The “wartime economy” fairy tale misunderstands what GDP measures.

Julia R. Cartwright is a senior research fellow in law and economics at the American Institute for Economic Research.

Whenever a war or military buildup arrives, it is accompanied by a curious reassurance from commentators and officials: Military spending is good for the economy because as defense contracts are awarded, factories hum, unemployment ticks down and gross domestic product climbs.

But this assumption rests on a misunderstanding of what GDP measures and what it doesn’t.

GDP is the sum of four categories: consumer spending, investment, government expenditures and net exports. Every dollar spent by the government counts the same as every dollar of consumer spending. A billion dollars spent on a new hospital wing adds the same to GDP as a billion dollars spent on artillery shells.

A distinction should be made.

Consumer spending and investment dominate healthy economies because they are disciplined by reality. When millions of people independently decide what to buy, whether it’s a new car or a medical procedure, they cast a vote with their own money about what is valuable to them.

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