Humans don’t take wealth, they create it. And they create it by virtue of dividing up work with other humans and machines. It’s called specialization, and it’s the root of productivity.
These truisms are frequently ignored thanks to economists, and prominent sources of news that shed their common sense when they’re being instructed by those with PhDs. The “experts” believe against all reason that the killing and maiming of humans is a driver of prosperity.
Think a recent front page story at the Washington Post. Titled “Overheated Russian economy powers war,” within the article the Post’s Robyn Dixon wrote that “massive military spending including high payments to soldiers has fueled economic growth, as well as high wages and inflation, as companies are forced to match military salaries to attract workers.” The bet here is that Dixon could be persuaded to rethink her report.
Dixon glossed over the impossible to ignore truth that governments only have money to spend insofar as they have taxable access to the production of their citizenry. If that weren’t the case, as in if countries could create demand by simply writing checks or “printing money,” then it’s a safe bet that the Soviet Union would still exist today in place of Russia.
Looking back to the Soviet era, rubles were everywhere. The problem was that no one, including the Soviet people, wanted rubles. Rubles didn’t buy much of anything. Money doesn’t buy things, only production does.
Translated, governments can print money with abandon, but they can’t generate the power to consume with abandon. Consumption is the always and everywhere consequence of production. Since the Soviets weren’t producing, the rubles in the pockets of workers who “pretended to work” were basically worthless. As Cato co-founder Ed Crane observed after a 1981 visit to the Soviet Union, it wasn’t a military threat precisely because it had no economy to pay for a war. Production first, then consumption.
Fast forward to the present, Russia’s funding of its war in Ukraine isn’t powering economic growth, rather it’s an effect of it. This isn’t a knock on Post reporter Robyn Dixon, rather it’s a critique of the economic PhDs who near monolithically think consumption drives economic growth, and that government stimulates consumption by redistributing wealth.
To pretend government spending powers growth amounts to double counting. Repeat it over and over again, governments have no power to stimulate consumption. Only production enables consumption, and governments produce nothing. To the extent that their citizens “demand” goods and services after government spending, the “demand” was taken from the pockets of those taxed. For governments to increase demand, they must shrink it elsewhere.
As for the Russian government allegedly boosting private wages via high wages offered to soldiers, the notion fails twice. If Russian politicians are offering big signing bonuses ($31,500) and high pay to attract soldiers, the latter is a consequence of reduced funds being matched with private sector workers.
Of much greater importance, it cannot be stressed enough that human beings are wealth creators by virtue of working. The more that humans and machines can divide up work, the more that they can specialize, and the greater their productivity. In other words, the more we can divide up work the more we can produce and the greater our pay.
The problem is that war exterminates humans, meaning war exterminates wealth. Contrary to what’s reported at the Washington Post, war amounts to economic depression of the worst kind precisely because it wastes the humans who drive all growth. So while Russia’s economy may be growing, the “unseen” of much greater growth borne of Russians and Ukrainians working alongside one another absent the killing and maiming is vast.
