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Monday, November 1, 2010

The Broken-Window Fallacy Writ Large and Dangerous

Veteran Washington Post political columnist David Broder yesterday:

What else might affect the economy? The answer is obvious, but its implications are frightening. War and peace influence the economy.

Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.

Here is where Obama is likely to prevail. With strong Republican support in Congress for challenging Iran’s ambition to become a nuclear power, he can spend much of 2011 and 2012 orchestrating a showdown with the mullahs. This will help him politically because the opposition party will be urging him on. And as tensions rise and we accelerate preparations for war, the economy will improve.

I am not suggesting, of course, that the president incite a war to get reelected. [Excuse me?] But the nation will rally around Obama because Iran is the greatest threat to the world in the young century. If he can confront this threat and contain Iran’s nuclear ambitions, he will have made the world safer and may be regarded as one of the most successful presidents in history.

Aside from the lack of evidence for his charges against Iran and aside from the fact that war would kill many innocent people, could ignite the Middle East, and raise oil prices (always good for an economy), the money spent on the war would have to be withdrawn from somewhere else. Broder commits Bastiat’s broken-window fallacy in the worst possible way. War is the ultimate breaking of windows.

As for World War II ending the Depression, let’s get real. To be sure, war can put people to work and have factories operating around the clock. But the point isn’t to put people to work and have factories running overtime; it’s to have people and factories making things consumers — not politicians and generals — want. That doesn’t happen with war spending. Consumers experienced privation not prosperity during World War II: rationing of everyday goods and other hardships. They experienced privation in the 1930s also. So in what sense did the war end the Depression? Only in the sense of a rise in economic aggregates like GDP and unemployment. (This assumes the statistics were accurate, a bad assumption.) But aggregates hide important facts. A person making bombs and another making cars are both employed for the purposes of government statistics. Yet one is working to enhance living standards and one is making something that will blow up. Don’t be fooled by aggregates.

War is not the way to prosperity. Is it really necessary to tell people that?

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.