And I started having a lot of concerns with a multiplier estimate that I previously felt fine about (with the exception that it was averaged over a long time period and therefore was not an estimate of what we care about most: the multiplier in a recession). Despite all that, I always appreciated the identification strategy. Any empirical person can sympathize with a good, clean identification strategy.
Now I'm not nearly so sure. Military spending is not random. It's highly correlated with expectations about future output. Either you are responding to a threat to your output (or an ally's output), or you're an imperialist and you are responding to the prospect of getting more output.
I think this probably matters more than I had ever considered before. What I used to think was a decent instrument is, I am now thinking, a very, very bad instrument. Imagine what the second half of the twentieth century would be like if we let Germany and Japan be and normalized relations with them after they fought their fight. Forget the Holocaust and the racism for a minute. Think about a world where we have normalized relations with the Nazis, with Vichy France, and with a deteriorated (if not occupied) Britain. The world would be a very different place. God knows what the international monetary system would look like.
Anyway, these are the relevant counterfactuals and the output expectations given the decision not to go to war. It's precisely because of counterfactuals like this that there is such a strong correlation between military action and expectations about future output.
But that is really bad news for an attempt to use military spending as an instrument.
I feel like I should write these thoughts up in more detail.
Wednesday, May 2, 2012
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Germany did not have the strength to occupy or defeat Britain. Germany had decisively lost the aerial war over Britain; the British were moving their active airfields north of the Thames, where they were out of reach of German bombers, and the Germans were unable to replace their losses. Given this and the lack of necessary naval strength (including necessary transports), the Germans would have never been able to occupy Britain (let alone invade it with ground forces).
ReplyDeleteAt worst, what would have occurred is a peace where Germany would have been left occupying what they did following the 1940 invasion of France. The reality is, though, that in 1941 -- bored with Britain -- Germany invaded the Soviet Union; in my opinion, the war over in late June 1941. Yes, the Germans destroyed large chunks of the Soviet Army, but I don't think it was a winnable war.
So, worst case scenario is really a Warsaw Pact that covers all of Germany (not just East Germany), possibly Italy, all of the Balkans, and maybe even France. This was the real reason why the Western Allies invaded France in June 1944.
You saved me the trouble of saying more or less exactly the same thing Jonathan.
DeleteEven given the innumerable Soviet mishaps like purging the Red Army of the worlds leading military mind (and its experience), losing almost the majority of their air force on the ground, and making ridiculous tactical blunders for the first year of the war they still won. Even if Germany magically gets the logistical ability (they didn't have the ability to supply an army- let alone beat the Royal Navy) and air superiority needed to invade Britain it would stall any invasion of the USSR significantly; which doesn't bode well given how crucial timing was to the success Germany had in non-hypothetical real life.
This is also completely tangential to your point Daniel so apologies for taking it off topic again.
I realize just how tangential my comment is. It's just been a while since I've talked about WWII, and I had to jump at the opportunity.
ReplyDelete"Either you are responding to a threat to your output (or an ally's output), or you're an imperialist and you are responding to the prospect of getting more output."
ReplyDeleteor your a imperialist responding/creating a threat to your output while pursuing the prospect of controlling and/or getting more output -- you say tomato I say tomato
hmm -- I'm thinking the United States "silent embargo" enacted against Japan
"Imagine what the second half of the twentieth century would be like if we let Germany and Japan be and normalized relations with them after they fought their fight. Forget the Holocaust and the racism for a minute. Think about a world where we have normalized relations with the Nazis, with Vichy France, and with a deteriorated (if not occupied) Britain. The world would be a very different place. God knows what the international monetary system would look like."
nice -- now if you start asking readers to begin thought experimenting private roads beyond quantity -- I might really be type-tied
"I feel like I should write these thoughts up in more detail"
I feel like I would look forward to this
Elliot - your extension of my imperialist point works fine too. I think you're missing my point here. Military spending is not exogenous to changes in output. That's a really big deal for the Barro multiplier estimates.
DeleteI think you're missing my point here
Deleteyep I missed it -- I have never even heard of Barro multiplier estimates -- so it should go without saying that I am monstrously unqualified to comment let alone grasp anything resembling your point --
I assume by the tone of the post that this :Either you are responding to a threat to your output (or an ally's output), or you're an imperialist and you are responding to the prospect of getting more output -- is meant to drive home this: Military spending is not exogenous to changes in output. That's a really big deal for the Barro multiplier estimates -- maybe I'm wrong -- shrug
that being said
the reason I am looking forward to you writing up your thoughts in more detail is to see what(if any)affect this revelation has on your positions regarding military action and or policy recommendations -- this is the cause effect relationship that interests me
as for your reply: that my extension of your imperialist point works fine too" -- I must apologize for my unintentionally ambiguous but always lazy writing style
the statement: or your a imperialist responding/creating a threat to your output while pursuing the prospect of controlling and/or getting more output -- was meant to be a statement replacing your original one not adding to it -- my point is that when you have a more accurate statement reflecting reality -- more prudent policy recommendations will most likely ensue -- when they don't we may at least take solace in the fact that the discussions true nature as well as the participants true colors/positions have been revealed
if stumbling out of old weeds and into new ones brings you just a little bit closer to inspiring in people a less fraudulent worldview -- well......
oh yea just to keep this war stuff a little bit more "econ" in light of your most recent post -- I'm thinking broken window your new joined at the hip buddy Murphy's version -- then I'm thinking about fact that people like Irving Fisher not his fault, Bryan Caplan -- You -- or Krugman failed to read any entrepreneurial biographies exp: Colonel Sanders before writing on war, intelligence, methodology and more
Deletethen i'm thinking counterfactuals can fun -- they can help to reduce fear mongering and more -- yet in the face of real uncertainty "Knightian Uncertainty" they are shown to be nothing more than a thought experiment of little stand alone significance -- much like statistics -- though arguably less harmful -- not sure yet on that
My question is and maybe I missed your post on it -- until you can empirically incorporate "true" uncertainty why should the "laymen" intellectually apart from policy take seriously your future empirically derived positions --
imperialist are notoriously bad at cost benefit analyses by market standards
ReplyDeletebut
they are notoriously great at cost benefit analyses by authoritarian standards
that is until they are not -- economic laws and non-contradictory ethics can be a pain