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Does female leadership lead to greater peace? On the one hand, it is commonly argued that women are less violent than men, and therefore, states led by women will be less prone to violent conflict than states led by men. For example, men have been held to “plan almost all the world’s wars and genocides [Pinker, 2011, p.684]”, and the democratic peace among the developed nations has been attributed to rising female leadership in these places [Fukuyama, 1998]. On the other hand, differences in individual aggression may not determine differences in leader aggression. Female leaders, like any other leader, ultimately have to consider how war affects their state as a whole. And, setting overly conciliatory war policies would weaken their state relative to other states. As a consequence, war policies set by female leaders may be similar to war policies set by male leaders.1 A state’s aggression in the foreign policy arena, and its decision to go to war, is arguably one of the most consequential policy outcomes, and one in which the national leadership plays a critical role. Despite its importance, there is little definitive evidence of whether states vary in their tendency to engage in conflict under female versus male leadership. This stands in contrast to other arenas such as economic development, where a growing body of evidence has documented policy differences arising as a consequence of female leadership [Chattopadhyay and Duflo, 2004, Beaman et al., 2012, Clots-Figueras, 2012, Brollo and Troiano, 2016]. The existing studies that do relate female leadership to external conflict focus exclusively on the modern era [Koch and Fulton, 2011, Caprioli, 2000, Caprioli and Boyer, 2001, Regan and Paskeviciute, 2003], and are also difficult to interpret since women may gain electoral support and come to power disproportionately during periods of peace [Lawless, 2004]. In this paper, we examine how female leadership affected war among European states historically, exploiting features of hereditary succession to surmount this identification challenge. We focus on the 15th-20th centuries and polities that had at least one female ruler during this period. As with electoral systems, women in hereditary systems may have gained power more during times of peace, or when there was no threat of imminent war [Pinker, 2011]. However the way in which succession occurred also provides an opportunity to identify the effect of female rule. In these polities, older male children of reigning monarchs were given priority in succession [Monter, 2012, p. 36-37]. As a result, queens were less likely to come to power if the previous monarchs had a first-born child who was male; and, more likely to come to power if previous monarchs had a sister who could potentially follow as successor. We use these two factors as instruments for queenly rule to determine whether polities led by queens differed in their war participation relative to polities led by kings. Importantly, our paper analyzes the question of whether states led by women are less prone to engage in conflict than states led by men. This is conceptually distinct from the question of whether women, as individuals, are less violent than men,2 in part because war policies are set by leaders based on broader strategic considerations beyond personal inclinations toward violence. To conduct our analysis, we construct a new panel dataset which tracks the genealogy and conflict participation of European polities during every year over 1480-1913. Our primary sample covers 193 reigns in 18 polities, with queens ruling in 18% of these reigns. We include polity fixed effects, holding constant time invariant features of a polity that affect conflict, and exploit variation over time in the gender of the ruler. Using the first born male and sister instruments, we find that polities ruled by queens were 27% more likely to participate in inter-state conflicts, compared to polities ruled by kings. These estimates are economically important, representing a doubling over mean war participation over this period. In contrast, we find that queens were no more likely to experience civil wars or other types of internal instability. An obvious concern with our IV analysis is that the lack of a first-born child who is male may itself trigger conflicts over succession, regardless of whether a woman comes to power. However, we conduct a number of falsification tests which show that the a first-born son does not affect war participation in the contemporaneous reign, or in an auxiliary sample of 18 polities that never had queens over this period. Thus, if there are other ways in which first born males affect conflict, they do not manifest under these circumstances. A second concern is that the presence of a sister among previous monarchs (an aunt, from the stand-point of the current period monarch) may be correlated with the presence of other siblings (i.e., other aunts and uncles) who may also have fought for the throne. However, we are able to control for all of the total siblings of the previous monarchs and show that the results are unaffected if we remove wars of succession from the sample. Importantly, we demonstrate that the results are insensitive to dropping any particular queen, and any particular polity. In addition, we show the robustness of our results to numerous other controls and specifications, including a reign level specification which collapses the annual data to the reign level, as well as a dyadic specification. We examine two potential accounts of why female ruler may have increased war participation. The first account suggests that queens may have been perceived as easy targets of attack. This perception—accurate or not—could have led queens to participate more in wars as a consequence of getting attacked by others. The second account builds on the importance of state capacity. During this period, states fought wars were primarily with the aim of expanding territory and economic power [Mearsheimer, 2001, Goertz and Diehl, 2002, Copeland, 2015]. Wars of this nature demanded financing, spurring states to develop a broader fiscal reach [Besley and Persson, 2009, Karaman and Pamuk, 2013, Gennaioli and Voth, 2015]. As a result, states undertaking wars required greater capacity. Queenly reigns may have had greater capacity than kingly reigns for two reasons, both of which themselves reflect prevailing gender norms from this period. First, queenly reigns may have been able to secure more military alliances. While marriage brought alliances for both male and female monarchs, male spouses were typically more involved with the military of their home countries (than female spouses). This was a direct reflection of taboos on female military leadership during this time period. As a consequence, male spouses were also plausibly better positioned to cement alliances on behalf of queens. Second, queens often enlisted their spouses to help them rule, in ways that kings were less inclined to do with their spouses — an asymmetry again reflects gender identity norms. For example, queens put their spouses in charge of the military or economic reforms, which effectively meant there were two monarchs overseeing state affairs, as compared to one. This greater spousal division of labor may also have enhanced the capacity of queenly reigns, enabling queens to pursue more more aggressive war policies. To test these accounts, we disaggregate war participation by which side was the aggressor, and examine heterogeneous effects based on the monarch’s marital status. We find that among married monarchs, queens were more likely than kings to fight as aggressors, and to fight alongside allies. Among unmarried monarchs, queens were more likely than kings to fight in wars in which their polity was attacked. These results provide some support for the idea that queens were targeted for attack: Unmarried queens, specifically, may have been perceived as weak and attacked by others. But this did not hold true for married queens who instead participated as aggressors. The results are consistent with the idea that the reigns of married queens had greater capacity to carry out war, and asymmetries generated by gender identity norms played a role in shaping this outcome [Bertrand et al., 2015b].3 We also consider and present evidence against several alternative accounts. Queens may also have fought to signal they were militarily strong, which is a type of signaling implied by the influential bargaining model of war [Fearon, 1995]. However, if queens were signaling, there should be larger effects on war participation earlier in their reigns, when it would have been most valuable to send signals to maximally discourage future attacks. Yet, we observe no such differential effect. A second alternative account suggests that it was not the queen, but a persuasive male advisor (such as a foreign minister), who was actually responsible for setting war policy in queenly reigns. In this were the case, the gender effect on war should be even larger among monarchs who acceded at a younger age, since these monarchs are more likely to be influenced by advisors. However, we observe no differential effect based on age of accession, which casts doubt on the idea that war participation was driven by advisors. Rather we interpret our results as reflecting the direct consequence of having a queen, and associated decisions made by the monarchs themselves. In broad terms, we see our results providing evidence for the idea that leaders matter [Jones and Olken, 2005, Pande, 2003], including in shaping policy outcomes. Most proximate to our paper are studies that examine female leadership and inter-state war. These studies have found mixed results. For example, Koch and Fulton [2011] find that among democracies over 1970-2000, having a female executive is associated with higher defense spending and greater external conflict, while having a higher fraction of female legislators is associated with lower defense spending and conflict. Other studies have also found that more female legislators are associated with less external conflict [Caprioli, 2000, Caprioli and Boyer, 2001, Regan and Paskeviciute, 2003]; that female voters are less likely to support the use of force internationally [Conover and Sapiro, 1993, Shapiro and Mahajan, 1986, Jelen et al., 1994, Wilcox et al., 1996, Eichenberg, 2003]; and that female leaders and greater gender equity is correlated with lower rates of internal conflicts [Caprioli, 2000, Melander, 2005, Fearon, 2010]. These results may partly reflect the greater willingness to elect female leaders during times of peace. Owing to this concern, we exploit a plausibly exogenous source of variation in female rule. By focusing our analysis on war over the 15th-20th centuries, we also take an identification-based approach to analyzing history [Nunn, 2009]. Our paper fits into the broader literature of how female political leadership affects public policies, including spending patterns [Chattopadhyay and Duflo, 2004, Breuning, 2001] education [Clots-Figueras, 2012, Beaman et al., 2012] and corruption [Brollo and Troiano, 2016]; as well as how female corporate leadership affects firms outcomes [Matsa and Miller, 2013, Bertrand et al., 2015a, Ahern and Dittmar, 2012].

Ann Tickner argued that whereas the Feminists are inclined to critical theory, mainstream IR is oriented towards problem solving theory. As a result, Tickner argued that Realism takes the world as it finds it and accepts the current order as its framework. Moreover, Tickner argued that whereas Feminists reject prefer humanist and philosophical traditions taking spatial and temporal attributes into account, Realists rely on positivist epistemologies taking the natural sciences as the models to follow. Lastly, Tickner argues that whereas Feminism is associated with the social construction of reality whereas Realists opt for an atomistic, asocial conception of behavior determined by the laws of nature (Tickner 1997). Against the criticisms of Ann Tickner, Robert Keohane argued that only a limited number of major IR theorists are oriented towards problem-solving, positivist and asocial (Keohane 1998, 194). Keohane focuses on Morgenthau since most of the criticisms of Tickner concentrates on him. Keohane argues that since Morgenthau was a refuge from Nazism, he was not satisfied with the prevailing world order of the late 1930’s and 1940’s as a framework of analysis. Moreover, Morgenthau had an intensely normative purpose: to prevent the reoccurrence of war generated by ideologies such as fascism and communism. Kenneth N. Waltz, the leader in Neo-Realist Theory, underlined the importance of socialization in the world politics and as a result it not appropriate to regard him an advocate of asocial theories (Keohane 1998, 194). Against the last criticism of Tickner, Keohane argued that “no serious student of international relations expect to discover meaningful universal laws that operate deterministically, since they recognize that no generalization is meaningful without specification of its scope conditions. One can recognize that knowledge is socially constructed without giving up the efforts to widen intersubjective agreement on important issues” (Keohane 1998, 194).

I love Liza Featherstone’s essay, “Moving Beyond Misogyny” (The New Republic, November 4 2019), an essay that highlights the current popularity of misogyny as liberal feminism’s basic category for analyzing social problems. Hatred of women is offered up as the explanation for everything from domestic violence, campus rape, and sexual harassment, to Hillary Clinton’s failure to win the presidency in 2016. Women are kept down, abused, and murdered because men hate them. It’s as simple as that.

But it’s not just that hate doesn’t explain everything – it doesn’t explain anything.

Assessing the impact of climate change is, at best, an extremely complex exercise with uncertainty about both the degree of future global warming and the subsequent impact on global activity. There are clearly some benefits as well as costs as the planet warms. There is also the unknown of how technological progress will respond and potentially alter the path of global warming. Any assessment also involves taking a very long-run view, well beyond that normally used by financial market participants. However, increasing awareness of the issue means there is a growing demand for a view from shareholders who are either concerned about how the companies they own impact the environment, worried about the effect of climate change on the value chain of those companies, or a combination of both. In response, the academic community is leading the way in an attempt to encourage financial market participants and governments alike to change collective behaviour so as to mitigate the costs of global warming. Drawing on this work, we discuss the effect climate change is likely to have on growth and inflation, followed by an exploration of different climate loss functions which attempt to estimate the economic cost associated with a given increase in temperature. Finally we conclude with possible policy responses. The effect on growth & inflation Despite there being winners and losers, increasing temperatures will be negative for global activity overall The overall aggregate effect of climate change on economic growth will most likely be negative in the long run. Although there will be winners and losers from climate change at varying levels of warming, the impact of rising temperatures will be widespread, in part due to the financial, political and economic integration of the world's economies. Global warming will primarily influence economic growth through damage to property and infrastructure, lost productivity, mass migration and security threats. The balance between winners and losers turns increasingly negative as temperatures rise. Global warming is expected to increase the frequency and severity of extreme weather events, bringing with it property and infrastructure loss. The likes of Hurricane Sandy, which flooded much of New York, are prime examples of the economic damage such extreme weather events can cause. Rising sea levels will also likely harm economic output as businesses become impaired and people suffer damage to their homes. Whilst the initial economic response to recover this damage may be positive for GDP (when it is possible to do so), once it is recognised that such events are a permanent feature of the environment, the world economy faces an extreme challenge. Many will find that it is not worth replacing capital stock unless measures can be taken to prevent future damage, or there is an opportunity to move the business to safer ground. At best, this could involve a short period of disruption as businesses relocate; at worst, a permanent loss of capital stock and output. As the temperatures continue to climb, the damage will become increasingly permanent. Climate change is likely to reduce the capital stock and productivity in the world economy Using a production function (Figure 1), we can demonstrate the likely effect climate change will have on output. If we assume less capital stock is available due to the damage inflicted from climate change, we would see a fall in the productive capacity of the world economy. This would translate into a downward shift in the world production function as each unit of labour produces less output. Lower labour productivity may not just occur due to a lower level of capital stock, however. Higher global temperatures may affect food security, promote the spread of infectious diseases and impair those working outdoors. Such factors are likely to cause greater incapacity and social unrest and as a result will reduce both the effectiveness (productivity) and the amount of labour available to produce output. This effect can also be expressed as a supply shock through a supply and demand framework (Figure 2). Global warming is likely to contract supply at any given price and result in a backward shift of the supply curve (from S1 to S2). As the diagram demonstrates, this will result in a lower level of output (Y2) and, as we discuss in the next section, a higher price (P2). [Figure omitted]. There is also an opportunity cost to be considered. The above analysis is based on a ceteris paribus1 argument whereby the world's population is seen not to respond to climate change. It is probable that over time, preventative measures such as flood defences are put in place in order to avoid the costs of climate change. Whilst this may reduce the long-term economic consequences, there is likely to be a short-term economic cost to this action as resources are directed away from more productive uses. According to Mendelsohn (2013), the biggest threat climate change poses to economic growth is from immediate, aggressive and inefficient mitigation policies. The process of adaptation and mitigation will require a temporary economic transition from consumption to investment, with the argument being that the transitional costs are small relative to the cost of inaction. Stern (2006) estimates the costs of mitigation to be in the region of 1% of global GDP per annum by 2050. However, we would argue that as the costs of mitigation rise, budget constraints are likely to become increasingly important. Governments’ may be unable to raise the capital necessary to build adequate defences, for example. Inflation is likely to rise as shortages emerge, particularly in agriculture The above supply and demand diagram not only shows a reduction in output, but an increase in the general price level as a result of global warming. This leads us onto the possible inflationary effects of global warming on the world economy. Agricultural yields are sensitive to weather conditions and as our climate becomes ever more extreme, more frequent droughts may reduce crop yields in areas where food production is vital. Higher global food prices will likely thus squeeze consumers’ income in the process. We must acknowledge that these effects will be partially offset as other regions becoming more suitable for crop production and new drought resistant crops are developed. However, in aggregate, and as the level of warming becomes even greater, food price inflation should rise. Rising inflation may also materialise through reduced land availability. The surge in global temperatures may eventually cause some areas of the world to become uninhabitable and with this will come mass migration. Alongside the political and socioeconomic implications of these moves will be higher demand for an ever decreasing amount of land. In essence, the world's population will be forced to live in an increasingly concentrated space. In similar fashion to food inflation however, this effect will also be moderated by some areas of land becoming more habitable (see regional effect section below).

A country's economic stability depends on things like the goods and services it can produce, armed conflicts, health crises, market trends and consumer confidence. Several economic recessions have occurred throughout history, harming the finances of people and businesses across society. Governments at all levels around the world usually take action to avoid economic downturn; however, they’re not always successful. But if recessions have happened many times before, why is there the constant risk that they will happen again? What causes them? What is their effect? The economy goes through cycles of highs and lows, much like a wave in the ocean: when it grows, its crest comes to a peak, declines and then starts to rise again. When the economy goes up, it's called “economic growth”; but when it goes down, it's called “economic contraction” (or “downturn”). Recession in the economic cycle If the economy shrinks for two consecutive quarters, it is said to have gone into recession. In general, this is determined by an indicator called the “gross domestic product” (or “GDP”). People commonly confuse “recession” and “slowdown”; however, growth indicators in a recession are negative (i.e. the wave is falling) but positive in a slowdown (i.e. the wave is rising) albeit at a slower rate than in the previous quarter. What causes economic recession? All recessions have different causes and effects. Economies experiencing growth are likelier to fall into recession as part of the economic cycles. However, other factors can cause recession, many of which cannot be anticipated or prevented. Here are three common causes of recession. Oversupply. In an economic boom, companies tend to increase production to meet consumer demand. When demand peaks and starts to decline, the excessive supply of goods and services that aren’t consumed can lead to a recession, with companies producing less and downsizing while people lose purchasing power and consumption continues to fall. Uncertainty. Not knowing how the economy will change makes business decision-making riskier. Wars and pandemics are two situations that can make consumer trends unpredictable in the short, medium and long term, thus generating economic uncertainty. Because businesses and people hold off on spending and investment decisions, economic activity declines. Speculation. In general, economic bubbles form when the price of something suddenly rises due to speculation, market trends or consumer confidence. Investors buy it up, hoping to earn a return from the price increase. However, when they start to sell it off, supply exceeds demand (i.e. there are fewer new buyers) and drives prices down, causing the bubble to burst. This happened with tulips in the 17th century and the housing market in 2008. The longer the economic recession, the harder it is to reverse its effects, like low consumption, low investment, fewer goods and services, and unemployment. It also heightens the risk of an economic depression, the next rough patch the economy can go through.

According to the diversionary theory of war, the cause of some militarized conflicts is not a clash of salient interests between countries, but rather problematic domestic circumstances. Under conditions such as economic adversity or political unrest, the country’s leader may attempt to generate a foreign policy crisis in order both to divert domestic discontent and bolster their political for-tunes through a rally around the flag effect (Russett 1990). Yet, despite the wide-ranging popularity of this idea and some evidence of U.S. diversionary behavior (e.g., DeRouen 1995, 2000; Fordham 1998a, 1998b; Hess and Orphanides 1995; James and Hristolouas 1994; James and Oneal 1991;Ostrom and Job 1986), after five decades of research broader empirical support for the theory remains elusive (e.g., Gelpi 1997; Gowa; 1998; Leeds and Davis 1997; Levy 1998; Lian and Oneal 1993; Meernik and Waterman 1996). This has prompted one scholar to conclude that ‘‘seldom has so much common sense in theory found so little support in practice’’ (James 1987, 22), a view reflected in the more recent research (e.g., Chiozza and Goemans2003, 2004; Meernick 2004; Moore and Lanou e2003; Oneal and Tir 2006). I argue that this puzzling lack of support could be addressed by considering the possibility that the embattled leader may anticipate achieving their diversionary aims specifically through the initiation ofterritorialconflict2—a phenomenon I call territorial diversion.

Choucri and North’s (Citation 1975) lateral pressure theory explains how growing states become driven domestically to expand in order to maintain economic growth. Such growth requires altering foreign policy in ways that increase the risk of conflict with other nations, such as through the push to acquire colonies and markets. Choucri and North use a series of simultaneous equations and case studies, finding that many endogenous relationships exist between population growth, GDP growth, colonies acquisition, military expenditures, and interstate conflicts. It might then be possible that the changes in foreign policy moods studied by some scholars correspond to periods of growth explained by lateral pressure theory.

Other studies predict that conflict is more likely during difficult economic times, but most consider conflicts at various levels of escalation and not just war. Diversionary conflict theorists predict that conflicts are more likely to occur during periods of economic stagnation and decline, or in response to other economic problems affecting society. The premise is that leaders gamble to stay in power by attempting to deflect attention away from economic troubles and toward a foreign enemy (Smith Citation1996). Still, the types of conflicts that may work the best as diversions are those that attract the attention of the populace but do not risk severe military defeat, which would increase the political problems for state leaders. Hence, conflicts short of war are probably more rational to incite for diversionary purposes. Nevertheless, clear exceptions exist in the literature, such as the Levy and Vakili (Citation1992) claim that the Falklands/Malvinas War was diversionary in nature. Moreover, there are many variants of the theory, and some studies do not directly measure economic growth. Unemployment or price instability may be better measures, compared to GDP growth rates, of the economic problems that result in diversionary tactics. Additionally, much of this literature centers on the United States and may not be generalizable to other states (Ostrom and Job Citation1986; James and Oneal Citation1991; Morgan and Bickers Citation1992; DeRouen Citation1995; Hess and Orphanides Citation1995; Fordham Citation1998; Meernik Citation1994; Meernik and Waterman Citation1996; Mitchell and Moore Citation2002; Foster Citation2006). A handful of studies have examined cases of potential diversionary conflict besides the US case, such as Sobek (Citation2007) on Renaissance Italy, Levy and Vakili (Citation1992) on the Falklands/Malvinas War, and Sprecher and DeRouen (Citation2002) on potential Israeli diversions.

The diversionary theory of war is one of the best-known conflict initiation theories focusing on democratic leaders’ incentives. According to the theory, democratic leaders who face greater electoral challenges, either due to political scandals or an economic downturn, are more likely to choose provocative foreign policies and seek to lead the country into diplomatic crises, in hopes of inciting nationalistic sentiments that will boost their approval ratings via the so-called “rally around the flag” effect (e.g. Gaines Citation2002; Hetherington and Nelson Citation2003; Mueller Citation1973).

Despite the intuitive appeal of this theory, empirical studies have been largely unable to find consistent evidence to corroborate the purported theoretical mechanisms. Findings from observational studies have been quite mixed. The fact that a diverse set of findings have been reported from observational studies suggests that unobservable confounders arising from strategic interactions greatly hinder our ability to tease out the causal effect of electoral hardship on conflict behaviors.

On balance, however, I do not think that even the extraordinary economic conditions we are witnessing today are going to have much impact on the likelihood of war. Why? First of all, if depressions were a powerful cause of war, there would be a lot more of the latter. To take one example, the United States has suffered 40 or more recessions since the country was founded, yet it has fought perhaps 20 interstate wars, most of them unrelated to the state of the economy. To paraphrase the economist Paul Samuelson’s famous quip about the stock market, if recessions were a powerful cause of war, they would have predicted “nine out of the last five (or fewer).” Second, states do not start wars unless they believe they will win a quick and relatively cheap victory. As John Mearsheimer showed in his classic book Conventional Deterrence, national leaders avoid war when they are convinced it will be long, bloody, costly, and uncertain. To choose war, political leaders have to convince themselves they can either win a quick, cheap, and decisive victory or achieve some limited objective at low cost. Europe went to war in 1914 with each side believing it would win a rapid and easy victory, and Nazi Germany developed the strategy of blitzkrieg in order to subdue its foes as quickly and cheaply as possible. Iraq attacked Iran in 1980 because Saddam believed the Islamic Republic was in disarray and would be easy to defeat, and George W. Bush invaded Iraq in 2003 convinced the war would be short, successful, and pay for itself. The fact that each of these leaders miscalculated badly does not alter the main point: No matter what a country’s economic condition might be, its leaders will not go to war unless they think they can do so quickly, cheaply, and with a reasonable probability of success. Third, and most important, the primary motivation for most wars is the desire for security, not economic gain. For this reason, the odds of war increase when states believe the long-term balance of power may be shifting against them, when they are convinced that adversaries are unalterably hostile and cannot be accommodated, and when they are confident they can reverse the unfavorable trends and establish a secure position if they act now. The historian A.J.P. Taylor once observed that “every war between Great Powers [between 1848 and 1918] … started as a preventive war, not as a war of conquest,” and that remains true of most wars fought since then. The bottom line: Economic conditions (i.e., a depression) may affect the broader political environment in which decisions for war or peace are made, but they are only one factor among many and rarely the most significant. Even if the COVID-19 pandemic has large, lasting, and negative effects on the world economy—as seems quite likely—it is not likely to affect the probability of war very much, especially in the short term.

As the conflicts in Afghanistan and Iraq drag towards their third decade, and Syria’s civil war ticks towards 400,000 dead, it may seem trite to observe that nobody really “wins” a war. But it nonetheless represents a significant historic change, and one that can help account both for the fact that the number of wars is declining as well as the type and location of wars that remain. War always has been “negative sum,” in that any resource gain to the victor was matched by an equal loss to the loser and both sides paid in lives and arms. But those who prevailed on the battlefield could more than compensate for their military costs through occupation, plunder and enslavement. Anthropologist James Scott discusses the earliest wars in his book “Against the Grain.” He suggests that city-states such as Umma and Lagash in Mesopotamia fought over land and water, but most of all people, and that was still the case when Caesar brought back as many as a million slaves from his invasion of Gaul. People, land and resources remained prizes worth fighting over well into the 20th century. Germany’s demand for Lebensraum (“living space”) and Japan’s obsession with obtaining an independent oil supply helped motivate World War II, for example. But economic change means that land and the stuff on or under it no longer is the key to prosperity and power worldwide. The World Bank calculates a measure of global wealth that divides it into natural capital — land, oil, gold — physical capital, including roads and factories, and “intangible capital.” That last category includes education and the institutions and knowledge from double entry bookkeeping to phonics-based literacy programs that allow economies to produce more value with the same amount of physical inputs. In 2014, natural capital accounted for 9 percent of planetary wealth, according to the World Bank. That compared to 27 percent for physical capital and 64 percent — almost two-thirds — in intangible capital. The fact that wealth is driven by intangible ideas, institutions and relationships, rather than tangible goods and land, means that it can’t be expropriated by an invader. So even winning on the battlefield simply can’t pay off. Take one recent example: The Iraq war has cost the U.S. alone around $2.2 trillion, according to the Watson Institute at Brown University. Oil revenues earn the Iraqi government less than $100 billion a year. Even if President Trump carried out his one-time plan to expropriate the country’s oil, and despite Iraq’s huge share of global reserves, the war would not pay off economically. At the same time, intangible capital is “positive sum” — unlike a barrel of oil, if I use the technology of the internet, you can use it too — indeed, we both benefit from more people using it at the same time. That strengthens the payoff to peaceful cooperation and trade. For all of the continued horror of Syria, Iraq and Afghanistan, the changed basis of wealth and power helps to account for the global decline of war. Since 1975, an average of less than two interstate conflicts have been ongoing in the world each year, and recent years have seen even fewer. No major power war has erupted since 1939 — an 80-year stretch. Most of the wars that remain are in regions where resources still have an outsized share of wealth: The low-income countries most at risk of civil conflict see an average share of natural capital in total capital of just under one-half, for example. Territorial disputes in richer regions of the world have not gone away, from the South China Sea through Ukraine, the West Bank, Gibraltar and The Falklands. And wars often are launched for reasons of domestic politics or ideology disconnected from calculations of power or wealth. But that no developed country could ever “win” a war, in terms of wealth, may help explain why interstate conflict is so much out of fashion. And it also suggests a powerful solution for those who would like to see even greater global peace: Help the poorest countries grow out of resource dependency.

Subsequent liberal theorists have expressed their dissatisfaction with the presumption that the state is a unitary actor, arguing that one cannot understand the causal processes underpinning the large-N finding that trade usually leads to peace without disaggregating the nation-state itself. Hence, over the last decade a number of scholars have opened up the black box of the state to explore exactly how a liberal commercial peace could arise, and what that might mean regarding the conditions for peace overall. Beth Simmons (2003), for instance, suggests that we examine how interdependence creates groups within polities that have a vested interest in maintaining the status quo. Jonathan Kirshner (2007) asserts that open international financial flows makes bankers into a particular influential vested interest group, with bankers almost invariably wanting peace instead of war.5

Patrick McDonald (2007, 2009) has provided the most developed argument for the importance of domestic vested interests. He seeks to show that it is only a specific type of trading state that tends to have lower rates of militarized conflict—namely, the liberal capitalist one. McDonald maintains that capitalist states that operate through liberal economic institutions such as private property and competitive market structures are generally less aggressive. Exporters that have a vested interest in keeping peaceful trade going will operate as a powerful domestic group, exerting a strong check on any illiberal policy elites that happen to be running the state. Conversely, in more mercantilist states that do not respect private property or open trade, illiberal leaders with possibly aggressive intentions will have more autonomy to do nasty things, both because the export class is smaller and because higher tariffs supply them with more revenue to fund war.6

The stock market and the economy are not the same. The economy is the production and consumption of goods, while the stock market is a collection of shares of public companies. The economy is much larger than just the stock market. The start of 2022 was rough for the stock market. As of June 30, 2022, the market suffered its worst starting six months since 1970, with the S&P 500 dropping almost 21%. And yet, the U.S and other Western economies experienced persistently strong economies and one of the tightest labour markets on record (generating a significant amount of inflation). So, what gives? Isn’t the market supposed to be driven by the economy? Turns out, it’s not so simple. According to London Business School professors Elroy Dimson, Paul Marsh, and Mike Staunton, there’s only a slight positive correlation between GDP growth and stock performance. In fact, the professors observed there’s actually a negative correlation between national per capita GDP growth and stock performance. While what happens in the economy and the market might not be 100% related, knowing the difference between the two, and their relationship with each other, is helpful for understanding your own financial journey. What’s Ahead: The Bottom Line: Why These Differences Matter to You What Is the Stock Market? The stock market is the collection of company shares and other financial securities that trade on exchanges or over the counter, that investors can buy and sell. While the value of these financial securities goes up and down over time, the performance of the market (defined by the S&P 500) tends to follow the earnings performance of companies. Source: RBC Wealth Management What Is the Economy? The economy is the production and consumption of, well… stuff, whether it be goods or services. The most common measures that describe the health of the economy are employment rates, GDP (gross domestic product), and inflation. When employment is strong, GDP is rising, and inflation is low and stable, chances are the economy is in good shape. When these figures get out of whack though, we start to see economic issues. While GDP, employment, and inflation are important economic indicators, they are backward-looking or “lagging indicators.” This means they only describe something that has happened versus something that is going to happen. What’s Up With the Disconnect? There are several reasons why the stock market and the economy don’t run in lockstep. 1. Lots of People in the Economy Don’t Participate in the Stock Market The number of Americans who own stocks is far fewer than those who participate in the actual economy. According to Gallup, only 58% of Americans report owning stocks, with the wealthiest 10% owning 89% of all U.S. stocks. Since a large percentage of Americans don’t own stocks, and an even smaller few own most U.S. stocks, their individual actions don’t always accurately reflect the broader population’s purchasing behaviour, or the willingness of businesses to invest in new projects. 2. Publicly Listed Companies Represent a Small Amount of U.S Employment Public companies make up less than 1% of all U.S. companies and one-third of non-farm U.S. employment. Source: Tenor.com Since most of the U.S.’s employment landscape is not solely driven by publicly traded companies, stock market gyrations don’t always result in widespread job losses and economic contractions. While what happens in the stock market may color the decisions of non-public companies, it’s not a direct relationship. Read more: Why You Shouldn’t Care About a Stock Market Drop If a Recession Hits 3. The Largest Companies by Market Cap Disproportionately Impact the Stock Market Most people think about the stock market as the S&P 500, but the S&P 500 only represents a collection of the largest 500 U.S. publicly traded companies by market capitalization. (“Market cap” refers to the total value of a company’s stock.) If you compare that to the ~4,100 publicly listed companies in the U.S., it’s easy to see that S&P 500 companies doesn’t account for the majority of U.S. public companies. In fact, the S&P 500 has historically made up about 80% of all U.S. equity market capitalization, so companies in this group have a disproportionately large impact on the market as a whole. Additionally, since the S&P 500 is driven and weighted by a company’s market capitalization, the organizations within it may not represent the largest employers in the U.S. For example, as of July 10, 2022, Apple was the largest company in the S&P 500, but it’s nowhere near being in the top five largest employers in the U.S. That list is topped by Walmart , Amazon, Home Depot, FedEx, and Target. Since the stock market rewards companies with higher market capitalizations for generating more revenue, operating profits, and earnings per dollar of expenses needed, it makes sense why the biggest and most influential company stocks may not have the most impact on the economy. The Stock Market Looks Forward While Economic Data Looks Backward Going back to the idea that a lot of economic data is backwards-looking, the stock market is a forward-looking indicator. Source: RBC Global Asset Management This means that market participants are always looking ahead to what might happen in the future, in the form of earnings expectations. If investors think companies will have better prospects tomorrow than they do today, they are more likely to invest, which in turn tends to drive up the stock market. On the other hand, if investors think companies will do worse in the future than they have in the past, they will likely sell their stock, which if done all at once without a counterbalance of buying, drives down the market. Since there are many well-documented instances in economic history of market participants getting expectations about the future prospects of companies wrong, this is another reason why what happens in the stock market doesn’t always reflect what is happening in the economy. Read more: 11 Myths Of Stock Market Investing — Debunked The Bottom Line: Why These Differences Matter to You The biggest reason for why what happens in the market is important for the economy comes down to one thing: how individuals and businesses feel about their own finances. When the stock market is hot, both businesses and individuals tend to feel better about their current and future economic prospects, which results in something called the “wealth effect.” This is the idea that when one becomes richer due to higher asset values, they spend more. For businesses, this could be in the form of more hiring, investing in growth programs, or going public themselves. For individuals, this means just more general spending, which in turn drives the economy higher. Nowadays, the wealth effect is amplified by the news and social media, adding fuel to the fire both on the way up and the way down in the markets.

The Consumer Confidence Index is a child of its time. Established in 1967 by US business association The Conference Board, it was developed in response to the first slowing of the post-war economic boom. As the momentum of growth could no longer be taken for granted, it was necessary to understand and monitor its drivers more clearly, in order to codify what might be called a theory of change. As consumption became an increasingly significant part of the economy, the model was simple: if more consumption increased GDP, boosting people’s confidence to consume would be a powerful leading indicator of growth.

The structure of the indicator was equally simple: a short survey of subjective perceptions, administered monthly across a nationally representative sample, covering the state of the national and local economy, personal financial situation, and intent to spend or save. It would swiftly prove a powerful barometer to inform business decisions, and an early response metric for government policy interventions.

Amidst historically challenging economic conditions, markers of consumer financial vulnerability have heightened in 2020, notably unemployment (), bad debts (), and money-related stress (). Against this backdrop, there has been a significant rise in price conscious behavior (). In the second quarter of 2020, household spending declined by 34.6% () and the personal savings rate reached 32.2%, having been consistently below 10.0% since 2010 (). At the individual level, stricter financial management is prudent; from a macroeconomic perspective, its current magnitude is worrying given that consumer spending will be a key driver of economic recovery. As economists and business leaders look for the first offshoots of growth, increased attention has been paid to monthly consumer confidence surveys, which measure households’ subjective evaluations of the broad national economy and their personal finances (). Headlines such as that above are commonplace in the current news cycle, reflecting a widely held belief that consumer confidence data help forecast consumer spending. But how confident should we be in consumer confidence indices?

Academic literature provides equivocal evidence ( ). Several researchers have demonstrated that consumer confidence explains changes in household expenditures (, , , ) as well as customer satisfaction (), customer loyalty (), and consumer ethnocentrism (). However, the efficacy of consumer confidence data is not universally accepted. In a recent piece for the World Economic Forum,  call consumer confidence, initiated by the University of Michigan in 1967, “a child of its time” that no longer serves a useful purpose. Their opinions have some support from the academic community, with several studies failing to find evidence of the predictive validity of consumer confidence (, ). In a seminal paper,  concludes that “the information provided by consumer confidence predicts a relatively modest amount of additional variation in future consumer spending”.

The good news is that business confidence is hopeless as an economic indicator. The correlation with economic growth is poor and I largely ignore business confidence readings. Changes in direction can provide some insightful information – whether things are picking up or slowing down, but not the levels.

Businesses tend to be more upbeat regarding general confidence about the economy under a blue flag as opposed to a red one. Business confidence averaged minus 18 between 2000 and 2007. The economy (measured by real gross domestic product) grew on average by more than 3.5% per year. Yep, confidence was negative, but growth was positive. So, we ignore business confidence as an economic indicator. This is nothing new. It’s surprising headline business confidence figures receive so much attention.

2. Literature Review As stated by Nowzohour and Stracca (2017), “Sentiment may be used to describe economic agents’ views of future economic developments that may influence the economy because they influence agents’ decisions today”. The economic sentiment includes two opposing dimensions—confidence and uncertainty (van der Wielen and Barrios 2020). The COVID-19 pandemic and social and economic constraints induced by this pandemic have undoubtedly brought more tension to the economy (Baker et al. 2020), while at the same time affecting the confidence of households and businesses. As economic-sentiment indicators are one of the most critical indicators showing the economy’s overall health, it is crucial to assess how the spread of the COVID-19 pandemic affects those indicators. Our analysis contributes to the theoretical issues analyzing how consumer and business sentiments can change in periods of external shocks. Consumer confidence is often described as a fundamental driving force of the economy, because when consumers are optimistic, consumption increases, and we have economic growth; while in pessimistic periods, consumers pull down the economy. Sentiment issues are significant in analyzing economic growth and tendencies in financial markets, and especially when trying to identify future trends. The sentiment of financial markets, consumers, and business entities can be measured by various surveys, after which different sentiment indices are created based on the responses to specific questions about current and expected economic conditions. These indices are used for forecasting household expenditures, consumer spending habits, tendencies in the labor market, or even industrial production growth. However, some authors have an opinion that sentiment surveys have little power for predictions (Roberts and Simon 2001).

Table 8 shows that the mean and median values of the adjustedR2of the risk-free rate RF are 0.52% and0.17%, respectively. These values are close to those of the BW index. As for the lagged explanatory power, the adjustedR2of RF goes up steadily from 1 lag to 3lags. However, the lagged explanatory power of RF is significantly lower than that of the BW index. This result shows that the BW index is an improved sentiment indicator of the stock returns. On the other hand, the UMI exhibits no explanatory power to either the contemporaneous or lagged stock returns. The adjustedR2of the UMI is all negative. I also tested the explanatory power of the OECD consumer confidence index and the OECD business confidence index. Neither of them has a positive adjusted R2 on the contemporary or lagged stock returns. From Table 8, I can infer that the explanatory power of the indirect sentiment measures on stock returns is relatively stable. The difference across different measures mainly lies in the level of the explanatory power. On the other hand, the direct sentiment measures exhibit a different pattern. Compared with the AAII indexes, the other direct sentiment measures do not display any explanatory power. This indicates that the survey sample and the survey questions are essential to successfully reflect the financial market sentiment. Currently, The AAII indexes and the BW index are the best direct and indirect sentiment measures in explaining stock returns. Further research is needed to shed more light on this topic.

Based on the census data of registered manufacturing enterprises with more than 20 employees, this paper reflects our analysis on how the enterprise-level provision of social security influenced enterprise performance in Indonesia from 2010 to 2014. This is an interesting period to examine, given that the social security system in Indonesia has undergone a number of changes in recent years. Currently, the different components of social protection provision are work injury, death benefit, old-age savings, health insurance and a pension scheme, as regulated under Law No. 24 (2011). However, micro and some small enterprises (fewer than 20 workers) are exempt from the pension scheme, and micro enterprises and other workers (including construction workers, self employed and informal workers) can only register for the work injury and death benefit schemes. Law No. 24 created the basis for the establishment of two social security providers in Indonesia, one for health and targeting all citizens and the other one for employment and targeting all workers. For this paper, we defined social security provision as the per-worker amount the enterprise spent on pension contributions, social allowance and insurance, while the outcomes variable is the per worker revenue and profit. Using standard regression techniques, we found that enterprises that increased their social security spending by 10 per cent experienced a per-worker revenue gain of up to 2 per cent. When unobserved heterogeneity was accounted for in the balanced panel of enterprises, the magnitude dropped but remained positively significant, indicating that higher ability owners are more likely to pay social insurance for the workers, which is not surprising. The return was particularly high for smaller enterprises and for local government-owned enterprises. However, statistically the results were more robust for private domestic and foreign owned enterprises because they constitute the majority of the sample. There was also some variation in the social security-revenue relationship across different sectors. In general, though, the various divisions supported the main results. Finally, there was no evidence that enterprises that contributed to the social security system experienced lower profits per worker, which suggests that increasing worker benefits may be a worthwhile enterprise investment. With regard to what is driving the positive performance results, one plausible explanation is that social security provisions lead to enhanced workforce effort, either by enterprises being able to attract more motivated employees and/or by raising the motivation of their existing workers. This is in accordance with the theories of human resource management bundles, dynamic capabilities and social equity or exchange theory. Another explanation could be that more socially aware enterprises benefit from cooperation with larger, globally connected companies that are committed to corporate social responsibility and/or require compliance with labour regulations. Overall, social security provision seems to be beneficial to workers as well as enterprises. The question then remains how to incentivize enterprises to make social security contributions. Given that social security contributions are often paid in conjunction with taxes, which generally are higher than social security payments, one option would be to offer tax breaks or subsidies, especially to newly operating and smaller enterprises that are generally more resource constrained and short-sighted in their business approach. This might enable employers to utilize more resources towards investing in their workforce.

In a recent paper, estimate how expansionary social insurance programs have helped to prop up the global economy. Summers and Rachel estimate that expanding programs such as Social Security and Medicare pushed the “neutral” (a.k.a. “equilibrium” or “natural”) real interest rate up by 3.2 percentage points over the past 40 years in the U.S. and other advanced economies. Since Rachel, Summers and others estimate that the real neutral rate—the highest rate consistent with maintaining full employment—is now barely above zero, this suggests that past these expansions, rather than being a drag on growth, have buoyed what would otherwise be an economy requiring large budget deficits to stay afloat. To recap, both Keynesian and supply-side models are in agreement that the Act would have the intended effect of increasing retirement income, smoothing lifetime consumption, and redistributing from working-age and higher-income households to retirement-age and lower-income households. They also agree that expanding benefits will tend to reduce private saving, though supply-side models such as the PWBM emphasize this aspect more (and the effect of the Act on national saving is ambiguous because it also closes Social Security’s projected shortfall). However, the two types of models differ as to whether more saving or more spending is needed to boost economic growth. If an otherwise useful policy slows growth, this is not by itself reason to dismiss it out of hand. Growth and distribution both matter if the goal is improving the lives of the greatest number of people, and Social Security is modestly redistributive toward people with lower incomes. Moreover, policies that have other benefits—in the case of Social Security, smoothing consumption over the life-cycle and insuring against death and disability—can improve wellbeing regardless of their effects on distribution or economic growth. In this case, however, there is reason to doubt that the benefits of Social Security expansion come at the expense of economic growth. Rather, Social Security expansion is a win-win policy, except maybe for wealthy people trying to avoid paying payroll taxes on earnings above the current cap. Note: The description of the Rachel and Summers paper contained an error that was corrected on October 18, 2019.

Prior to Social Security, enlightened employers sought to provide older employees with pensions, rather than just discard them at the end of their work lives. Providing old age pensions is not just good for the retired employee. It helps businesses thrive. Older workers who retire with adequate income allow younger employees to advance, and demonstrate to those younger workers that, after a lifetime of hard and loyal work, they too will be secure in old age. However, the reality has always been that individual employers, on their own, are generally unable to provide their retired workers with guaranteed and secure income sufficient in amount to allow those workers to maintain their standards of living throughout their retirement years. Prior to the enactment of Social Security, employer-sponsored pensions were rare and generally insecure. Indeed, in 1925, just two companies —the Pennsylvania Railroad System and the New York Central Lines—employed 40 percent of all employees covered by private pensions. Moreover, between 1929 and 1932, almost 10 percent of all existing pension plans were discontinued, closed to new employees, or suspended. Social Security changed the face of retirement. Prior to the enactment of Social Security, the verb “retire” did not mean what it means today. It was generally used to mean to withdraw temporarily, as, for example, to retire to the bedroom at the end of the evening. The first known usage of the word “retiree,” according to the Merriam-Webster dictionary, was in 1935, the year Social Security was debated in Congress and enacted into law. It was only in the 1940s, once Social Security started to pay monthly benefits, that the word “retiree” became commonly used. The evolution of the “retirement” language is not hard to understand. Social Security made the possibility of retiring from work in old age something that all workers could imagine. Social Security provides a secure, independent retirement, with guaranteed monthly income. It replaces wages throughout the retirement years, until death, no matter how long one is fortunate to live. But Social Security benefits have never been large enough to allow workers to maintain their standards of living without supplementation. Unfortunately, employer-sponsored supplemental plans have serious shortcomings that Social Security does not have. So-called defined benefit plans are expensive and complicated for employers to administer, because plan sponsors must satisfy minimum funding rules, comply with reporting requirements, and be subject to fiduciary responsibilities. Moreover, employers shoulder the investment risk and are responsible for funding shortfalls in these arrangements. Those complications, expenses and risks are among the reasons that private-sector defined benefit pension plans are disappearing. While so-called defined contribution plans (such as 401ks) do not have those disadvantages, they have other serious disadvantages. Under those arrangements, where the worker bears the investment risk, market downturns at retirement age can be devastating. For this and many other reasons, retirement savings plans have proven to be inadequate for most workers. Social Security has the advantages of both defined benefit and defined contribution arrangements with none of the disadvantages. It is excellent for employers and employees alike. It is easy for employers to administer, requiring only the collection and transmission of contributions. Yet its benefits are guaranteed and cannot be outlived. Employers match their employees’ Social Security contributions dollar-for-dollar. In recognition of this fact, past employers appropriately claimed credit for the Social Security benefits their employees earned. Like other fringe benefits they offered, past employers astutely listed Social Security’s life insurance, disability insurance, and joint and survivor retirement annuities as benefits their employees would earn during their employment years. Unlike in the past, today’s employers generally fail to claim credit for Social Security, but they should. Taking credit for this valuable and extremely popular employment benefit is not only accurate, it would provide an important educational role, since Americans are often unaware of Social Security’s survivor and disability protection unless and until they need them. In addition to taking appropriate credit, employers should join the fight to expand Social Security. The Democratic Party has recognized that Social Security’s modest benefits should be increased in conjunction with restoring the system to long-range actuarial balance. In the next Congress, Representative John Larson (D-CT), will chair the Social Security Subcommittee of the Ways and Means Committee. He plans to hold hearings on expanding Social Security. There is a high likelihood that expansion legislation will pass the House of Representatives, providing momentum for action in the Senate. Legislation to expand Social Security and restore it to long range balance will undoubtedly require some increase in employer contributions, but employers should encourage its enactment. Its benefits will far outweigh its costs. The nation is facing a looming retirement income crisis where workers will be unable to retire and maintain their standards of living. Age discrimination laws properly prohibit employers from firing older workers simply because of their age. An expanded Social Security will provide those older workers with greater opportunity to enjoy some leisure after a lifetime of work. It will also lower employer costs, since older workers are often the most expensive, and allow younger workers to move forward in their careers. Moreover, retirees are consumers. As they age, they tend to stop saving and start spending what savings they were able to accumulate during their working years. The goods and services they purchase are essential for a strong economy. A report published a half-decade ago found that Social Security’s combined payments in 2012 resulted in the production of approximately $1.4 trillion in economic output, the creation of over 9.2 million jobs, and an increase in the tax revenues of local, state, and federal governments that exceeded $222 billion. And that was a half-decade ago. Those positive effects are substantially larger today. And an expanded Social Security would produce even greater returns. Back in the 1930s, visionary business leaders like Eastman Kodak’s Marian Folsom understood the importance of Social Security. They supported its enactment and expansion. They recognized that providing workers with a foundation of economic security, an earned benefit to which both employers and employees contributed, was in the best interest of both. As Folsom explained, “The social security system is a keystone in the economic security of millions of individuals and of the country as a whole.” That is still true today. Enlightened business leaders should seize the opportunity to support the expansion of Social Security, following in the footsteps of their predecessors.