Why the State and Keynesians Love War

A look into the minds of those who love war

Governments love going to war, which may seem a bit strange because according to the "What the State Fears" section of Anatomy of the State, governments fear above all else the end of their power which can either come from another state conquering them through war, or by revolution from the people. However, while wars do pose some risk to governments, war also gives governments a great chance to expand the scope of their power, both over new territory that they conquer, and even among their own people as they flood them with propaganda that this war isn't really about one government fighting another, but one people, fighting another people, totally separate from your own. In the words of Randolph Bourne, "war is the health of the state".

The evil, evil Nazis who want nothing more than to eat the heads of babies.

In the Medieval days, this fallacy was almost entirely destroyed, and war was simply looked upon as pointless endless squabbles between various nobles that the peasants simply ignored. However, with the rise of democracy, identification of the state with society as a whole has been redoubled, and people once again believe that wars are waged against them and not the government. In the US, this fallacy is heard all the time as people talk of the "brave men and women fighting in Iraq for our freedom" or some similar bullshit.

So beyond simply encouraging nationalistic/patriotic thinking and giving governments a chance to expand their power base, war is also a great chance for politicians to gain prestige as "great leaders". FDR, Winston Churchill, and especially Stalin all did horrible, horrible things with their position in power, yet many people (except for Stalin thanks to the Cold War) are looked up to as great leaders among men, not because the people are able to make good comparisons between these men and peace-time leaders, but because of propaganda and readily apparent action.

Furthermore, along with the power, the prestige, and the propaganda, war also allows governments to gain massive control over the people's everyday lives as "emergency wartime measures". Governments nationalize industry and force businesses to switch production over to certain kinds of goods that are necessary for this war. After all, any red-blooded American should be happy to help their governments defend them from the evil Nazis, and anyone who resists might as well be a traitor to his people. If they don't take over an industry, the government may still impose price controls as a way of making sure they get the price for what they want. They may say that this is because we need "rationing" in a time of war, so prices must be controlled by them. Never mind that prices going up and down already rations goods in the economy.

War is also a perfect excuse for governments to take over the money supply, eliminating a gold standard, so that it may print as much money as it needs to spend. In times of war, the government needs lots of money and it needs it now, so it can shame unpatriotic "gold hoarders", and fund its war.As you can see from this chart, governments really do love to print money, especially for war.

If people complain about these situations and the government is not able to guilt the public into shutting up, then they are able to simply shift the blame over to the enemy, who has forced them to impose these terrible measures as they are necessary for victory. Of course once these measures are in place, they very rarely ever go away, even after the war is over. Governments don't voluntarily give up power once they have taken it. Take a look at the illustrated version of F. A. Hayek's Road to Serfdom. War gives governments a chance to exercise their real power.

These kinds of actions are unthinkable in an anarcho-capitalistic society. Defense groups would be unable to hide the cost of their actions by inflating the money supply, and warmongerers are required to charge higher prices for their destructive acts (paying for people to go and die, paying hazard pay, paying for the things they destroyed, etc.), moving them over to their cheaper, more peaceful, and more efficient competitors.

Liberty is to peace as government is to war.

Now Keynesians especially love war, as war means that governments are going to dramatically boost their spending, which to them is synonymous with a healthy economy, and exert the kind of control over the economy that they lust after. According to the Keynesian version of history, America was stuck in the Great Depression for years due to overproduction of capitalism, causing the general glut. President Hoover tried the laissez-faire approach, but the economy just got worse, but then good ol' Franklin Delano Roosevelt took to the stage and started his New Deal programs,which helped, but it wasn't quite enough to save the economy. But then, thankfully, the US entered into World War 2 which raised spending enough to get out of the Great Depression.

Wars create this wonderful economy because the government spends its money on tanks and ships and planes and bombs and ammo so that it can all send it out into the middle of the nowhere (if you're lucky.) and blow it up. Apparently, doing that is good for the economy.

Just to prove that this is not an ad hominem attack by me, I will provide a good example of this type of thinking. The most prominent Keynesian economist (or at least English speaking journalist) is Paul Krugman from the New York Times. Krugman is basically just a synonym for Keynesianism and inflation now. Krugman actually won the Nobel Prize in Economic Science back in 2008, so this is not some crazy guy on the fringe of economic thinking. And, in all seriousness, the Nobel Prize winning Paul Krugman advocated for the government to fake an alien invasion so that the government could increase spending and get us past the recession.

Ozymandias would be proud.

But war gets even better for Keynesians. Not only does the government increase its spending, but the public often needs to as well (except of course for those under rationing). Keynesians joyously count all the houses bombed during war as the "blessings of destruction", which has "backed up demand", encouraging people to spend money on building new houses. And those people need to replace all the furniture, refrigerators, and washing machines that got blown up as well, so that's more "prosperity creating spending".

And the Keynesians may even further count the blessings of war as it "creates jobs", decreasing unemployment! Thanks to war, people may be rounded up and shipped off to the battlefield so that they may fight to the death. Do the wonders of war know no bounds?

So by Keynesian reasoning, through diverting production to things which serve no socially useful purpose, and even worse, blowing them up causing the destruction of the useful things they were made of and destroying other useful things that blow up with it, and sending all your most able-bodied people to go out and die instead of working to produce things that help themselves and other people live better lives, helps the economy.

And this is why the broken window fallacy is so very, very important.

What is demand?

It occurs to me that many misunderstandings of economics today come from a confusion with "demand" and "need". A common broken window fallacy is to say things like "World War 2 boosted demand for tanks and similar resources to fight off the Nazi's, and since a depression is essentially a lack of demand, World War 2 (and big government spending in general) ended the Great Depression. Furthermore, the bombing raids that destroy people's homes increases demand as well, as those people will now need to buy new homes.", or similar reasoning.

"What actually brought the Great Depression to an end was the enormous public spending program otherwise known as World War II."

- Paul Krugman

These statements only appear to have some genuine reasoning behind them because the english language has two different uses for the word "demand".

In one sense, demand can mean a need or desire. It is certainly true that war can create very pressing needs in society, both for protection from destruction and repairs for the damages it causes, just as it is true that breaking a shopkeeper's window creates a need from him for a new window.

Look at this thriving economy!

But the other meaning that I think economists are more familiar with when talking about markets is desire enabled by purchasing power. It doesn't matter how much I want something if I don't have the ability to purchase it from someone else. An increase in purchasing power, not need, is what increases demand.

So with this distinction, we can immediately see a problem with the idea that that destruction increases demand as it focuses on generating need as compared to empowering already present needs. But to avoid further logical blunders and to understand the full extent of the damages of destruction, one must understand what purchasing power is.

So where does purchasing power come from? If you ask your average Joe how you can increase your purchasing power the first response you'll likely here is "get more money". This appears to be true at first. If I want to make more purchases, I need to have more money. If you look at supply and demand charts, the axis beside whatever you are trying to purchase is measured in dollars as well. 

But it goes a little bit further than this. If money itself was what enabled demand, then simply printing more money could increase demand. This is exactly the mistake people make when they support "stimulus packages" that will save the economy by giving everyone more money, thus letting them buy more things and fixing the economy forever. But that's only looking at half of the story. Money is just a commonly used medium of exchange. Take out the extra step, consider trade in the term of bartering, and you can see its true nature.

To be able to demand anything you need to produce something someone *else* demands. To be able to offer something in trade, you need to have produced that thing that you offer in trade, just as they needed to produce the thing they are offering to you.

On markets, products are exchanged against products.

With this, we can see that words like "supply" and "demand" are really entirely relative terms. They're two sides of the same coin. The graph above would be just as accurate, nay, more accurate to say "quantity A" and "quantity B" instead of "quantity" and "price". The x-axis could be the quantity of wheat demanded while the y-axis could be the quantity of corn, alcohol, televisions, gold, or dollars. My supply is your demand and your demand is my supply.

Jean-Baptiste Say, along with his market

So in answer to the original question, purchasing power comes from production, from the supply of goods that can be offered in trade. This is the essential lesson of Say's Law of Markets.  If one wants to increase demand, simply printing more money will do you no good as it adds no more things to indirectly trade for. People will receive a sudden increase in dollars and mistakenly believe themselves to be rich only to find that they have nothing to buy. Its a medium of exchange with nothing to mediate between. Furthermore, this reveals new light on the destruction of war. Not only does destroying things fail to increase demand, but it actually reduces demand as people now have less products to trade against to other people!

In short, production of what people want is what creates demand, while the destruction of things people want destroys demand.

Obama Bombs Yemen Hours After Winning Reelection

Figures.

http://antiwar.com/blog/2012/11/07/obama-bombs-yemen-hours-after-winning-reelection/

The Broken Window Fallacy

"Life, which you so nobly serve, comes from destruction, disorder and chaos. Now take this empty glass. Here it is: peaceful, serene, boring. But if it is destroyed...
[breaks glass and robots come to sweep it up]
Look at all these little things! So busy now! Notice how each one is useful. A lovely ballet ensues, so full of form and color. Now, think about all those people that created them. Technicians, engineers, hundreds of people, who will be able to feed their children tonight, so those children can grow up big and strong and have little teeny children of their own, and so on and so forth. Thus, adding to the great chain of life. You see, father, by creating a little destruction, I am in fact encouraging life. In reality, you and I are in the same business." - Jean-Baptiste Emanuel Zorg, The Fifth Element

I mentioned the broken window fallacy in my last post on Paul Ryan, and thought it would be good to go over it a bit more here.

The fallacy of the broken window is possibly the most famous parable in all of economics. It was originally created by Frédéric Bastiat, a french economist, in 1850. It's essential purpose is to show that destruction does not help the economy, but in fact, hurts it. While this seems painfully obvious to most people, this fallacy comes up a lot, especially with politicians.

The parable basically goes like this.

A shopkeeper's careless son breaks a window. The shopkeeper was upset by this, naturally, but whenever he talked to anyone about it they just said "That sucks, but what would happen to the glazier if no one ever broke windows?"

The shopkeeper must now pay six francs to the glazier to fix his broken window. This act of destruction has therefore encouraged trade. That's obvious, or as as Bastiat said, "that which is seen".

It is wrong, however, to say that breaking windows is a good thing, that it benefits society, and that it encourages economic growth, then you are ignoring "that which is not seen."

If the window had not been broken, the shopkeeper could have spent his money on something else such as shoes, and he would still have his window. All these things are not seen, and that's what has been lost.

This accident has kept the shopkeeper for improving his life, but instead must work to get back where he already was.

The moral of the story is, of course, that destruction destroys things. It very clearly shows the idea of an opportunity cost, that is, the cost of what the shopkeeper could have done with his time and resources. If breaking windows really helped the economy grow, how much more would economic good could we do if we destroyed the entire house instead? Or even the rest of the town?

This fallacy has sneaked into modern economic theories in many ways.

By inflating the money supply, the Federal Reserve "encourages investment" by making the dollar worth less and less, making people want to buy things.

Keynesian's so called "wartime prosperity" employs men and scarce resources so that they may be blown up while also blowing up the other countries men and scarce resources.

During the Great Depression, farmers were payed to not grow crops and kill excess livestock so that the price of food would go up under the Agricultural Adjustment Act while people were starving. Destroying crops not put food in people's bellies.

Obama's "Cash for Clunkers" program bought up old cars with taxpayer money, then had those cars destroyed to encourage people to buy new cars.

Why, just a year ago Paul Krugman spoke of how faking an alien invasion would theoretically save the economy! These people are nuts!

"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 18 months. And then if we discovered, "whoops, we made a mistake," we'd [still] be better..." - Paul Krugman

Economic growth is no different than GDP to these people. Just a number on the screen. Spending, even wasteful spending, is what's important to them, and because of this flaw they miss the entire point of spending: Production. The purpose of the economy is the satisfaction of man's material desires by the production of goods and services.

Paul Ryan claims Obama defense cuts costs America jobs

"President Obama's reckless defense cuts that are hanging over our cloud, hanging over the horizon, could put almost 44,000 jobs at stake right here in Pennsylvania. We are not going to let that happen..." - Paul Ryan

http://politicalticker.blogs.cnn.com/2012/08/22/ryan-blames-obama-for-scheduled-defense-cuts/

First off,  Obama has not cut our "defense" spending. He's expanded US presence in Afghanistan, he's followed Bush's timeline for Iraq, and let's not forget the whole thing with Libya and Uganda. Let's not forget that we're preparing to go to war with Iran. Like everything else, Obama has just followed Bush's policies, but increased the spending on it.

Secondly,  military positions are not jobs, especially when their function is not even providing defense. War does not produce anything, war blows stuff up. War sends good, working age men to go die, and has the opportunity cost of them doing an actually productive job. War hurts the economy. I cannot stress that enough.

Thirdly, isn't Paul Ryan's big thing supposed to be that he's slashed the budget or whatever? Yeah, this guy seems like he's really anti-spending.

Paul Ryan is just another standard Keynesian, working with a standard Keynesian broken window fallacy.