Syria: War Is Bad Peace Is Good

by J John Swanko

10/18/2012 (People Port) War is normally bad for all economies.  An indicator is found in the Federal Reserve Studies made during WWII.  The two major economies, US and Britain, saw huge inflation during the war and expected to see more after.

India was a major economy still working after the war however they were importing.  The tariffs their government received from those fees funded their government.  The reports point to how prices escape government control and how the intrinsic value of a country's currency is affected by the war.  Most nations's economies did function no matter the level of destruction.

Galloping inflation is commonly believed to be the cause of WWII.  Generally, war grows out of civil unrest.  A leading cause is unemployment.  The Arab Spring is an example.  Spain was a country with no debt before the Great Recession became a favorite example of our Tea Party.  Spain, now has huge unemployment and their City States of old are once again pushing their central government for additional benefits as their young workers move to other countries seeking employment.  This causes a loss of human capital similar to refugees.  It may be good (send money home) or bad (collect benefits while working in another country).

The US pulled ourselves and the world out of the Great Depression with government spending.  That spending eclipsed anything since.  Some have argued it was the Space Race not the Vietnam war that kept our standard of living so high and growing.  Reagan tax policies did bring our growth to a more predictable level.

The Federal Reserve's lecture series puts a major emphasis on using interest rates to solve inflation and maintain employment.  When one looks closely at the costs of war, It is far easier to see those bombed out homes and bridges will need replacing, the roads will need repair.  All create jobs.  All take away from a country's Possibilities Curve (now stated PPF: production possibility frontier) because they do not address the human capital potential. 

With the war in Syria, all the Mid-East Suffers.  France is trying to help the rebel held areas.  The UN is trying to help officially.  Syria's human capital is busy fighting instead of providing services, finished goods, participating in local trade.  Not the best way to solve unemployment however some in this country believe war is good and WWIII would be better.   Those same people wince at the thought of government control.  It is the government that runs a country during war time. 

As countries in the Mid-East attempt to see, correct, the real cost of the Syrian war to those countries not involved, the magnitude of regional strife becomes more possible.  The healing in Syria and her neighbors will need -for the war so far- will have real costs and take serious leaders to fix, benefit from the needed new infrastructure, while bring forth their human capital.

Note:

Germany's corrective action during the start of this Great Recession did work.  Their system supports full innovation, employment, capital formation, exporting, and a wide range of mid-sized companies today.