David R. Henderson  

Paul Krugman on Why We Fight

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What's the Use of Crying Over ... One Innocent Person is Killed....

I often criticize Paul Krugman's writing on economics. But I also give him credit where credit is due. And credit is due for his excellent recent column on war. Read the whole thing.

Some excerpts and my comments:

If you're a modern, wealthy nation, however, war -- even easy, victorious war -- doesn't pay. And this has been true for a long time. In his famous 1910 book "The Great Illusion," the British journalist Norman Angell argued that "military power is socially and economically futile." As he pointed out, in an interdependent world (which already existed in the age of steamships, railroads, and the telegraph), war would necessarily inflict severe economic harm even on the victor. Furthermore, it's very hard to extract golden eggs from sophisticated economies without killing the goose in the process.

Angell, by the way, often gets a bum rap from people who think that he was predicting an end to war. Actually, the purpose of his book was to debunk atavistic notions of wealth through conquest, which were still widespread in his time.

Krugman even does some basic public choice, discussing briefly the incentives of governments to wage war. He writes:
The larger problem, however, is that governments all too often gain politically from war, even if the war in question makes no sense in terms of national interests.

I've written more extensively about the public choice of war here and here. In "The Economics of War and Foreign Policy: What's Missing?" I wrote:
Among those who bear large costs of one government's foreign policies are people who live in other countries. So, for example, if country A's government kills people in country B, the potentially biggest losers from this policy are people in country B. But because people in country B cannot typically vote in country A's elections, and can't typically give campaign contributions to politicians in country A, some of the biggest losers from government A's policy cannot directly influence political outcomes in country A. Thus some of the opposition to the government's foreign policies, though potentially strong, cannot legally be brought to bear on the politicians making the decisions. A clear implication is that the politicians will not care as much as otherwise about damage done to foreigners and that, therefore, the equilibrium could involve a lot of damage. Couple that with the fact that citizens in country A will be even less well informed about many of these actions than they are about the government's actions in their own country, and the implication is even more destruction of country B than otherwise. This is just one implication of the public-choice way of thinking. More insights likely await those who apply the public-choice framework to foreign policy.

In economics, by the way, we call the effect of country A's government on people in country B an externality.

And in "War and Presidential Greatness," Zachary Gochenour and I explored the relationship between the percent of his own people a U.S. president gets killed in war and the "greatness" rating that historians apply. We write:

Our data analysis shows that wars in which a large percentage of the U.S. population is killed, all other things equal, have led historians to judge as great the president on whose watch those wars occurred. Presidents Theodore Roosevelt and John F. Kennedy certainly perceived the situation in this way. Other presidents probably did so as well.

This conclusion is troubling. Most presidents, after all, probably want to be thought of as great. When they spend resources on war, they are spending almost entirely other people's money--and lives. They get little credit for avoiding war. Martin Van Buren, for example, effectively avoided a war on the northern border of the United States. He also forestalled potential war with Mexico by refusing to annex Texas (see Hummel 1999). How many people know about these actions today? Indeed, how many people have even heard anything about Martin Van Buren, aside from perhaps his name?

Woodrow Wilson, in contrast, inserted the United States into WorldWar I, a war in which the United States might easily have avoided participation. Moreover, had the U.S. government avoided World War I, the treaty that ended the war probably would not have been so lopsided. The Versailles Treaty's punitive terms for Germany, as John Maynard Keynes predicted in 1919, helped set the stage for World War II. So it is reasonable to think that had the United States not entered World War I, World War II might not have occurred. Yet, despite his major blunder and more likely because of it, which caused more than one hundred thousand Americans to die in World War I, Wilson is often thought of as a great president.

Of course, an important policy question is whether the wars in which so many Americans were killed were necessary. Our view is that they were not, although making that case lies beyond the scope of this article.

This analysis has a disturbing public-choice implication: if modern presidents understand these incentives, and they almost certainly do, they will modify their behavior in light of them. Therefore, we have identified another potential source of deviation from median-voter preferences, which springs from the executive's attempt to cement a legacy of greatness in the eyes of historians. Those who want peace should take historians' ratings of presidents seriously. Moreover, we need to stop celebrating and try to persuade historians to stop celebrating presidents who involved the country in unnecessary wars. One way to do so is to remember the unseen: the war that did not happen, the war that was avoided, and the peace and prosperity that resulted. If we applied this standard, then Presidents Martin van Buren, John Tyler, Warren G. Harding, and Calvin Coolidge, to name four, would receive a substantially higher rating than the historians usually give them.


With his column, Paul Krugman has entered an area that has not been thoroughly studied by economists but that is waiting to be so studied. I hope he does more.

HT to John Goodman.


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CATEGORIES: Public Choice Theory



COMMENTS (16 to date)
Shane L writes:

The bit about not being able to vote in another country reminds me that within the EU citizens now can vote in their neighbouring countries - sort of - through votes to the EU Parliament and other EU institutions. No member states have ever gone to war, although that may be to do with Pax Americana and NATO rather than internal institutions.

Sadly now I am troubled by the EU also consolidating its foreign policy so that it may drag peaceful countries like Sweden and Ireland into needless conflicts over Ukraine, Iraq and the like.

Dan S writes:

David,

I'm not sure if you've ever read John Mearsheimer's The Tragedy of Great Power Politics, but if not I can't recommend it enough. After reading that I had a much better sense of why nations have itchy trigger fingers even in the modern era where doing so could kill the goose that lays the golden egg or even result in nuclear annihilation. The short answer is that it's not so much about gaining material wealth through conquest as it is about being the top dog on the block militarily speaking, with all the national security benefits that result. Perhaps it's oversimplified, but reading that book made me feel like I "get" foreign affairs for the first time.

Harvey Cody writes:

Giving credit to “the other side” when the other side is right is commendable. Krugman pointing out that public choice is a problem – at least as it applies to wars – is something to be commended. Beyond that, however, Krugman doesn't say anything very commendable.

Contrary to what most conspiracy theorist seem to think, the US hasn't gone to war for economic gain in at least 100 years. Krugman’s observation that “But it [war] keeps happening anyway” [despite the fact that the victors wind up with less money] may be quite instructive to plunder-lust rulers around the world, but it is not applicable to US rulers. Rather than plunder, the US is more likely to attempt to help defeated nations get back on their feet, e.g., the Marshall Plan.

Krugman doesn't even attempt to make the case war cannot be a profitable enterprise – and, as Krugman admits, over the sweep of history plundering nations have gained economically from war. There is no reason to believe it cannot happen again. ISIS (a nascent nation), for example, has gained considerably from its plundering.

Many, including myself - and I would hope Krugman, believe that the world is a better place because the Allied forces kept the Axis powers from controlling the world. None of the Allied forces were in it for the money, and they all knew that the war would be very costly. They were in it to protect their way of life. Unless Krugman can credibly place a value on the net benefit to the world of the Allied forces winning, he is not really making an economic argument. He is just preening.

Krugman makes a good case that wars are self-serving of politicians which causes them to make poor judgments as to when to go to war. Just because a war is self-serving to politicians, however, does not mean war is not a better option than being overthrown.

For example, there is little reason to believe ISIS will not take over the world, fueled by plunder, unless someone stops them. Justifiably believing that ISIS won’t be stopped unless the US is involved (and that if the US is involved they won’t need to pay much to reap the benefits of ISIS being stopped – or at least materially stymied), the US will have to pay most of the cost once again. Not having a world-wide Caliphate is valuable – but to avoid one will cost much more than will be gained economically. So what?

Nathan W writes:

[Comment removed for crude language.--Econlib Ed.]

Jordan writes:

"If you’re a modern, wealthy nation, however, war — even easy, victorious war — doesn’t pay."

It does if you think the multiplier is well over 1. No?

Daublin writes:

With wide-spread trade, foreigners *do* get an indirect way to vote. Any harm to the foreigner will also harm the local trading partner.

David R. Henderson writes:

@Daublin,
That’s not a vote. I’m being literal. Consider the people who live in a democracy whose government initiates war. Most of the adults get to vote AND bear some of the costs of war. The adults in the country being warred on bear much of the cost of war AND don’t get to vote.

Brian E. writes:
If you're a modern, wealthy nation, however, war -- even easy, victorious war -- doesn't pay.

Is this the same Paul Krugman that has repeatedly stated the Great Depression was ended by US involvement in World War II?

David R. Henderson writes:

@Brian E.
Is this the same Paul Krugman that has repeatedly stated the Great Depression was ended by US involvement in World War II?
Yes, it is. Good catch. I wonder what he would say in response.

Billy writes:

I'm surprised that he did not make an exception for wars at the zero lower bound.

Andrew writes:

Mr. Krugman also stated that we could get out of the Great Recession by preparing for an alien invasion.

Mr. Econotarian writes:

"Contrary to what most conspiracy theorist seem to think, the US hasn't gone to war for economic gain in at least 100 years."

I think it is ludicrous to imagine that US military actions in Kuwait and Iraq were not related to economic concerns about oil supply.

Vangel writes:

trary to what most conspiracy theorist seem to think, the US hasn't gone to war for economic gain in at least 100 years

Really? Why did Wilson choose to get involved in World War I? Do you mean to tell me that all of those big Wall Street banks that were looking at writing off their loans had nothing to do with it? Or all those companies who took advantage of the war collectivist programs and were able to profit by being protected from competition by government laws?

Note that the American people did not want to go to war, which is why all that propaganda and the draft were necessary.

And what about WWII? With the depression lasting for nearly a decade and FDR's policies failing miserably sending off young men to fight seemed like a very good idea to someone looking to cut employment. And look at all that aggregate demand.

What about Vietnam? You really think that the American public wanted to fight against the Viet Cong in the jungles? Or did the military industrial complex pull the right levers and push the right buttons so that it could profit from yet more demand created by the government?

Sorry my friend but I find your kinds of dismissals as naive. There are people who clearly benefit from war and you cannot dismiss their influence when a country chooses to go to war. The United States political leaders did not take the nation to war just because of some ideological drive. They took the nation to war because their donors and friends would benefit greatly from the expansion of government power.

Roger McKinney writes:

I think economists place far to much weight on greed. Some philosophers think the main drive is for power, not wealth. Wealth is nothing but a means to power. The US is wealthy and wants to projects its power around the world.

I have found other good attributes in Krugman recently. He has consistently criticized the neoclassical/monetarist obsession with money printing as being impotent.

On the use of math in econ he has a very Hayekian/Misesean attitude: it's just a tool and should not drive theory. He uses as little math as possible, and the simpler the better. His has criticized the neoclassical obsession with fancy math models.

His politics are socialist, and he is a paleo-Keynesian, but he has so redeeming qualities.

Roger McKinney writes:

Harvey

I would hope Krugman, believe that the world is a better place because the Allied forces kept the Axis powers from controlling the world.

There is no chance they could have taken over the world. They were both very socialist and quickly going broke because of military spending. Only Keynesians think military spending makes a nation richer.

We traded Nazism for Soviet communism and Japanese imperialism for Maoist communism. The communists were much more brutal, each murdering twice as many people as the Nazis tried. Seems to me that the Japanese and Germans were the lesser evils.

Had the Allies worked at containment instead of total war and unconditional surrender, the Japanese and Germans would have to give up in a few years with far fewer people killed and less property destroyed.

Harvey Cody writes:

@Vangel:
“Do you mean to tell me that all of those big Wall Street banks that were looking at writing off their loans had nothing to do with it? Or all those companies who took advantage of the war collectivist programs and were able to profit by being protected from competition by government laws?”

The answer to both questions is “No.” Let me assure you that had I meant to say that I would have. Shooting down claims you incorrectly assumed I made accomplishes what?

Nothing in what I said denied the existence or motives of bankers or the military industrial complex. They played their part. They, however, regularly (constantly?) advance arguments as to why the country should go to war. The US does that for which they clamor far less often than they clamor. When the US does go to war, the considerations so advanced are, no doubt, taken into consideration. Those clamoring are never “The reason” for war – there are usually many. In every case there is a sufficient strategic reason for going to war in addition to the reasons asserted by multiple factions.

Note, also, that I did not say that each strategy was a good idea or that the American people were in favor of war. I certainly did not say that the politician’s interest in staying power was not a factor in the decision. I simply said that America has not gone to war to make a profit – a primary topic in Krugman’s article - in over 100 years. Nothing you said refutes that.

While I don’t believe labeling someone else's argument as “naive” the labeler's argument, I do agree that had I said or meant what you said I said or meant, it would have been naive.

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