Whenever people say that a war will at least create new jobs and wealth, this is the point where I blink - I mean I blink hard. Especially whenever it comes from the “fiscally conservative” camp that is trying to sell a war at the same time.
This is just the Broken Window Fallacy on a grand scale. Sure, people will be needed to make uniforms, arms, the shipping of food, etc., but it doesn’t account for the cost of what has been destroyed. Also, while people - or in this case certain industries and the state - are making money, they are not putting money into areas or industries that have been destroyed at that they could have chose to if there was not a war. People could be spending money other things.
I think a poignant example would be in what Paul Krugman (Nobel Peace Prize Laureate for Economics, by the way) said in regards to 9/11 three days after it happened. I am not attacking Mr. Krugman’s feelings on the day but pointing out why I disagree with his of economic perspective. The man has done extensive and widely recognized work on trade concepts and I’m not going to take it away from him. Also, I’m not trying to get partisan by citing someone so close to the Obama administration or invoke too much emotion here, but its a crystal clear demonstration of this flawed thinking:
So the direct economic impact of the attacks will probably not be that bad. And there will, potentially, be two favorable effects.
First, the driving force behind the economic slowdown has been a plunge in business investment. Now, all of a sudden, we need some new office buildings. As I’ve already indicated, the destruction isn’t big compared with the economy, but rebuilding will generate at least some increase in business spending.
Second, the attack opens the door to some sensible recession-fighting measures. For the last few weeks there has been a heated debate among liberals over whether to advocate the classic Keynesian response to economic slowdown, a temporary burst of public spending. There were plausible economic arguments in favor of such a move, but it was questionable whether Congress could agree on how to spend the money in time to be of any use — and there was also the certainty that conservatives would refuse to accept any such move unless it were tied to another round of irresponsible long-term tax cuts. Now it seems that we will indeed get a quick burst of public spending, however tragic the reasons.