Is the lack of war hurting economic growth?

by on June 13, 2014 at 10:56 am in Books, Economics, History, Political Science, Uncategorized | Permalink

I have a new piece for The Upshot on that topic, here is one excerpt:

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

It may seem repugnant to find a positive side to war in this regard, but a look at American history suggests we cannot dismiss the idea so easily. Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War. The Internet was initially designed to help this country withstand a nuclear exchange, and Silicon Valley had its origins with military contracting, not today’s entrepreneurial social media start-ups. The Soviet launch of the Sputnik satellite spurred American interest in science and technology, to the benefit of later economic growth.

I also discuss new books by Ian Morris, Kwasi Kwarteng, and some research by my colleague Mark Koyama, as well as Azar Gat.  I did not have room in the piece to point out there is an interior solution concerning this issue.  That is, if the chance of war is too high, and property rights are too insecure, that isn’t good for economic growth either.

Urso June 13, 2014 at 11:04 am

I believe just yesterday a commentor pointed out how economists prefer to make counter-intuitive, shocking claims that turn conventional wisdom on its head, thus leading them to say some crazy sh*.

tt June 13, 2014 at 12:14 pm

see also freakonomics

anonymous June 15, 2014 at 9:18 pm

Or anything Robin Hanson

leftistconservative June 13, 2014 at 6:02 pm

more beans and more wars, THAT is what little people need. So say the ivory tower propagandists of Capital, that is…

Rob June 13, 2014 at 11:10 am

Wasn’t it Helmuth von Moltke the Elder who said that peace was immoral, because war reinforced the positive virtues of honor, duty, sacrifice, etc?

Thor June 13, 2014 at 12:23 pm

No, it was Helmuth von Moltke the Younger.

But he might have picked up the expression at the dinner table at home.

Robert June 13, 2014 at 7:37 pm

Was Helmuth wearing a Helmet at the time he said such a wacky thing?

Ray Lopez June 13, 2014 at 11:10 am

TC in a way is simply aping Joe Stalin, and his cronies, who suggested, correctly, that communism functions best when fighting a war, hence “war communism” and the Soviet’s desire for perpetual war (also a theme in the Orwell novel 1984). Indeed the USSR was most productive when gearing up for war, or fighting a war, as was the US government in WWII. Not that TC is a fascist, or commie (flip side of the same coin, see Bullock), but rather he correctly understands that in a mixed economy the government functions best when faced with a clear mandate like ‘fight a war’ rather than ‘make society better so inventors can invent’ (much harder to do, which requires strengthening patents).

The Engineer June 13, 2014 at 11:19 am

You really think so? Look at North Korea for a counterfactual. They transitioned from the high growth heavy industry phase of Communism to “War Communism” (expanding their Army greatly) right at the point in the 1960′s when their decline began.

I don’t know that you could even argue that the Soviets ever moved beyond gearing up for war.

alexei June 13, 2014 at 4:10 pm

And what war was North Korea fighting in the 60′s, pray tell?

The Engineer June 13, 2014 at 4:25 pm

The Cold War. They expanded their Army from about 600k men to 4M, in a country with 20M people, that’s huge.

As the North Koreans faltered economically, they increased their militarization. That is the continuing story of North Korea, whether it is the size of their Army, the development of missile technology and nuclear weapons, or even artillery duels with the South or sinking South Korean Navy ships.

And, since arguably no one is now interested in invading North Korea and ending the regime, what’s the point?

Daniel June 13, 2014 at 4:55 pm

Ummm … you do realize that was the whole point of the “high growth heavy industry”, right ?

To have a heavy industry so you can have plenty of military hardware.

Even thought nobody is thinking about invading North Korea, they need a large military – communism is internally unstable, since it is effectively an open-air prison. The very existence of a non-communist neighbour is an existential threat to a communist government, so they need a large army.

Ray Lopez June 14, 2014 at 1:33 am

It’s well known what I report about war communism, it’s not my original thought. As for North Korea, I doubt they were part of the Cold War except as a proxy, so they don’t count.

moseley June 13, 2014 at 12:55 pm

…aping more like progressive socialist Woodrow Wilson than commie Joe, but disturbing nonetheless:

“Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.”

>

Wow. Government (..more precisely politicians and cronies) never gets basic economic decisions right; and why assume they should be making such decisions at all. Since war is always a real possibility throughout history — just how does this wonderful government special focus arise?

For America, WW I was the critical watershed for “focusing” the economic system. It was a war-collectivism with a totally planned war economy run mostly by big-business interests via the coercive tentacles of the Federal government. This state corporate capitalism was how “war focuses the attention of government”.
It’s been the American economic big war model ever since.

alexei June 13, 2014 at 4:12 pm

US had engaged in large wars before (see: Civil War). But all previous war spending binges were temporary.

What changed during or after WWI to make the increases permanent that time?

Rob June 13, 2014 at 11:12 am

Yes, found the quote:

Eternal peace is a dream –and not even a beautiful one. War is part of God’s world-order. Within it unfold the noblest virtues of men, courage and renunciation, loyalty to duty and readiness for sacrifice–at the hazzard of one’s life. Without war the world would sink into a swamp of materialism.

From: https://www.h-net.org/~german/gtext/kaiserreich/moltke.html

Not saying, I agree with this whole-heartedly, but it’s certainly a consideration.

GiT June 13, 2014 at 3:23 pm

See also Carl Schmitt, Ernst junger, parts of Hegel, and plenty of other even sillier conservative thinkers, like those in the nyt’s editorial stable

So Much for Subtlety June 13, 2014 at 6:38 pm

It is cute that you think anyone at the NYT is a conservative.

But you could also point to any number of Leftists. Orwell observed that war limited the insanity of any one government.

GiT June 13, 2014 at 9:33 pm

No true conservative, I’m sure

Deanna Johnston Clark June 14, 2014 at 8:46 pm

As opposed to, say, childbirth, protecting family, caring for a disabled spouse…sissy women’s work?

dead serious June 13, 2014 at 11:12 am

Creative destruction? Destructive creation?

rayward June 13, 2014 at 11:15 am

Of course, wars can reduce, and reduce substantially, inequality, as occurred in Europe as the result of WWI and WWII by the physical destruction of assets; unlike, I would point out, in the US, where inequality plummeted not as the result of the physical destruction of assets but the destruction in the value of assets following the financial collapse of 1929. Rebuilding physical assets after their destruction in war no doubt contributes to economic growth, but rebuilding the value of assets after their collapse in a financial crisis doesn’t seem to have the same push on economic growth. Here’s an observation: following the financial collapse in 1929 the government and central bank did not immediately intervene, inequality plummeted, and we experienced a period of no or meager economic growth that accelerated after the government and central bank intervened (including, of course, intervention during WWII and following); but following the financial collapse of 2007-09 the government and central bank did intervene, inequality fell somewhat but soon recovered and is once again rising, and we have experienced economic growth that has been paltry at best.

jk June 13, 2014 at 11:17 am

Be careful Tyler, the Neocons and NRO will be linking to this as a justification for perpetual omni-interventionism and another reason to be the globo cop.

Willitts June 13, 2014 at 9:35 pm

I have yet to meet anyone who uses the term “neocon” who actually knows what it means.

jk June 14, 2014 at 8:55 am

What does your comment mean? You mean in the same way liberal, conservative are used? To clarify: I mean Neocon in the pejorative, ad hominem sense.

J June 13, 2014 at 11:31 am

I think that this is a good point but misses the major force pushing in the other direction: the most successful nations are those that have had the good fortune to be able to evolve good institutions slowly over time in peace and quiet. England, the US, and Switzerland come to mind as the most obvious examples. They have rarely if ever faced serious existential threats and so are much more able build and maintain social cohesion and good institutions. Compare that to Eastern Europe, being exposed on all sides, which has had so many armies fighting over it back and forth for so long that they have never really been able to achieve the stability needed for everyone to just calm down, take a few metaphorical deep breaths, and reform their economies.

I think as long as international peace is maintained and countries left unmolested for some decades, eventually nearly all of them “come around” and enact pro-growth reforms. We’re seeing this in Asia and Latin America and Eastern Europe, and I hold out hope for Africa and the ME, though they have higher hurdles to overcome sadly.

F. Lynx Pardinus June 13, 2014 at 11:40 am

The century of political and economic maneuvering and eventually full-blown military conflict over slavery is a powerful counterexample to the “US grew in peace and harmony” narrative. It was a pretty big deal for much of US history, but it’s faded from our modern historical memory due to its temporal distance.

Thor June 13, 2014 at 12:27 pm

I can think of three threats that the English considered thoroughly existential: the Spanish (armada etc), Napoleonic France, and Nazi Germany.

But England, the US and Switzerland have one thing in common geographically: they are harder to invade than say Poland or Belgium.

Finch June 13, 2014 at 2:13 pm

Going back a little further, the Normans certainly left their mark.

But to J’s broader point, people often imagine destruction of a society by conquest is some rare event. But in fact, it’s completely normal. It’s common. It’s the expected fate for your country, whatever your country is.

Even naturally protected nations like England have to deal with it all the time on a historical scale, but that natural protection is a major advantage.

Anthony June 13, 2014 at 2:55 pm

Sure, but there are spans of about 150 years in between each of those three. The Civil War was an existential threat to the United States, as was the Cold War, but the gap between those two is similar. And about as long as the most recent period when there was no “Poland”.

J June 13, 2014 at 12:50 pm

@Lynx,

I’m admittedly painting with broad strokes here. The Civil War was obviously a monumental event, but by and large the US has been free from the threat of invasion by foreign powers, and once it was over, it was final. There was not the on-and-off warfare that you saw in other parts of the world.

@Thor,

You know, I hesitated to use the word “threat” for precisely that reason. Perhaps I should have said England was “safe” or something along those lines. While, e.g. Nazi Germany was a serious threat, the English Channel made an invasion of England much much more difficult than that of Poland or France. Same with Napoleon. He rolled over continental Europe but just couldn’t break into England. On top of that England has always had its back to the wall, so to speak, in Europe. So England has just never been the kind of place where foreign armies are constantly rolling over it the way Poland is.

TMC June 13, 2014 at 11:33 am

Wartime circumvents regulation and all the petty political payouts associated with accomplishing ‘big things’. This what makes wartime productive.

C June 13, 2014 at 11:38 am

Well, you’ll certainly get clicks for this one. It’s a shame our political leaders and electorate can’t use one of the many other existential threats to American hegemony to get their act together and demand massive investment in science and infrastructure improvements. As opposed to say, spending money on decade long wars with no political benefit, or subsidizing our bloated financial sector.

MikeDC June 13, 2014 at 11:38 am

“the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.”

Seems like a tough sell as the Iraqi government is collapsing at this moment at the hands of an eminently foreseeable invasion of guys riding in the back of Toyota pickup trucks from Syria.

AndrewL June 13, 2014 at 11:54 am

or, look at Israel, which is in a perpetual state of war preparation yet still finds time for great technological advancements and winning Nobel peace prizes in science and economics. How do they do it?

tt June 13, 2014 at 12:15 pm

with our money ?

So Much for Subtlety June 13, 2014 at 6:42 pm

How many Nobel prizes in the sciences have Israelis won?

I would think that with the most generous definition, including anyone who holds an Israeli passport, and ignoring the fact that the work was invariably done overseas and not in Israel, you would have two.

One of the interesting features of Israel is how intellectually underperforming it is.

Bill June 13, 2014 at 12:02 pm

I’ll believe it when you support a tax increase to pay for wars.

TMC June 13, 2014 at 12:16 pm

Agreed! Same for war on crime, and war on poverty and war on…

Andrew' June 13, 2014 at 12:17 pm

What, are you some kind of non-Keynesian?

TMC June 13, 2014 at 12:21 pm

Yes, I’ll even show you my birth certificate to prove it.

mulp June 13, 2014 at 8:44 pm

When did Keynes call for running up massive debt that would never be serviced but simply defaulted on?

… as has been the Republican strategy on debt since 1981?

After all, Starve the Beast requires a default on US Treasury debt to actually starve the Federal government of money to spend. And Dick Cheney correctly noted that Reagan proved debt and deficit don’t matter when it comes to cutting taxes on the rich and paying off political supporters and your crony capitalists.

The infamous argument between Eric Cantor and Obama was over tax cuts on workers – Cantor opposed tax cuts on workers, but he’s in favor of tax cuts for the “capitalists” who are actually rent seekers and pillage and plunderers.

prior_approval June 13, 2014 at 12:03 pm

Well, except for the fact that it was published at a NYT site, this would earn a best satire citation, except for the fact that when it comes to war, the NYT is all for it.

Meaning, sadly, this seems to be anything but satire.

But hey, maybe the NYT can do some reporting to convince us that ISIS has some mass destruction weapons, right?

TMC June 13, 2014 at 12:18 pm

“except for the fact that it was published at a NYT site, this would earn a best satire citation”

Yes, NYT does not even do satire well.

Andrew' June 13, 2014 at 12:15 pm

Well, imo we may have gotten stuck with an inferior nuclear design that has set us back half a century. The reason we can’t build any nuclear plants is because it associated with bombs (when nuclear power may detract from bombs) and the standard design is not inherently safe. Pulling forward technology isn’t all good.

mulp June 13, 2014 at 9:05 pm

The problem with nuclear power is that requires capitalists who will invest billions of dollars that will return say 10% in the 80s, and 4% today with low interest rates over a 60 year span. And that means zero capital gains.

Until you can design a nuclear power plant that can be sold two years after complete for a 20% capital gain, nuclear can’t succeed with the current definition of capitalism which demands rapid price increases on stocks to generate capital gains.

Wars are enterprises that require long term thinking – you don’t engage in war without looking for a long term gain. If invaded, fighting back is immediate sacrifice for long term freedom or some other value, but if you think short term, you are better off hoping you can appease the invader and do ok without risk or sacrifice. Keeping the old coal plant going even though its costly, generating lots of pollution and is harming your kids, is the appeasement policy. Shutdown the coal plant and you are without power, unless you commit to building a replacement first. In the 60s and 70s, the PUCs approved nuclear plants and rates went up immediately even when the plants too longer to build than expected. That resulted in requirements to delay hiking rates until the plants were complete, but that merely increased the capital invested while delaying the rate hike which now needed to be higher. When that was disallowed, the utilities ended up in bankruptcy.

You can argue that it was someone else’s fault, but the utilities could have easily sold a billion in stock to pay for construction of the nuclear plants. A decade later, the earnings from the capital would have paid dividends for six decades. But borrowing meant excessively high interest rates for an expensive asset without much value until completed so the lenders demanded high interest rates for the risks.

andrew' June 14, 2014 at 4:52 am

That is like saying anyone can market a drug if they have half a billion dollars. Oh, and a drug.

andrew' June 14, 2014 at 5:40 am

And you totally missed my point which is that the government’s legitimate role is to research and validate new nuclear designs in the interim until nuclear becomes economically and environmentally competitive.

Saying that capitalists are perfectly free to just overpay for artificial government requirements and public good mismanagement misses the point.

andrew' June 14, 2014 at 5:43 am

Although you do hint at the capital slicing and dicing I have wondered about with our populist banking system where our capital has bee used to overpay for dirt, softwoods, and vinyl siding.

The Anti-Gnostic June 13, 2014 at 12:16 pm

I knew Tyler would find some way to make the fact that most wars going on right now are civil another argument for Open Borders!

collin June 13, 2014 at 12:17 pm

Wouldn’t you say WW2 was the world’s greatest example of “Creative Destruction?” In the end the Allies won with better technology, intelligence (British), manfacturing (US) and troop numbers (Soviet).

It completely changed political systems, increased investment, and greatly increased the labor force. (Along the way created a 15 year Western labor shortage.)

Mark Thorson June 13, 2014 at 2:28 pm

The Soviets were not just about troop numbers. They also had massive manufacturing capability and excellent weapons — in particular, the T-34 tank and Il-2 ground-attack aircraft.

Deanna Johnston Clark June 14, 2014 at 8:40 pm

The Orthodox faith bridges the Jordon so sweetly that Russians have little fear of death.
The Companies from Siberia at Stalingrad were incredible…

Jeff June 13, 2014 at 4:08 pm

Mancur Olson also wrote about how Germany’s post-war political makeover eliminated all the interest groups it had accumulated over the past 20 or so years, leading to the post-war economic miracle, while England, which had suffered much less damage to its industrial and population centers, stagnated.

Dismalist June 13, 2014 at 12:46 pm

“Fundamental innovations such as nuclear power, the computer and the modern aircraft were all pushed along by an American government eager to defeat the Axis powers or, later, to win the Cold War.”

1. The underlying science was discovered well before the wars in question.

2. No weapon first built in WW II was not on the drawing boards before WWII.

Andrew' June 13, 2014 at 12:53 pm

If we’d had the bomb before the war we might not have had the war, and thus we wouldn’t have had the bomb, and we would have all died in the ultimate nuclear war.

Spencer June 13, 2014 at 1:42 pm

Modern aircraft means jets and we did not have them before W II.

They were developed during the war, by Germany first to be exact.

Chris June 13, 2014 at 4:39 pm

Spencer, you are incorrect. Jet aircraft were developed prior to the war by Britain’s Frank Whittle and Germany’s Hans von Ohain in the 1930s. Working turbojets and jet engines had already been built by the time war began as well as several prototypes actually flying. Britain was probably the world leader in jet engine technology at that time although Germany was close.

Britain and the United States both correctly predicted that the design and mass production of jet warplanes would come too late to have a decisive impact on the war, so the decision was to concentrate on producing conventional aircraft that could be deployed during the time frame of the war. Germany however diverted huge amount of resources to bring jet aircraft into production sooner; something most historians consider to be a blunder. Germany would have been better off with more conventional aircraft. The Me-262 looks great, but had no impact on the war when it was introduced in April 1944. The Allied jets came out shortly thereafter. British Gloster Meteor was introduced several months later in July 1944, and the American P-80 Shooting Star in 1945.

At best, the war lead to a quicker production of existing technology by several years. However, in terms of development of new technology, there might have been no impact at all. Maybe no P-80s being mass produced, but a single prototype that looks just like it. Perhaps even the opposite could happen – without the need to produce thousands of conventional B-24s, P-51s, etc., immediately perhaps the resources would have existed to introduce jet aircraft much sooner.

Most of the “wonder weapons” and “new technologies” that appeared in World War II were of a similar nature – they were concepts and technology known in the 1930s, but simply not put into production because there was no need. Wars tend to accelerate the time technology is put into production, but kills the long term research for future development. There are only so many engineers and scientists to go around so if they’re working on immediate war time applications, they aren’t developing new concepts.

Finch June 13, 2014 at 6:15 pm

These things were developed before WWII in the same sense that flying cars are developed now.

Which is to say, not really, but somebody’s got some pictures and a prototype.

tt June 13, 2014 at 6:55 pm

a flying car…you mean a plane ?

Finch June 14, 2014 at 11:47 am

No, I mean a flying car. Have you honestly never heard of the concept?

Jets existed pre-war as a lab curiosity. There is a vast chasm between that and deploying 1,400 jet fighters in combat.

Chris and Dismalist might be technically correct that the meager beginnings of these technologies pre-dated the war, but they are also being wildly misleading. The overwhelming majority of the research and development, the solving of all the hard problems, occurred with the application of money during the war.

Mark Thorson June 13, 2014 at 4:18 pm

The proximity fuse and the acoustic homing torpedo were both developed during the war. The proximity fuse was especially valuable as a force multiplier during the war.

Chris June 13, 2014 at 4:47 pm

Mark, good points, but like a lot of technology developed during the war, the ideas had already been conceived and worked on prior to the war. They were not creating a brand new technology, but perfecting existing ones and putting them into production. Without the war, it might have taken a few more years before those technologies were put into production anyway.

Wars decrease the time to put a working concept into mass production, or to eliminate the bugs of a functional concept. However, if the time frame of development is outside the expected duration of the war, you can bet that it is considered to be a non-critical technology and research into it stops until the war is over.

Mark Thorson June 13, 2014 at 8:38 pm

But they definitely were not “on the drawing boards before WWII”, and that is what I was responding to. Some related concepts were floating around before the war, in the same sense that H.G. Wells had proposed the tank before WW1. But the tank was not “on the drawing boards” before WW1, and the first tanks were nothing like H.G. Wells’ proposal.

Finch June 14, 2014 at 11:49 am

Mark is right and Chris is wrong. There is a huge difference between having a vague idea that something might work someday and having it deployed in large numbers.

alexander stollznow June 13, 2014 at 12:54 pm

conclusion from above comments, all of which (refreshingly) have some merit: it’s complicated! and hard to draw any generally applicable conclusions on the subject.

my observation is that the advances attributed to war, were more immediately the result of government funding deemed necessary / desirable, due to war, real or expected. so, you could just have the funding without the war. war itself just uses up alot of wealth for no good use.

Edward Lambert June 13, 2014 at 1:01 pm

Tyler,
I wrote a response at Angry Bear… Basically, I tell others not to attack you on this like they attacked me on recommending a recession. Especially Alex Tabarrok, who attacked me for saying something similar to you.

http://angrybearblog.com/2014/06/be-careful-not-to-misunderstand-tyler-cowens-message-about-war.html

prior_approval June 13, 2014 at 1:26 pm

Don’t worry – the holder of the Bartley J. Madden Chair in Economics at the Mercatus Center knows who can fire him, and besides, consistency has never been a feature of this web site.

andrew' June 14, 2014 at 5:50 am

They consistently let you submit your stupidity.

You continue to hold this grudge that you don’t even understand let alone being able to explain because what you really hate is how all academia operates.

Your first comment would have been banned by a brad delong. Delong or krugman who never seems to say what you say about MR. What do you think you know more than these others? And why are you wrong?

lxm June 14, 2014 at 9:18 am

And yours

foobarista June 13, 2014 at 1:17 pm

It’s well known among historians that periods of long peace, or areas run by huge empires where all wars are civil wars for the emperorship, tend to be suffocated by deeply entrenched elites of one sort or another (civil bureaucracy in China, theocracies in various places). This is why China had a long period of rot from the middle of the Ming until the early 20th century.

OTOH, Europe fought numerous international wars, which forced elite turnover as elites were occasionally destroyed by war, and forced other ruling elites to actively pursue technologies and allow business to be active so they could afford to fund wars.

What is “bad” is entrenched elites. Anything that forces turnover among elites is going to cause economic activity.

Urso June 13, 2014 at 2:31 pm

This was the plot of Dune. Anyway, I’m sure all those people who died in Europe’s constant wars will be pleased to know that their early deaths were towards the Greater Good. Can’t make an omelette..

andrew' June 14, 2014 at 5:51 am

Because Europe is doing great relative to the appropriate baseline?

Spencer June 13, 2014 at 1:44 pm

Current military spending in the US is just another form of welfare.

mulp June 13, 2014 at 2:24 pm

Buying a car to get to work is just a form of welfare.

Filling it up for less than $4 a gallon is a bigger form of welfare – you pay others a high profit for destroying capital and you get to move around for a lower cost that was possible in the past and will be possible in the future as a consequence of the military spending.

After all, the highways were built to replace railroads as the defense network, (railroads replaced marching and armies of horses).

mulp June 13, 2014 at 2:05 pm

“Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.”

Having been at war for soon to be 13 years, with virtually no war damage inside the US or to US capital assets around the globe, the impact on the economy of war has certainly been negative.

But the one difference between this period of war and all past times of war since the founding of the USA is that taxes were cut instead of hiked, government control of the economy was reduced instead of increased.

Of course those are based on the so called theory that lower taxes and less government control will result in higher economic growth, something that has been the overriding theory of government since 1980.

I see wars that are “successful” as those which unify the people overwhelmingly into sacrifice for a common purpose which is exactly the same as the sacrifice required for capitalism.

Since Reagan, we have been had policy driven by free lunch economics. The Tea Party – taxed enough already – are the ultimate manifestation. Reading the Tea Party blog of northern Kentucky, they hate McConnell for being a “big spender”, but failing to deliver funds for the bridge to Ohio. They oppose gas tax hikes to fund roads. They oppose tolls on the bridge. They oppose public-private partnership because they read that as mandating tolls. They want the Federal highway funds block granted to the States,but acknowledge that would mean less money for Kentucky. They support the tax cut to 3.9 cents on gasoline. But they are afraid the inaction is going to result in the bridge failing.

The local issue of the bridge between Ohio and Kentucky requires sacrifice on the part of someone, and the bridges in Kentucky historically were bought with the sacrifice of gas tax payers in the East and West coasts and on the long haul route. The Tea Party wants no sacrifice, no Federal government, the private sector doing what government has done, but no payments to the private sector. A free lunch.

If Kentucky partisans can’t agree to common sacrifice for themselves in their local community, how can the sacrifice of war be possible?

How can the sacrifice of capitalism be possible?

Without real capitalism, how can economic growth be possible?

Pump and dump asset churn price inflation is not capitalism – its the quest for a free lunch, something from nothing. Pillage and plunder is not capitalism – if pillage and plunder were capitalism, Libya, Somalia, Iraq, et al would be fantastic economies where crime would not be tolerated because 99% of the people would suffer economic harm – instead they are economies where the 1% use violence to oppress the 99% who are impoverished by the pillage and plunder – war has little cost in those economies.

ThomasH June 13, 2014 at 2:27 pm

Well there are wars and there are wars. I have not seen much good come from the War on Drugs, War on Crime or the War on Terror (drones?)

Becky Hargrove June 13, 2014 at 2:50 pm

War…the Republican equivalent of digging ditches to fill them back up? Ugh, some Democrats like it too.

Nathan W June 13, 2014 at 3:16 pm

Civilization or national survival is surely a motivating factor which helps to mobilize people to work hard. Presumably this is more so when under threat than as the aggressor. As such, I think it is a good explanation for East Asian tigers, and perhaps the Manhattan project, but significant manipulation would be required for that to be a motivating factor in modern day USA.

However, most countries under such existential threats are in that situation for a reason, and could be as easily demoralized by the situation or simply end up losing, in which case their economy probably doesn’t grow by very much as a result.

albatross June 13, 2014 at 3:22 pm

I strongly suspect Tyler is falling into the common trap of noticing the easily-seen effects of some visible policy, while missing the harder-to-see effects. War provides a lot of opportunity for consolidation of central power in government, and thus for big things to be done. But:

a. Those big things are often the *wrong* big things, and so waste resources or damage the well being of the country. More centralized power means less effective feedback to the central authority when he’s decided on a really dumb policy.

b. Those big things block millions of smaller things that would otherwise have been going on, no one of which would have been as spectacular as the big successes of wartime policy, but which might very well have done more to make the world a better place when summed up.

One advantage in US politics for war is that our constitution and political structure is built to be easily blocked, which leads to a lot of periods when nobody can make any big changes in the federal government. In times of war or other perceived crisis that threatens the nation, those constraints get broken down, and we end up with the executive branch having a relatively free hand to run things related to the war or crisis. But again, it’s not so clear how much that winds up being a win. To my mind, we have wasted an incredible sum of money and inconvenience and lost rights on homeland security and counterterrorism policy, and made horrible messes in Iraq and Afghanistan (at the cost of piles of dead bodies in those countries, ongoing instability for many years to come, and dead and maimed soldiers coming back to the US). Getting us into war mode was great at concentrating power in the hands of the president (W, and now Obama). But it didn’t magically make either president actually use those powers wisely or well.

The Arab Spring June 13, 2014 at 3:53 pm

Tyler – I miss your posts about me. And to think you used to tell me what beautiful music we made.

voxwatcher June 13, 2014 at 3:59 pm

I was reminded of following paper.

●Tyler Cowen(1990), “Economic Effects of a Conflict-Prone World Order” http://www.jstor.org/discover/10.2307/30025214?uid=3738328&uid=2&uid=4&sid=21104146467437

Steve Sailer June 13, 2014 at 3:59 pm

Sure, look how fast during the Cold War Lockheed delivered the U-2, SR-71, and F-117 versus how excruciatingly slowly and expensively it’s getting the F-35 to fly right. If we needed the F-35 to counter a serious rival, we’d have it by now. But we don’t, so it’s being treated as a honey pot.

Finch June 13, 2014 at 5:03 pm

Encouraging defense contractor mergers, trying to reduce inter-service variation in procurement (why can’t the Air Force and the Navy buy one plane that works for both?), and generally trying to reduce costs by buying more from fewer suppliers have all been serious mistakes. This is one major economic legacy of Clinton that in retrospect has turned out horribly. Otherwise, I think he is doing much better in legacy than people would have thought at the time.

carlospln June 13, 2014 at 9:45 pm

Clinton had nothing to do with the ‘inter-service procurement’ of jet fighters.

This was predicted by James Fallows in his 1981 book, ‘National Defense’ http://www.amazon.com/National-Defense-James-Fallows/dp/0394518241

‘that by 2010 aircraft development would be so expensive that all three arms of the DoD would have to jointly design & develop the next generation fighter’

BINGO! A camel built by a committee: the F-35.

Finch June 16, 2014 at 9:31 am

Good lord, man, they’ve been trying it since at least the 60s. Fallows prediction would be like saying today “someday, computers will be linked together by wires.” The F-111 was a major project built, and broken, this way in the 60s. What Clinton presided over (and encouraged through Perry and Cohen), was a bunch of massive mergers among the contractors. That meant that now, when projects fail, there’s no longer any real alternative. You just go back to Lockheed and ask them to try harder for more money.

carlospln June 13, 2014 at 9:39 pm

The F-35 will never ‘fly right’.

Its a POS.

Luis Pedro Coelho June 13, 2014 at 4:16 pm

“War is the health of the state”

I used to interpret this to simply mean “in war, the state grows”, but now I see it also means “in war, the state heals”. As Micklethwait & Wooldridge write in The Fourth Revolution “no union complained that the Dunkirk Evacuation relied partly on private provision. This is similar to the notion that “during recessions, you trim the fat you already knew was there” that you hear describing layoffs during recessions.

I take this as an argument for less state, not more war.

Steve Sailer June 14, 2014 at 4:45 am

New Zealand stevedores kept going on strike in 1942 while the U.S. Marines were trying to ship off to Guadalcanal. The Marines ended up loading their ships themselves. Here’s David Hackett Fisher on this series of work stoppages:

http://books.google.com/books?id=_TxpAgAAQBAJ&pg=PA488&lpg=PA488&dq=new+zealand+stevedore+strike+1942&source=bl&ots=6XxZhEBJiJ&sig=iopvmgPzk0PohzKXbsk8dIsw2h8&hl=en&sa=X&ei=TAucU6foM821yATM74II&ved=0CCwQ6AEwAg#v=onepage&q=new%20zealand%20stevedore%20strike%201942&f=false

Chris June 13, 2014 at 4:54 pm

World War II saw a lot of new technology put into production because the government marshalled an immense amount of capital and put it into anything that could be decisive to the war effort, predicted to end in a 4-6 year period. Research into things past that time frame essentially stopped. Having that huge amount of capital did introduce various things into mass production much earlier. But it came at a cost of all the sacrifices people had to make. There was rationing, forced savings, and pay freezes put on everyone in order to raise the capital to do so. Without compelling reasons to accept those sacrifices (like not having Hitler rule you), people are unlikley to let the government extract that much wealth from them. In fact, absent such a compelling reason, attempts to extract that much wealth from its private citizens will probably damage the economy.

Deanna Johnston Clark June 14, 2014 at 8:31 pm

Hitler had less faith in his own charm than most know. He asked as little of German citizens as possible…but when he asked SS officers in Russia to share their wives back home to breed more of the master race…even those stalwarts openly rebelled. Hitler rescinded the command.

mulp June 15, 2014 at 2:52 pm

But it seems private citizens are happy to have Wall Street and corporation extract massive wealth from them through legal fraud in lending, legalized expropriations of pensions and other contract terms, and other crony capitalist policies which are based on the claim, advanced by Milton Friedman, the sole purpose of corporations is generating profits for shareholders by any means possible, including impoverishing workers and consumers.

Of course, Wall Street and many advocate constantly government redistribution of wealth from citizens in general to the crony capitalists by way of the Constitution power of government technocrats – bankruptcy judges. Much activity of Wall Street is based on restructuring corporations into winners and losers and then going to the government to eliminate the debt of the losers Wall Street created by redistributing the wealth of individual lenders and investors whose retirement funds are placed in the losers by way of IRA and 401K retirement funds.

Note that the tax code does not favor individuals invest directly in physical capital assets in the same way it favors investing in Wall Street created derivatives of assets. For example, you can not invest in rental units free of income tax payments, plowing returns on invested capital back into building or buying additional rental units; you must use a REIT or similar to make similar investments, and the REITs must be managed by a third party based on your involvement promoting self enrichment in some fashion. Not only does that reduce your returns by being required to pay the 3rd party, but the 3rd party is often able to operate the REIT for their profit, not yours, the REIT managers being responsible to shareholders who are not you.

Since 1980, we have had in practice lots of individual sacrifice and effective pay freezes by policies that favor “capital”.

And you are correct in saying “extract that much wealth from its private citizens will probably damage the economy” like Wall Street did over the past three decades: the real estate crash and redistribution of wealth from 1987-1992, the global debt crisis in the late 90s with such legacy hangovers of Japan’s stagnation and Enron et al, and now 2007 to the present.

Janet June 13, 2014 at 5:11 pm

1) What does Tyler mean by an “interior solution”? I’m guessing that he means a tangential solution between 2 curves. In economics, those curves are usually an indifference curve on consumption/work and a budget constraint. Can someone point out what the 2 curves are?

2) What IS his interior solution for this particular example of war and economic growth?

Berend de Boer June 13, 2014 at 5:32 pm

The article suffers from selection bias, and secondly the selected biases are wrong for at least the facts I know something about:

1. It’s often repeated, but false: the internet was not designed to withstand a nuclear exchange. I suggest you read “Where wizards stay up late: the origins of the internet” by Katie Hafner for the full and definite story: http://www.amazon.com/Where-Wizards-Stay-Up-Late-ebook/dp/B000FC0WP6/ref=tmm_kin_title_0. Or read the wikipedia article: http://en.wikipedia.org/wiki/ARPANET#Misconceptions_of_design_goals.

Summary: the internet had its origins in visionaries who saw computers not as calculators but as communication devices. There is undeed a completely unrelated report made at RAND about computer networks to withstand nuclear exhcnage, but that was unknown at that time, and none of its technologies have ever been used in the internet (no, your packets do not go over two routes, never have).

2. The first real computer emerged after the war. Obviously during a command economy all resources are under control of the government. Most computer research happened at private companies (IBM), later somewhat at universities, and we all know that the military doesn’t get to run the latest computers. They’re not at the forefront of technology. Information processing was the driving force of computers, not the need to detect incoming nuclear missiles.

DCBillS June 13, 2014 at 7:55 pm

There is a recruting office at Potomac Mills. Those wishing to have credibilty discussing this topic should visit it (and sign up).

Chip June 13, 2014 at 8:22 pm

Or look to Canada which had steady growth while cutting back debt and the bounce back in the UK despite “austerity.”

Willitts June 13, 2014 at 9:42 pm

The mass destruction of resources is never good for your PPF. Technological advancement may have been promoted by the war, but we don’t know that private industry wouldn’t have developed the same anyway.

Indeed, the mass production of war materiel with existing, proven technology is a huge distraction from what you could develop. The ME 262 would have come sooner had Germany not spent resources on older designs.

Steve Sailer June 14, 2014 at 4:36 am

Wars usually have big economic effects, but they strikingly are hard to predict.

For example, the North emerged from the Civil War super-energized and newly aware of how to organize on a large scale and with battle-tested men of good repute to become business managers. It advanced very rapidly through 1872.

The South in contrast emerged not just beaten down economically and physically, but psychologically, a depression that lasted several generations, with maybe WWII and the Cold War finally seeing the South get over the Lost Cause.

In contrast, Britain took a beating economically from its victories in WWI and WWII.

Deanna Johnston Clark June 14, 2014 at 8:27 pm

The British people did…look at the coal after the war…the good stuff was sold to pay off the banks, the rotten was burned for heat. This caused mass deaths from pollution inversions in London.

The banks and corporations took no beating…they sat back and counted the booty.

Steve Sailer June 14, 2014 at 4:42 am

William James talked about trying to find “the moral equivalent of war” in 1910:

http://www.constitution.org/wj/meow.htm

Steve Sailer June 14, 2014 at 4:53 am

Another aspect is that corruption slowly creeps up on you when you don’t have a compelling reason to be efficient. America has gotten more corrupt in a variety of ways since the victory in the Cold War because there’s no compelling reason to be honest.

An interesting bit of history that has been forgotten are the post-1945 clashes between returning veterans and corrupt local political machines who sat out the war, such as in Santa Monica, CA (crooked “Bay City” in Raymond Chandler novels). Similarly, the LAPD stopped soliciting bribes when Marine Corps general William Parker was appointed Chief in the late 1940s. It was like the “Scouring of the Shire” at the end of “The Lord of the Rings.”

The exception is probably the Progressive Era of c. 1910 when American government made itself more honest and efficient during peacetime, although maybe that was in preparation for war.

andrew' June 14, 2014 at 5:56 am

Well, I point out things like the liberal theory of government as a market fails whetthe president commits fraud, for example, but then I get back to work. Ill take corruption that mostly amuses me in my free time over the draft.

Deanna Johnston Clark June 14, 2014 at 8:24 pm

Weren’t business contracts for rebuilding Germany and Japan already signed before the fire bombings of Dresden, Hamburg, Tokyo, etc.?
Wasn’t that what Bomber Harris was hired for, replacing the gallant, successful and religious Dowling?
Sweden made fortunes off WWII with steel and matches.
There was plenty of duplicity and wickedness to go around…though the camps and gestapo won the cigar.

carlospln June 14, 2014 at 10:18 pm

“There is in certain quarters the view that national prosperity depends on the production of armaments and that any reduction in arms output might bring on another recession. Does this mean, then that the continued failure of our foreign policy is the only way to pay for the failure of our fiscal policy? According to this way of thinking, the success of our foreign policy would mean a depression.”
In contrast to the scorned Truman administration policy, Eisenhower cited Thomas Jefferson’s praise of governmental frugality: “If we can prevent government from wasting the labors of the people under the pretense of taking care of them, they must become happy.”

George Balella June 15, 2014 at 2:56 pm

There is nothing about government funded and directed technological advancement that requires war to be one of the necessary ingredients. But if I am wrong lets declare war on record corporate profits, trillions of cash-capital sitting in off shore accounts, a trillion of dollars of student loan debt, long term unemployment and falling wages as a per cent of GDP. If we approached these compliments of issues with such urgency as a war to secure the oil flows from the Middle East no one has to die and many more can live and be productive while greatly advancing technological innovation.

Tom June 16, 2014 at 2:51 pm

Without a war, of sorts, would we have had the grand technological leap that created our superb surveillance states?

TallDave June 18, 2014 at 12:12 am

If so, you’re measuring it wrong.

Let’s say New York was levelled. Let’s say NY is worth, oh, a trillion dollars. So, you spend a trillion dollars rebuilding New York. Look at all that GDP! Oh wait, millions of people are homeless until you complete it. Plus all the moaning and wailing and starving and cholera and dysentery have enormous disutility.

In summary, screw you Keynes.

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