1. Jan 25

> Wanted to ask you this in class last Wednesday, but I had to rush out:
> You briefly added to our discussion of Macro Theory the comment that
Wars
> increase GDP.  Is this still true?  Have the changes in the way wars are
> fought and the technology used for defense altered the traditional
belief
> that wars raise GDP and are thus "good for the country?"
 
Good question, but don't read more into what I said than I meant.  What I
said (I hope) was only that WWII increased GDP and thus was expansionary,
not that this was good.  Whether an expansion is even desirable depends on
whether the economy is in recession or not.  If not, then expansion is
just inflationary, and not helpful even from a macro point of view.  And
even from a recession, while expansion puts people to work, one should ask
what they get from the resulting income.
 
It has been true in the past that wars increase aggregate demand, causing
both reduced unemployment and increased pressure for inflation (the latter
sometimes being prevented by price controls).  Starting from a depression,
as in the late 30's, that was probably good, in that it put people to
work.  But it was, and is always, bad to the extent that the products they
then produce are not things that they can consume and are wasted on
destruction.  Whether this is made up for by the benefits being fought for
in the war is a question that I'd find it hard to answer, at least as an
economist.  (As a product of the 60s, I tend to see WWII as worth it,
Vietnam as not, and Korea as confusing.)
 
But your question isn't that, but rather whether wars are still
expansionary for aggregate demand.  I'd say yes.  The Gulf War surely cost
a bundle, both at the time and in replacing the weaponry we used up.  So
like any other increase in government purchases, I'd think modern wars
must still be expansionary.  The Gulf War also happened to have another
supply-side effect of disrupting oil supplies, which was negative.
Presumably not all wars today would do that.