Title: United States. National War College. Economics for strategists - Topic 1: Introduction
TOPIC 1: INTRODUCTION - MARKET SYSTEMS
Friday
20 August
0830-1000 (IS)
"Hell hath no fury as a vested interest masquerading as a moral principle."
Anon
Overview
The material wants of people are virtually unlimited; while the supply of the resources (human, natural or financial) to meet them is limited. Economics is the social science concerned with the allocation of these scarce resources so that they best fulfill our needs.
By way of introduction, this session will explore some of the reasons why a senior strategist - military or civilian - should make a special effort to understand the basics of economics. Included in the discussion will be the various roles that economics plays in strategy and policy formulation and the relationship between economic strength and national power (See also Course 1, Topic 1).
The history of modern economics can probably be traced back at least as far as the 16th century. As you will read in the assignment for today, a market system essentially "is one in which economic activities are left to men and women freely responding to the opportunities and discouragements of the marketplace, not to the established routines of tradition or the dictates of someone's command." Because it is concerned with the efficient management of scarce resources, much of the study of economics is about choice. Most of us make these choices every day. How will I spend my money? What job should I take? Should I buy a push mower or a lawn tractor? On the national level, the stereotypical question asked is whether the nation should spend its "scarce" resources on guns or butter.
In looking at how the notion of a market economy has evolved, we will consider the observations of three of history's great economists. Adam Smith (1723-1790) described the perfection of free market supply and demand decisions (he called it the "invisible hand") in responding to the questions of what to produce, how much of it, and at what price. These choices, he believed, were the result of rational people seeking to maximize their own interests. John Maynard Keynes (1883-1946) recognized that the decisions made by totally free markets were not always perfect or sufficiently timely. For example, they did not deal with issues such as inflation, unemployment and income inequity. Keynes proposed a key role for governments to help manage economies. Karl Marx (1818-1883) did not think the decisions of a free market would be orderly and harmonious. He believed that the success of capitalist businessmen would always be achieved at the expense of exploited workers. Accordingly, he prescribed economies that were entirely under the control and plans of governments.
While Marxism as an ideology has failed, the Keynesian version of government economic involvement is very much alive. The debate that will never be resolved concerns the question of how much governments should be involved in economic/market management.
Objectives
- Explore the significance of understanding economics in addressing national security strategy.
- Develop a basic comprehension of how free market economies function and the interrelationship between supply and demand.
- Understand the reasoning behind government involvement in managing economies and markets.
Issues for consideration
- In the 1990s, when have economic issues been prominent in circumstances resulting in the deployment of U.S. military forces?
- What are current national security issues that involve significant economic components? Where do economic issues have prominence in the current National Security Strategy?
- Is there any such thing as a truly free market economy with no government involvement? Is such an economy realistically possible? Why? What are the circumstances where you consider government involvement to be necessary or appropriate?
- Think of some examples of how price might influence your "demand" for certain goods and services. Consider Furbies: how did high demand influence supply and cost?
- Do you trust economic statistics? How and why might they be distorted? Why would governments wish to distort their own statistics?
Required readings (94 pages)
* Baumol and Blinder: Chapters 2 (including the appendix) (22 pgs.), 3 (17 pgs.), and 4 (24 pgs.)
* Heilbroner and Thurow: Chapters 2 (18 pgs.) and 12 (10 pgs.)
* "Hold Your Tongue," The Economist, January 4, 1999 (1 pg.)
* "Damned Lies," The Economist, Nov. 23, 1996 (2 pgs.)
Suggested reading
* Baumol and Blinder: Chapter 1 (though page 9)
* Heilbroner and Thurow: Chapter 1 (15 pgs.)
