What is MacroWeb?

Many Americans believe that spending money on war is a waste of resources. Some consider spending for military purposes bad for the economy. These consumers see this spending as money taken away from their own local needs. The short-run impact of military spending is for a boost in GDP. In the long-run however, the effects from the current war with Iraq will depend on what happens with oil prices. Oil prices tend to have a very big impact on the economy. An escalating price per barrel of oil can trigger a recession. (see War, The Economy & You)

If a country is in a recession, a way to help bring it out is to increase spending. From the expansionary fiscal policy side of it, any increase in government spending adds to the deficit. This increase helps jump-start the economy. Military spending is almost always for goods and services. Therefore, it will help the economy move out of the recession by giving more people jobs.

One new macroeconomic theory is the sectoral shifts hypothesis. One aspect of this theory is as follows. Shifts in government spending from one area to military spending, may not change the overall government demand and therefore might not affect the country as a whole. However, the direct impact on a specific geographic area that has lost or gained the spending can be great. (see How Do Changes in Military Spending Affect the Economy? Evidence from State-Level Data.)

Reference:

Feldman, Amy, "War, the Economy, and You", Money, 2002, Volume 31#12.

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