Cato Institute adjunct scholar Eugene Gholz has been awarded the 2015 Fiona McGillivray award for his paper, “Assessing the ‘Threat’ of International Tension to the U.S. Economy.” Chosen by the Political Economy section of the American Political Science Association, the award is given for the best paper in Political Economy presented at the previous year’s APSA Annual Meeting.

In the paper, which is featured in A Dangerous World? Threat Perception and U.S. National Security, a book that I co-edited with John Mueller, Gholz concludes that the conventional wisdom regarding the economic threat international tension poses to neutral states is “often exaggerated.”

President Obama (like other political leaders before him) is wrong about the economic consequences of foreign tension for the United States, as are most of the academics involved in grand strategy debates.

The bottom line is that it is rarely, if ever, worth spending American resources to prevent foreign instability in the hope of protecting American prosperity, even assuming that such spending effectively tamps down tension.

Gholz, an associate professor at the LBJ School of Public Affairs at the University of Texas at Austin, argues that neutral states can sometimes actually benefit economically from foreign tension and even war:

governments in wartime transfer resources from normal production into the war effort, which means that the belligerents’ domestic economy produces less of value for nonmilitary consumers, fewer capital goods to prepare for future domestic production, and fewer export products.

The result is a near-term gap between demand for goods and services and domestic supply—a gap that is typically filled by imports from international markets.

Not every foreign country is well positioned to take advantage of the mobilization-induced consumption binge, but, on net, because belligerent (or scared) economies increase their overall consumption, neutral countries enjoy an economic benefit.

The paper is not a brief for a U.S. policy of instigating foreign conflict, of course: we all recoil from the horrors of war, and any economic benefit that the United States might gain from foreign tension would be relatively small. But the current U.S. strategy’s emphasis on military activism and forward presence is built on the assumption that scaling back U.S. military commitments would hurt the American economy, and that assumption is not justified. There is no reason for the United States to pay direct costs – the costs of our forward military strategy – for a phantom economic benefit.

When presenting the award to Gholz, Professor Lloyd Gruber from the London School of Economics and Political Science, chair of the award committee, lauded the “well-argued, punchy, and provocative” paper:

Using historical examples and reasoning by analogy—the paper likens the effects of the consumption booms that accompany war-fighting to the effects of the peacetime demand shock that would occur if millions of Chinese consumers were to decide to purchase new automobiles at the same time—Gholz makes a compelling case. …His paper is a consumption boom for the reader.

The book in which Gholz’s paper appears can be found here.

Last week, I wrote about a man who spent 6 months of his life and $1,500 to make a sandwich entirely from scratch, without the benefits of market exchange. The story illustrates how exchange and trade enrich our lives.

After making his incredibly costly sandwich, the same man embarked on an even costlier endeavor: making a suit from scratch. He picked cotton from a field, spun the cotton into thread, wove the thread into cloth, sheared wool from a sheep, harvested hemp, raised silkworms for their silk, killed a deer and tanned its hide to make leather. This process cost him 10 months of work and $4,000.

At the end of the video documenting how he made the “suit,” he stands in a bizarre-looking outfit with pants that end at his knees and says with regret, “OK, even with all that work, I might have run a little short on material.” Even after 10 months of intense labor, he was unable to come close to matching the quality and price of a product that he could procure through the free market. 

Thanks to market exchange and the division of labor, obtaining new clothes is simple and increasingly affordable. For example, increasing cotton yields have lowered the price of a staple fabric material.

The real price of a suit, measured in the number of hours it takes an average worker to earn enough to buy one, has declined: a two-piece wool suit cost the average American 12.4 fewer hours of work in 2012 than it did in 1956. (Check out Professor Don Boudreaux’s analysis for further details).

Critics sometimes decry increasingly affordable clothing, viewing falling prices as a sign of worker exploitation. In 1891, U.S. President Benjamin Harrison summed up this viewpoint when he said, “I pity the man who wants a coat so cheap that the man or woman who produces the cloth or shapes it into a garment will starve in the process.” However, as Johan Norberg pointed out yesterday in the U.K. Huffington Post, far from making people poorer, the garment industry has actually helped to decrease poverty. As he eloquently puts it:

Western activists rail against “sweatshops,” but among researchers and economists from left to right there is a consensus that these jobs are the stepping stones out of poverty.

Take a moment to consider what you are wearing right now, and how much work went into its creation, from the harvesting of its raw materials to the finishing touches. No one person created it—it is the fruit of a complex family tree of mutually beneficial human cooperation through the market.