Monday, June 07, 2010

War and Economics

Part I

By Richard E. Noble

War is good for our national economy. It creates employment; encourages investment; builds new industries; promotes higher wages and raises values on the stock market.
I am convinced that the majority of Americans believe that the above is true - some have a conscious belief that it is true and others only a sub-conscious belief. But, all in all, most Americans believe, though it may be unfortunate - even sad - that war is good for business. It brings prosperity. Of course, you must be fighting the war in another country, but that has not been a problem.
Both the Democrats and the Republicans in the United States Government are pro-War.
The Democrats want to promote “moral” Wars - wars that the country can engage in for humanitarian purposes. “Fight for Right but not for Might”. The Republicans are not quite so conscientious. The two parties’ only disagreement seems to be in the choices and the methods and logistics - but both want war. The reason is because War is necessary to America’s economic well-being.
I have had people today tell me that even with our present government spending on these two foreign wars we are now engaged in, even with the looming deficits, the burgeoning National Debt, and the inevitable inflation that follows with it, they are still better off financially because of the increased value of their investments in the stock market and the rising interest rates on their CDs and bonds. They feel that their stock market and other investments are outperforming the debt and inflation that the war encourages. So economically war is a winner, not a loser.
Peace-nicks and pacifist for decades, maybe centuries, have tried to counter these arguments by presenting to the people all the negative moral, social, environmental, personal and world impacts of War. Everyone nods their head in agreement and says ... yes, yes - but it must be done.
World War I basically made the United States the richest country in the world. And World War II cured the Great Depression - the biggest economic disaster in modern history. During these conflicts the businessmen prospered, the industrialists and Bankers prospered, even the workers prospered.
The Vietnam War brought with it the greatest period of continuous increased economic growth yet to be seen in American History - with no tax increases.
Most Americans believe - though some might not say it openly - America needs war to feed its thriving Military Industrial Complex. Without the stability that is brought to this nation via spending and investment in the Military and it supporting Complex, America would go into an economic tailspin and precipitate a World Depression like never seen before in human history.
Instead of debating with this economically accepted principle and trying to prove that it is not true - let’s accept that it is true. Let’s sit down and figure how War is able to produce prosperity; and then with that knowledge under out belt, try to figure out how to use the methods employed in promoting and sustaining War (Cold or Hot) to the positive advantage of our nation - and residually for mankind.
How does War work; how does War make money?
After World War I we had a good many people who tried to expose War as evil, pernicious, and negative. They made a good run at it; they precipitated a number of investigations and caused a number of National and international scandals. You can check into the “Merchants of Death” investigations for more on this topic.
But this attempt to convince the world that war was bad or negative failed miserably. Those who promoted the idea were labeled cowards at best and, more often than not, traitors.
For a brief enlightenment on this matter you can check into the Nye Committee investigations on War profiteering; the DuPont Munitions Plant controversy; and the public lives of both Albert Einstein and Bertrand Russell.
Strangely enough it was Winston Churchill and Adolf Hitler who won the argument in favor of War. War does make strange bed-fellows.
Adolf Hitler was the advocate for the Glory of War. Adolf not only considered War to be a positive, but that it was an absolute necessity and the Will of Divine Providence - we seem to be having a revival of Adolf’s philosophy on War today around the world - both in Muslim and Christian countries.
Winston Churchill was also somewhat infatuated with the glory and character building nature of war. But he came more to his positive War position from the point of view of self-defense and cruel necessity. I would say that most of America supports the Winston Churchill position today. War may be terrible but it is necessary and all those who participate are heroes - all those who refuse are basically, if not cowards, severely misguided.
So it was not World War I that turned War into a positive economic policy. With no War the War suppliers and purveyors had to cut back, slow down or close up entirely.
After World War I the U.S went into an immediate recession or depression - employment fell, business investment fell, consumption fell but nevertheless, prices went up. Labor struck out demonstratively. In the year 1919 alone, 4,000,000 workers walked off their jobs. There were 3,630 strikes in the year 1919. The lack of a continuous War produced economic disaster. This has always been the case.
Then came the Great Depression. And the Great Depression led to a Great Economic Debate. This Great Economic Debate centered on the questions of how this collapse could have happened and how the economy could or should be revived.
Albert Einstein and others talked about over-production and the too rapid increase in technology. John Maynard Keynes talked about a mysterious disappearance or drying up of savings. Others commented on the sudden shortage of money in circulation and about the lack of consumption and incentive for business investment.
Contrary to popular knowledge Hubert Hoover doled millions of federal dollars out to the wealthy and the investment community in the form of tax breaks, incentives and outright gifts. But the business community wouldn’t spend it - at least not here in the United States. So down and down things went.
The poor, the unemployed, and the partially employed screamed for the government to do something. The wealthy and the business community said that economics was not a matter of government control. The country and the people of the United States would just have to tighten-up and endure until the “business cycle” once again started rolling in the right direction. It was just a matter of time and waiting it out. And beside a little time without a job would give all these striking workers something to contemplate.
In 1932 along came Franklin Roosevelt. His overall philosophy was basically rather simple. He would take tax dollars - money basically collected from the rich and the wealthy - and spend it on creating jobs for the unemployed, starving and homeless - the Robin Hood Principle.
Needless to say, the rich were not happy with this solution. They had all come about their money the “old fashioned way” - they had earned it - in a very competitive market place. They didn’t go out on strike to get it - they worked for it.
But with unemployment approaching 30% with another 20% only employed part-time and even those with jobs receiving pay cuts and threatened with the loss of their jobs - Roosevelt’s philosophy prevailed.
In the light of the recent developments taking place in Russia, Conservatives called this Roosevelt policy Bolshevist or Communist inspired.
The poor, the unemployed, the homeless didn’t really give much of a damn what they called it, as long as it meant food in their mouths and hope for the future.
Now this is the Great Debate - Did the Roosevelt, Robin Hood policy of Government spending - taking the money from the wealthy and giving it to the poor - work to bring back investment and prosperity or not?
Well, though I have read many interesting books arguing and analyzing this historical economic experiment, it seems to me that the consensus - certainly the consensus in the minds of the average citizen - is that this policy did not work. What solved the problems precipitated by the Great Depression was - World War II.
So, War is the answer and everybody knows it. It was not Government spending but War that returned America to prosperity.
So then - the truth is the majority of the people of America believe in the teachings of Winston Churchill and Adolf Hitler. In Adolf’s case some today still agreeing with his Solution to the Jewish problem and some not agreeing, but nevertheless, all accepting his basic premise with regards to the positive-ness of War in general.
At the end of World War II a new twist was added to this theory or proposition - War is the answer to continuing and sustained prosperity.
The problem was that the War had come to an end - again. That is one of the biggest problems with Hot War - they keep ending. Now what?
Well the answer to that question was pretty simple. Without a War the prosperity would die. It would be the same old story. It happened after every War. Business investment would decrease, soldiers would be idled - and looking for real jobs - women would be replaced from the workforce along with many men; wages would fall, consumption would decrease; business investment would be further cut and once again the vicious cycle of recession/depression would be on the rise. Not only that but we had Uncle Joe and the Russians to worry about. What do we do?
No amount of consumer goods could ever replace the investment and job promotion precipitated by War. As Mr. Grumman once said: It takes a lot of canoes to make up for one F-15. Even planned obsolescence and, pre-ordained product disintegration could not compete with the producing and immediate destruction of bombs, bullets, tanks, ships, and airplanes. In what other industry are products manufactured for the sole purpose of destroying? Only for War. And only with war is this type of production approved and supported by the overall population - after all it is the way that it must be.
In War every unacceptable business practice is tolerated - graft, corruption, profiteering, kick-backs, pay-offs, excessive inordinate costs, excess wages, faulty production techniques, black marketing in the war-torn countries; you name it and it is overlooked during a War. The business community loves War. No legitimate peace-time business can beat it for unchallenged, unadulterated PROFITS. It is the best business and business idea ever devised - save possibly Banking. [Banks are able to give IOUs to their depositors and collect “cash’ from their borrowers. If the depositors come rushing back for their money which the bank has loaned out, the government will sustain the banks with low or no interest loans. And even if the bank fails totally in its obligations via a series of bad loans, possibly to friends and relatives, the government will pick up the loss. There are not too many businesses like that in the world.
But, if we let the inevitable, post-war business cycle continue we will be setting ourselves up for another Pearl Harbor. Once again we will be unprepared - and the Russians will get us just like the Japs did. So, what do we do?
Basically what was decided was that we would keep the machinery and the investment in War in place - just as if the War had never ended. This was called “The Cold War”.
So now we had Hot Wars and Cold Wars. We would keep up this exorbitant investment and inevitable waste in over-production of War implements and goods stockpiled (if the war is Cold, unfortunately we have no place to blow these products up) by explaining to the taxpayer that it was necessary in order that we “be prepared”. But whether it is a Cold War or a Hot War we once again had the proper answer to the question of continuous prosperity ... War.
War is once again the answer.
The Cold War was a good solution but it was not the perfect solution.
The problem was that under the Roosevelt Robin Hood economic policy the rich taxpayer paid the greater portion of the expense for this solution to continuous economic prosperity. Roosevelt actually increased taxes on the wealthy to pay for the War. This is something that Lyndon Johnson, Richard Nixon, Ronald Reagan, and GW have chosen not to do. A better answer had to be devised to spread the burden of the peace through War policy via this Cold War economic enterprise.
The answer was Deficit Spending.
Of course this was also a part of the Roosevelt Robin Hood policy to help the poor during the Depression years. But what was necessary in the more prosperous post war era to satisfy the complaint of injustice by the rich was a redistribution of the costs. Instead of increasing the taxes to the rich and super wealthy - they would be cut. The resulting shortfall would be gradually compensated by borrowing - Deficit Spending.
But how does borrowing take the burden of payment off the backs of the rich?
Inflation spreads the total costs out over the entire population. It does this via the compensating effects of inflation.
All classes of people then pay proportionately. The wealthy and super-wealthy pay extra for their yachts, sailboats and racing horses; the poorer class pay extra for their bread and butter. The middle class pay extra for their cars and pickup trucks. And even the wino pays extra for his bottle of M-D 20/20. So everybody is happy and the idea that the rich should pay more because they benefit more is dissipated. Inflation is egalitarian and democratic.
In addition borrowing for the Deficit also provides the wealthy and the super-wealthy the opportunity to purchase the treasury bonds that the government has issued to borrow for its deficit spending. So instead of the rich having their incomes confiscated by the government via taxes, they actually get to invest their money and their dispensated tax rebates and gain a profit from the newly established debt. So with this system not only are the wealthy not taxed additionally to pay for the war, they are given the opportunity to invest and profit from the war. Of course this is much more appealing to the wealthy than the Roosevelt option.
So Deficit Spending and borrowing is a win-win situation for the super-wealthy. They collect on both ends and the middle.
Since the Republicans have learned about this method of paying for Deficit Spending they no longer have any fear of borrowing for anything and everything.
Now we have what is being called the reverse Robin Hood policy - the government takes from the poor and middle class while sending interest payments to the wealthy and the super-wealthy and providing tax cuts at the same time.
It a good deal for the rich and famous. They profit from their investments in the machinery of war; they profit in the secondary sale of the over-produced weapons - many of them are involved in arms merchandizing and arms sales; they profit on the interest payments on the national debt. And if there is an actual Hot War they profit from their ownership in the Military Industrial Complex; they profit from the international sales of the weapons of mass or minor destruction; they profit from the increased interest rates on treasury bonds and notes; many of them even profit from the inflation because of the higher interest rates and any lag that they can manufacture between the wages that they pay and the real inflation rate. As long as the general pubic can be convinced that inflation is not escalating and wages can be kept low or even decreased - they can downsize and they can take domestic factories abroad and simply shut down their pension and wage burdened domestic enterprises.
So now we have War, Hot or Cold, and we have everybody paying for the cost - rich and poor alike - a few participating in the gigantic profits; some profiting modestly; and most profiting somewhat.
War works. War is the answer. War is the way to build a strong economy and promote the general welfare.

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