War's Effect On The American Economy

War has influenced economic history greatly across time and space. Wars have often influenced technological, social, and economical developments. Wars have exhausted wealth, interrupted markets, and depressed economic growth in the long term. Wars are pricey and destructive. Yet, wars are also seen as short term economic stimulators. It is obvious that wars lead to an increase in governmental spending on military. The way with which the government handles the necessity for more money is mainly done through borrowing, taxation, and bonds. By spending more dollars on military the government in effect “pumps up” the economy leading to a greater employment rate. Which puts more money into people’s pockets, therefore steading an economic upswing.
World War II was a terrible time in world history, but for the American economy it couldn’t be farther from the truth. Due to a great stock market crash in October of 1929 our economy happened to fall into what was later referred to as the Great depression. Unemployment hit crazy high numbers, in fact it was estimated that almost 1 in 5 Americans couldn’t find work. Many attempts were made to jump start our economy and get us out of this depression but nothing seemed to work. Finally, on September 1, 1939 a light at the end of the tunnel was beginning to show. On this day the Americans entered the Second World War. Nobody can agree upon whether this was truly the reasoning as to why the Great Depression ended but the facts of it being a major contributor are present. It is rather unsettling that a horrific event such as war is a pathway to better economic times. Perhaps the best explanation for this is that the world as a whole is not used to living in peace. First off, the increased spending on the military led to an increase in the number of jobs available, greatly lessening the very high unemployment level.
Many men had to leave home to fight in the war which left many job vacancies. In order to fill these spots women were mixed into the workforce, which indirectly fueled another movement in the United States which was that of women’s rights. Another problem arose, how was the United States to pay for such a great expense? They began by pushing the sale of war bonds, you may recall hearing the term “Uncle Sam” which became an American icon for fueling the war. The citizens banded together and consumed less food by growing and consuming much of their food in their victory gardnes, as they were called. Around the onset of the Second World War the tax rates for some of the richest people in the States was around 90 percent of their income. Another way with which the United States paid for this War was through the printing of more money, in essence taking a loan out from itself. We never borrowed money from another country, we kept it at home and didn’t have any interest upon these said loans. It is concluded that the United States may have broken some important economic laws upon the entrance of World War II. They printed money which many said would lead to inflation, raised taxes which thought would have a negative effect on the living standard, and didn’t borrow from another country which was thought to be the easiest way. Ironically
by doing so the printed money was paid off by raising the taxes to the richest Americans. The United States was referred to as being in its “golden years” for some twenty years following the Second World War.

Since the horrific event took place on September 11, 2001 the United States has been conducting a war on terror. Ignoring the success the United States had in terms of dealing with the payments for World War II the government decided to borrow the money to cover the war. Granted this new war did help stimulate the economy to a degree, it was followed by numerous macroeconomic consequences. Instead of raising taxes to help cover the costs of war, we instead lowered taxes. Currently, according to Robert Lenzner on the Forbes website, the tax rate on the richest Americans is 18 percent on the average. This is a huge difference when compared to the almost 90 percent tax rate that was experienced around 1939. If the tax rates were to be increased on the richest Americans it is impossible to know where our economy would be currently standing, the only thing that can be concluded is that the United States would be in better shape.
According to the article “Costs of War” because of their borrowing of money, the U.S. has already paid $200 billion dollars in interest alone. It is almost impossible to not think to oneself about where that money could have gone if we hadn’t have spent it on our loans. Many question if the U.S. is focusing the majority of its money on paying back these loans and leaving its infrastructure and schools on the backburner. This article also states that the average homebuyer spent $600 more dollars in mortgage payments due to the rise in interest rates due to the amount of money they have borrowed. The money creation possibilities lost from this increase was about 6000 dollars per person that is currently being put towards paying their mortgages. Just recently in class it was seen that prices keep increasing while the average household income decreased by about eight percent. Although not all of the blame should be placed upon the war on terror it is surely a driver. This leads to a lower living standard for us Americans as our money is now being more used up by buying the necessities instead of spending that money on home upgrades, new appliances, etc. Michael Shank of the Huffington post said “When comparing the direct multiplier effects of military spending to other forms of government spending, it is not as productive in economic terms as spending in infrastructure, education, or even as tax cuts to increase household consumption.” Basically he is saying we see no positive economic outcome of War at home. Yes we are safer, and grateful for those who serve we are, it just doesn’t help our nation. Most of the focus is placed on the war while the bridges, roads, health, income, and schools wait patiently to be updated. According to the costsofwar.org the current cost of the war on terror is 4.4 Trillion dollars.
The Department of Defense was only allocated $1.4 trillion initially. Nearly this whole sum was borrowed money, leaving the U.S. in a lot of debt. This decision would include increased interest rates at home which will lead more citizens to not consider taking out loans which, in turn, decreases the amount of money created by the
banks. Every case is unlike, but, generally wars provide a lift in domestic demand and jobs through higher military spending and needs. The aftermath of wars is more uncertain besides the fact that mass devastation exists. Making the transition from a war economy to a peacetime economy can be difficult, as most countries have not dealt with a peace time economy for a number of years. Perhaps history should be this nation’s greatest teacher. Granted times today are different and there are many more things to consider, why not consult how past economies handled war. Always ask why it worked, how it could be applied, and what will it do to our people. Over the past 75 or so years the United States has gotten very weak against the rich as they have much of the pull on the way of the economy since they are mainly business owners and CEOs. “The rich people get richer while the poor get poorer.”