The Economic Consequences of War - EconVue Spotlight November 22 2019

In 1919 John Maynard Keynes wrote the first best-seller in economics, The Economic Consequences of the Peace. The title is a bit misleading, since it is really about the cost of war. He railed against the Treaty of Versailles, correctly predicting that inequitable conditions of peace made another world war inevitable. 

With recent protests in Chile, Bolivia, Venezuela, Hong Kong, Iran, France, Lebanon, and numerous  other places erupting like the many-headed Hydra of Lerna, the economic costs of violence are a subject of concern. Keynesian economics predicts that wars between major powers have a perversely positive effect on GDP as military spending booms and rebuilding begins.

Civil wars are different. Continued low-grade violence and domestic unrest such as Iraq has experienced destroys stability and saps growth. Saddled with ongoing violence and debt from the Iran-Iraq war, it took Iraq more than sixteen years to regain 1990 GDP levels. Citizen uprisings are difficult to put down with advanced and costly heavy military equipment, as the photo of Tank Man so eloquently illustrates. Hong Kong is a more current example, where a localized recession is a likely outcome of current troubles.

Overall global GDP should not change as a result of these local conflicts, but a concatenation of events occurring simultaneously might change expectations of peace and dampen growth overall. Multinational businesses operate in multiple locations and can shift operations and investments. However if geopolitics begins to look like a game of whack-a-mole, the world will be looking for a new Hercules.

War and Peace

The Economic Value of Peace
Institute for Economics & Peace 2018

This is what violence does to a nation's GDP
John McKenna 6/25/2018 World Economic Forum

The Better Angels of Our Nature: Why Violence Has Declined
Steven Pinker, 2011 Viking

Pinker documents that violence has declined dramatically since WW2, although communications technology has influenced our perceptions to the contrary. This influential work also admits that the current balance might not last forever. 

The Lack of Major Wars May Be Hurting Economic Growth
Tyler Cowen 6/13/2014 New York Times

Living in a largely peaceful world with 2% G.D.P. growth has some big advantages that you don’t get with 4% growth and many more war deaths. Economic stasis may not feel very impressive, but it’s something our ancestors never quite managed to pull off.

Global Macro

Three Big Things: The Most Important Forces Shaping the World
Morgan Housel 10/4/2019

The three great forces that matter: demographics, wealth inequality, and IT, and how everything has its roots in WWII.

Global Fertility Crashes
Andre Tartar, Hannah Recht, and Yue Qiu 10/30/2019 Bloomberg

Demographics is destiny.

The End of Babies
Anna Louie Sussman 11/16/2019 New York Times

Around the world, economic, social and environmental conditions function as a diffuse, barely perceptible contraceptive.

Experimental economists win Nobel Prize (and deserved to win)
Gary Burtless 10/23/2019 Brookings Institute

Clear explanation of RCT’s  (Randomized Control Trials) that were first used in medicine (think placebos). The 2019 Nobel was awarded for using RCT's in economic experiments meant to alleviate poverty instead of disease.

Which leading indicators have done better at signaling past recessions?
David Kelley 11/2019 The Federal Reserve Bank of Chicago

Japan Matters to America, America Matters to Japan
Eleanor Shiori Hughes 11/14/2019 EconVue Conference Report

Japan to exempt asset managers from stricter investment rules
Nikkei Asian Reviews 10/17/2019

This is very good news for investors in Japan. 

As America Leaves Syria, Iran Isn’t as Happy as You Think
Ray Takeyh 10/20/2019 Wall Street Journal

In Syria, Turkey is bound to be more powerful, Bashar Assad more reckless, the Kurds substantially weakened, and ISIS reconstituted. None of this is good news for Iran, writes Ray Takeyh.

Sajid Javid accused of 'flying blind' as he refuses to publish economic assessment of Brexit deal
Matt Honeycombe-Foster 10/22/2019 Politics Home

When you do something for the first time in history you will by definition be flying blind. So maybe the Chancellor of the Exchequer is simply being honest about the economic impact of Brexit. 

U.S.

Farm Finances Continue to Weaken Amid Ongoing Uncertainty
Nathan Kauffman 11/14/2019 Federal Reserve Bank of Kansas City

Despite slightly higher crop prices and support from trade relief payments, farm income decreased compared with a year ago

Oakland's Sugar-Sweetened Beverage Tax: Impacts on Prices, Purchases and Consumption by Adults and Children
John Cawley, David E. Frisvold, Anna Hill, David Jones 11/8/2019 the National Bureau of Economic Research

The unsurprising result: no change in consumption.

Taxing unrealized capital gains is an idea so bone-headed I'm at a loss for words
Patrick Chovanec 11/2/2019 Twitter

Taxing unrealized capital gains by marking retirement accounts to market, as well as real estate not on the market, would be hands down the worst US economic policy of all times.

Repo auctions highlight failure of post-crisis policymaking
Karen Petrou 11/6/2019 Financial Times

Repo markets are no longer just financial plumbing. In a low interest rate world, borrowers in speculative markets use repo financing to enhance profits. By January, says Karen Petrou, the Fed's repo support will top $11.5T, more than half of US GDP. What could go wrong?

Where 75% of workers are on the autistic spectrum
Robbie Wojciechowski 10/20/2019 BBC

Thomas Edison and Steve Jobs would not be hired by their own companies today.

Warren's ill-timed insult to Chicago's new mayor
Greg Hinz 10/22/2019 Crain's Chicago's 

Hot doggin it in Chicago. Scathing on Warren; no surprise that Mayor Pete is surging ahead in Iowa. 

China

Beware a Faltering China
Michael Beckley 10-28-2019 Foreign Affairs

A weakened China, not a strong China, poses a threat to the world economy.

Francis Fukuyama, 30 years on: Is the world turning Chinese?
Mikio Sugeno 11/9/2019 Nikkei Asian Review

I think the likelihood that there will actually be overt conflict in Asia is much higher than a lot of people imagine it. ... The biggest risk is actually Taiwan right now.

Aftermath: the fall of the Berlin Wall — and its lesson for China 30 years on
Niall Ferguson11/3/2019 The Times

How China Rode the Foreign Technology Wave
R. Stephen Brent 11/10/2019 The American Interest

The best way for the US to combat the technology issue is probably not with tariffs on tradable goods but rather with taxes on capital inflows.

Technology 

Why quantum computing could be a geopolitical time bomb
Kevin Allison 11/6/2019

Non-binary computing could end encryption says the author, but I disagree and so do others. Quantum-resistant computing is already here: Why Encryption Has Nothing to Worry About

Trump Administration Popped 2017 Bitcoin Bubble, Ex-CFTC Chair Says
Brady Dale 10/22/2019 Coin Desk

Bitcoin futures were allowed in order to short bitcoin and pop the price bubble. ETF’s were not. It worked.

Digital Money Tests Central Banks (video)
Bloomberg 10/16/2019

Digital currencies under central bank control are not cryptocurrencies.

Five Trends Appear on the Gartner Emerging Hype Cycle for Emerging Technologies
Kasey Panetta Gartner 8/29/2019

Sensing and mobility, augmented human postclassical computing and communications, digital ecosystems, advanced AI, and analytics. 

Speaking of known unknowns, our next Hale podcast is with fellow Chicagoan Michele Wucker, author of "The Gray Rhino". You can download and listen to previous podcasts on ItunesStitchersGoogle Play,Spotify, and of course on our website.