In our increasingly interconnected world, we frequently observe events and effects that result from seemingly unrelated causes and connections. In his famous essay on the broken window fallacy, Frédéric Bastiat used the example of a child who broke a shopkeeper’s window and the glazier who has been employed to fix it to illustrate his concept of “seen and unseen effects.” In Bastiat’s parable, the seen effect is a transfer of six francs to the glazier from the shopkeeper who now has his window restored while the unseen effect is what the shopkeeper would have done with those six francs had he not needed to spend them to repair his window. Therefore, the net effect of breaking windows and paying people to repair them is to make society worse off. The time and money spent pursuing one endeavor instead of a more productive one is what economists call an “opportunity cost.” This foundational concept is what Henry Hazlitt said was the single most important lesson in all of economics in his book Economics in One Lesson .
This idea is crucial to keep in mind as we discuss the economics of foreign policy.
Too much of our modern political discourse tends to be narrowly focused on the details of particular issues with hardly any attention paid to their connections to seemingly unrelated problems. Nothing exists in a vacuum, and many of these issues have indirect yet important connections to myriad other issues. Regarding the War on Drugs, for example, it might be easy to see how that particular issue is connected to illegal immigration, but there are also direct connections to our foreign policy: Mexican cartels buy opium from Afghani farmers who grow poppies in fields that the U.S. military protects (according to some analysts, Afghanistan has become a “ narco-state”).
In order for us to analyze these feedback loops and learn how improving/worsening one problem could improve/exacerbate another, we must scratch below the surface and try to “observe the unseen.” For these reasons, having a more restrained foreign policy is part and parcel of improving economic conditions at home while simultaneously removing the fuel to many problems occurring abroad.
Even an establishment figure like Richard Haass, president of the Council on Foreign Relations and self-described “card-carrying member of the foreign policy establishment,” agrees with me. In the introduction to his book Foreign Policy Begins at Home, he writes:
Many participants in the foreign policy debate in both parties appear to have forgotten the injunction of former president and secretary of state John Quincy Adams (that America ‘goes not abroad in search of monsters to destroy’), along with the lessons of Vietnam about the limits of military force and the tendency of local realities to prevail over global abstractions. As was the case with Vietnam, neither Iraq nor Afghanistan (as of 2009) was a war of necessity; more important, neither was a justifiable war of choice.
He continues:
[T]he United States must become significantly more discriminating in choosing what it does in the world and how it does it. … It is not simply that it needs to recognize that the limits to its resources require it to be exacting in setting priorities; it must also recognize the limits to its influence. The United States needs to rethink what it seeks to accomplish abroad. Americans must distinguish between the desirable and the vital as well as between the feasible and the impossible. For the past two decades, American foreign policy, consumed with remaking large parts of the greater Middle East, has quite simply overreached.
While he doesn’t mention it by name, Haass is referring to what the Austrian economist Friedrich Hayek called the “pretense of knowledge.” As Donald Boudreaux and Todd Zywicki write in the Wall Street Journal , this concept is “the idea that anyone could know enough to engineer society successfully.” Hayek used the phrase as the title for his Nobel Prize lecture in 1974.
No one in his right mind would say that the brutal dictatorships of rulers like Saddam Hussein and Muammar Gaddafi were desirable institutions. These men were murderers, and their regimes were little more than gangs of war criminals. However, not only was there a long history of Western support for these very dictatorships, Western-backed military intervention to topple them has only made matters in the greater Middle East worse . Additionally, the use of tactics like drone strikes have ended up creating more terrorists than they actually end up killing, thanks in large part to the high numbers of civilian casualties associated with their use. This policy, as well as the massive atrocity that the Syrian civil war has become, feeds directly back into the recent attacks perpetrated by jihadists in Europe.
The idea that any country, even one as powerful as the United States, can successfully impose a grand plan upon the Middle East or any other part of the world is, quite simply, pretentious and doomed to inevitable failure. Besides, we can hardly keep our civil and economic liberties alive at home against our own government. What makes anyone think that that same government could successfully impose a classically liberal order upon a region full of nomads, warring factions, terrorist groups, and theocratic dictatorships (both Western- and Eastern-backed)?
Moving from the discussion of how our foreign policy has failed in its mission, we will turn our focus to opportunity costs and issue feedback loops. Among the “seen” effects of foreign policy is the $989 billion (est.) in the federal budget that will be spent on the Defense Department and other defense-related departments (State, Homeland Security, etc.) as well as the 800+ military bases located in foreign jurisdictions. However, these numbers are just the beginning of the story since much of what our intelligence agencies do is classified. The CIA’s budget is officially classified as are the locations of many of their assets, and that’s only one of sixteen intelligence agencies. When including the present value of veteran pension obligations and intelligence agency spending, it’s conceivable that the true number is much larger than $1 trillion.
That said, even when taken at their face value, these numbers suggest uses of resources that carry enormous unseen opportunity costs. One of the arguments that economist Milton Friedman used against the military draft was the “implicit tax” that conscription carried. This tax was the opportunity cost of having all of those people drafted away from the private, productive sector of the economy into the public, consumptive sector. While we no longer have conscripted services, the opportunity costs remain. Since government exists only by taxing the private sector either through direct taxation or through borrowing / inflation , the more than $1 trillion spent on defense represents untold numbers of broken windows that the private sector must support, hence Haass’s thesis.
No one is arguing that defense spending should be reduced to zero; even in an anarcho-capitalist society, total private spending on defense agencies would likely be a non-zero number. However, as described before, many current defense operations are counterproductive, wasteful, and destructive. Not only would taxpayers see a real net reduction in their tax liabilities, those resources would be left in the private sector where they would be deployed much more productively. Looking past the superficial monetary benefits, the most important benefit to a more restrained foreign policy is that there would be fewer soldiers coming home in caskets and fewer dead foreign civilians. Indeed, the financial costs of war pale in comparison to the horrendous human costs of mountains of dead corpses.
It’s clear that our reckless, bipartisan foreign policy has created more problems than it’s solved. While it’s easy to see how much we’re spending over there, it’s harder to see what we could be doing with all of those resources if we weren’t creating more problems abroad. We need to transform the way we think about our foreign policy and take Bastiat’s cue to try to “see the unseen.”
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