How can war/military spending benefit the economy?

[Mohmar Deathstrike]

My non-existant training in economics does not allow me to understand how Germany's boost in military spending after 1933 dragged the country out of the Great Depression and how the USA's entry in WW2 did the same. I heard Egypt's economy was also slightly healthier after their war with Israel in 1973 than it was before.

The way I would "predict" the outcome of such an event would be as follows:

Before the war, production is low, unemployment high.

As the war starts, lots of jobs are created to operate and manufacture military equipment. That's good, right? But who's paying all these people and resources? The people, which means that taxes have to be risen, which in turn would lead people to bankrupcy and a worse economy.

Can anyone give me a breakdown of how it actually works?

 

[Rabs]

Its called defecit spending, you spend more without takeing in any more. Great in the short term, doesnt work too well in the long term.

 

[Maytime]

Rabs is right, and in fact that is what got us out of the Great Depression as well.

In macro-economics, the total GDP of a nation, used by many to gauge an economy's health based on trends and sheer size, is divided into various kinds of spending and allocations, one of which is G for Government spending. The higher the "G", the higher the GPD, if no other section is changed. Here comes the big BUT. BUT, since G spending does not guarantee an increase in, say, disposable income per capita near the poverty line (low-income households), all it does is drive us further into debt.

What really got us out of the depression was the increase in consumer spending (i.e. more jobs=more $$ to burn), or more specifically, people spending the money they got from their fancy new jobs and pumping it back into goods and services, creating a booming increase in producer profit. Also, when everything produced is used by the government (i.e. military goods), the govt gets a return on their investments, making everyone happy.

Can you believe I hated econ class!