Kacper General Effects of war on Economy War

W?sowski, J?drzej Block


General Effects of war on Economy

has been a constant of the human civilization since prehistoric
times. How wars are waged may have changed , but the reasoning behind
going to war has not changed much. Territory, resources, national
pride, religion – These have been used as excuses for war for
millennia. Humans have evolved alongside war. For good or ill, it is
an immutable part of human culture. And
as such, economy has also developed to accommodate war.

is commonly believed in modern times that war, and the government
spending associated with it, can create positive outcomes for the
economy. This contrasts with
the widespread public acknowledgment
and understanding of the human cost of war.

spending during conflict does create employment, additional economic
activity and contributes to the development of new technologies which
can then spill
into peacetime
industries. These are some of the often discussed positive benefits
of heightened government spending on military outlays.
One of
the most commonly seen
benefits for the economy is higher GDP growth. This has occurred
throughout all of the US
conflict periods. Another benefit commonly mentioned is that WWII
established the appropriate conditions for future growth and ended
the great depression. This was associated with a sharp decline in
income inequality. The trend in declining inequality started with the
onset of WWII and lasted through to the end of the Cold War when it
rose again. It can be argued that the leveling of income inequality
created the ideal conditions to build the large consumer oriented
economy that the U.S. is today.

high level of government spending resulting from war is prone to
create favorable economic outcomes, at least in the short term. This
is caused by the increases in economic growth during wartime spending
booms. However,
negative unintended consequences occur either concurrently with the
war or develop as residual effects afterwards thereby harming the
economy over the longer term.

policies associated with funding these conflicts resulted in the
following factors
experiencing negative effects either during or after the conflicts:

• Public
debt and levels of taxation increased during most conflicts;

• Consumption
as a percent of GDP decreased during most conflicts;

• Investment
as a percent of GDP decreased during most conflicts;

increased during or as a direct consequence of these conflicts.

Korean War


the division of Korea at the end of World War II by the US and the

the use of “containment” policies by the US

the drive towards unified Korea by both the North and the South

25th of June 1950 – 27th of July 1953

conflict between North Korea, with support from China and the Soviet
Union, and South Korea with support from the United Nations (mainly
the US)

called the “Unknown War” because of the lack of attention it
received (it was overshadowed by the following Vietnam War). It was
described as a “police action” by the American president Harry

of Osan,
the first significant U.S. engagement of the Korean War, involved the
540-soldier Task Force Smith, which was a small forward element of
the 24th
Infantry Division which
had been flown in from Japan.
5 July 1950, Task Force Smith attacked the North Koreans at Osan
without weapons capable of destroying the North Koreans’ tanks. They
were unsuccessful;

August, the KPA steadily pushed back the ROK Army and the Eighth
United States Army southwards.
impact of the Truman administration’s defense budget cutbacks were
now keenly felt, as U.S. troops fought a series of costly rearguard
actions. Lacking sufficient anti-tank weapons, artillery or armor,
they were driven down the Korean peninsula.
their advance, the KPA purged the Republic of Korea’s intelligentsia
by killing civil servants and intellectuals. On 20 August, General
MacArthur warned North Korean leader Kim Il-sung he was responsible
for the KPA’s atrocities.
September, UN forces were hemmed into a small corner of southeast
Korea, near Pusan.
This 140-mile perimeter enclosed about 10% of Korea, in a line
partially defined by the Nakdong
American forces managed to repel the attackers and received
reinforcements from US garrisons in Japan. Battle
of Inchon (September 1950)

Korean War was largely financed by higher tax rates with GDP
averaging 5.8% between 1950 and 1953 with GDP growth peaking at 11.4%
in 1951. During this period however, investment and consumption
stalled. The government needed to implement price and wage controls
in response to inflation which had increased due to the additional
stimulus that was created by government spending. Notably, both
consumption and investment resumed growing after the war; however the
growth was below the trend rate prior to the war. The stock market
rose during the war.

Vietnam War

Vietnam War (also known as the Second Indochina War, and in Vietnam
simpy as The American War) started in 1955 and lasted until 1975.
Officially it was fought between North and South Vietnam.

Vietnam received support from the Soviet Union, China, North Korea
and some other communist governments. South Vietnam, on the other
hand was supported by capitalist states like the United States, South
Korea and Thailand.

all began with the insurgency that occured in the South Vietnam
between 1954 and 1957. The insurgency itself was suppressed by the
Southern government, and it is not known for certain whether North
Vietnamese government was involved in organising the rebellion. The
main motives for the rebellion was the failure of the South
Vietnamese government to comply with the Geneva accords from 1954.
Diem’s government was oppressive and nationalistic.

December 1960 Viet Cong (officially the National Liberation Front)
was formed and started gathering all anti-south activists including
non-communists. Overall around 75 percent of Vietnamese supported the

his inaugural address, president J. F. Kennedy pledged to “pay any
price, bear any burden, meet any hardship, support any friend, oppose
any foe, in order to assure the survival and success of liberty.”
 Kennedy’s escalation of the cold war was the one that pushed
it the closest to an all-out nuclear war. (During the Cuban Missile
Crisis readiness level of the Strategic Air Command was raised to
DEFCON 2, meaning that the whole of the U.S. military was on standby
to launch an attack in less than 6 hours.) By the end 1963 around
16,000 military personnel was deployed to Vietnam.

1963 Ngo Dinh Diem was captured and executed by his own officers in a
military coup caused by the oppression of Diem’s government.

the 2 of August 1964 a DD-731 destroyer, USS Maddox has been attacked
by North-Vietnamese torpedo boats. The destroyer suffered light
damage, but defended itself successfully. Two days later a DD-951
destroyer USS Turner Joy was attacked. This led to the start of
Operation “Pierce Arrow” which consisted of 64 strike sorties
from the U.S. aircraft carriers.

the war continued, Operation “Rolling Thunder” was devised and
carried out. This operation was a seek & destroy mission. It
involved bombing strategic targets of the North-Vietnamese without
deploying any troops. The war continued.

1966 around 200,000 U.S. military personnel deployed into Vietnam.

the years 1973 – 1975 the U.S. was withdrawing their troops from
Vietnam. Weakened South-Vietnamese army despite having superior
equipment, did not manage to defend the city of Saigon against the
Viet Cong. On April 30, 1975 the city was conquered by North Vietnam.

war ended with the total death toll being varied from 1.3 – 4.2
million people.

results of the Vietnam War

the war was less expensive than the Korean War and World War II. At
it’s peak the cost as a percentage of GDP was 9.5% in 1968. Later
in 1973 it fell to 5.9%. The GDP boom happened between 1965, when the
first combat troops were deployed to Vietnam, and 1968. While the
Government spending and consumption rate didn’t spike during the
Vietnam War, the otherwise was true for the inflation. In 1973 due to
high spike in inflation an Oil Crisis occured. High prices of Oil
were one of the reasons of the Fall of Saigon, as the South,
Vietnamese army couldn’t use the machinery they had received from
the U.S.  The same crisis affected the consumption rate
negatively in the years 1973 – 1975.