Does peace bring prosperity?
Thursday, May 20.
The news is full of terrorism and threats of terrorism. Stock markets are falling - partly because interest rates will be rising, but since that is because of increasingly solid growth, it is not explanation enough. (Americans hardly notice - a flight to quality tends to be good for the Dow and for the dollar.) Oil prices are rising, probably more than current supply and demand justify, despite events in China.
So it is a good time to ask: is peace good for the economy?
For mainstream, neoclassical economists, this seems too obvious to wonder about. Output is determined by Ed Prescott's "Holy Trinity" of resources, technology and preferences. So when people go about destroying resources or causing them to be diverted to security, potential output falls. End of story.
For the policy world, the opposite answer seems equally obvious. What could be better for the economy than a splendid little war? The short-term Keynesian (Aggregate Demand) effects are good for business and put people to work, as every politician knows. It is an old story, accentuated by the graphs of (US) output jumping upward at the time of every war (until Gulf War I in 1990 - which coincided with the end of the even bigger Cold War).
Of course, terrorism is a bit different. It makes people afraid to fly, and slows them down at the airport. Thai stocks are falling partly because Muslim separatists have explicitly threatened the key tourism sector. Pipelines have been disrupted, tankers are vulnerable, and more resources have to go to police work. The graphs for this one may look a little more like what happened to Europe in the World Wars, or to Japan in the second of them.
I am skeptical enough about neo-classical Truth to believe Keynesian effects matter in the long run. But the amount they matter will always be significantly less than their short term effect, and are likely to be significantly less than the long term effect on resource use.
So that means peace is valuable. Okay, there are stories out there about spin-offs from military technology. But science investment is possible without actually building tanks and missiles, so keep it simple. Peace is valuable.
Which raises the question of why the United States invests so little in it. In fact, far more goes to subsidizing agriculture, which undermines world prosperity and so peace. Short-sightedness? Addiction to that short-term boost from spending? Or is it domination by the special interests that can't stand to see military spending cut?
When conservative columnists rail against the inefficiency created by special interests, I would like for once to see them note the biggest of all - the overspending and misspending on a military that dominates every other one on the planet, but can hardly be used for fear the people back home might see video footage of (gasp) war as a result.
I fear, though, that there is an explanation just as dark but harder to come to grips with. Maybe the seduction of military domination is too hard to pass up. Hard power is easy to understand, and we have lots of it. Soft power is muddled and mushy. And it pushes all the wrong psychological buttons if we don't have the vision and steadiness of purpose to act on it in our own lives. Check out the divorce rate, and tell me how many of us do?
The news is full of terrorism and threats of terrorism. Stock markets are falling - partly because interest rates will be rising, but since that is because of increasingly solid growth, it is not explanation enough. (Americans hardly notice - a flight to quality tends to be good for the Dow and for the dollar.) Oil prices are rising, probably more than current supply and demand justify, despite events in China.
So it is a good time to ask: is peace good for the economy?
For mainstream, neoclassical economists, this seems too obvious to wonder about. Output is determined by Ed Prescott's "Holy Trinity" of resources, technology and preferences. So when people go about destroying resources or causing them to be diverted to security, potential output falls. End of story.
For the policy world, the opposite answer seems equally obvious. What could be better for the economy than a splendid little war? The short-term Keynesian (Aggregate Demand) effects are good for business and put people to work, as every politician knows. It is an old story, accentuated by the graphs of (US) output jumping upward at the time of every war (until Gulf War I in 1990 - which coincided with the end of the even bigger Cold War).
Of course, terrorism is a bit different. It makes people afraid to fly, and slows them down at the airport. Thai stocks are falling partly because Muslim separatists have explicitly threatened the key tourism sector. Pipelines have been disrupted, tankers are vulnerable, and more resources have to go to police work. The graphs for this one may look a little more like what happened to Europe in the World Wars, or to Japan in the second of them.
I am skeptical enough about neo-classical Truth to believe Keynesian effects matter in the long run. But the amount they matter will always be significantly less than their short term effect, and are likely to be significantly less than the long term effect on resource use.
So that means peace is valuable. Okay, there are stories out there about spin-offs from military technology. But science investment is possible without actually building tanks and missiles, so keep it simple. Peace is valuable.
Which raises the question of why the United States invests so little in it. In fact, far more goes to subsidizing agriculture, which undermines world prosperity and so peace. Short-sightedness? Addiction to that short-term boost from spending? Or is it domination by the special interests that can't stand to see military spending cut?
When conservative columnists rail against the inefficiency created by special interests, I would like for once to see them note the biggest of all - the overspending and misspending on a military that dominates every other one on the planet, but can hardly be used for fear the people back home might see video footage of (gasp) war as a result.
I fear, though, that there is an explanation just as dark but harder to come to grips with. Maybe the seduction of military domination is too hard to pass up. Hard power is easy to understand, and we have lots of it. Soft power is muddled and mushy. And it pushes all the wrong psychological buttons if we don't have the vision and steadiness of purpose to act on it in our own lives. Check out the divorce rate, and tell me how many of us do?
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