No, Bernanke … Defense Spending Does NOT Help the Economy!

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There was a time when good “liberals” in the United States railed against military spending. Granted it wasn’t because they wanted to reduce the size of government or to cut taxes, but because they wanted more money for social programs.

But that general disposition seems to have disappeared. Now, many big welfare state people are also big warfare state people. Military spending you see is a form of “stimulus.” Bombs, guns,whatever. Just get that money into the system.

Of course that the money for these bombs comes from the productive economy one way or another is forgotten, simply not understood, or is ignored for political reasons.

(From Zerohedge)

How could war actually hurt the economy, when so many say that it stimulates the economy?

Because of what economists call the “broken window fallacy”.

Specifically, if a window in a store is broken, it means that the window-maker gets paid to make a new window, and he, in turn, has money to pay others. However, economists long ago showed that – if the window hadn’t been broken – the shop-owner would have spent that money on other things, such as food, clothing, health care, consumer electronics or recreation, which would have helped the economy as much or more.

If the shop-owner hadn’t had to replace his window, he might have taken his family out to dinner, which would have circulated more money to the restaurant, and from there to other sectors of the economy. Similarly, the money spent on the war effort is money that cannot be spent on other sectors of the economy. Indeed, all of the military spending has just created military jobs, at the expense of the civilian economy.

Click here for the article.