Sunday, January 8, 2012

War is good for the economy, except that it isn't

You have probably heard the claim that "war is good for the economy." When considering this claim, ask yourself...if war is good for the economy:

Why do investors run from warzones? Why isn't there an ETF called WAR that focuses solely on areas ravaged by combat? Why don't investors line up to place their seed money between the falling bombs? That would certainly give new meaning to the term "angel investor."

It is because war wrecks the economy. Aside from all the property damage (aren't we always hearing that smooth working infrastructure is one of the keys to growth?), war creates the worst kind of uncertainty.

If you've been awake in the last year, you've heard pundits complain that business is being harmed by all the uncertainty being caused by the federal government. The pundits are't wrong; uncertainty is bad for the economy. And nothing causes more uncertainty that war. Ironically, many of those lamenting all the government-created uncertainty are big-time war hawks.

Stability is what attracts investors. This is why emerging markets like Indonesia produce commercials highlighting that they are "politically stable." Countries don't run ads that say, "Bloody. Crumbling. Conflicted. Invest in regrettable Indonesia."

War isn't good for the economy, unless you're talking about the six feet underground economy.

1 comment:

Steve said...

The reason war has helped the economy in the past, for example the Second world War was the declaration was immediately followed by a major tax increase -- largely on the wealthy -- to pay for it.

(FWIW I really hate nofollow)