Economic effects of a conflict-prone world order

Abstract

The economic effects of international conflict and war have been the subject of much debate. Critics of militarism frequently cite the costs of wars and armaments; Reston (1988), for instance, notes that the United States and the Soviet Union together spend over $1.5 billion a day on military defense. In addition, wars have taken millions of lives, while the potential of war can militarize societies and produce feelings of regimentation and nationalism that many find repugnant.' In contrast to these issues, I wish to examine how the possibility of international conflict affects the incentives of politicians to implement growthimproving domestic economic policies. A country's success in international conflict is usually closely related to its economic power - a large revenue base and strong economy create economic power and enable high levels of military spending. The existence of a conflict-prone world order may thus strengthen the incentive for growth-promoting economic policies to the extent that public officials value international victories. Although conflict itself is a negative sum game, the results induced by the potential for conflict may yield benefits for the public. This essay is thus an exercise in the tradition of Bernard Mandeville (1962) [1734], who emphasized the theme of "private vices, public benefits." 2. Incentive effects and conflict For politicians under democratic regimes, international victories may increase the probability of reelection or strengthen a politician's mandate. Capturing rents from other countries usually boosts a politician's standing in the public opinion polls. Conversely, losing international conflicts usually damages a