Thursday, September 12, 2013

Is War Now "Inevitable" | Zero Hedge

Is War Now "Inevitable" | Zero Hedge

"As Higgs points out, because of the array of interventions in the wartime economy, war materiel was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture. Instead, Higgs argues, the war was a period of capital consumption rather than capital accumulation. Tanks, bombs, and helicopters have limited uses outside of military applications. The labor that was used to produce them was not available to produce consumer goods and services; in fact, people went without consumer goods. The warships at the bottom of the world's oceans represented lost opportunities for real consumption and prosperity. Conflict is sometimes necessary, but we should recognize what wartime expenditures represent: destruction of life and resources. If a depression constitutes a widespread contraction in living standards, then the Great Depression cannot have ended during the war.

The illusion of wartime prosperity is rooted partly in how national income was calculated and partly in how the statistics were compiled. Gross Domestic Product, one measure of a country's output, is defined as the sum of consumption expenditure, investment expenditure, government expenditure, and net exports. A serious problem arises with government spending: How do we assess something not traded in markets? We can assess my computer, my shirt, and my pen because I voluntarily exchanged money for them. How do we assess government purchases? In the national-income accounting they are valued at cost, but at best this only tells us what those resources could have earned in alternative lines of production. The costs don't indicate the value of what the government has produced.

This problem was compounded by price controls during World War II — official prices simply did not reflect the true cost of the war. If we are going to have meaningful economic calculation, we need real market prices. Price controls and similar interventions introduce arbitrariness and uncertainty.

Procurement at below-market prices is a way to mask the cost of any endeavor. Consider the draft, which forces people into military service at wages below what they would earn on the unhampered market. The amount spent on wages and board for conscripts is an underestimate of the real cost of maintaining the force."

...Mises: "War prosperity is like the prosperity that an earthquake or a plague brings.'
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