Is War Good For the Economy?

Editor's note: The following originally ran June 25, 2008.

The idea that warfare helps the economy is a prime example of Bizarro logic, which has pervaded our collective consciousness since the 9/11 terrorist attacks, ideological fallout from the explosion of national hysteria that followed. In Bizarro World, as we all know, the laws of nature and logic are inverted, so that up is down, freedom is slavery, and ignorance is strength. In the post-9/11 era, as I have often pointed out, we have finally arrived in a world where two plus two can and indeed often does equal five – if it suits the purposes of the War Party to deem it so.

Somewhere, George Orwell isn't smiling. He'd no doubt be appalled, and a little nonplused, by the accuracy of his speculations in Nineteen Eighty-Four. In the novel, you'll recall, the deliberate impoverishment of the ordinary "proles" and the Outer Party types was a matter of INGSOC policy, a theme underscored by the general shabbiness of Orwell's dystopia, what with the constant shortages and the way thing always seemed to be literally and physically falling apart. Particularly striking is the Orwellian presentiment that the world of the future is bound to be poorer and, simultaneously, engaged in constant warfare.

This prediction seemed, for quite a while, to be one of the few he got wrong. Yet Orwell, it turns out, was right; it's just that the productive power of capitalism in the U.S. was so great that it coasted along for a long time on sheer momentum. Our accumulated wealth reflected the dynamism of an earlier era. This upward spiral of productivity and wealth-generation really crested during the 1950s, a period of unprecedented prosperity and cultural optimism, and the early 1960s – before the Vietnam war and the inflationary policies that financed it ate away at the heart of American prosperity, the necessary prelude to the "stagflation" of the Carter years.

Wars are expensive propositions, especially the sort of all-embracing, the-sky's-the-limit, multi-generational conflict envisioned by the War Party's editorial board commandos. Our $3 trillion war, as Nobel-prize-winning economist Joseph Stiglitz and Linda Bilmes have dubbed it, is an albatross hung round the neck of the American giant, whose great neck is bowing under its weight. The unipolar moment the neocons once exulted in will go down in the official record as the briefest incident in human history, albeit not the noblest.

This hasn't always been immediately obvious. The false prosperity induced by the speeding up of the printing presses over at the Federal Reserve led to what Alan Greenspan once called "irrational exuberance," a delusion created by the very easy money policies he carried out as head of the Fed. No sooner had certain Beltway sages declared that the age of permanent abundance was upon us – and that this rendered the struggle against the Welfare-Warfare State irrelevant – than their economic cornucopia of limitless wealth went empty. As banks are bailed out while ordinary Americans are turned out into the streets, the manic hubris of Fukuyama's historical "endism" and prophecies of universal prosperity via "globalization" stand revealed in all their silliness.

Mania is invariably followed by a massive downward plunge into despair, in economic terms, a deep recession, if not something far worse. So what has stopped the forward motion of America's dash over history's finish line?

As Ron Paul has tirelessly explained, it is the cost of our expanding overseas empire that is driving us into bankruptcy. We have, as the Old Right seer Garet Garrett put it, an empire of a unique type, one in which "everything goes out and nothing comes in." The costs of this are ordinarily hidden from sight, as Ron Paul explains, by governmental sleight-of-hand:

"As the war in Iraq surges forward, and the administration ponders military action against Iran, it's important to ask ourselves an overlooked question: Can we really afford it? If every American taxpayer had to submit an extra five or ten thousand dollars to the IRS this April to pay for the war, I'm quite certain it would end very quickly. The problem is that government finances war by borrowing and printing money, rather than presenting a bill directly in the form of higher taxes. When the costs are obscured, the question of whether any war is worth it becomes distorted."

Yet there comes a time when the obscuring mists are cleared and the costs of our foreign policy of perpetual war become readily apparent, and surely that time is approaching. Indeed, it may have already passed. Garrett dubbed ours' "the empire of the Bottomless Purse," yet we are just about scratching bottom about now. It remains for Paul and the movement he generated to point out how all of this is paid for. As Paul puts it:

"Congress and the Federal Reserve Bank have a cozy, unspoken arrangement that makes war easier to finance. Congress has an insatiable appetite for new spending, but raising taxes is politically unpopular. The Federal Reserve, however, is happy to accommodate deficit spending by creating new money through the Treasury Department. In exchange, Congress leaves the Fed alone to operate free of pesky oversight and free of political scrutiny. Monetary policy is utterly ignored in Washington, even though the Federal Reserve system is a creation of Congress.

"The result of this arrangement is inflation. And inflation finances war."

When our rulers decide to go to war, they simply step on the gas and flood the engines of inflated expectations, fueled by bank credit expansion. The results are the decline of the dollar and the current economic crisis, which might be compared to a hangover that follows an extended binge. Americans are suffering a double-hangover in the sense that they're still recovering from the post-Cold War triumphalism that envisioned a unipolar, Washington-centered world.

The idea that the defense of the country requires an overseas empire that surpasses the British imperium at its zenith is a typical neocon fantasy, one that is proving far more costly than advertised. Yet some are raking it in while others are foreclosed. Remember how the sale of oil was supposed to pay for the Iraq war? A consortium of U.S. and European oil companies have since homesteaded the oil revenues Paul Wolfowitz assured us would be reimbursed to the American taxpayers. It's funny how that works.

War, as the liberal intellectual Randolph Bourne famously explained, is the health of the state. That is, it benefits state officials and their dependents, clients, and assorted sycophants at the expense of the rest of us. Many are impoverished by our policies, but a few are enriched. The beneficiaries are the growing administrative, corporate, and military bureaucracies that oversee our ever expanding global presence, in effect a colonial class. This class pursues and secures its economic and social interests by means of directly influencing government policy, operating as an organized force on behalf of the policy of imperialism, so far with remarkable success.

When John McCain sneered at Mitt Romney's business experience as lacking in honor and the spirit of self-sacrifice, he was expressing the "noble" and highly stagy sentiments of this rising class. Forget the free market fervor of the Reagan era, when entrepreneurs were valorized. The new Republican hero is the swaggering caesar.

Is the Iraq war good for the economy?

Well, whose economy? Who benefits from this war, and who loses? Once the American people realize that they're among this war's biggest losers – aside from the Iraqi people, and perhaps the Iranians, too – they'll turn on the beneficiaries with a vengeance. As their savings are eaten up by inflation, and the equity they labored to preserve and increase evaporates into thin air, ordinary Americans are likely to be quite interested in the question: who's responsible?

As the Federal Reserve pumps more funny money into circulation, in a desperate and vain attempt to postpone the crisis of the Warfare State, the single biggest winners are the banks, the most government-protected industry of all, who are the first to be bailed out of any crisis. Oh, perhaps a few will be allowed to go under, but the big ones will be too big to fall, like Bear Stearns. The economic elite will golden parachute its way out of the crisis.

The main beneficiaries of the present system – what Murray Rothbard, the late libertarian theorist and polemicist, called the Welfare-Warfare State – are the new plutocrats. Think of what Ayn Rand referred to as "the aristocracy of pull," the principal villains of her famous novel Atlas Shrugged, i.e., corrupt businessmen who succeeded on account of their political connections rather than their entrepreneurial skill.

Today's aristocracy of pull is the militarized sector of the economy, which is completely dependent on government contracts. Their political Praetorian Guard is represented in Washington by both parties, and, what's more, their partisans dominate think-tanks of the ostensible Left as well as the Right.

The task of those who oppose the new colonialism, which masquerades as global altruism of one sort or another, is to unmask the real motives and connections of a self-interested colonial class, which, in spite of its claim to the mantle of honor and duty to country, is supremely successful at promoting its own interests over and above those of the nation.

In short: No.