War Bonds in an Economy Built on Spend?

It's no surprise that the wars conducted by the U.S. in Iraq and Afghanistan contribute hugely to the national deficit. One would need to be at least 80 years old to remember when the cost of World War II was partially funded by War Bonds, though we've all heard about them or have seen "Buy War Bonds" ads in old newspapers and magazines. The New York Times this past Sunday published an analysis of why war bonds not only would not work today, but could also be detrimental to the economy and its recovery.

The Times states, "Reaching back into the nation's history books, some lawmakers are suggesting a war bond program similar to those used during the Civil War and both World Wars. Such a program might reduce the country's reliance on foreign borrowing and avoid a tax increase ... World War II bonds ... were promoted by movie stars like Bette Davis and Rita Hayworth, who toured the country to rally support. Norman Rockwell drew up some of the government's advertisements, with slogans like: 'Ours ... to fight for. Freedom from fear.' And the Treasury Department organized a door-to-door drive. About $185 billion in bonds were sold." Such a scenario seems almost impossible to imagine today, but not for the reasons you might think. Yes, the U.S. is politically polarized and a large number of U.S. citizens believe we should never have gotten involved in these wars in the first place. But this was also true during WWII. So what's changed?

The Times quotes James J. Kimble, a professor at Seton Hall University and author of Mobilizing the Home Front: War Bonds and Domestic Propaganda. "With war bonds, we would be effectively saving this money and taking it out of circulation. War bonds in effect limit our spending. It could be that that ends up shooting our economy in the foot because our economy was more built on spending today." Additionally, the article points out that "World War II was a boon to the economy, creating jobs, mainly in manufacturing. The war against terrorism has not provided similar benefits for the American economy."

Saving and spending are not diametric opposites, and both will be needed for a sustained recovery. While the idea of selling war bonds today seems anachronistic, I find the concept interestingly democratic (with a lower-case “d”). At a time when lobbyists have significantly usurped the allegiance of our elected representatives and deficit spending continues to threaten our future economy, asking the citizenry to invest and support -- or not -- an astronomically expensive and controversial foreign policy sounds like democracy in action, and at least a partial alternative to increased taxes while providing an instrument for savings.

William Busch

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