Wednesday, April 09, 2008

As General Patraeus continues to encourage the U.S.A. to indefinitely spend $500,000 per minute

FOR SEVERAL MONTHS, WE’VE BEEN TRYING TO GET PAUL KRUGMAN TO SAY THAT THE WARS IN IRAQ/AFGHANISTAN CONTRIBUTE TO BAD U.S. ECONOMY AND RECESSION

By Kevin Stoda


As General Patraeus continues to encourage the U.S.A. to indefinitely spend $500,000 per minute (or 720million dollars per day) on the war in Iraq, Americans are being invited by American Friends Service Committee to view this wonderful and poignant video

http://www.afsc.org/cost/default.htm

and ask themselves how they would prefer to spend all that wasted money.

The video notes that with one-day’s military spending savings, 12,000 teachers could be hired and paid for.

The next day 84 new elementary schools could be opened and paid for.

Another day’s savings could pay for over 8000+ homes.

The next day’s savings could pay the entire 4 year college education of 34,000-plus students.

Or, one other day could pay for renewable energy being installed immediately in 1.27 million homes in the USA.

There is more to consider after viewing that short video, so I encourage you to check it out for yourself, sign a petition, and pass on this video from Friends to your friends.

Meanwhile, I am still dismayed that one of the best economists in the world, Dr. Paul Krugman, still fails to lead a call for better economic research to demonstrate how multiplier effects from having diverted so much U.S. spending on the Iraq War are not only having a bad effect for the U.S. economy but such misguided spending is reinforcing (and likely contributed to) the current nasty recession in America.

http://krugman.blogs.nytimes.com/2008/01/29/an-iraq-recession/


WHERE ARE BETTER ECONOMIC ANALYSESE?


I took time to write up one response to one of Paul Krugman’s (author of “Conscience of a Liberal”) articles on the recession and war. I stated my concern for the ongoing lack of technical soul-searching and re-analysis :

“I believe that the very fact that the USA invaded and occupied Iraq is a fairly direct cause for the upward price of oil–explaining anywhere (directly or indirectly) leading to and explaining 45% or more of the rise in the last 5 years-- with the bulk of the rest being explained by increasing demands in mostly developing economy. The oil sheikdoms have made this clear by in the interim stating that as of now–post U.S. Iraqi invasion (and during the subsequent drain on U.S. production capacity in many areas)– they will not play politics so much with the oil prices, i.e. no longer being subservient (or overly considerate) to what is good for the U.S. and European political economic needs in the short term.”
“Once Saddam was taken out, the tension was released in the Gulf--and other OPEC states have joined in the freedom to take profits and invest or mis-spend them for the first time since the early 1980s. That said, it is important to note that Saudi Arabia and others do park their moneys primarily in the U.S. and West but their investment interests since Iraq was taken out have been on themselves and on Asia.”
“Finally, as the rising oil prices have had a negative multiplier effect on the bottom half of the U.S. consumer economy to save and to pay off debt, I would suggest that Paul Krugman rephrase the tone of his article in a future column.--Kevin in Kuwait (paying off debt in the USA)”

ANOTHER CALL FOR MORE TECHNICAL RESEARCH

On the other hand, Paul Krugman does allow thoughtful comments to his articles on his blog.

Here is one of the earlier comments on Krugman’s blog about his de-emphasis of how war-spending (that has lasted over 5 years) drains the economy.

Phil Groce stated, “Some writers have noted, for example that ‘I would suggest that, like the fiscal stimulus package, most of the money is going to a relatively small number of enterprises who are probably banking it away rather than spending it downward into the rest of the U.S. economy. The money that isn’t being stuffed in corporate mattresses is also, one would think, more likely to end up ultimately in foreign hands — after all, much of it is being spent as overhead in the Middle East, and of the remainder, much of it goes to employees living in the field.’”

Groce adds, “Another perspective that promotes skepticism of this view: if even a fairly small part of the war budget was stimulating the economy here, it would be a pretty staggering stimulus. That would imply that we would be in staggeringly bad economic shape now without that war spending, correct? Bad as the housing bubble is, it would have to be a seismic financial event at least on the order of the Great Depression unwind to offset so much war spending. (Even WWII was able to offset the Great Depression and it cost less than this.)”

Finally, Groce also calls for renewed research, “I would love to see a more technical analysis that shows how much of the deficit spending is coming back home, and how much of it is in position to provide real stimulus. My suspicion is that, like so many other Bush policies, even the ostensible benefits end up being mismanaged away.”

ENCOURAGING GOOD DEBATE AND RESEARCH ON OP-ED NEWS

I believe it is time that we look around at the sacred cows of economic research on war-making, i.e. a pervasive belief among social scientists that claims that generally more pluses (however small) than negatives appear to an economy through waging war.

A lot of the original mythology related to this pervasive economic belief in the positive benefits of war had resulted from WWII, when it was noted that the German economy appeared to operate more and more efficiently in war-time—even as the nation of Nazi Germany and its occupied territories had the living hell knocked out of them.
Moreover, WWII was considered a boon to the U.S. economy.

Historically, such analysis bolstered post-war spending in America to a great degree.
This was a turn-around in American ideology or thinking from during the WWI and Depression eras when war spending was seen as impoverishing many, killing the poor, and soaking the rich.

Only a few good books and articles have been published to counter this Cold-War era myth about spending on guns (i.e. not butter nor schools).

Here are some recent articles to peruse:
(1) Blanchard and Pereotti’s—“An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output” http://www.mitpressjournals.org/doi/abs/10.1162/003355302320935043?cookieSet=1&journalCode=qjec
(2) Collier’s—“On the Consequences of Civil War” http://oep.oxfordjournals.org/cgi/content/abstract/51/1/168
(3) Ramey and Shapiro’s—“Costly Capital Reallocation and the Effects of Government Spending” http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8D-3VNGGBF-7&_user=10&_rdoc=1&_fmt=&_orig=search&_sort=d&view=c&_acct=C000050221&_version=1&_urlVersion=0&_userid=10&md5=e7aac8c474d7b7ae787bf7a99d6d8baf
(4) Faini, Annez & Taylor’s, “Defense Spending, Economic Structure, and Growth: Evidence among Countries and over Time” http://www.jstor.org/pss/1153333
(5) Barro’s “Output Effects of Government Purchases’, http://www.jstor.org/pss/1837185
(6) Deger’s “Economic Development and Defense Expenditure”, http://www.jstor.org/pss/1154149
(7) Kormendi’s “Government Debt, Government Spending, and Private Sector Behavior” http://www.jstor.org/pss/1814667
(8) Fatas and Mihov’s “The Effects of Fiscal Policy on Consumption and Employment” http://faculty.insead.fr/mihov/files/FPandConsumptionAug2001.pdf

That eighth article, “The Effects of Fiscal Policy on Consumption and Employment”, by Antonio Fatas and Ilian Mihov” is a good place to start reading up on the fiscal policies related to the Korean and Vietnam Wars.

Similarly, Markusen et. als. The Rise of the Gunbelt and the Military Remapping of America, provides a good place to start for laymen.

One can also research great websites, like the National Priorities Project http://www.nationalpriorities.org/home/3.html

Or the other hand, one could check out what former U.S. admirals and generals predicted based on research on the U.S. economy from Russian experts.

The former US military personnel at the Center for Defense Information have become concerned with the looming world-wide political-economic disaster, which they and the Russian economists have been anticipating for the USA due to changes in spending and priorities over the last 3 decades (in terms of U.S. political and economic policies).

This article, first published in English in 2003, i.e. prior to the U.S. attacking Iraq in march of that year, stresses the core issues related to the U.S. political economy in this decade.

http://www.cdi.org/russia/246-15.cfm

That economy-oriented article, “WAR AND THE US ECONOMY
A Russian Expert's Survey”, had been released on 20 February 2003 by the CDI—and shows what great economic analysis needs to be able to do.

That is, this particular political analysis was a summary (translated from Russian) of what these old-Soviet era political economic researchers (i.e. people who have been watching the U.S.A. for decades) thought and felt about the U.S. economy as of 2003..
Those authors claimed clearly and fairly correctly the following as the U.S. prepared to enter Iraq: “The US economy is now suffering from an even more serious crisis than one may think. This is a comprehensive, rather than superficial, crisis. Among other things, it is connected with America's new status as a hyper-power. This status implies that, instead of merely implementing old-time world-domination methods, the United States should elevate them to an entirely new level. It's now hard to say whether the United States will manage to cope with this task; however, this objective can't be accomplished without an enemy and without war.”

In the short, that 2003 article clarifies that the U.S. might either do well or badly economically in the short term by invading Iraq, but in long term, the U.S is swimming upstream in a global economy that it has lost control of while simultaneously blowing off good long-term economic policies over several decades in a row now.

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