The Morning Economic Report
11:55 pm
Thu June 19, 2014

Economic Growth in High Income Economies - 6/18/14

In an extraordinarily provocative article, writer Tyler Cowen offers a possible explanation for the continued softness of economic growth in high income economies.  While some have pointed to the impacts of technology and globalization on middle class incomes or the effects of de-industrialization generally, Cowen suggests that the explanation may lie in the "persistence and expectation of peace." 

The world simply hasn’t had as much warfare lately, at least not by historical standards.  While Iraq, Syria, the South Sudan and other hotspots continue to make headlines and make the world feel like a bloody place, today’s casualties pale in comparison to the tens of millions of people who were killed during the two world wars. 

The Vietnam War had far more deaths than any recent war involving an affluent nation.  According to Cowen, it is not the actual fighting of wars that improves economies.  The argument is also distinct from the Keynesian notion that preparing for war lifts government spending and puts people to work.  Rather, Cowen’s idea is that the very possibility of war focuses the attention of governments on getting basic decisions right, including how much to invest in science and on infrastructure.