Question

I am sure you have all heard the expression "war is good for the economy." Why is that?

Answer 1

The traditional "a war gives the economy a boost" statement goes as follows: Assume the economy is at the low end of the economic cycle, and we're in a recession, or even a time of low growth. If the unemployment rate is high, people will make less transactions than they did a year or two earlier, and the production is flat overall. So instead the nation makes up its mind to plan for war. The government wants to buy extra equipment and weapons for its troops. The companies win contracts to supply the army with uniforms, explosives, and equipment.

Some of those companies would need to employ additional staff to meet increased demand. Whether the plans for the war are sufficiently significant, large numbers of employees would be employed, thereby reducing unemployment. Certain staff may be employed to replace reservists who are sent abroad in private sector jobs. Since the unemployment rate going down, more people are spending again and people who had jobs before will be less concerned about losing their jobs, and they can spend more than they did.

This increased investment would benefit the retail industry, which would need to recruit more workers, allowing unemployment to fall even further. And the government planning for war is building a wave of positive economic development.