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What Happens to the Economy when the Country is at War What happens to the economy when the country is at war? No two conflicts are the same but I suspect many people equate war with recession — when the bombs start to drop, economic gloom deepens.This is understandable but wrong. It is true that Iraq's invasion of Kuwait in the summer of 1990 coincided with the start of Britain's last recession. The Gulf War (which like all other episodes after the Second World War, including Korea and Vietnam, was never declared as a war by America) appeared to the uninitiated to trigger the downturn. In fact, while that conflict was not helpful, particularly as it pushed up oil prices sharply, it played little part in the recession, which had its roots in 15% interest rates, established a year earlier.In the two main wars of the 20th century, similarly, recession was not a problem. The war effort entailed a big increase in economic activity and productivity. Unemployment was eliminated. The problem, as Lord Skidelsky points out in Fighting for Peace, the third volume of his biography of John Maynard Keynes, was more typically one Breitling Replica Watches of inflation. Prices...more
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