War and Inflation

[Dr. Who]

This is from an older article, but the economic principles discussed haven't changed.

War Causes Inflation …

And Inflation Allows The Government to Start Unnecessary Wars - 3 January 2011


"All wars are inflationary. Period. No exceptions.

Why? Simple, really. Any time the government engages in deficit spending, it creates the conditions for inflation. However when the deficit spending is on legitimate infrastructure, such as roads or bridges, that investment will slowly “pay for itself” by boosting productivity and paving the way for the creation of additional goods and services that will ‘soak up’ the extra cash over time.

Wars, however, are special. Vast quantities of money are spent on things that are meant to be blown up. The money stays at home, while the goods get sent off to be blown up. When a bomb blows up, there is no residual benefit to the domestic economy later on. This means war spending is the most inflationary of all spending. It’s a double whammy – the money stays behind, working its evil magic, while the goods disappear. Heck, even if the goods aren’t blown up, there’s practically zero residual economic benefit to such specialized hardware, as amazing as that technology may be.

For some reason, the most recent pair of wars have been presented by the US mainstream press as being relatively “pain-free” for the average citizen, despite overwhelming historical odds to the contrary.

In fact, on this 15-year-long chart of commodity prices, we observe that prices bounced in a channel, marked by the green lines, for more than 10 years. However, and now hopefully unsurprisingly, shortly after the start of the Iraq War commodity prices began marching higher and have inflated nearly 140% in the five years since. Your gasoline and food bills will confirm this.

(Note: chart no longer available)



So if anybody tries to tell you that you haven’t sacrificed for the war, let them know you sacrificed a large portion of your savings and your paycheck to the effort, thank you very much.


The bottom line is that war always causes inflation, at least when it is funded through money-printing instead of a pay-as-you-go system of taxes and/or bonds. It might be great for a handful of defense contractors, but war is bad for Main Street, stealing wealth from people by making their dollars worth less.

And contrary to what many pundits say, war will not lead to an economic recovery.

And as discussed above, liberals such as James Galbraith and conservatives such as Ron Paul agree that we wouldn’t get into as many wars – and the wars which we did wage would be ended more quickly – it if the people were required to pay for them directly instead of war being paid out of the “hidden tax” of inflation."

War Causes Inflation ... - Global ResearchGlobal Research - Centre for Research on Globalization

To put this in context, how many of you would support US involvement in the war in Ukraine if you had to personally finance your share of the cost of supporting the conflict from savings, or put it on your Visa Card, sell personal assets to pay the bill or have the equivalent of a judgment against you to pay for it out of future earnings? How many wars/conflicts do you think the US would have entered if Congress had to ask the people to fund them? Most people are oblivious to the cost of war and how it's really funded.

[Peter1469]

86% of all federal spending is Social Security, Medicare, and Medicate. ROI: 1:-.067.

[Dr. Who]

86% of all federal spending is Social Security, Medicare, and Medicate. ROI: 1:-.067.

Much of the cost of war doesn't show up on any ledger because it's reflected in the cost of inflation, so there is no accounting or accountability for those indirect hidden taxes.

[countryboy]

Much of the cost of war doesn't show up on any ledger because it's reflected in the cost of inflation, so there is no accounting or accountability for those indirect hidden taxes.

According to a left-wing Canadian think tank, lol. Besides, we're not at war.

[Peter1469]

Much of the cost of war doesn't show up on any ledger because it's reflected in the cost of inflation, so there is no accounting or accountability for those indirect hidden taxes.

Government spending is the main driver of inflation. 86% of government spending is far more than what we spend on war.

[Dr. Who]

Government spending is the main driver of inflation. 86% of government spending is far more than what we spend on war.

What is directly spent on war isn't the issue, it's every additional penny you are spending on the cost of goods and services that inflate because of war. When the cost of fuel for your car or to heat your home goes up by 20 to 30 percent and the cost of all other goods also rise by various percentages, at the end of the tax year, you may have paid out up to 10% of your income in inflationary costs, depending on the size of your income and how you earn it. The longer the war lasts, the worse the inflationary effects become. It's not government spending that is responsible for the rising fuel costs (prices are set on the world market), it's the drop in supply, but higher fuel costs affect manufacturing and so drive up the prices of consumer goods and food. This is known as cost-push inflation. It may or may not be followed by increased government spending to try to mitigate the economic impact on those who are hardest hit by rising prices, which adds to the other kind of inflation.
The Reasons Why A War In Ukraine Will Make Inflation Worse (forbes.com)
The Fed - The Effect of the War in Ukraine on Global Activity and Inflation (federalreserve.gov)

This one is more about the connection between central planning, the Fed and war: War and Inflation | Mises Institute

[Peter1469]

What is directly spent on war isn't the issue, it's every additional penny you are spending on the cost of goods and services that inflate because of war. When the cost of fuel for your car or to heat your home goes up by 20 to 30 percent and the cost of all other goods also rise by various percentages, at the end of the tax year, you may have paid out up to 10% of your income in inflationary costs, depending on the size of your income and how you earn it. The longer the war lasts, the worse the inflationary effects become. It's not government spending that is responsible for the rising fuel costs (prices are set on the world market), it's the drop in supply, but higher fuel costs affect manufacturing and so drive up the prices of consumer goods and food. This is known as cost-push inflation. It may or may not be followed by increased government spending to try to mitigate the economic impact on those who are hardest hit by rising prices, which adds to the other kind of inflation.
The Reasons Why A War In Ukraine Will Make Inflation Worse (forbes.com)
The Fed - The Effect of the War in Ukraine on Global Activity and Inflation (federalreserve.gov)

This one is more about the connection between central planning, the Fed and war: War and Inflation | Mises Institute

I suppose when the money dries up our spending on social security, Medicare, and Medicaid will control itself. Massive cuts. Or end.

[zelmo1234]

Much of the cost of war doesn't show up on any ledger because it's reflected in the cost of inflation, so there is no accounting or accountability for those indirect hidden taxes.

Any spending that the federal government does will never be absorbed and paid back by the economy.

You mentioned Roads, if it is a project using federal funding they have to pay prevailing wage costing the tax payers more to get the same project done! Thus not as many projects can be completed in the course of the construction season.

At best you get 15 cents on a dollar when the government is in charge of the spending.

People keep looking to government for the solution, and in the words of Ronald Reagan, "Government is the Problem"

[Dr. Who]

Any spending that the federal government does will never be absorbed and paid back by the economy.

You mentioned Roads, if it is a project using federal funding they have to pay prevailing wage costing the tax payers more to get the same project done! Thus not as many projects can be completed in the course of the construction season.

At best you get 15 cents on a dollar when the government is in charge of the spending.

People keep looking to government for the solution, and in the words of Ronald Reagan, "Government is the Problem"

On the other hand, would you really want federal roads being built with illegal labor, because that's ultimately how you get projects built for less.

[Newpublius]

Much of the cost of war doesn't show up on any ledger because it's reflected in the cost of inflation, so there is no accounting or accountability for those indirect hidden taxes.

Subject to your initial caveat of course:"The bottom line is that war always causes inflation, at least when it is funded through money-printing instead of a pay-as-you-go system of taxes and/or bonds."