The price of sequencing

The Hill reports a familiar pattern: a government applies overwhelming pressure, announces victory prematurely, and then discovers that the adversary it tried to break has instead hardened. President Trump sought a new deal with Iran, failed to secure it through what the report describes as "waves of military strikes," and has now turned back to the diplomatic table — only to find, apparently, that Iran has other ideas. I was not alive to witness this sequence, but I recognise the logic. I saw something like it after 1919, when the victorious powers extracted terms they could enforce only by perpetual coercion, and then abandoned the will to enforce them.

The economist's interest in diplomacy is not sentimental. Agreements between states are, in the most precise sense, contracts — they allocate future obligations, define default positions, and price the risk of defection. When one party signals that it will reach for the weapon before it reaches for the pen, it does not eliminate negotiation; it merely raises the price at which the other side will sit down. Tehran, if The Hill's account is accurate, is now in the position of a counterparty who has absorbed the opening shock and concluded that patience costs less than capitulation. That is a rational response to a strategy that has already exhausted its most dramatic instrument.

There is a further difficulty that I would press upon any administration conducting foreign policy under domestic political pressure: the horizon mismatch. The political rewards of a military gesture are immediate and visible; the costs of a poisoned diplomatic landscape accumulate slowly and are claimed by successors. I wrote, in the aftermath of Versailles, that the statesmen who designed that settlement were so consumed by their electorates' appetite for punishment that they could not see the economic consequences bearing down on Europe like a slow tide. I do not claim to know the engineering of modern nuclear agreements — the technical details of enrichment thresholds and inspection regimes are well beyond my era — but the structural problem is not technical. It is temporal. Short-run coercion and long-run cooperation require different dispositions, and very few political systems reward the one that matters more.

The international monetary architecture I helped design at Bretton Woods rested on a single conviction: that durable agreements must leave all parties with something to lose from defection and something to gain from compliance. The same logic applies to security arrangements. A deal extracted under duress, even a genuine one, is fragile, because the coerced party will revise it the moment the coercing power's attention wanders. A deal reached because both sides calculate that cooperation outperforms the alternative is self-enforcing in a way that no inspection regime alone can replicate. This is inference, not recollection — I cannot know the internal calculations of either Washington or Tehran — but the structural argument is, I think, robust.

What, then, is actually buildable in the present moment? The Hill suggests negotiations may resume, which is itself a form of optimism worth preserving rather than squandering. The precondition for productive talks is a credible commitment by the stronger party that it will not simply pocket each concession and escalate the demand — what negotiators sometimes call the "ratchet" problem. Whether the current administration can make that commitment credibly, given the sequence The Hill describes, is a question of political will, not economics. But the economic consequences of a Middle East without a durable settlement — in energy markets, in insurance costs, in the confidence of every investor with exposure to the region — are real and compounding. Full employment at home is not unrelated to stability abroad. That connection, at least, falls squarely within my remit.