[OPE] Studying unproductive labor: CEPR report

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Fri Feb 29 2008 - 16:07:46 EST

My own idea is that, dialectically, you cannot really say that military expenditure always has one fixed economic or technological effect, once and for all, like the orthodox Marxists say.  We should I think at the very least distinguish between epochs of boom, epochs of slump, and epochs of military war, in assessing the effects, and consider the situation a society is in. The "multiplier effect" of military production might in fact offset the "drain" of resources, but that effect might work differently, depending on the conjuncture and on how society is organised. In this regard, we should apply historical thinking rather than metaphysical thinking. This is a more subtle theory, and therefore probably less convincing than simple Marxist propaganda.

It is useful to look at a graph of real GDP growth rates for the US 1900-2000 here (on p. 10) http://www.bea.gov/scb/pdf/beawide/2000/0100od.pdf As you can see, the fastest output growth the US economy experienced was during world war 2 (while e.g. in the European theatre of war output growth was reduced in many places). In a sense, the war economically helped resolve the slump that preceded it.

I don't think we should confuse the question of an optimal allocation of scarce resources between alternative uses, with the actual economic effect of the actual allocation of resources. You could argue that money is better spent on constructive uses rather than destructive uses, but in fact destructive uses might generate an awful lot of new capital, invested in constructing new means of destruction, with spin-off effects. 

Mutatis mutandis the same thing applies to the pattern of innovation. Schumpeter's story about innovation is a powerful and suggestive metaphor, but empirically it isn't all that sound. Christopher Freeman's research is probably a much better guide.

The actual economic significance of military production is often difficult to assess, and falsely assessed, because in economic statistics the gross value for the output of military weaponry, machines and equipment is usually excluded from intermediate consumption, and therefore it does not enter into gross output or GDP. If you struck a ratio between military budgets and GDP, you do not get the proportion of military production in total net output.

What we really need to know, and what more profound analysts have tried to show, is what the real linkages are between military production and non-military production, how they intertwine. But that is an empirical and historical question, not a question of abstract metaphors about economic reproduction. You might reason that products which do not re-enter the production process (are not productively consumed) are a "drain" but this disregards the effects of the income they generate, and you might as well argue that ordinary consumption is a "drain" on the economy because it reduces savings available for investment.

If all we can say, a la Stiglitz and the democrats, that wars cost a lot of money, this is a rather pathetic argument, and we are on stronger ground arguing that wars are wrong insofar as they destroy people and their products in the process of trying to solve a problem that could be much better solved in other ways.


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