Does defense spending stimulate the economy?

[Pres Mike]

Does increase military spending stimulate the economy? While this is a general question, I am asking for the US specifically.

I think during World War II, the answer is yes. But the government fundamentally changed the economy. Unemployment was basically ended. High tax rates for the rich and strong union support. Manufacturing became more efficient, and workers were paid well with federal subsidizes. But all that federal support was temporary. The reason the US continued to enjoyed such good times the following decades is because Europe and Asia was devastated by the war. But of course, there was a painful recession as the American economy adjusted from a wartime economy to peacetime economy.

But in modern times? I don’t think so. Federal spending on the Iraq and Afghan wars have not benefited the average American. Why is that?

[Pres Mike]

The reason the US continued to enjoyed such good times the following decades is because Europe and Asia was devastated by the war.

This is not true. European and Asian economies recovered extremely rapidly and by the early 1950s, had surpassed their prewar peaks. I don't know where this myth came from and why it's so durable. I heard this from my teachers in grade school like 30 years ago. I'll probably be hearing it for the rest of my life. It has disturbing implications that if America just blew up the rest of the world, we'd all be living in paradise, which is obviously not true.

As far as defense spending, sure it stimulates the economy, by reducing unemployment. That has knockoff effects. It had a big effect in 1940-41 when unemployment was still high coming off the Great Depression. But in current times, when the problem is inflation and not unemployment, it could make the problem worse.

What were the effects of increase defense spending from 2001-2008? I know the economy was "ok" because of the housing bubble. Did the increase of defense spending helped?

I think in the 2009-2015 period, defense spending clearly had no effect on the overall economy

[Pres Mike]

The reason the US continued to enjoyed such good times the following decades is because Europe and Asia was devastated by the war.

This is not true. European and Asian economies recovered extremely rapidly and by the early 1950s, had surpassed their prewar peaks. I don't know where this myth came from and why it's so durable. I heard this from my teachers in grade school like 30 years ago. I'll probably be hearing it for the rest of my life. It has disturbing implications that if America just blew up the rest of the world, we'd all be living in paradise, which is obviously not true.

As far as defense spending, sure it stimulates the economy, by reducing unemployment. That has knockoff effects. It had a big effect in 1940-41 when unemployment was still high coming off the Great Depression. But in current times, when the problem is inflation and not unemployment, it could make the problem worse.

What were the effects of increase defense spending from 2001-2008? I know the economy was "ok" because of the housing bubble. Did the increase of defense spending helped?

I think in the 2009-2015 period, defense spending clearly had no effect on the overall economy

Oh, it did. I was living in the D.C. area and we hardly felt the 2007-09 "recession" at all because the government jobs were all still around. I remember interviewing in December 2008 for a job and how easy it was. As if all the doom and gloom you saw around was just noise. A lot of those government jobs were defense related.

Which is great for white collar workers in the D.C area. Or of you work in a tank factory in Ohio. But it wasn't like WW2 where every sector in the economy benefited

[Pres Mike]

By definition, stimulus either means fiscal stimulus, referring to additional consumption/spending induced by direct government spending or lowering taxes, or monetary stimulus, referring to lowering interest rates or increasing the money supply through central bank lending policies. Stimulus does not have anything meaning with respect to "benefitting the average American." Defense spending in colloquial usage regarding lucrative contracts or federally managed programs thus is fiscal stimulus.

If the question is more on if defense spending increases the welfare of the median American, whether that be measured through GDP/capita, real hourly wage, or some other metric, it is hard to isolate all the effects of various defense spending policies throughout WWII to today. A good question is to ask about the opportunity cost of such defense spending--absent this spending occurring, would the government allocate the expenditures to another program or reduce expenditures overall and how would that affect the median income of an American worker?

One concept that is not perfect but has some proponents is the "fiscal multiplier", which is essentially the estimated ratio of money spent on some government policy to the amount increase in nominal GDP (or GNI). There is a plethora of economic literature on comparing the fiscal multiplier of different policies under all kinds of assumptions, but almost all the time in the current context, direct cash transfers to the lower classes tends to have the highest multiplier.

In general as a biased observer, I would say it's easy to say overall that the GWB admin, including the billions spent regarding Afghanistan and Iraq, had an overall worse outcome on the vast majority of Americans, and that alternative policies would have done better, but isolating the effects of defense appropriations across the income/demographic spectra of the populace is something difficult to answer. There are probably some smart people somewhere that have done the research to find some semblance of conclusions there though.

Thank you for your incredibly well worded and thought out response

I think in the start of the War on Terror, there was a neither a net gain or loss for the average American. Unless you were a white collar federal employee in northern VA or worked in some tank factory in Ohio. For 95% of Americans, there was no change. Its not like the Bush administraion was going to start spening on social programs

Long term, it made everything worst. Thousands of prime working age men dead or paralyzed. Higher gas prices. Billions paid just on the interest from debt spending.