Paul Krugman is one of the high priests of modern economic “thinking.” He has a PhD from MIT, a column in the New York Times, a Nobel Prize and taught at Princeton. As such, a review of his ideas is a proxy for a review of modern economic thought writ large. The complete intellectual and moral bankruptcy of modern economic thought can be most easily seen in the now widely accepted belief that war makes a society wealthy or is at least somehow beneficial for the economy. The argument is advanced under any number of shadowy guises including the contention that World War II ended the Depression. It is an argument that Paul Krugman, unsurprisingly, is a firm believer in. Here is Paul Krugman speaking to another Ivy League educated fool, CNN’s Fareed Zakaria, and claiming eighteen-months of preparation for a fictitious alien invasion would cure the economy of all its considerable ills, circa 2011;
“If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in eighteen months.”
Only a few of the colossal mistakes in the “war makes a society richer” theory will be discussed here. Suffice it to say that the theory of war being a fantastic boom to the economy and Krugman’s endorsement of it rests on two enormous economic misunderstandings;
- Confusing money with wealth
- Confusing activity with progress
The fact that someone with Krugman’s reputation can pass off these easily observed sophisms as some sort of subtle economic truth is a damming indictment of today’s society and intellectual environment. Indeed, if there really are aliens, our society does collapse after losing a war to these aliens and the aliens should stumble across a video of the interview referenced above, then the aliens will be forced to conclude that the ultimate undoing of mankind was its collective stupidity – the same malady that did in the mastodons in the tar pits.
During a war, people are forced to build weapons. While the weapons are needed to fight the war, they have no value to the average worker. The average worker has no legitimate need for a B53 ultra-high yield thermonuclear bomb, a GAU-8 Avenger canon, a fin-stabilized discarding sabot depleted-uranium penetrator or any of the other weapons of war. Moreover, while workers are building these weapons, all sorts of goods that workers do desire are unavailable because of all the resources dedicated to war production. For years on end during World War II, GM – the largest industrial corporation in the world - didn’t make a single vehicle for consumers! Of course, because of all the wages being paid to produce weapons and with no goods to purchase with the money wages, draconian rationing programs and price controls have to be instituted during any large-scale war effort. During World War II workers were constantly busy on the home front building weapons, but they couldn’t spend their money on a steak dinner, gasoline for a relaxing drive through the countryside or even to put butter on their toast! This is progress?
The same lack of progress experienced with individual workers is seen with entire countries. One of the key contributing factors to the Great Depression was the enormous war debts incurred by the British, French and Russians to the United States. These countries borrowed enormous amounts of money to buy weapons from the US. Unlike a real capital investment, the weapons these countries purchased didn’t generate a return on the invested capital. Because these weapons didn’t generate income, from an economic standpoint the weapons were no different than any other money-squandering investment. In his analysis of the Great Depression, the British economist Lionel Robbins succinctly summarizes in his inimitable manner the ruinous economic consequences of the Allies’ borrowings during World War I;
“For four years, the capital resources of the belligerent countries of the world were devoted to providing offerings to Mars, which either perished in the moment of production or remained as useless as the pyramids of the Pharaohs, once the occasion of their sacrifice had ceased.” (Mars is the Roman god of war.)
President Eisenhower – who saw more war than he ever cared to – also recognized the lunacy in the concept that armament production and wars produced economic advancement. Unlike Paul Krugman and all other modern economists, President Eisenhower recognized that there was a trade-off between producing weapons and producing consumer goods. Are people really better off when so much productive capacity is dedicated to armaments that the production of consumer goods – the goods that people actually want – has to be reduced? President Eisenhower famously said,
“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborer, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.”
None of this should be interpreted to read defense spending should go to zero. The brief discussion here simply shows the common-sense notion – which escapes Paul Krugman and other modern economists – that defense spending reduces the wealth of a country; it does not increase it. The weapons of war have no value to the average person. All the land, labor and capital used to produce these weapons is land, labor and capital that can’t be used to produce the goods people want. One of the reasons the grotesquely stupid notion that wars makes a society richer is so doggedly defended by elites everywhere, is its significance to the larger fallacy around the benefits of central control by any group of elites. As Randolph Bourne convincingly argued in the immediate aftermath of World War I – war is the health of the state. Consistent with this observation, an inevitable consequence of any war is increased central control, increased central planning and a much more powerful national government – exactly what elites the world over desire. When the fallacy of war-induced prosperity is exposed, the attendant fallacy around central control by the same cadre of “elites” during peacetime is exposed as well.
For more idiocy from a high priest of modern economics, see Jeremy Siegel (#43).