Thursday 21 February 2002

Pic of the day: A frenzy of productivity. (Screenshot from The Sims.)

The wartime economy

After the relative success in Afghanistan, it seems clear that parts of the Bush administration want more war. Among these parts is, it seems, Bush Jr himself. This would be reasonable on personal grounds: He has proven himself a much better wartime leader than peacetime leader. He now has the support of almost the entire American people, while during the election less than half the voters stood behind him. Quite a remarkable transformation. No wonder if he thinks he has finally found his niche. With the support of much of his administration, America is now shifting gears towards what will quite possibly be 8 years of war.

If they can keep the loss of US lives down, the social implications will be moderate at first. But the economic effects will be substantial. Let us take a look at the various sides of a wartime economy.

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If you have read high school (or above) textbooks on history, or even if you've just played Civilization, you will know that economy and war are closely interlinked. The wartime economy has its strengths and weaknesses. As a rule of thumb, the strength comes first and the weakness comes later.

The primary strength of a wartime economy is employment. This has two reasons: Firstly, the drafting of young healthy men to the army leaves open position in the civilian economy. Second, production of "war goods" such as weapons and planes is usually increased, expanding the employment in these industries. This is typically paid for through government spending, running a deficit as we call it these days.

A secondary effect, which dwindles over time, is motivation. Particularly in trades that directly support the military action, national fervor and honor partly replaces money as a motivation for work. So you get an increase in productivity, in so far as people do more work for the same wage. (They will still need money, of course, but expect to see more voluntary work and unpaid overtime.)

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Poems praise the heroes, and history books praise the generals. But the country with the strongest economy usually wins the war.

Wartime economy can seem an improvement at first, at least if the country is in a recession and has plenty of idle hands. But the basic nature of war is gross mis-allocation of resources. Wherever military and civilian needs clash, the military runs over the civilians. For instance, until the production of steel is increased, consumer goods containing steel will be more expensive (or, in extreme cases, unavailable). Shortage of labor also influences prices and availability of goods.

As war weariness sets in, corruption increases and productivity falls. This may take longer or shorter time; generally longer in a country that has been attacked, and shorter in a country attacking another. Morale is not just a factor in combat, but also in the supporting industry and the nation as a whole. If people feel that they are being exploited for the glory of cynical leaders, not even the best made speeches will make them do their best. In a country under attack, however, war weariness is negligible - people work for their lives, quite literally.

The sad fact about budget deficits is that they can only be run for a limited time. When the debt piles up high enough, it just won't work anymore, and the government is forced to devaluate. In ancient Rome, this was done by debasing the coin: Less silver, more lead. Today, it is common to run the printing press to pay government debt. If you don't, eventually there comes a time when the government would not be able to pay the goods it orders. This is clearly unthinkable; so far all countries have eventually resorted to printing extra money, in effect stealing from everyone who has saved money in the past.

And of course, the extra taxes. The other way government has to steal money from its citizens. "Patriot taxes" is one of the surest sign of a long, dragging war. It is also one of the surest ways to induce war weariness in the population. I think it is safe to say that if Congress wants to increase taxes, it won't be over Mr Bush's corpse. It is likely to be over corpses, though. Lots of corpses. But that, in essence, is what war is about: The mass production of corpses.