Originally posted by Lizard3
Actually, that money isn't going up in smoke. Isn't 90% of it going to US companies or to soldiers pay? I'm not saying it will cause a economic boom, but is it really hurting the economy much? Purely analitical thinking, non-emotional.
Yes, it does hurt the economy...here is how:
To man this war it was necessary to call up reserves. This pulls privately employed individuals from gainful employment pumping goods and services into the US economy and places them in a position performing a function (ridding the world of Saddam) that does not add to the US GDP. Further, many companies will supplement the pay of an employee called to active duty if his/her duty pay is lower than their regular salary...those dollars increase the cost of production for the employer. Even if the company does not supplement salaries, they must bear the expense of temporarily replacing the soldier (which may include hiring costs, training costs, and probably an unemployment insurance assessment when the temp is released after the soldier returns to work).
Also, while deployed, these soldiers will spend a portion of their pay in a foreign country...whether it is at the camp PX or at a Baghdad market, those are dollars that are not going into a
local US economy (I emphasize "local" because the items purchased at the PX do not support local retailers). Further, if the soldier is single and has no household to maintain in the states, it is likely he/she is saving quite a bit...interest rates are already at all time lows indicating that there is too much money in savings and not enough being spent or invested in the private sector, so their added savings are not helping spur the economy.
As for the US companies getting the contracts for re-building Iraq...it is unlikely that they will exclusively use US employees, i.e. they are not going to ship in a thousand construction workers to rebuild the bridges. Instead, it is more likely that they will use local labor. So again, the majority of that money goes into the Iraqi economy rather than ours.
When the economy is weak, increased government spending can help so long as it is for the right thing. If spent on infrastructure or some other means of reducing transaction costs, then the expenditure will provide long term benefits to the economy by reducing the cost of doing business and simultaneously increasing employment. But pumping temporary dollars into the economy will not cause a recovery from recession...it is like eating candy when you are hungry, it will only produce a temporary sugar high but not end your hunger.
