But that equilibrium can occur on any one of a number of different levels. O’Hanlon is basically urging the world to settle into a stable high equilibrium, in which real US defense spending grows at around two percent per year and the Chinese grow faster than that.
In an alternative scenario, we reach an equilibrium at a lower level. Real US defense spending stays near where it is, and real Chinese defense spending grows, but at a modest rate. That low equilibrium would leave us better off. And it would also leave the Chinese better off. And the Indians and the Russians and the Japanese and everyone else. The world could maintain roughly the same balance of power as in the high cost equilibrium, but with dramatically less wastage of resources. Now the low equilibrium would be somewhat harder to achieve as a political and diplomatic matter. But since it the low equilibrium implies a much higher standard of living for the population of the entire world, it seems to me to be worth aiming for.
I don't think that's true. Nations do not move their defense budgets up and down in tandem. If the U.S. reduces its budget, Japan, China, and India will all be incentivized to spend more rather than less to fill up the power vacuum. After all, if what Yglesias was saying was true, then why not continue to lower military spending until we get close to the lower bound? China, Japan, India, and every other country could then just lower their spending too, we'd all save a bunch of money, sing kumbaya, and be happy.
Of course, that's not the way the world works. I don't think there is a Pareto-improving "low equilibrium" in which the U.S. cuts military spending and Asia responds by doing the same. I think that scenario leads to a different equilibrium in which the U.S. security guarantee in Asia become less credible. So Asia begins an arms race spurred by security dilemmas (we're already seeing some of this in Japan and N. Korea), and the region starts balancing against China. The U.S. might save some money, but Asia will spend much, much more and be less secure for it.
International relations theory is pretty clear on this point: when faced with uncertainty, states respond by building up their defenses, not by toning them down. Yglesias almost recognizes the logic of this this in his second-to-last sentence, but I think he massively understates the problem because he doesn't understand international relations.
P.S. A friend, who is in an economics Ph.D. program at a major university, wrote that Yglesias just doesn't understand basic concepts in game theory. This is basically what I was saying, since most canonical IR theory is based in whole or part on game theory. Now, Yglesias may actually understand the concepts, but he does not seem able to apply them.