Keynes, Economics,

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Keynes, Economics, War

• Keynes early views on economics and war were
  dominated by the orthodoxy of his day
• Classical Liberalism
• View in
• The Economic Consequences of the Peace

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Classical Liberalism

• Classical liberalism (also known as traditional
  liberalism, laissez-faire liberalism, market
  liberalism or, in much of the world, simply
  liberalism) is a doctrine stressing individual
  freedom and limited government.
• Several liberals, including Adam Smith, and
  Richard Cobden (Anti-Corn Law League), argued
  that the free exchange of goods between nations
  could lead to world peace.

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Classical Liberalism - Kant

• By virtue of their mutual interest does nature
  unite people against violence and warthe spirit
  of trade cannot coexist with war
• - Immanuel Kant, the Perpetual Peace

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Keynes, Economics, War

• In The Economic Consequences of the Peace (1919)
  Keynes was a free-trader, although he abandoned
  the liberalism of his youth both in his General
  Theory (1936) and in his later views on war
  favoring armed deterrence.

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Keynes, ECP

• Harmony of interests would establish basis for
  peace
• Trade and commerce, rather than military
  conquest, could achieve security, prosperity, and
  economic growth
• Chapter II Europe Before the War
• Benefits of Globalization
• Provided security of property people
• However, the old world was fragile

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Keynes, ECP

• Chapter VI Europe After the Treaty
• Keynes is pessimistic
• Versailles was a Carthaginian peace
• Reparations are a beggar-thy-neighbor policy.
  Deliberate impoverishment leading to vengeance.
• Predicts that final civil war which will
  destroy the civilisation and the progress of
  our generation.

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Keynes General Theory

• In 1931, Keynes favors some protectionism
• In his General Theory (1936), economics can be a
  cause of war with the pressure of population and
  the competitive struggle for markets. But wars
  can be avoided if nations can learn to provide
  themselves with full employment by their domestic
  policy.

8
Keynes - Post WWII

• Keynes returned to a liberal vision at Bretton
  Woods, but was no longer the laissez faire,
  free-trade economist of the Economic Consequences
  of the Peace.
• Proposed an International Clearing Union to help
  maintain an equilibrium in the balance of
  payments. Got the IMF which was different than
  what he envisioned.

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Classical Liberalism - revisited

• There are mutual gains from voluntary exchange
• Free trade increases output and economic growth
• A movement away from free trade will make one
  worse off
• Free trade is Pareto Optimal
• It should lead to peace

10
Reparations

• War reparations monetary compensation to cover
  damage or injury during a war.
• Generally, refers to money or goods changing
  hands, rather than such property transfers as the
  annexation of land.
• Rome imposed large indemnities on Carthage after
  the Punic Wars (146 BC)
• What happened to the Carthaginian Empire and the
  Roman Republic?

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Reparations

• Reparations are punitive.
• Imposed by the victors in WWI, whereas all the
  countries involved were somewhat belligerent,
  though Germanys share of the blamemay have been
  the largest.
• What behavior is deterred or changed by
  reparations?

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Reparations - Consequences

• 4. The economic consequences are to move away
  from free trade and the mutual harmony of
  interests.
• 5. After years of war, the populace of the losing
  side is likely already impoverished, and the
  imposition of war reparations therefore may drive
  the people into deeper poverty, both fueling
  long-term resentment of the victor and making the
  actual payments unlikely.

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Economic Sanctions

• Economic sanctions are domestic penalties applied
  by one country (or group of countries) on another
  for a variety of reasons.
• In international relations, they are designed to
  compel a state to conform to international law.

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Economic Sanctions

• Economic sanctions include, but not limited to,
• tariffs,
• trade barriers,
• import duties,
• import or export quotas.
• restrictions on financial flows
• restrictions on the movement of people
• sequestering of property
• blockade or embargo

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Economic Sanctions - Consequences

• Economic sanctions are temporary punishment, with
  supposedly a tit-for-tat nature.
• Sanctions are dropped once the state conforms to
  international law.
• The economic consequences are to move toward free
  trade and the mutual harmony of interests.

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Economic Sanctions - Goals

• Sanctions are part and parcel of international
  diplomacy for coercing target government into
  particular avenues of response.
• Sanctions are deployed to advance laudable policy
  goals
• to stop military adventures,
• arms proliferation,
• support of terrorism (drug trafficking), and
• human rights abuses among others.

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Economic Sanctions

• Sanctions seek to
• demonstrate resolve and express outrage,
• change the behavior of the target country, and
• deter other countries from resorting to similar
  actions in the future.
• 2. Sanctions provide a middle road response
  between diplomacy and military action.

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Economic Sanctions

• Note, however, that in recent years the use of
  economic sanctions has increasingly become a "way
  station" to the use of military force.
• Ineffective sanctions have led to US military
  intervention in Panama, Haiti, Somalia, and Iraq.

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Economic Sanctions Globalization

• Successful cases have become increasingly rare as
  globalization has made it easier for target
  countries to tap international trade and capital
  markets and find alternative suppliers of goods
  and capital.
• This is despite the fact that technology has made
  it easier to monitor transactions
• Global cooperation is essential.

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Economic Sanctions

• When sanctions have worked, the objectives have
  been relatively modest and narrowly focused.
• Few result in major policy changes in the
  targeted regime (the notable exception to this
  rule was the contribution of sanctions to the
  collapse of the apartheid regime in South
  Africa).

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Economic Sanctions

• The cases with India and Pakistan illustrate the
  point of ineffective sanctions. The threat of US
  sanctions did not deter them from testing nuclear
  weapons, even though the potential cost to
  Pakistan could be significant.
• Why?

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Economic Sanctions

• Both countries stated that they had fundamental
  national security interests at stake which
  outweighed the possible adverse economic effect
  of sanctions.
• Moreover, these countries may have felt that the
  US measures would not be emulated by other
  countries, and even if some did follow suit,
  their actions would be short-lived for both
  political and humanitarian reasons.

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Economic SanctionsLessons from the U.S.

• Simply imposing costs on the target country may
  satisfy a thirst for retribution, but it does not
  necessarily achieve US foreign policy goals.
• Sanctions are blunt policy tools that are easily
  circumvented.
• Targeted regimes often adapt to sanctions, even
  if their people suffer.
• Meanwhile, ongoing sanctions become increasingly
  burdensome to US firms and workers.