David R. Henderson  

Tyler Cowen versus Frederic Bastiat

PRINT
Two Calls for Papers from E... When Do Hypotheticals Cover Th...

And also versus Julian Simon and Alex Field

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.

This is a quote from Tyler Cowen, "The Lack of Major Wars May be Hurting Economic Growth," New York Times, June 13, 2014.

I never hold a writer responsible for a title because, almost invariably, an editor, not the writer, chooses the article's title. In this case, however, even if Tyler did not choose the title, the title is accurate. He really is arguing that major wars could spur economic growth. And the paragraph I quote above is the one that contains the gist of his argument.

At first, I thought that Tyler was saying that the death and destruction due to war were not a big deal. When I read his piece the second time, though, I realized that he's not saying that. Whereas I bristled at the piece on my first reading, I realized that he's simply making a positive statement, not a normative one. I'm using the word "positive" in the way economists use it: not as opposed to negative, but as opposed to normative. In the following two paragraphs, Tyler lays out the positive case further:

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.

War brings an urgency that governments otherwise fail to summon. For instance, the Manhattan Project took six years to produce a working atomic bomb, starting from virtually nothing, and at its peak consumed 0.4 percent of American economic output. It is hard to imagine a comparably speedy and decisive achievement these days.


By the way, Tyler doesn't establish that the atomic bomb was a good idea. Maybe he takes that as obvious, but I don't know why. It killed at least 150,000 people.

Unfortunately for Tyler's case, but fortunately for world peace, his argument is a poor one.

Why? Because he forgets Bastiat's unseen. Sure, we can point to technological advances during wartime that were later useful in peacetime, but what we don't know--what is unseen--is the advances that would have occurred had the resources used in wartime been, instead, used for peaceful purposes. It's quite conceivable that of the approximately 60 million people slaughtered in World War II, for example, a substantial number of them, had they lived, would have come up with solutions to many of our problems. It was all these potential minds trying to solve problems that led the late Julian Simon to call people "the ultimate resource."

Moreover, we can move beyond speculation and look at some facts that are well-documented, facts put together by economic historian Alex Field in his book, The Great Leap Forward. I was so blown away by this book that I titled (yes, I did choose the title) my review of it in Policy Review, "The Roaring Thirties." Field makes the point that with the same amount of labor and capital usage in 1941 as in 1929, the latter year being the start of the Great Depression, we had been 33 and 40 percent more output. This was a time during which the United States was involved in no major foreign wars. Moreover, Field documents the amazing degree of technological improvement that occurred during the 1930s. Here's a quote from my review, which, mysteriously, has disappeared from the web:

Field bolsters his case by going beyond economy-wide numbers on productivity to see what were the major technological improvements of the 1930s. In instance after instance, he had this reader saying, "I didn't know that." New chemical processes were introduced that "increased the percentage of sugar extracted from beets during refining" and comparable innovations occurred in mining. "Topping" techniques in electricity generation--using exhaust steam from high-pressure boilers to heat lower-pressure boilers--raised capacity by 40 to 90 percent with virtually no increase in the cost of fuel or labor. New treatments increased the life of railroad ties "from eight to twenty years." With new paints, the time for paint to dry on cars fell from three weeks (!) to a few hours. Adding heft to his innovation story, Field notes that total R&D employment in 1940 was 27,777, up from 10,918 in 1933.

What about Tyler's claim about great technology during World War II? Here's another paragraph from my review of Field:
Field points out that there were few technological improvements during World War II that made the postwar peacetime economy more productive. It's almost the reverse. It was the tremendous increase in underlying productivity of the U.S. economy before the war that allowed the U.S. economy to be so productive during the war. He writes, "there was not a single combat aircraft produced during the Second World War and seeing major service that was not already on the drawing boards before the war began."

Finally, note the second-last sentence of the first paragraph I quoted from Tyler:
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.

Really? What happened during World War II was that the U.S. government liberalized the economy? That's when rent controls were imposed in New York City--as a temporary measure. That's when millions of people became subject to income taxes and when tax withholding was introduced. Try hard as I can, I can't see any evidence of liberalization of the economy during World War II. And Tyler doesn't present any such evidence.

So far, the economic argument for peace is secure.

UPDATE: Reader Mark Weaver has graciously provided this link to my review of Field in Policy Review.
Also, as Tyler Cowen notes below, I inadequately handled his distinction between fighting a a war and preparing for war. Still, most of my argument stands. To single out two, it is hard to make the claim that most of the 1930s were spent by the United States in preparing for war. Also, another counterexample is the last half of the 1990s. The U.S. government shrunk the defense budget in the first half of the 90s and shrunk it slightly more in the last half. We also had a booming economy during the last half of the 90s.


Comments and Sharing





COMMENTS (27 to date)
Tyler Cowen writes:

David, no one is saying that *the war itself*, most of all WWII, is a good thing for economic growth. Ask instead a simple question: did the *prospect* of another war, after WWII, improve policy and growth prospects or not? There is a lot of evidence it did. The U.S. allowed Japan and Germany to liberalize to combat communism. More broadly we felt we needed the prosperity to assume the burden of defending the free world. We promoted a world order devoted to free trade. One can believe all that without thinking that a WWIII, *if it indeed had come*, would itself have been good for growth. Without the prospect of war I don't think the West even would have had an Industrial Revolution. Recent liberalizing reforms in the Soviet Union and China also were largely motivated by geopolitical rivalries rather than sheer altruism. In general I would also say look more closely at the research I cited in the piece.

Tyler Cowen writes:

And keep in mind I lay out that distinction between fighting war, and the prospect of war, clearly in the second paragraph of the piece: "This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction...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." A lot of your post is focused on the fighting of the war and thus it is not reflecting the argument as I made it. Don't worry, I haven't forgotten anything in Bastiat, whom I reread not too long ago.

Garrett writes:

Tyler,

I interpret your argument to be that increased international competition, driven by the prospect of war, leads to greater global economic output. It's plausible, but the chain of causality is that the prospect of war increases international competition, which increases economic output.

The key relationship then is between competition and output. There are likely a number of factors that influence the degree of competition in the global economy; wealth disparity seems to be one of the bigger ones (see China).

So the question to focus on is: if the prospect of war in the 1900's were greatly diminished, could the global economy have maintained the same level of competitiveness through other factors?

MikeDC writes:

I agree that Tyler is not saying "War is good" but instead that but he said instead that "the threat of war is good" because it disciplines the government to improve the lot of citizens.

I agree, however, that this is a ludicrous and unsupportable point.

I mean, has the threat of war led to better politics in Egypt or Iraq or Ukraine?

The instances where threat of war was used as an excuse for governments to do all sorts of horrible things must outnumber the times the threat of war spurred a government to do something right by a thousand to one.

Daniel Artz writes:

David's point is an excellent one, and too often forgotten or ignored. One ought not judge the outcome of a given course of action without considering what might have happened in its absence. Economics is problematic in that regard because opportunities for truly controlled experiments are so rare (nonexistent?). Imagine if pharmaceuticals were approved by the FDA without any double blind experiments; a new drug test shows that 35% of those taking drug X improve, so the FDA says yes, and drug X goes on sale. Then there is a new double blind test, which again shows 35% of participants taking drug X improving, while 42% of those taking the placebo improved. Is your uptake that Drug X is good, or that sugar pills are even better? FDR continually gets credit in the History Books for leading the United States out of the Great Depression, but we will never know with any certainty that the recovery might not have been a lot quicker and a lot more robust with a completely different set of policies. That uncertainty is no reason to abandon skepticism about the benefits of what FDR did. And the uncertainty about the results in an alternate time line is no reason to abandon skepticism about the benefits of preparing for war vs. peaceful growth.

Rob Rawlings writes:

The crux of the argument appears to be:

"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"

I think David's argument about the unseen may be valid in regards to governments "investing in science" but if the possibility of war was really correlated to governments "liberalizing the economy" then even free market supporters should surely take Tyler's point more seriously.

Steve Sailer writes:

Thanks for your review of how much effort the American people put into improving themselves during the 1930s rather than give up to despair, fanaticism, or lethargy. They really deserve the "Greatest Generation" label.

Peter G. Klein writes:

Tyler's offhand remark that the prospect of war spurred technological advancement by promoting public investment in science -- an alleged example of "getting some basic decisions right" -- is almost certainly wrong. Even ignoring the carnage of actual wars, the Manhattan Project, the Cold War defense buildup, and the like did not at all foster scientific and technological progress, in an economically meaningful sense. These programs are among the most egregious forms of crony capitalism, the main beneficiaries being politically connected firms and universities, and scientific personnel, not the public. Bob Higgs is very good on this, and I have written a bit on it myself.

Curtis writes:

Nuclear power was not a result of WWII. In fact, WWII appears to have diverted (or distracted) the study of peaceful nuclear uses. According to World Nuclear Association:

  • The science of atomic radiation, atomic change and nuclear fission was developed from 1895 to 1945, much of it in the last six of those years.
  • Over 1939-45, most development was focused on the atomic bomb.
  • From 1945 attention was given to harnessing this energy in a controlled fashion for naval propulsion and for making electricity.

Although the development of a self-sustaining reaction occurred during the war, to assume that scientists wouldn't have developed such a reaction without a war ignores the preceding peaceful trajectory.

Daniel Klein writes:

Many people, including David Hume and Adam Smith, have argued that one of the things that made for exceptional liberty, rules certainty, and prosperity in Britain was that it was an island.

Smith (in LJ) argues that, being an island, invasion and border disputes were less likely, and hence there was little need of a standing army, and hence no standing army, and even a norm against standing armies. The absence of a standing army had many happy consequence, not just a smaller tax load, but less chance of coups by generals and such. Britain had an exceptional history of stable government, which is key for the development of parliamentary politics, traditions of checks and balances, and so on. Indeed, it is key for the development of libertarian notions and traditions. (Daniel Hannan also makes these point in his new book.)

In the case of Britain, a reduced prospect of war helped liberty and prosperity, according to the foregoing.

One of the big reasons people give (perhaps even credibly) for not abiding by the direct-liberty principle is that doing so would have adverse indirect effects on liberty, and hence that doing so would reduce overall liberty (one, two). Adam Smith's case for tax-funded governmental nightwatchman/national-defense functions would rest basically on that argument. In fact, many of Smith's exceptions to the direct-liberty principle involve an overall-liberty argument (one).

The bigger the prospects of war, the more people will invoke overall-liberty arguments for not following the direct-liberty principle. Such a channel would suggest that the greater the prospect of war, the less liberty, and therefore the less prosperity.

But of course there may be other channels that more go the way Tyler suggests.

Shane L writes:

Consider the break-neck modernisation in 19th century Japan, after the US threatened it to open up. Terrified of invasion by high-tech Western powers, Japan underwent major reforms that transformed its society in a few decades.

I don't mean to dismiss the achievements of Edo Period Japan; getting by for so long without war is an amazing success and I'm sure there were various innovations during the period, but to my knowledge growth increased greatly in the late 19th century under the threat of conquest, so I feel Tyler has a point.

It seems plausible that a powerful political elite would be content with stagnant economic growth forever so long as they absorb the majority of the country's wealth. However threat of war might force such a corrupt elite to reform their policies in a way to increase the size of the pie, since a richer economy would be more capable of defeating a neighbour in war.

I take all of David's points too, though, war is very wasteful and I'm grateful to live in an insignificant peripheral country that has managed to avoid it for many decades.

Miguel Madeira writes:

"Nuclear power was not a result of WWII. In fact, WWII appears to have diverted (or distracted) the study of peaceful nuclear uses."

Even more - I strongly suspect that, if the first public use of nuclear power was not the atomic bomb, nuclear power will be more used today (the bad publicity created by the atomic bomb is probably the main cause of the anti-nuclear power sentiment)

Jordan writes:

Perhaps if we lie to everyone and have their doctors tell them they all have a 30% chance of getting cancer and perishing within 5 years, everyone will eat better, be more caring and altruistic, and think more about their legacy on the world.

But of course obliterating the prospect of cancer is a much better solution, if possible.

MG writes:

In essence, Tyler's point is along the lines of what the saying "the prospect of own's hanging focuses the mind".

And he need not ignore the unseen, but suggest that the progress that, yes, could have happened through other catalyzing factors would still have yielded less "progress" than what did happen when actually contemplating the prospects of war.

Of course, the contemplating war strategy needs to be seriosuly discounted since contemplating war, without actually engaging in it, is tough. In this sense, the Cold War would be an easier "war" to "argue for".

Jeff writes:

Niall Ferguson argued in Civilization: The West and the Rest that the competition among European city states and kingdoms after the collapse of Rome fostered the technological and economic advancement that propelled the West so far ahead of the rest of the world. He made it clear that he thought war was an integral part of that competition, too.

Just throwing it out there. Dan Klein makes some good points, too, though.

Seth writes:

"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."

Or just keeps politicians focused on things other than promising to put a chicken in every pot, which ends up helping.

Robert Gillette writes:

A recent book by Ian Miller discusses this issue:

"War! What Is It Good For?: Conflict and the Progress of Civilization from Primates to Robots"

mikeDC writes:

@Shane L,
How does one separate the good from the bad? The Japanese were so afraid of being taken over they went out and promptly fought bloody wars against China, Korea and Russia, basically for purposes of territorial expansion.

trent steele writes:

Methinks Cowen's use of the word "we" to describe the actions of the USG is telling (e.g. "we felt we needed the prosperity to assume the burden of defending the free world. We promoted a world order"). This is a patently Statist argument (the idea of looking to what the State accomplished with *our* resources, and not giving a hoot about what free citizens might have done on their own with these resources).

Secondly, he is using the Krugman technique of clearly making an argument in favor of something, then coyly adding a sentence or two that points out that he *really* isn't making that argument - though of course the layman and average NYT reader would take away his obvious position.

So thank you Dr. Henderson, and Dr. Klein in the comments, for not allowing this Statist/Keynesian rubbish to pass unchallenged.

Brian writes:

Hmm...from an evolutionary perspective, the widespread existence of violent conflict among many species, of which war is just one example, suggests that such conflict is a net gain for the species. Tyler may have identified one reason that may be so for humans.

BMan writes:

Well, the market for governments, being highly concentrated, surely benefits from being contestable. Sadly, given government's tendency to monopolize the use of force, war is one of the few mechanisms by which the market for governments may actually be contested. So I can understand the argument that governments become more efficient when existentially threatened by war. But that is hardly an argument in favor of war, or even government, compared to the alternatives.

Roger McKinney writes:

Nice post!

Cowen:

The U.S. allowed Japan and Germany to liberalize to combat communism.

According to Roepke, the liberalization of Germany faced a lot of opposition from the Allied occupiers.

I agree with Higgs et al that war or the threat of war increases the state's control over the economy to its detriment.

Mark Bahner writes:
"Nuclear power was not a result of WWII. In fact, WWII appears to have diverted (or distracted) the study of peaceful nuclear uses."

Even more - I strongly suspect that, if the first public use of nuclear power was not the atomic bomb, nuclear power will be more used today (the bad publicity created by the atomic bomb is probably the main cause of the anti-nuclear power sentiment)

If our first use of nuclear power wasn't nuclear bombs, we would get all our electricity from liquid fluoride thorium reactors (LFTRs):

The many advantages of LFTRs

Life would be sweet indeed! :-)

Shane L writes:

Good point Mike DC!

Well if there were no wars one might imagine multiple tyrannical kingdoms with the state apparatuses entirely dedicated to sucking up wealth from the populations. Such kingdoms would likely be backward, with little economic growth or innovation due to the great disincentives.

In that context a more liberal state would probably enjoy economic and technological growth, giving them an advantage if it did come to war. Tyrannical autocracies could be forced to liberalise a little simply to boost economic growth so that they might defend themselves against expansionary liberal countries.

Does this mean I think war is a useful tool to make the world more liberal? Certainly not.

"Wars begin when you will, but they do not end when you please." - Niccolò Machiavelli


Steven Garcia writes:

Great point. In times of war manufacturing is usually increased, so defense contractors, and other contractors can create jobs, and make money. In addition the soldiers are employed by the government so it can help decrease unemployment. Yet still remains the question if war is worth the trouble, in return for improved economic growth.

BL writes:

Mr. Cowen points out that the prospect of war propelled many breakthroughs in technology. However, one must wonder what would have been happening without a looming war: would other breakthroughs have occurred in different areas of technology instead? The technological improvements of the 1930s suggest so. And even if the prospect of war does bolster innovation comparatively well, there are other, multi-faceted consequences to consider. The government may liberalize the economy is some way, or it may just as easily de-liberalize things, using the fear of war to justify expansion of government and violation of private rights.

Ruy Diaz writes:

"By the way, Tyler doesn't establish that the atomic bomb was a good idea. Maybe he takes that as obvious, but I don't know why."

The science is straightforward. The atomic and hydrogen bombs are written in the book of nature. If he hadn't build them first, the Soviets would have, or the Brits, or the French....

Comments for this entry have been closed
Return to top