THE WAGES OF WAR.(effects of war on the US economy)

On April 18, 1942, sixteen American bombers under the command of Lieutenant Colonel Jimmy Doolittle took off from the aircraft carrier Hornet and flew six hundred miles to bomb Tokyo. The bombers did little damage, and all but one of them were forced to crash-land when they ran out of fuel. But, after four months of unrelentingly bad war news, Americans saw the mission as a psychological turning point. Days after the raid, the U.S. stock market, which had plummeted after the attack on Pearl Harbor, began to rally sharply. The U.S. economy, meanwhile, was booming, and grew more than fifteen per cent in both 1942 and 1943.

In 1950, the United States went to war in Korea. As military spending soared, the economy, which had been in recession in 1949, took off, too, growing 8.7 per cent in 1950 and 7.6 per cent in 1951. It happened again in the early years of the Vietnam War.

The lesson seems clear enough: war means economic growth and a stock-market rally. So, with the slowdown lingering, and the United States apparently on the verge of invading Iraq, people are wondering whether a war, whatever its benefits and costs, would give the economy a jolt. But, as the investment advisory has it, past performance is no guarantee of future results.

War would still affect the economy, only not in the manner that it has before. To begin with, this war would cost much less than past wars in relation to the size of the economy. The U.S. spent almost three trillion dollars, in current dollars, on the Second World War--a hundred and thirty per cent of the gross domestic product. During both Korea and Vietnam, the country devoted almost fifteen per cent of its G.D.P. to war. Most estimates of what an Iraq war would cost suggest that the U.S. would spend somewhere between fifty billion and a hundred and fifty billion dollars--a lot of money, but a tiny fraction (between 0.5 and 1.5 per cent) of the G.D.P.

This war is also likely to go quickly. During the Second World War and the Korean War, mobilization transformed the economy. Not this time--G.M. won't be retooling to turn out tanks. What's more, the defense budget is already immense, so that the additional cost of waging war would be relatively small, assuming that things didn't go terribly. The era of military Keynesianism, in this country, at least, is dead, and we really shouldn't mourn its passing: an economy that relies heavily on military spending is unhealthy anyway.

In this case, the major effect of the war would be more psychological than material. Uncertainty about the conflict has been weighing on the economy for months. C.E.O.s, shackled by scandal and slumping stock prices, have shown little enthusiasm for making major investments while war looms, and consumer confidence has fallen to ...