By John Tamny at Forbes
Economics is haunted by more fallacies than any other study known to man.” – Henry Hazlitt, Economics In One Lesson, p. 15
The great Henry Hazlitt’s wise words came to mind while reading a recent New York Times post by George Mason economist Tyler Cowen. Fresh off of his unfortunate assertion (one that Hazlitt would have had a field day with) from a few years ago that economic growth has become difficult to achieve, Cowen strangely observed that “The world just hasn’t had that much warfare lately, at least not by historical standards,” and “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.”
They’re ultimately only words, but Cowen’s about war theoretically boosting animal spirits are pretty disturbing ones, and that’s truly saying something when we consider past mutterings from the economics professor about a supposed lack of “low-hanging fruit” rendering future growth a distant object. The only happy thing to take from Cowen’s promotion of war as a possible stimulant is that college students generally tune out their professors if the voting patterns of the electorate are to be believed. In Cowen’s case he allegedly swings right, is even said to self-identify as a libertarian, but his post from June 13th speaks to an academic experiencing an evolution of the worst kind.
In Cowen’s defense, he hasn’t completely gone over the edge about the alleged virtues of war. As he explains, any new insights on his part aren’t meant to “claim that fighting wars improves economies, as of course the actual conflict brings death and destruction.” Yes, wars certainly are wealth and life destroyers, and it reminds us of something that’s very odd about an economics profession populated by individuals who almost all believe that World War II ended the Great Depression.
About the above belief, nothing could be more logically false. To think that World War II ended the Great Depression is to believe that growth can be achieved by killing one’s best customers around the world.
To believe that war is stimulative is to presume that free trade and the intense specialization that it brings us is irrelevant to growth; that we’re instead made better off when conflict to varying degrees erects barriers to the global division of labor. Rather than producing in concert with fellow economic actors around the world, all of us doing what we’re comparatively best at, during war Smith’s proverbial pin factories are often shrunk in favor of autarkic production; much of it meant to destroy rather than create wealth.
To believe that war redounds to economic growth is to presume that during times of economic hardship we should dynamite cities around the U.S. so that politicians can pay people with money taxed and borrowed away from the productive to rebuild all the wealth that was destroyed. It also presumes that we should actively court conflict with an eye on putting soldiers in harm’s way globally and defense contractors to work domestically.
Lastly, to think that World War II ended the Great Depression is to blindly assume that once the war ended, and government spending plummeted, that the U.S. economy sank into the mother of all recessions. In fact, the U.S. economy soared after the war as the government spending burden shrank, and an energetic generation returned to endeavors amounting to real wealth creation over destruction of same.
World War II decidedly did not end the Great Depression, and the fact that most economists believe it did arguably indicts this modern version of astrology more than any other worthless belief (think “quantitative easing,” GDP itself, the oxymoron that is “government stimulus”) emanating from a profession most useful to investment forecasters (at Goldman Sachs clients would call to find out what the economists were thinking, then bet the other way) as a contrarian indicator of what’s actually happening in the economies they comically presume to “measure.” What ended the Great Depression, and to Cowen’s credit he alluded to it with his comment that the possibility of war can at least lead politicians to “liberaliz[ing] the economy,” is that by 1938 the New Deal essentially ended after having failed miserably in the eyes of Republicans and Democrats alike.
But to clarify Cowen’s views to readers, he writes that “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.” His first example is laughable, and his second easily disprovable.
Government spending on science presumes that politicians can better allocate capital than can private actors operating under market discipline. To believe what Cowen is offering up, the lack of a war threat today is depriving Harry Reid, Mitch McConnell, Nancy Pelosi and John Boehner of the opportunity to expertly invest the money of others in the killing machines of the future; the knowledge gained from those investments eventually migrating to commercial ideas that would boost growth. You can’t make this up. Cowen is serious.
As for the notion that countries somehow need the threat of war to achieve great scientific advances, or better yet, liberalize their economies, apparently Switzerland, Hong Kong, and New Zealand (among many others) didn’t get Cowen’s comical memo. With all three, no credible voice in modern times has argued that either faced war or imminent attack that would have “focused” the attention of their politicians on the way to economy-boosting liberalization, or, if Cowen is to be believed, political advancement of “technological invention” and greater “internal social order” supposedly needed for major expansion.
Indeed, what all three remind us, and it’s something seemingly lost on Cowen, is that economic growth is really very simple. We all have myriad wants and needs, our production is our demand, so when governments remove the barriers to production, the individuals who comprise any economy tend to thrive. Thinking about the U.S. economy with the latter in mind, our economy is presently limp not because we lack some national, war-mongering purpose (apparently Cowen forgot all the national initiatives of the 20th century that robbed the world of well over 100 million people), but precisely because our political class has violated the four basics (taxes, regulation, trade, and money) to economic growth.
Taxes on income and capital gains were increased at the end of 2012, the tax that is government spending has soared under Presidents Bush and Obama, Bush foisted regulations on producers such as Sarbanes-Oxley and the Patriot Act, while Obama is presently trying to re-regulate healthcare, finance and energy. Both presidents to varying degrees bashed Chinese imports all the while erecting tariffs to steel, softwood lumber, shrimp, and tires, and then the dollar began a long descent under Bush that continued for three years under Obama; the dollar’s revival since late 2011 having served as a positive lure for the very investment that has revived the economy somewhat. The U.S. economy is presently weak not for lack of a looming global conflict as Cowen remarkably presumes, but instead it suffers excessive political meddling of the tax, regulation, trade, and monetary variety.
Assuming a more focused political class eagerly allocating capital to innovative minds seeking to create the next phase of life-erasing weaponry, what Cowen has apparently glossed over is that government spending always and everywhere takes place at the expense of market-disciplined investment from the private sector. If we ignore just how lousy politicians are as investors irrespective of ideology or Party, it can’t be stressed enough that fear of war forces capital into that which kills, as opposed to into that which makes us more productive.
To read Cowen, yes, there are happy tradeoffs. As he puts it, “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…” Ok, so absent murderous regimes around the world we’d still be traveling by train, receiving messages by snail mail, plus we’d lack a form or energy that, up to this point, still can’t make it without heavy taxpayer subsidy?
Implicit in Cowen’s droolings is that the entrepreneur doesn’t exist, that absent the guiding hand of government fearful of global conflict, profit-motivated entrepreneurs would never have dreamed of the airplane as a way of making travel more convenient, the computer and Internet to speed along and greatly enhance communication and shopping, or scientific advances meant to elongate our lives. Naturally this dangerous thinking ignores that entrepreneurs are constantly devising new ways to please us with profits in mind, and applied to the political allocation of capital that Cowen is apparently defending, can he say with a straight face that Jobs, Bezos and FedEx’s Fred Smith would have been likely recipients of growth capital from politicians?
Taking this further, and to channel George Gilder who, quite unlike Cowen is optimistic about the future, Gilder correctly notes that economic progress is a function of the “leap.” Progress in an economic sense is the result of experimentation (the leap), and information gained from that experimentation. To the government apologist in Cowen, we’re supposedly the beneficiaries of decades of government direction of capital to prepare for and fight wars thanks to world leaders lacking any sense of economy when it comes to sending their best and brightest out to be slaughtered. But what Cowen once again fails to consider are all the ideas that never achieved funding thanks to so much political consumption of capital, along with the world-changing ideas that never came to be at all thanks to war itself.
Cowen ultimately thinks that a lack of global conflict, and the resulting lack of muscular politicians seeking to fix what ails us lies at the heart of our malaise. All this would be truly funny if it weren’t so scary. Tyler Cowen would be wise to instead look in the mirror. It’s not the non-threat of war that holds us back; rather it’s economists like Cowen. Economic growth is so very easy, but for the economists.