We Read (And Liked)… War! What Is It Good For?

War is not only inevitable, but it is also very good for humankind.

This is the message that Stanford historian and archaeologist Ian Morris argues in his provocative War! What Is It Good For?* Apparently it is good for a lot! Morris contends that violent contests between human societies foster in-group cooperation, technological innovation, and eventually human progress itself.

In a sweeping survey of history – surprisingly readable considering the scope – Morris shows that war, and eventually conquest, led to the decline in violent deaths from 20% to just around 3-4% by the first century AD – to even lower levels today. Although war is perhaps negative in the short term, in the long term it forces societies to organize on an ever larger scale that ultimately suppresses violence in the broader human population.

Underpinning Morris’ argument is a thoroughly Darwinian mechanism. Just as with biological evolution, human societies get bigger and more sophisticated, or they become extinct. The lesson from history for humans is therefore to get bigger, meaner, better organized, and thus more proficient at killing other societies on a mass scale. In the process, societies eliminate internal conflict and discord, replacing countless micro-conflicts with the ability to wage a few macro ones. In this way, Morris can claim that the 20th century, which produced some of the most extraordinary organized killing campaigns known to man, was actually far more peaceful than any major time period that preceded it.

Morris is not the first to make the argument that war makes states. Charles Tilly, one of the most famous sociologists and political scientists of the 20th century, famously compared the state to an organized crime syndicate. The state organizes itself and collects taxes in order to fund what is essentially a protection racket. States that do not to perform this function efficiently ultimately fail.

What can investors take from these pro-war arguments? Morris’ book is a great read for the late-summer, full of fascinating anecdotes from history; but is all this emphasis on the evolutionary quality of war in any way applicable to today’s world?

I would say yes. As the world enters a multipolar era where no one state is in charge, it is likely that geopolitical tensions and wars will increase in frequency. If as Morris and Tilly argue, war has an organizing quality, perhaps then internal discord will dissipate in the face of increasing geopolitical conflict. Take American political polarization. It was at its nadir during the early days of the Cold War (Chart 1). Perhaps what American policymakers need to overcome their ideological differences is a clear external threat. Similarly, perhaps what Chinese policymakers need to pursue painful structural reforms, or Europeans to strengthen their integration, is the clarity of purpose that comes with geopolitical competition.

Chart 1: Could Cold War Lite Assuage Polarization?

GPS Cold War Chart

The problem with this view is that we have no evidence that economic and financial globalization is sustainable between geopolitical rivals. The late 19th century saw a considerable increase in globalization, and it was multipolar, but European countries also coordinated their relations via the Concert System established by the Congress of Vienna following the Napoleonic Wars. If today’s multipolar system goes down the path of competition and tension, it is likely that it will erode globalization along with it.

*Morris, Ian (2014). War! What Is It Good For?: Conflict And The Progress Of Civilization From Primates To Robots. London: Profile Books.

U.S. Q2 GDP: Good (If It’s True)

At 4%, U.S. real GDP made an impressive comeback in the second quarter relative to Q1. Of course, just like previous readings, this data is subject to revision.

US Q2 GDP

To the extent that data covering the past quarter matters for markets, investors should note that today’s GDP release is a preliminary estimate, subject to two revisions over the next several weeks. The Q2 data was healthy and shows that the economy has decent momentum going into the second half of the year.

However, there were revisions to the GDP data for the past three years that show that U.S. growth was even weaker than previously reported in 2011 and 2012. The average growth rate from 2011 to 2013 was revised down from 2.2% to 2%.

Despite our reservations about the GDP data, we are not surprised by the 4% Q2 print. As mentioned in previous Insights, there is plenty of evidence that the U.S. economy is gaining momentum. Survey data of the manufacturing sector, the budding strength of the jobs market and the lack of headwinds compared to previous years of the recovery all suggest that a period of above trend growth should persist.

Importantly, the Q2 GDP data will no doubt be scrutinized at the FOMC meeting today. If anything, the Fed may conclude that the output gap is slightly larger based on the downward revisions to GDP in previous years. The offset to this is that more recent data suggests the current momentum is somewhat stronger than previously believed and could surprise further to the upside. On balance, we doubt that today’s data will trigger a change in the Fed’s dovish rhetoric. Nonetheless, improving data, especially on the consumer side, does serve as a warning that the long era of ultra accommodative monetary policy is nearing an end.