Economic Impact of War

It isĀ  ironic that, from a certain perspective, war can be beneficial for an economy.

War leads to higher government spending, higher employment and can therefore provide a boost to domestic demand, economic growth and help reduce unemployment.

See: War and the Economy

However, this boost to domestic demand doesn’t have to come from military spending. But, war is often a very good excuse for the government to borrow much more than it could do in peace time. The UK national debt is currently 60% and everyone thinks we need to cut spending and reduce the level of debt. But, in war time, UK national debt has often risen above 150% of GDP. (in war, there is often a patriotic fervour to buy ‘war bonds’ – A patriotic fervour which wouldn’t be there in current climate.

Although, war can provide a temporary boost to domestic demand, it is important to bear in mind the cost of war. In particular the opportunity cost of military spending, the human cost of lost lives, the cost of rebuilding after the devastation of war. Also it depends on the kind of war, how prolonger, where and how it is fought.

See: Cost of War

What Happens After War?

War invariably leads a legacy of debt and an army of demobilised soldiers.. After the Second World War, the debt was not a constraint to growth and we had one of the longest periods of economic expansions on record. (Post War Britain)

However, the aftermath of war, is not always so positive. The UK struggled after the end of Napoleonic war and First World War. The German economy was ravaged by the aftermath of the First World War and reparation payments.

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