Vox Humana wrote:
The comment wasn't directed at you, but the person who decided that we
needed guns instead of butter. The "Guns and Butter" curve is based on
the
fact that there is limited productivity. You can produce guns OR butter.
When one product goes up, the other goes down unless you can increase
productivity.

Which is why traditional war was initially good for the economy. It can
result in unemployed workers finding employment creating supplies for the
war. However over the last half century, our military has stockpiled most of
what they need ahead of time, so new jobs don't materialize as they did in
the past. (Our economy also isn't based as much on manufacturing, either.)

You also don't get the big production shift from consumer goods to war goods
even if the war continues. For example, when WWII there had been lots of
money made by working class people. For the first time in history, some
families had dual incomes. The women were working not because they needed
money. They were working because there was a labor shortage. But consumer
goods were either not manufacturered, or repurposed for the war effort, so
there wasn't anything to spend money on. That money was available to spend
after the war, and kept the economy humming for a few years.

Also, today, war is funded by taxes. Taxes that drain money from disposable
income. Taxes that aren't used as pooled money to buy things to fuel the
economy (such as roads). (The "guns and butter" curve does apply to Federal
spending.) All that extra income that couldn't be spent during WWII was put
into savings: Specifically war bonds that funded the war instead of direct
taxes. So instead of draining money from the economy like the current war,
WWII took advantage of disposable income that couldn't be spent.

So the current war didn't give us the initial boost in productivity. It
isn't providing additional disposable income to families. And it's draining
money from the economy in the form of direct taxes, rather than using
borrowed bond money.

So the "guns and butter" curve is actually only kicking in for the Federal
government. Disaster relief will further drain money from the pot the
Federal government has to spend, which will mean either less "butter" for
us, or higher taxes to raise the productivity of the Federal government. But
"guns and butter" doesn't apply to our economy directly as it did in the
past. We didn't see an initial boost in employment. We're not seeing
families gaining disposable income. And there won't be a big pool of money
that had been loaned to the government available to spend when the war is
over.

And now the huge amount of tax dollars that will be needed for disaster
relief will mean further money drained from the economy. There won't be as
much money for roads elsewhere. There won't be as much money for education.
There won't be as much money available for anything that relies on Federal
funding. And while there will be a lot of new jobs created to rebuild, those
new jobs are counter-balanced by all the jobs lost in the region. And the
money earned on those new jobs won't be going into the national economy.
It'll be funneled back into the regional economy for the rebuilding effort.

Funding a war and rebuilding the Gulf Coast at the same time is going to
cost us big time. Gas prices over $3 are just the beginning. At some point
we may find ourselves with a hard choice: Discontinue funding for either the
war or disaster relief, or allow the national economy to collapse. (Any bets
on what the current administration doesn't want to stop funding regardless
of the cost?) And that's when the "guns and butter" curve will kick in big
time. It no longer will just be something affecting the spending of Federal
tax dollars. It will affect our entire economy. Once that happens, "guns and
butter" will be very real to all of us.

--
Warren H.

==========
Disclaimer: My views reflect those of myself, and not my
employer, my friends, nor (as she often tells me) my wife.
Any resemblance to the views of anybody living or dead is
coincidental. No animals were hurt in the writing of this
response -- unless you count my dog who desperately wants
to go outside now.
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