10 Ways Going to War Can Blast a Hole in Your Finances (or Make You Money)
When it comes to your finances, “dropping a bomb” probably isn’t associated with anything positive. But in terms of actual military action, it can be a mixed bag. It’s hard to see how an American ship unloading cruise missiles onto a Syrian airbase directly impacts your wallet, but in a few subtle ways, it does. It might be a good or bad thing, depending on a number of factors. But the important thing to know is military action has consequences — and not just for those on the receiving end.
When President Donald Trump decides to green-light a military operation — even a relatively small one — there are financial consequences. We’re already spending an enormous amount of money on national defense, and in one night we managed to blow through about $60 million worth of heavy weaponry. But those are just the costs on the surface. They can — and do — seep down, impacting American families.
Military action can freak people out. It can slow down business (or drum it up, in some cases), leading to economic sluggishness. Stocks might lose (or gain) value. There are numerous ways in which military operations can hit your finances.
We’re engaged in the longest war in U.S. history in Afghanistan. At this point, many of us have forgotten it’s even going on with conflicts with the Islamic State and other areas dominating the headlines. And in addition to that, we have all kinds of other operations (often covert) that are happening every day. Most probably won’t affect you. Others, especially if they become full-scale conflicts, can and do have an effect.
Let’s take a closer look at 10 ways American military actions might hit close to home, in either a negative or positive way.
1. Job losses
We mentioned wars can lead to economic slowdowns. This can happen for all sorts of reasons, including personnel leaving to go fight, investors losing confidence in the ability to earn returns, and resources needed to engage in conflict being tied up. Many noted economists have said wars or prolonged conflicts are economy-killers. And when the economy slumps, people lose their jobs.
Next: But one person’s loss might be someone’s gain.
2. And job gains
But you also have to look at the flip side. Although a war might cause a recession, certain industries thrive during wartime. Specifically, defense and weapons manufacturing tend to see an uptick. For that reason, a war might be somewhat welcome news to those in the industry. And when demand increases for weapons or other military-grade hardware, workers are hired to produce it.
Next: Taxpayers are always on the hook.
3. Tax hikes
When the U.S. went to war in Iraq in 2003, President George W. Bush did so without a plan to pay for it. Essentially, we put it all on the national credit card through deficit spending. This was in lieu of raising taxes. Still, those costs need to be paid for by the taxpayer. During past wars, such as World War I and II, taxes went up over the course of the conflict to offset the costs and were cut later. The Iraq War, then, is atypical. If we end up in a prolonged military engagement, it usually leads to tax increases.
4. Stock prices might tank
Playing the stock market during a military conflict can be a dangerous game. As mentioned, the economy might become sluggish, causing many stocks to lose value. This, of course, really depends on what specific industries you’re looking at. Wars are periods of uncertainty, and investors hate uncertainty. It’s risky. But what it really comes down to, if you don’t want to lose money, is being very choosy about your investments — as we’ll discuss next.
5. But some stocks will gain
Some stocks will fall, and others will rise. As we discussed, you’re going to want to focus on companies that specialize in weapons manufacturing or national defense. It all goes back to what we mentioned earlier: War is good for business if you’re in the right business. Sometimes, it doesn’t even take a big military conflict. It can be a single attack. Even after a terrorist attack, stocks for defense companies can soar.
6. Price fluctuations
Military conflicts can cause shortages of certain types of items. This, naturally, is reflected in the prices we end up paying for those items. For example, gas prices might go up or down (or not budge at all) as a result of military action in the Middle East. But this can happen for a number of other things we buy daily, too. It depends on the nature of the conflict, where it’s happening, and what commodities are entangled in it all.
Inflation is the magical ability your money has to become worth less over time. There’s usually a natural level of inflation in every economy. For example, the Federal Reserve aims for a goal of 2%. But a military conflict can speed that up. How? It has to do with uncertainty and expectations. Prices might go up as shortages for certain goods are anticipated, even if those shortages never occur. Suddenly, you’re spending more than you were before on the same goods. It’s more complicated than that, but that gives you a basic idea.
8. In the military? You might get a pay bump
If you’re a military service member, a war or conflict is going to have a much bigger impact on you than the average American. Obviously, you might be called to serve. But it can also impact your finances in that you can earn more money. And depending on your specific role, you can earn bonuses or different levels of pay. There’s hostile fire pay, for example, as well as all kinds of other pay incentives.
9. Government spending
Again, this is obvious, but during wars, governments open up their pocketbooks. When the government is spending more money, it has to do one of two things: raise taxes to cover the costs or borrow the money (deficit spending). We talked about raising taxes, but what about deficit spending? How does that hurt you? The short answer is it doesn’t, at least not immediately. But government debts pile up. And in the long term, that can lead to higher interest rates, taxes, and rates of inflation.
10. The cost of human life
Finally, we can’t discount the toll wars take on human life. When a soldier doesn’t return home, a family doesn’t just lose a mother, father, brother, or sister. We all lose a fellow American — one who had skills, who was educated, and who might have been a co-worker, boss, friend, etc. We all play a small part in the economy, and when we lose people to wars and conflicts, it hurts.
Although we don’t have the incredible body counts these days that we did in past wars (imagine losing more than 20 million people, as the Soviet Union did in World War II), every man or woman who loses their life in defense of our country is a painful loss.