This has nothing to do with Iraq, more economical theory.
Does a war cause an economy to grow, and if so, at what period? Recent examples such as George Bush started a war so he could improve the economy made interesting headlines, but is there any fact? Wars increase productivity, but is it still good enough to pull economies upward and overcome uncertainity the market faces when countries go to war?
Try to keep it clean of political debates please 
In general, no, wars do not cause economic growth. In fact, the increase in taxes and government debt that is necessary for war usually has a negative effect.
WWII is the classic example of a war that increased economic growth, despite the large increase in taxes that occurred during that era.
How did it happen?
An introductory course in macroeconomics will distinguish between “Aggregate Demand” for goods and services -how much individuals, businesses and the government wants to buy- and “Aggregate Supply” - how much the economy is able to supply.
Wars increase aggregate demand. If there is excess capacity in the economy - think of that as idle factories - the war will increase growth. That’s what happened during World War II: there was a lot of excess capacity (not to mention unemployed individuals) that was put to work when the government increased its spending on goods and services. Recall that WWII followed the Great Depression.
The Vietnam War, in contrast, occurred when there was relatively low unemployment and excess capacity. As a result, firms would raise their prices when faced with the added demand. When all firms raise their prices at an increasing rate, that results in higher inflation.
Summary: Wars increase demand. Whether that leads to higher growth or just higher inflation depends upon the pre-existing state of the economy.
(Obviously, larger wars will add more demand to the economy than smaller wars.)
Small point:
If the government increases taxes by the same amount that it increases spending, that will actually tend to increase aggregate demand. To see why, look up “Balanced budget multiplier” in your economics text.
Also WW2 was mainly fought on someone elses land, so we didn’t loose that many things (much less then europe).
Technology has greatly changed war, it has made weapons much more efficient.
The economy has grown by leaps and bounds, it is a true world economy.
But there are enough cases in which war has stimulated the economy that we have seen the situation in which “Peace Breaks Out.” Don’t know when the expression was first used, but that’s the general implication of such a phrase.
BTW:
Productivity is typically defined as output per unit of labor. Investment (purchasing of machines and the like) will increase productivity. More to the point, technological advancement will also increase it.
Whether a war will advance technological change or lead to higher private investment is unclear, assuming that the economy is not already suffering from an extended 10-year depression (as it was in 1939).
Apparent economic growth during war is better explained by the increased deficit spending of the warring parties. Maxing out your credit card might make things look great for a while, but your ability to produce wealth has not necessarily improved, and the interest on that debt is going to hurt you in the long run.
Why do people assume the economy in the US during WWII was so great anyway? GDP might have been increased, but as I understand it, Americans had severe fuel, food, and raw material rationing. Is that a sign of wealth?
All this “increased aggregate demand” talk is obfuscating the issue. The question is, does the increased economic output (via high taxes and/or high deficits) of a warring nation go towards improving the lives of its people? Apart from the munitions producers, the answer is no. Money and labor put into building and delivering bombs is wealth that could have been used building schools or cars. And the business end of the bombs destroy wealth in the form of factories, homes, and lives. Both sides lose, economically.
There might be full employment during an all-out war, with everyone being paid with borrowed money, but I don’t consider that a healthy economy. Post-WWII, the US went into a recession, which is evidence that wartime spending produced, if anything, a flash-in-the-pan effect. Europe, also in debt but bearing the brunt of the war damage, went into a major recession. Was any country in the war better off economically because of it? I don’t see how.
WWII boosted the US economy, but it also left those of Western Europe in shambles.
War is generally a zero-sum proposition; those supplying the weapons see strong growth, while those on whose territory the war is being fought on see massive losses as infrastructure is decimated and the general state of emergency forces closures of non-essential business.
Most modern wars don’t require an increase in production; we haven’t really had to build extra battleships or tanks, for example, for the invasion of Iraq, and thus the effect of production increases on the economy has been minimal.
Bush starting the war to distract people from the economy is a much likelier proposition than Bush starting the war to boost the economy.
In my History of Economics class (it was an Econ class), there was data showing that warring parties showed an increase in growth during their war period. I don’t remember what the economies were of the losing parties, however. We also paid a lot of attention to the US, and historically, US has always shown a grown right after the war. However, there was also a resulting depression, just not as bad to wipe out all the gains during the war. Also, look at the world economy (then again, one could argue that the economy grew despite wars). I also remember from my class that analyzing econ data take a long period of time to see the effects, much like a president’s econ initiatives.