America's deficit-financed military buildups have had a powerful impact on its postwar macroeconomic performance. Three of the American economy's four longest postwar economic expansions have occurred in the midst of, and were triggered by, the three post–Korean War military buildups, all of which, as we have seen, were paid for by running large budget deficits. These postwar booms have been responsible for a considerable share of the increased prosperity the American economy has generated since World War II. In each instance, the unemployment rate has been cut in half over the course of the boom. And each boom has raised per capita income by about 22 percent, on average, although since the 1980s these income gains have been unevenly distributed. Deficit-financed military buildups have thus ushered in extended periods of exceptional prosperity. These booms have also carried less welcome consequences. They have been associated with an overvalued dollar, which in trade-adjusted terms has appreciated by about 30 percent during each boom. Buildups have been accompanied by deteriorating current account balances.

America's deficit-financed military buildups have generated economic booms because of America's global financial power. American financial power is generally seen to derive from the dollar's position at the center of the international monetary system as a reserve and vehicle currency. As Cohen (2006: 45) notes, the dollar's international centrality creates a sustained global demand for dollar denominated assets. The United States' position at the center of the international financial system enables American residents to attract foreign capital in large volumes at low interest rates for extended periods. As a result, when the American demand for capital rises, the United States simply attracts a larger share of total cross-border capital flows. Because the United States can import large volumes of capital from the rest of the world for extended periods, the persistent budget deficits that result from military buildups do not crowd out private investment.