Cato Institute adjunct scholar Eugene Gholz has been awarded the 2015 Fiona McGillivray award for his paper, "Assessing the 'Threat' of International Tension to the U.S. Economy." Chosen by the Political Economy section of the American Political Science Association, the award is given for the best paper in Political Economy presented at the previous year’s APSA Annual Meeting.
In the paper, which is featured in A Dangerous World? Threat Perception and U.S. National Security, a book that I co-edited with John Mueller, Gholz concludes that the conventional wisdom regarding the economic threat international tension poses to neutral states is “often exaggerated.”
President Obama (like other political leaders before him) is wrong about the economic consequences of foreign tension for the United States, as are most of the academics involved in grand strategy debates.
The bottom line is that it is rarely, if ever, worth spending American resources to prevent foreign instability in the hope of protecting American prosperity, even assuming that such spending effectively tamps down tension.
Gholz, an associate professor at the LBJ School of Public Affairs at the University of Texas at Austin, argues that neutral states can sometimes actually benefit economically from foreign tension and even war:
governments in wartime transfer resources from normal production into the war effort, which means that the belligerents' domestic economy produces less of value for nonmilitary consumers, fewer capital goods to prepare for future domestic production, and fewer export products.
The result is a near-term gap between demand for goods and services and domestic supply—a gap that is typically filled by imports from international markets.
Not every foreign country is well positioned to take advantage of the mobilization-induced consumption binge, but, on net, because belligerent (or scared) economies increase their overall consumption, neutral countries enjoy an economic benefit.
The paper is not a brief for a U.S. policy of instigating foreign conflict, of course: we all recoil from the horrors of war, and any economic benefit that the United States might gain from foreign tension would be relatively small. But the current U.S. strategy’s emphasis on military activism and forward presence is built on the assumption that scaling back U.S. military commitments would hurt the American economy, and that assumption is not justified. There is no reason for the United States to pay direct costs – the costs of our forward military strategy – for a phantom economic benefit.
When presenting the award to Gholz, Professor Lloyd Gruber from the London School of Economics and Political Science, chair of the award committee, lauded the “well-argued, punchy, and provocative” paper:
Using historical examples and reasoning by analogy—the paper likens the effects of the consumption booms that accompany war-fighting to the effects of the peacetime demand shock that would occur if millions of Chinese consumers were to decide to purchase new automobiles at the same time—Gholz makes a compelling case. …His paper is a consumption boom for the reader.
The book in which Gholz’s paper appears can be found here.