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GDP Counts in War and Peace

Noah Smith is a Bloomberg View columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.
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A question I often hear people ask is: Why should we care about a country’s total gross domestic product? After all, India has a total GDP many times that of the Netherlands, but the Netherlands has a much higher standard of living. Shouldn’t we concern ourselves only with per capita GDP -- or some other more accurate measure like median per capita income?           

 This isn't just an academic question -- it's important for policy. Japan’s falling population won’t be catastrophic for its per capita GDP, but it will drastically decrease the total. Should Japan be trying to boost population size, by increasing fertility and letting in immigrants? If you think that only living standards matter, then maybe this just isn’t important.


 But there’s a dirty little secret that almost never gets mentioned when people talk about this issue. Total GDP may not be important for living standards, but it is very important for military power. The Netherlands may be far richer than India, but there is little question of which would prevail in an all-out war. Total GDP is basically a combination of population size, technological advancement and the size of the existing capital stock, all of which are very useful for winning wars.

Many scholars believe that total GDP is the reason the Allies won World War II. University of Warwick economist Mark Harrison makes this argument in “The Economics of World War II: Six Great Powers in International Comparison.” Once the USSR and U.S. entered the war on the Allied side, an Axis victory became impossible. The disparity in economic power is clearly visible in this map from Vox, which uses Harrison’s data:

We didn’t always out-fight our enemies in World War II, but we always out-produced them. A similar reality prevailed in the U.S. Civil War, in which the industrial might and large population of the Union eventually overcame the superior military training of the Confederacy. 

Skeptical readers, of course, will point out that there are many instances in which a small, poor country defeats a large, rich one -- Vietnam, for example. But in these cases, the definition of “victory” is different than it was in World War II -- there was never any chance of North Vietnamese troops occupying Washington. In fact, the ease with which the U.S. could have crushed the entire Vietnamese nation, had it wanted to, was one reason for the protests against that war. 

In the modern day, thankfully, great powers don’t often go to war. Let's hope this “long peace” will continue. But that doesn’t mean that military capacity is unimportant. Big countries can still push around smaller ones. As China’s foreign minister said to Singapore’s during an argument over a territorial dispute in 2010: “China is a big country and other countries are small countries, and that's just a fact.” In 2012, China seized a disputed shoal from the Philippines -- yet more proof that even in a peaceful world, size is important. 

This is a big reason why Japan is concerned about its population size. Jeremy Bender of Business Insider reports:

Japan is a cultural and economic powerhouse. But its ability to mount an effective military deterrence in the fact of a rising China may shrink in the coming decades as Japan faces a substantial problem: impending demographic collapse...[F]ewer and fewer young Japanese would enter the military…shrinking the armed forces at a time when China becomes more and more assertive.

 When I compared U.S. total GDP to China’s, many people complained that total GDP is irrelevant. But the fact that the world’s largest economy (in purchasing-power parity terms)  is, for the first time in centuries, no longer one of the world’s most liberal countries should not be taken lightly.

 The growing might of illiberal China is yet one more reason the U.S. should maintain a steady rate of population growth via immigration. University of Michigan economist Miles Kimball made this case forcefully back in 2013:

 [I]n the 21st century, we should view claiming more of the world’s people—not more of the world’s land—as the key to national wealth, and therefore, national power. And all we have to do to claim more of the world’s people for the US, is to open our doors to immigration, as the US did in the 18th and most of the 19th century. Ben Franklin knew that America would become a great nation because people from all over the world would eagerly move to America. The key to maintaining America’s preeminence in the world is to return to Ben Franklin’s visionary grand strategy of making many more of the world’s people into Americans.

Although there are many other reasons to welcome immigrants, this one should not be totally ignored.

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