The possibility of a deal to limit Iran’s nuclear capabilities and end the international trade sanctions against the country raise a fascinating question: Will there be a peace dividend?
A look at history may provide some insight. Based on what we have seen in the past, it is possible that an agreement would have a positive economic impact. But there are many variables that will determine the outcome, not the least of which is what this obstructionist Congress does.
For those too young to remember, the “peace dividend” was a term popularized by former President George H. W. Bush in the early 1990s. It referred to the economic benefit generated by a reduction of U.S. defense spending after the collapse of the Soviet Union. Once the Cold Warand arms race ended, that money would be put to more productive uses than building a nuclear arsenal that everyone hoped would never be used.
Dollar for dollar, nonmilitary spending tends to generate more economic benefits than military spending. The term weaponized Keynesianism is often used to describe the stimulative effects of military spending, but it is typically more modest than civilian spending. The Pentagon is saddled with a noncompetitive bidding system, contractor cost overruns on big weapons systems that don’t work as planned and plenty of good old-fashioned corruption. In other words, it is very costly and inefficient. This is especially true when compared with government spending on civilian and pure research.
The Berlin Wall fell in 1989, a few years after military spending peaked. The end was already near for the Soviet Union, which would collapse in 1991. As the chart below shows, once the Cold War ended military spending fell for most of the next decade. Meanwhile, nonmilitary government spending rose. The reduction in spending, plus an increase in tax revenue during the dot-com boom, led to the last balanced federal budgets we have seen in more than a decade.
Continues here: Could We Get an Iran Peace Dividend?
Start the workweek — and the beginning of earnings season — right with our hand-curated morning train reads: • The $9 Trillion Short That May Send the Dollar Even Higher (Bloomberg) • Wall Street Banks’ Mutual Funds Can Lag on Returns (NYT) • Diversification: The “Impossible Trade” is working (TRB) • Mourn the fall of the mall: The symbol of US…Read More
North Korea’s cyberattack on Sony Pictures exposed a new reality: you don’t have to be a superpower to inflict damage on U.S. corporations
If most people remember anything about the North Korean government’s cyberattack against Sony Pictures last November, it’s probably that there was a lot of juicy gossip in leaked emails about movie stars, agents, and studio executives. There was also an absurd quality to the whole episode, which was over an ill-advised movie comedy about the assassination of North Korea’s leader, which the North Koreans did not find funny. The weirdness of it all has obscured a much more significant point: that an impoverished foreign country had launched a devastating attack against a major company on U.S. soil and that not much can be done about it. In some ways it’s another milestone in the cyberwars which are just beginning to heat up, not cool down.
My Sunday Washington Post Business Section column is out. This morning, we look at how to avoid usual errors when you are managing your online banking, investment, and retirement accounts: Protect your assets by practicing common-sense cybersecurity. Here’s an excerpt from the column: “We spend most of our time in financial markets looking at ways…Read More
Round out your Sunday morning with our easy like Sunday morning reads: • Fidelity CEO Abigail Johnson’s Blind Spot (TRB) • Greening Your Portfolio (Slate) • CNBC’s SquawkBox Has Lowest Nielsen Rating In Its History (Zero Hedge) • A Cynic’s Guide To Fintech (Medium) • Middle Class, but Feeling Economically Insecure (NY Times) but see The rich get government handouts just like…Read More
Category: Financial Press
NEVER TRY TO CORRAL THE CUSTOMER People balk at being controlled. Once you place limits, the public abandons you or finds a way to circumvent what you are doing. Give people the opportunity to do more, to expand their horizons, to share. Once you tell them what they cannot do, you’re screwed. This is why…Read More