Economic Impacts of Military Primacy: Why Alleged Economic Benefits are a Bad Argument for Activist Grand Strategy

Abstract

Policy experts routinely assert that U.S. "leadership" in international affairs provides essential protection to the global economy; scholars uphold the same argument as part of the proposed grand strategy of "deep engagement." Specifically, they argue that the strongest power in the world needs to police the global commons and to tamp down global violence to enable trade and investment to flow. However, careful reasoning and a review of key historical evidence undermines the claim that military primacy provides vital support to commerce. While most merchants and investors prefer peace to war, they do not stop their pursuit of wealth when war breaks out. Instead, they adapt. So while belligerents suffer terrible economic consequences from war's direct destruction of productive capacity, from the negative incentive effects of higher government taxes and borrowing to pay for the war, and from the diversion of effort into making products for fighting rather than for consumption and investment, wars merely reshuffle trade and investment patterns in the rest of the world. They also yield some stimulus as belligerents pay high prices to import from neutrals. Commerce flows through the commons and even into war zones, despite political-military instability. Consequently, powerful countries should not attribute economic benefits to activist military policies; they will enjoy trade and investment whether they assert their power or not.

Keywords: Grand Strategy, economic effects of war, primacy