The profit of war

[Qfwfq]

This is a tangent to this thread (http://forums.intpcentral.com/showthread.php?p=1359488#post1359488) started by ruarch, but I think it deserves its own spotlight. It wasn't really related to the OP, so for a reminder here's where it broke off:



Why doesn't anyone ever calculate war profit, though? There are certainly some very profitable aspects to imperialism, but everyone just assumes that all money spent on war goes into a black hole. I bet the real cost is a bit less than people claim.

(Think of how much less we can economically blackmail other nations when they know we don't have a bite behind our bark, for example. That'd be a massive expense!)


Nice attempt internet cool guy, but you fail.

The true cost of war is much more massive than the sticker price. Two words: opportunity cost. Had we spent that same trillion dollars in the past decade on education and research and development, we wouldn't need to economically blackmail anyone.



Well, Chunes did have a point. But I think Joft, our brainy forum calculator, has a better chance at ultimately conjuring up an answer for us. We have to look at every country like a business, and reduce war to a game of monopoly. But to even begin a serious debate, a few presumptions need to be established... or better yet demystified.

First of all, discussing the essence of national debt is itself a deceivingly difficult topic. Is the national debt money your country owes to itself (because it prints its own money, and causes its own inflation)? Is the national debt money your country owes to another country? Or is national debt money owed to a private and arbitrary entity (such as a family dynasty, or corporation)? These are imperative questions when regarding our monetary landscape as a game. Do you owe allies, competitors, enemies, or neutral players?


Secondly, how do we distinguish profit derived from war? The loss is evident; whatever the prime rate is until the debt is payed back. Of course lives are lost as well, but let's try to ignore the ethical implications. We can consider profit being derived by reducing foreign supply pressure on the price of imports (such as oil during the Gulf War). We can also intuitively grasp the reasoning of political wars to preserve a foreign country as our trading partner. Calculating, or even ball-parking, a figure on these opportunities is an illusive task, but they're obviously considerable pay-offs. The question is does it surpass paying interest on the colossal principle of the military budget?


The final consideration is the actual defense spending of the "Department of Defense". How much do we need to simply maintain our share of the market by not getting blown to pieces? After all, this is a competition for limited resources, and it's in every player's interest eliminate each other.



example: The Gulf War cost the United-States approximately $9 billion, at a long-term rate of around 8%. Iraq invaded Kuwait's oil fields because OPEC was exceeding its production quotas, dropping the price of oil, and debilitating Iraq's already crippled economy (also indebted to Kuwait).


If the USA didn't help Kuwait and allowed Iraq to fight OPEC in dropping their production rate to the agreed quota, the price of crude oil could have increased (shot in the dark) 5%. If the USA imported 3 billion b/d at a price of $30/barrel, then we would (hypothetically) see an increased cost of $4.5 billion... half of the USA's principle cost of the war. So this war was a no-brainer.

[esthim8]

I am pretty sure that national debt is defined as the money a country owes to other countries or businesses, not money that it prints. Austrian-economists explain why wars are not profitable by using the Broken Windows Fallacy - http://jim.com/econ/chap02p1.html. Joft has a point, although I would not phrase it like he did, because it implies that the money spent on war by the government should be spent at all; but opportunity cost is essential. People that are hired by the government to use their time to build, cause or aid in the destruction of another country can never be something that increases economic health, stimulates real economics growth or in any way, brings any real value to the economy. Instead they could have been manufacturing, providing service or doing research which benefits the citizens. I think that numbers indicating that war is profitable are misleading, for example, unemployment rate, for obvious reasons. The problem is the view that producing is producing, independent of what it is, which I think is a very poor indicator of economic wealth.

But I would like to hear any arguments for war, in terms of economic growth.

Edit: I'm sorry, I didn't finish reading and didn't see your example, therefore I wasn't taking into account resources that could be taken from enemy. Then of course it can be profitable, as of course, resources have economic value.

[rhuarch]

My first spin-off thread! What is this warm feeling? Is it pride... *looks down* oh shit that's not pride. Why are my hands all red. I can't feel my legs... I gotta go. I'll be back in... in.. oh shit!

[esthim8]

Also, there are indirect costs. The government has to print money or raise taxes to account for the cost of war. Printing money causes inflation which distorts the price system and causes malinvestment - according to the austrian school - which hampers economic growth. Raising taxes, although debatable how effective, also hampers economic growth.

[Qfwfq]

I am pretty sure that national debt is defined as the money a country owes to other countries or businesses, not money that it prints. Well this is where I'm confused. Why would a country borrow money when it can print its own? This is why defining our terms is important. I'm quite positive all money printed by central banks is exchanged for treasury bills. (which is why I remember seeing graphs that directly correlate the national debt to the money supply)


Austrian-economists explain why wars are not profitable by using the Broken Windows Fallacy - http://jim.com/econ/chap02p1.html. Joft has a point, although I would not phrase it like he did, because it implies that the money spent on war by the government should be spent at all; but opportunity cost is essential. People that are hired by the government to use their time to build, cause or aid in the destruction of another country can never be something that increases economic health, stimulates real economics growth or in any way, brings any real value to the economy. Instead they could have been manufacturing, providing service or doing research which benefits the citizens. I think that numbers indicating that war is profitable are misleading, for example, unemployment rate, for obvious reasons. The problem is the view that producing is producing, independent of what it is, which I think is a very poor indicator of economic wealth.

I have to entirely agree that the notion of war creating economic growth through employment is a feeble argument. The "Broken Window Fallacy" was a perfect example why it's not rational. Furthermore, the armed forces only employ about 1% of the population (reserves included).





My first spin-off thread! What is this warm feeling? Is it pride... *looks down* oh shit that's not pride. Why are my hands all red. I can't feel my legs... I gotta go. I'll be back in... in.. of shit!

your period? why are your hands red? hurry back ;)

[esthim8]

Well this is where I'm confused. Why would a country borrow money when it can print its own? This is why defining our terms is important. I'm quite positive all money printed by central banks is exchanged for treasury bills. (which is why I remember seeing graphs that directly correlate the national debt to the money supply)

Yes they issue treasury bonds which is considered debt. But to pay this debt they can either collect money from the public, through taxes and whatnot or "print money" be that electronically or the plain old way. Thus it is correlated, but not the definition. Right?


I have to entirely agree that the notion of war creating economic growth through employment is a feeble argument. The "Broken Window Fallacy" was a perfect example why it's not rational. Furthermore, the armed forces only employ about 1% of the population (reserves included).

Nowadays yeah, but this was used as an argument - if I remember correctly - during WW2 and earlier wars. When technology advances, the need for people diminishes. So this is kind of irrelevant now, you're right; although 1% isn't that small, considering the "normal" unemployment rate.

[repo_man]

In my opinion, you are complicating the calculation unnecessarily.

If you spend $200k to renovate your kitchen, the cost of the renovation is $200k. You do not need to think about how you finance it with a loan, or what exactly your personal debts are.

For the "profit of war", simply estimate how much it cost to keep the armed forces in the operation: wages, materials, vehicles destroyed, etc.
To use your language, I guess I see all this as "broken windows".

You can then try to find benefits from the operation (cheaper oil prices?) and try to quantify them. This bit is probably subjective as it requires you to make assumptions about what would have happened if there had not been a war.
In my personal opinion, for example, there are few benefits and the whole notion of a profitable war is absurd.

[durentu]

http://en.wikipedia.org/wiki/Parable_of_the_broken_window

In the modern climate of global interdependence, war is a form of layoff. The only difference is that you deny them a second chance in life. It's not senior citizens who die in war, it's the top cream of the labor force.

War is a way to keep capitalism alive. It always widens the gap between the haves and have nots and a shift in power. Usually from the people to the state.

[Oso Mocoso]

In the modern climate of global interdependence, war is a form of layoff. The only difference is that you deny them a second chance in life. It's not senior citizens who die in war, it's the top cream of the labor force.

Say what? It's neither senior citizens who die in war nor is it the top cream of the labor force. In the USA anyway, it tends to be young men from the poorest parts of the population. It's not like the U.S. Army is recruiting grads from the country's top schools to go around building democracies through superior firepower. It's more like they're workers who had few other respectable employment options.

[durentu]

Say what? It's neither senior citizens who die in war nor is it the top cream of the labor force. In the USA anyway, it tends to be young men from the poorest parts of the population. It's not like the U.S. Army is recruiting grads from the country's top schools to go around building democracies through superior firepower. It's more like they're workers who had few other respectable employment options.

Careful now.

top cream in labor force = young persons who really do the work.

[LongSilence]

Say what? It's neither senior citizens who die in war nor is it the top cream of the labor force. In the USA anyway, it tends to be young men from the poorest parts of the population. It's not like the U.S. Army is recruiting grads from the country's top schools to go around building democracies through superior firepower. It's more like they're workers who had few other respectable employment options.

No. But they do take some of the highest achievers to help develop and maintain new espionage and weapons systems. You could argue that such minds would be better put to use dealing with more 'civilised' ends.

That said, back to the profits of war. I brought it up in the other thread actually-

You have a point. But such a restructuring would surely have huge consequences on things. Think of all of the money that the weapons industry brings into the US by keeping at the top of the world market in terms of innovation and monopoly. Of the sales to other nations that bring in a lot of taxes. This is before you even bring in the question of what's been taken from Afghanistan and Iraq and the profits from giving American corporations huge jobs to do there. And can you put a price political clout that your nation retains by having the biggest military in the world?

That said, I agree that none of these of good things and should be changed. But hell, you know this was the way America became number 1, right? If you stop doing things this way, can you be so sure that Uncle Sam won't find himself slipping from his place on top of the pile?

America takes great pride in 'being number 1'. However, if we're honest it didn't do so just by virtue of innovative use of resources. The USA took prominence by rather intelligent involvement in the two World Wars that luckily for them didn't result in the destruction of many homeland resources. Yes, it is true that they regeared many of their industries towards weapons production and saw many of their machines destroyed.

The 'Broken Window' does indeed address this issue but in the case of the last Century the US was very much the glazier who profited from proceedings. Previous European world leaders [who were indeed losing their dominance albeit rather slowly] borrowed heavily from the resource-rich US. In essence, the wars crippled their economies leaving America's arsenal-manufacturing one on top. We can talk about 'broken glass' and how much of the stuff that was produced was destroyed but the capitalistic system we know thrives on markets requiring constant production. It keeps researchers developing, workers busy and traders selling. In essence, it still pays to be a glazier, at least until your townsfolk run out money or resources or a better glazier comes into town.

It is indeed not the best model. But it is the one that the US benefited from. As for war- the problem with having your people pay their money for a bunch of guys to be trained in the art of killing is that they may buy the whole 'it's for our protection' thing for a bit but given enough time they'll start to wonder what they're there for if there's no-one to kill.

[Chunes]

War profits a select few while hurting the country as a whole. Sure, we'll grab whatever we can during war: cheap oil, drug money, etc, but it's delaying the inevitable. That was all my point was, really—not that war is profitable, but that there are certain unmentionable side benefits you won't see in the official accounting.

[NoahFence]

How to make a profit from a war

1. Own a construction company
2. Hijack the goverment
3. Invade developed nation
4. Order the deliberate destruction of infrastructure like water treatment, railways, power plants, etc.
5. Give own construction company no-bid contracts to rebuild them
6. Skimp on occupation security
7. Declare the situation too dangerous to work in, keep the contract money for doing nothing

Rinse and repeat.

Seems pretty simple to me.

Ohhhhh wait, did you mean how can a -government- make money off a war? It can't, except insasmuch as acquisition of new strategic resources will mitigate paying someone else for said resources into the foreseeable future...and also prevent them from cutting you off totally. Main cause of Pearl Harbor was us cutting off the Greater East Asia Co-Prosperity Sphere from all the oil we were shipping them in the 30's. We're also soon to see Water Wars in the middle east, same concept..."We need that thing to function, so we'd prefer having control of it, and no we're not asking."

[LongSilence]

Ohhhhh wait, did you mean how can a -government- make money off a war? It can't, except insasmuch as acquisition of new strategic resources will mitigate paying someone else for said resources into the foreseeable future...and also prevent them from cutting you off totally. Main cause of Pearl Harbor was us cutting off the Greater East Asia Co-Prosperity Sphere from all the oil we were shipping them. We're also soon to see Water Wars in the middle east, same concept..."We need that thing to function, so we'd prefer having control of it, and no we're not asking."

I think that the American war machine also likes the advertising and chance for proper field testing. Also, it doesn't work nearly as well anymore, often counteractive now, but in times gone by you simply couldn't beat the goodwill got from a successful conquest.

Also, I can't reiterate the 'don't fuck with us factor' that the US has tried to hold onto since the Second World War. "We got the A-bomb, just fucking try it!" changed to "Ok, lots of other people got them too but we got more... ok, ok, let's just accept that people shouldn't use them?" and now is: "Yeah, well, we still got those nukes and you can trust us not to use them... but that doesn't mean we won't still come in and bust you up the old-fashioned way. Hell, let me prove my point- we can take down a country as quick as a flash... sure, keeping control of it after is a bit of a bitch and rebuilding will take decades but we can still lay the smackdown!!"

[NoahFence]

War is just one crisis for which field testing is exploited.

Another example is, oh, say, massive oil spills in the Gulf of Mexico. While everyone is running around going OMGOMGOMG, they have this stuff, some crap they can drop on the oil and it will break up and not float anymore... it's never been used, or tested, and is going to essentially create a harder problem to clean up but one that doesn't show from orbit. Under normal circumstances, the entire planet would be appalled by willy-nilly deploying something like this.

As soon as there's a crisis? Pshaw.

"Now, we're not PROMISING anything, clearly, but this is a major disaster, here, and it MIGHT work...Mr. Senator, do you REALLY want to be the one to say, No, let the disaster continue???"

[rhuarch]

"Now, we're not PROMISING anything, clearly, but this is a major disaster, here, and it MIGHT work...Mr. Senator, do you REALLY want to be the one to say, No, let the disaster continue???"

For some reason that made my hackles rise. Then again the words "Mr. Senator" pretty much always give me shivers.

[kendoiwan]

"No war was ever fought that someone didn't profit from."