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A common misconception is that during wartime, economies improve. It is logical to come to the conclusion that, because we need more materials for the war, businesses make more things and hire more workers. This leads people to believe that the war is actually shaping up the economy by decreasing unemployment and thus creating more people to spend money in our economy. But according to Mike Moffatt, this concept is built on a fallacy
The broken window fallacy is explained by Moffatt. If a child were to throw a brick through a shoemakers window, some people may look at this as benefiting the economy. If the shoemaker spends money to fix the window, he is then putting money into the window industry and that money then is flooded throughout the economy. The reason this is a fallacy is because the shoemaker could have been waiting to spend the money somewhere else, thus the broken window is taking the money from whatever industry he was planning on using the money for.
This is the same during wartime, we flood the industries that will benefit our military, but other industries get cut short. Monnatt says "the economic losers are far more difficult to identify than the economic winners". Just because we cannot blatantly see who gets cut short because of a war, doesn't mean it will re establish an economy.
Future Research Question: Specific wars and impact on economy.
