The Primacy of Foreign Policy

November 12, 2014 • Cato Online Forum

At first glance it may not seem like foreign policy is a major determinant of the American economic growth rate. Foreign trade is about fourteen percent of the U.S. economy, and furthermore most of this trade is with countries which appear quite stable in geopolitical terms, such as Canada and Western Europe. Nonetheless in the longer run, having a good foreign policy is the most important thing the United States can do to assure its own future prosperity.

We tend to take peace for granted in most of today’s world, but the broader historical record suggests peace is an occasional luxury and never a guarantee. Standards of living have repeatedly regressed throughout human history, and very often war and its associated catastrophes have been primary causes behind these misfortunes. It is a conflict‐​ridden world that is the greatest threat to the future of humanity and thus ultimately to the growth record of America.

Just as peace tends to feed upon itself, so does war. If violent conflict became more of a global norm, potential theaters of war could include Eastern Europe, the South China Sea, and the Middle East, as indeed we are already seeing in today’s headlines. If those regions remain enmeshed in violent conflict or even diplomatic ambiguity, as is the case with China and its neighbors, current global norms in favor of peace could crumble much further. Today’s world, in geopolitical terms, is the scariest we have seen for decades, and we are learning to our dismay that progress toward greater peace is not always the dominant trend.

It is possible that we are still living inside the biggest bubble of them all and that is called “the peace bubble.” I’ve also heard this described as the bubble of “Pax Americana,” although that is a more partisan take on the role of America in global peace. You might think the chance of this being a “peace bubble” is say only five or ten percent. Maybe so, but still in expected value terms that is still the most important issue to worry about. The breaking of that peace bubble on a larger scale could endanger all of the progress and accumulated well‐​being of the human race, including the United States.

Let’s not forget that over the next one hundred years, if the world remains relatively peaceful, it is unlikely that most global innovation will come from the United States. China in particular may assume a major role as a generator of new ideas, just as the United States supplied a wide variety of useful innovations to Great Britain starting in the mid to late 19th century. Even if a “Fortress America” could survive geopolitical turmoil in the broader world, it would be a much poorer place. We rely on the rest of the world for inspiration, for creation, for appreciation, for increasing market size and thus the spurring of American innovations, and of course we rely on the rest of the world for innovations more directly. A future America in a chaotic world is much, much poorer and riskier than a future America in a peaceful world.

Steven Pinker suggests that the world is becoming ever more peaceful, but in reality we have had the world’s two worst wars in the last one hundred years. The data are also consistent with the hypothesis that the number and frequency of wars are indeed going down, but the wars we do get are increasing in destructiveness. That would suggest the next major war to come along will be quite a doozy, hardly a comforting thought. In any case, the recent uptick in global conflict suggests that Pinker’s take is too optimistic. One can even agree with Pinker, and think he is describing the scenario most likely to be true, but again in expected value terms we still should see war as our number one worry for a long time to come.

When electing a President or a Congress, foreign policy should be by far our number one concern. That said, I don’t think there is any simple formula for getting foreign policy right. Unlike many libertarians, I do not adhere to a strictly non‐​interventionist stance on foreign policy. I believe in alliances among the world’s relatively free and (one hopes) peaceful nations. I believe that American intervention has at some critical times led to much greater freedom and prosperity. Without the current and past American security umbrella, for instance, I believe much of Asia would be a far less free place than it is today, starting but not ending with Taiwan and South Korea.

I am, however, also skeptical of conservative or hawkish claims that we simply need to get tough with the bad guys in the world. A market‐​oriented economist, as I view myself, should be well aware of the general arguments about the difficulty of government planning and the importance of unforeseen, unintended consequences from government action. Furthermore government policies, once they get underway, are often hijacked by special interest groups or by voters who are uninformed, misinformed, or who react emotionally rather than analytically. We should not be especially optimistic about the ability of our government to pull off successful foreign interventions. You can take the Vietnam War as Exhibit A here but of course there are many more examples, stretching into our Iraq policies in more recent times.

To make matters more difficult, the American public is often pretty squeamish about violence and conflict abroad. That’s overall a good thing, but it means a “get tough” foreign policy isn’t very easy to implement in a credible fashion. (For instance the American public approved when President Obama neglected his “line in the sane” commitment regarding Syria and chemical weapons use.) For better or worse, the electorate stands in the way of what might otherwise be a strategically optimal foreign policy. It can be said that a nation has to run a foreign policy with the citizens it has, and that is another reason why this complex area is so difficult to manage.

I’m not going to try to solve these conundrums in an essay of this length. I’ll simply put it this way: the single most important thing we can do to boost long‐​run American growth is to get foreign policy right. Very literally our lives, and the lives of many others, depend on it. And that means the economists aren’t nearly as important as they like to think they are.

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on reviving economic growth.

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