Tyler Cowen versus Frederic Bastiat
By David Henderson
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.