Wednesday, December 24, 2008

War and fiscal stimulus

Martin Feldstein proposes a temporary rise in defense spending on supplies, equipment and manpower, as part of any fiscal stimulus package. Military procurement is a classic fiscal stimulus measure, the most famous example being the role of World War II spending in decisively pushing the American economy into a high growth trajectory.

This has resonance for India too, especially through investments in an one-time catch up for the resource-strapped defense forces. It is also likely to bring political points, especially in light of the Mumbai attacks and the sabre-rattling with Pakistan. By logical extension of this argument, a war with Pakistan has the potential to be the ideal fiscal stimulus! Wonder why the Pakistani Government is not using this to buttress their claims of Indian war mongering!!

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