Submitted by Econbrowser

From FT yesterday:

Crisis cushioned

By Daniel Dombey

Published: February 19 2008 02:00 | Last updated: February 19 2008 02:00

George W. Bush yesterday suggested that the war in Iraq could help the US economy, arguing that war spending had contributed to demand and cushioned the blow of the subprime mortgage crisis, writes Daniel Dombey in Washington .

The president rejected the idea that the war was an economic burden. “I think actually the spending in the war might help with jobs . . because we’re buying equipment, and people are working.”

While I cannot deny the point that, ceteris paribus, if we removed $120 billion or so spending per year [1], [2], aggregate demand would be lower, it does seem to me that there might be better ways of spending that amount of resources, say investing in infrastructure [pdf] (including checking bridges), regulating food safety, etc. In addition, there might be types of spending that would have larger multiplier effects. (Interesting nonrobust results in Blanchard and Perotti (2002)).

So perhaps I should take away the adjective “accidental”, and replace it with “serendipitous”?

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