The Economic Consequences of War - EconVue Spotlight
posted by Lyric Hughes Hale on November 22, 2019 - 1:10pm
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.
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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 Itunes, Stitchers, Google Play, Spotify, and of course on our website.