Social Evil #1: War and GDP

In the previous article, we learned about the concept of the broken window fallacy. We learned that in general, the GDP concept disregards destruction. It takes a lopsided view and only considers the additions that have happened to the economy as a result of the war.

The GDP concepts conveniently omits out the destructions caused by the war and hence like the broken window the war starts appearing as a catalyst to economic growth when in fact it is a detrimental factor!

In this article, we will list down the points which bring out the true effect that war has on an economy. While the broken window was a neutral situation i.e. it did no good but at least it did not do any harm, war is a total loss scenario for the economy as a whole. The reason behind this is simple. Wars cause destruction on a massive scale. Here are some of the losses that are usually caused by war:

War Causes Destruction

War can be seen as the cause of multiple economic losses. This is seen, felt and observed by the common people who want to avoid war at any cost. The following is how war affects the masses:

1. Livelihood Lost: Firstly, if a country is at war, the economic activity is temporarily suspended. Markets do not work as they usually would. Daily wage workers cannot earn the living wage necessary to support their homes and are forced to sit at home.

   Many blue collar workers are laid off their jobs. Also, since it is potentially harmful to go out to work, many people simply choose not to go to work. As a result, economy loses out on a lot of productive activity. Time and effort that could have been spent on creating economic value is lost on ensuring survival.

2. Labor Lost: The labor power of any country is its most powerful economic asset. Adam Smith, the founder of economics said that it is labor and technology that provides any country with wealth or the lack of it! During war, humans, mostly able bodied factory workers are deputed and sent to war.

   A substantial portion of these laborers lose their lives in the conflict. Hence once the war is over, the country would have a lesser number of laborers. Therefore, the GDP of the future years would be reduced significantly in the case of a big war. The impacts of a war are felt by the economy for many years following the war.

3. Infrastructure Lost: One of the main tactics used by many warring parties is to break down the transport and communication network of their enemies. Now this infrastructure is the prized possession for any country. It is built by years of hard work and investments.

   When both sides are indiscriminately destroying the infrastructure of the other, they are negating years of hard work and thrift. Also, since this infrastructure is essential to pretty much all the other industries, they are destroying a critical economic asset. Regardless of which side wins the war, both countries would find themselves worse off in terms of economic infrastructure.

4. Debt Created: Also, countries seldom have the resources to fight the war lying idle in their treasuries. Most countries in the world today are in debt. Hence when a war has to be fought, it necessitates raising even more debt and spending the same on destructive purposes.

   For centuries, war has been one of the biggest contributors to national debts worldwide. History is also rife with examples of economies and empires which have been totally destroyed by war debt.

5. Inflation Created: Lastly, when countries cannot even borrow more money, they turn to printing it. Once again economic history is 100% clear in this regard. Almost every instance of major war has been followed by an incident of even more severe inflation.

   If you look at the names of countries which have suffered hyperinflation i.e. Germany, Zimbabwe, Iran etc, you will see the common link that all these countries have also been involved in a large number of wars.

Hence, on a macro level, the destruction caused by war is catastrophic to say the least. However, the GDP system, being flawed does not take into account any of these!

War Does Not Cause Production

Also, what GDP considers as production is actually wastage of economic resources. Consider the major drivers of GDP during a war scenario and the truth emerges.

1. Resources are Diverted: Most of the production that takes place during war time is production related to war. Factories producing economic goods are shut down and new factors producing artillery, weapons and other destructive materials are created.

   The production resources of the nation i.e. land, labor, capital and enterprise are therefore diverted towards the production of wasteful goods which benefit nobody. All this wastage is recorded as economic growth and gets added to the GDP numbers creating the illusion that war is actually good for the economy.

2. Infrastructure is Replaced: Also, the economy almost certainly produces nothing new after the war is over. An insane amount of resources is spent on rebuilding the nation i.e. bringing it to the level where it originally was.

   So if there were 100 roads in a nation before a war, we destroy 50 and then build another 50. We calculate the 50 as growth. However, there has been no growth. Instead of there being 150 roads, we still have only 100 roads and more resources have been spent on maintaining just those 100 roads.

To sum it up, it is a complete blatant lie and a fallacy to believe that war is any good for the economy. War is not good for humanity and economics is a social science aligned to human principles. It is only the distorted lens of GDP economics that produces such bizarre conclusions.

❮❮   Previous

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.