Myth of the War Economy

Most people believe that, at least in the short run, war is good for the economy.  Detailed analysis usually refutes that notion.  Then again, the initial war economy may seem stimulative, but it gets steadily worse as a long war progresses.  Then at the end of all wars that I know of, comes a depression or recession, usually more severe and long lasting for the more severe and longer lasting wars.  In largely peace time military expansions, the military growth in concentrated mini-regions of the nation comes at the expense of the normal manufacturing economy.  Taking a snapshot at a given year, in each state it is generally true that the higher the manufacturing the lower the military spending or vice versa, the higher the military spending the lower the manufacturing sector of each state.  This trade-off is because both military spending and manufacturing depend on high levels of capital investment and research scientists and engineers.  So when a nation uses these key economic resources for producing goods, the nation prospers.  But when the nation uses these key resources for political power projection, the economic growth of the country suffers as a whole from this withdrawal of key economic resources.  Futhermore military engineers are so trained to maximize costs and complexity that they are useless to the civilian economy of cost minimizing engineers.  So an over militarized economy can drive out the goods producing economy because the two types of engineers mix like oil and water. This is why states like Mississippi, Missouri, Kansas, and Utah underperformed in the Reagan military buildup of the eighties. There is some evidence to suggest an initial adrenaline boost at the start of wars and a letdown after the war ends.  This reaction resembles the high one experiences getting drunk at a party followed by the hangover the next morning.  Long term statistical evidence of the major economic powers shows that:  the higher the military spending the lower the capital investment of a nation.  So military spending depletes capital investment and the growth rate of manufacturing productivity.

World War Two

The Second World War has cast a very long shadow over world affairs with much misunderstanding.  First, the timing of the war suggests it is better understood as the second half of a combined 1914-1945 world war.  In this way it resembles the thirty years war of 1618-1648.  That thirty years war between the Lutherans and the Catholics was being won by Sweden from 1618-1634.  Then the French entered in 1635 and the war was lost by Sweden.  Sweden had such a bitter experience from that war that they have stayed out of wars ever since.  They have instead created one of the world's great peace institutes, SIPRI.  Of the seven great powers involved in the Second World War, the United States suffered the least damage and the lowest percentage of their population dying in the war.  Still, the neutral country, Sweden, had higher growth than the United States in the decade of the forties.  Both neutral countries, Sweden in World War Two and the United States before entry in World War One, suffered flat economies during the war.  France suffered a 40% drop in economic performance during the German occupation in World War Two.  This is similar to the 40% weaker economy of East Germany compared to West Germany during the Cold War.  So occupation seems to reduce a nation's economy by about 40%. 

Recovery

Just how devastating the war was is shown by the time it took for each nation to recover to their pre-war economy.  For Japan it took 17 years from 1938 to 1955 to recover.  For Germany it took 13 years from 1938 to 1951 to recover.  For the Soviet Union (Russia) it took nine years to recover from 1940 to 1949.  For the United States the war did grow the economy 34% in four years, but it took five years to recover from the post war recession, from 1945 to 1950.  And the United States still underperformed neutral Sweden for the decade 1940 to 1950.  But the United States economic growth of 86% in the eight years from 1934 to 1941 inclusive greatly exceeds the eight year growth from 1942 to 1949 inclusive of 23%.  25 days of war in 1941 would not change these results to any significant degree.  Thus the accidental timing of the war just as the Great Depression was ending should not be enough to justify the claim that the war brought us out of the depression.  Comparative statistics from the years 1860 and 1880 show that the United States lost 20% of their economy relative to Britain in those twenty years.  The Civil War economy was a huge disaster for the United States.

Deficit Booms

Had Roosevelt kept stimulating the economy in 1937 and 1938, preventing the 1938 recession, full employment would have been achieved before the war in 1940, two years before the war really started in 1942.  Instead, he let the new social security tax start uncompensated for by jobs programs, and boasted about balancing the budget in the 1936 reelection instead.  When will politicians ever figure out that balancing the budget is a prescription for more economic disaster in hard times?  Roosevelt Carter and Bush the first all learned the hard way that tax increases to balance the budget can destroy the economy.  It cost Carter and Bush their re-elections, and almost beat Roosevelt in 1940.  Deficits are the only way to keep war spending from crushing the war economy.  Roosevelt was a master at selling war bonds with only 2% interest.  Wilson and Lincoln had to pay 5% interest to fund their wars.

War Experience Effects Future Belligerence

War casualties in the Second World War as a percentage of the nation's population reveal the postwar belligerence of nations during the Cold War.  Germany's 5% death rate during the war and Japan's 2.2% death rate made them more low military peaceful and prosperous nations in defeat, while Britain's 1.2% and America's 0.4% death rates made them the more high military belligerent Western nations after the war, losing share of the world economy for decades.  The Napoleonic Wars were so bad, Switzerland quit war after them.  All of Europe skipped the usual major war killing 1.5% of the European population at the time of America's worst war, the Civil War, then had the worst wars of all time in the World Wars killing 5% of the European population in each of the two wars.  That lead to the European Union instead of war, and with the nuclear bomb, inhibited the Sino Soviet border clashes of 1969 from becoming a major war.

Hundred year history of the military economy in the United States:

https://www.academia.edu/4044532/US_PRESIDENT_Military_Economy_1910-2009

Depression and World War details: 

https://www.academia.edu/4044531/ROOSEVELT_Depression_War_Unpacking_Myths