The economic irrelevance of naval power

When I posted a piece on the latest failure of the US Navy a while back, I predicted that I wouldn’t be changing any minds. That was one of my safer predictions, confirmed almost immediately by Robert Farley at Lawyers, Guns and Money. Farley declined to respond, saying “whatever his other virtues, Dr. Quiggin is not a serious voice on naval questions”.

I wasn’t surprised by this. Farley is the epitome of the navalist view that serious expertise on the technology of naval warfare is a crucial requirement for commentary, whereas being right is irrelevant.

Given this respect for credentialed expertise, however, I was a bit surprised to see Farley endorse a piece by Bret Devereaux making the claim that “the United States Navy is a load-bearing component of the global economy”. You might think that the relevant expertise here included at least some knowledge of both transport economics and the global economy. Devereaux, who is an “ancient and military historian”, has neither. Still, I’m not going to pull academic rank here. Let’s see what Devereaux has to say and how well it stacks up as a piece of economic analysis.

I take the architectural metaphor to mean that the global economy depends critically on the supposed role of the US Navy in protecting maritime trade. This is a stronger version of a claim commonly made by navalists, to the effect that US naval expenditure is a form of global foreign aid, offsetting the notorious stinginess of the US in ordinary aid (now massively exacerbated by Trump and Musk).

A notable example of this latter claim is this piece by Brookings Institution researcher Michael O’Hanlon, notable as a prominent Iraq war hawk who hasn’t paid any price for being wrong. Like Devereaux, he also lacks any economic qualifications and shows no evidence of having learned anything on the subject. O’Hanlon claims that US naval activity is crucial to the maintenance of free movement through vital waterways including the Strait of Hormuz.

Now let’s turn to Devereaux. He begins well enough with the observation that trade is an important part of the global economy. He presents, but doesn’t really explain, the concept of comparative advantage. Next he explains that, while shipping is slow, it is much cheaper than air or land transport. For that reason, most seaborne trade is focused on staples like food, rather than luxury goods. These familiar facts are presented rather breathlessly with lots of bold and italic font, as is the observation that “ships can be really, really big”.

Devereaux asserts that all of this trade depends on the fact that piracy has been almost non-existent since 1945. That’s an important claim which obviously needs assessment in the light of that post-1945 experience.

What we get, however, is a lengthy history of piracy from the Greek Dark Age to the Barbary Wars, in which Devereaux’s expertise in ancient history is displayed. Unfortunately, there is no modern history. The story stops 200 years ago, omitting the much more relevant experience of piracy in the waters off Somalia.

To recap briefly, Somali fishers, whose traditional fisheries were being devastated by industrial-scale extraction undertaken by fleets from rich countries, began attacking merchant ships and holding them and their crews for ransom. This turned out to be a profitable enterprise which expanded rapidly. The US and other rich countries responded by sending destroyers and other high-powered naval vessels. However, these vessels weren’t well suited to dealing with fisher/pirates in speedboats, and piracy continued.

The eventual answer to the problem, amusingly enough, was a combination of lawyers, guns and money. Legal processes were developed to ensure that pirates, once apprehended, could be prosecuted. Shippers reluctantly hired armed guards and installed safe rooms to slow hijackers down to the point that help could be called in. And financial aid to Somalia helped reduce the desperation that drove piracy in the first place (piracy has ticked up again since the Trump administration cut that aid).

But even at its peak, the economic cost of piracy was minimal, no more than around $10 billion a year on a generous estimate. That’s less than the running cost of a single carrier strike group. And the low level of piracy wasn’t due to the “tiger-repelling rock” effect of the US Navy. Even with 11 carrier groups, the USN isn’t big enough to patrol every coastline from which pirates might operate. And it obviously didn’t stop the Somalis from trying their luck

Devereaux next presents the standard navalist claim about “choke points”, that is, “narrow sea passages where alternative routes are either much longer or simply unavailable”. As with the discussion of piracy, Devereaux sticks mainly to the distant past, looking at tolls charged by Denmark in the 19th century.

Devereaux claims that “every country on a choke-point tried to maximize extraction off of it, the result would be a major drop in global trade, which, as discussed above, would lead to a sharp decline in living standards in rich and poor countries alike.”

At this point, an economist would immediately ask “how sharp would the decline be, and how much should we pay to prevent it?” The big question about “choke points” is how much it costs to go the long way around them, rather than fighting a way through. Such cost-benefit calculations never occur to navalists.

As with pirates, we have plenty of evidence. The Suez Canal is among the most important of choke points, and it’s been closed repeatedly, notably during the eponymous 1956 crisis and from 1967 to 1973. It’s been largely closed for the last three years thanks to the conflict in Yemen.

The economic effect has been trivial. Shipping has been diverted around the Cape of Good Hope, adding 6–8 days to a typical voyage, and around $100/container to the shipping cost. For a container-load of, say, 25 fridges, that’s $4 apiece.

We can also make estimates for a hypothetical closure of the Panama Canal. Comparing this route to US intermodal rail, you get a bigger increase in cost (about $1000/container), but that’s offset by faster delivery and more flexible routes (and, for US domestic trade, the Jones Act wipes out most of the cost advantage, effectively replicating the impact of a blockade).

And this calculation implicitly assumes that naval power can keep these choke points open. That hasn’t been the case in the Suez Canal, which is still under Houthi/Ansarallah control. Some oil has been flowing out of the Strait of Hormuz. But that doesn’t mean the strait has been reopened. The flow appears to depend primarily on traditional blockade-running techniques, sailing by night without identification, ship-to-ship transfers and quiet payoffs to the blockaders (in this case, Iran).

Fortunately, while an increase in the price of oil is, as Devereaux says, no fun, its impact on the global economy is marginal. The crisis is politically problematic, but it amounts to adding a few tenths of a percentage point to inflation rates and an even smaller effect on economic growth.

It is true that sufficiently powerful navies can still impose blockades, as the US is doing now. But that does not help the global economy. And since no blockade in history has ever compelled the surrender of an adversary without the assistance of land forces, it’s a weak reed for navalists to lean on.

This fight has been going on too long, so I’m going to leave it there. Should the Iran war end in an unambiguous victory for the US, I commit to publishing a correction. Otherwise, that’s it from me.