War Stimulus: Is the US addicted?
By: Lauren Price
Is war an automatic stimulus for the United States? When the US entered the Korean War, we saw the biggest positive percentage change in GDP that we have ever seen in United States history—about 5% (Bureau of Economic Analysis). In most wars, the United States also experienced very low rates of unemployment. For example, during the Korean War (1950-1953) the average unemployment rate was 3.6% and during the Vietnam War (1960-1975) the average unemployment rate was 5.1%, according to the Bureau of Labor Statistics. War has contributed many periods of economic growth and prosperity.
According to research done by Brown University, war stimulates aggregate demand because of increased spending, and more specifically, increased military spending. However, when the US entered Afghanistan in 2001 and the War on Terror began, the percentage change in GDP was only .2%; in fact the economy was still in a recession at this time (Bureau of Economic Analysis). But did the war pull the US out the recession in 2001? Well, after the US began the War on Terror, GDP growth averaged less than one percent leading up to the 2007 recession. While war may have had stimulatory effects on the US economy in the past, it barely influenced GDP growth and the economy in the latest US war. Is the Federal Government overly optimistic about the effects of war on the economy, and are they addicted to the stimulus of war?
Prior to 2001, the US economy benefited very heavily from the stimulus effects provided by war. Since the US was in a recession, perhaps the federal government believed that entering Afghanistan would stimulate the economy once again. Of course, there were many other reasons that the United States entered Afghanistan—mainly the attacks of September 11th. However, is the marginal benefit of going to war a good enough reason for the US to start one? According to Brown University’s research, estimates suggest that the net effects on real GDP of the latest war will be zero by 2020 in the United States. Although war may have had stimulatory effects on the economy in the past, it has begun experiencing rapidly diminishing returns since 2001. In other words, although the US may be addicted to the stimulus enjoyed in the past, the days of economic stimulus from war are nearing their end.