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War--The Fiscal Stimulus of Last Resort

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"War! Good God, ya'll. What is it good for? Absolutely nothin'!"  

So went the anti-Vietnam War protest song popularized by Edwin Starr in 1970 and revived by Bruce Springsteen in the 1980s.

The song echoed popular sentiment.   The Vietnam War ended.   Then the Cold War ended.   Yet military spending remains the government's number one expenditure.   When veterans' benefits and other past military costs are factored in, half the government's budget now goes to the military/industrial complex.

After 9/11, the pop hit "War" was placed on the list of post-9/11 inappropriate titles distributed by Clear Channel.

  Protesters have been trying to stop the military juggernaut ever since the end of World War II, yet the war machine is more powerful and influential than ever.   Why?   The veiled powers pulling the strings no doubt have their own dark agenda, but why has our much-trumpeted system of political democracy not been able to stop them?  

The answer may involve our individualistic, laissez-faire brand of capitalism, which forbids the government to compete with private business except in cases of "national emergency." The problem is that private business needs the government to get money into people's pockets and stimulate demand. The process has to start somewhere, and government has the tools to do it. But in our culture, any hint of "socialism" is anathema. The result has been a state of "national emergency" has had to be declared virtually all of the time, just to get the government's money into the economy.

Other avenues being blocked, the productive civilian economy has been systematically sucked into the non-productive military sector, until war is now our number one export. War is where the money is and where the jobs are. The United States has been turned into a permanent war economy and military state.  

War as Economic Stimulus

The notion that war is good for the economy goes back at least to World War II. Critics of Keynesian-style deficit spending insisted that it was war, not deficit spending, that got the U.S. out of the Great Depression.

But while war may have triggered the surge in productivity that followed, the reason war worked was that it opened the deficit floodgates.   The war wa s a huge stimulus to economic growth, not because it was a cost-effective use of resources, but because nobody worries about deficits in wartime.  

In peacetime, on the other hand, when the government was not supposed to engage in competitive enterprise. As Nobel Prize winner Frederick Soddy observed:

The old extreme   laissez-faire   policy of individualistic economics jealously denied to the State the right of competing in any way with individuals in the ownership of productive enterprise, out of which monetary interest or   profit can be made . . . .

In the 1930s, the government was allowed to invest in such domestic ventures as the Tennessee Valley Authority, but this was largely because private sector investors did not believe they could turn a sufficient profit on the projects themselves. T he upshot was that the years between 1933 and 1937 proved to be the biggest cyclical boom in U.S. history. Real gross domestic product (GDP) grew at a 12 percent rate and nominal GDP grew at a 14 percent rate.   But when the economy appeared to be back on its feet in 1937, Roosevelt was leaned on to cut back on public investment.  The result was a surge in unemployment. The economic boom died and the economy slipped back into depression. 

World War II reversed this cycle by re-opening the money spigots.   "National security" trumped all, as Congress spent with reckless abandon to "preserve our way of life."   The all-out challenge of World War II allowed Congress to fund a flurry of industrial activity, as it ran up a tab on the national credit card that was 120% of GDP.  

The government ran up the largest debt in its history. Yet the hyperinflation, currency devaluation, and economic collapse predicted by the deficit hawks did not occur. Rather, the machinery and infrastructure built during that booming period set the nation up to lead the world in productivity for the next half century. By the 1970s, the debt-to-GDP ratio had dropped from 120% to less than 40%, not because people sacrificed to pay back the debt, but because the economy was so productive that GDP rose to close the gap.  

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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Ellen Brown wonders, "Why has our much trumpeted s... by Patricia Gray on Sunday, Sep 11, 2011 at 1:58:46 PM
I'm afraid I have to agree with you.  ... by Ellen Brown on Sunday, Sep 11, 2011 at 3:27:57 PM
Thank you Ms. Gray, you just saved me some kerboar... by Donald on Monday, Sep 12, 2011 at 1:52:14 PM
to education and healthcare, but consider the time... by Samuel Bryan on Sunday, Sep 11, 2011 at 3:10:48 PM
I was in the aftermath of Hurricane Katrina in the... by Steven G. Erickson on Sunday, Sep 11, 2011 at 3:11:24 PM
May?... by Donald on Monday, Sep 12, 2011 at 1:57:23 PM
Maybe for the first time in history the blogospher... by Derryl Hermanutz on Sunday, Sep 11, 2011 at 7:01:49 PM
Thanks.  It does get a bit discouraging somet... by Ellen Brown on Sunday, Sep 11, 2011 at 10:02:47 PM
You wrote, "Labor and resources are sitting idle w... by Robert Bostick on Sunday, Sep 11, 2011 at 8:35:58 PM
Thank You Ms. Brown for another very good article.... by Donald on Monday, Sep 12, 2011 at 2:22:59 PM
  Thanks for your common sense and eth... by Ernie Messerschmidt on Monday, Sep 12, 2011 at 8:49:37 PM
watching a show on television that showed them dum... by nativenezperce on Wednesday, Sep 14, 2011 at 4:41:59 PM