine, they lose out on all the economic activity that they would have preferred to partake in, just like the shopkeeper.
“And although, like the glazier, the five prime defense contractors benefit from the influx of tax dollars, the American people as a whole can only be made worse off. There is no growth, only a forced transfer of wealth to the weapons companies.”