The Trillion Dollar War of Choice, and the Constraints on Macro Policy

Or at least $805.6 billion as of the end of September, not including debt service and additional reset costs; around $940 billion including interest payments.


As the US economy faces the prospects of stagnant growth or recession, it is of interest to see why the scope for fiscal policy is so circumscribed — that is why is the debt level so high given that in the last year of the Clinton Administration, we were paying down debt? Figure 1 depicts part of the answer (other parts, here).


trilliondollarwar1.gif

Figure 1: Cumulative direct costs, in current dollars by fiscal year, in the Iraq theater of operations (“Operation Iraqi Freedom”). Does not include resulting debt service. Source: Amy Belasco, “The Cost of Iraq, Afghanistan, and Other
Global War on Terror Operations Since 9/11,” RL33110, Congressional Research Service, March 29, 2011
, Table 3. Data for FY2011 is for continuing resolution, for 2012 is Administration FY2012 request.

To understand the magnitude of the cumulative nominal costs as of September 2011, it is useful to normalize by nominal GDP. As of 2011Q2, GDP was $15 trillion SAAR. Hence, cumulative expenditures (not including the resulting incremental interest rate payments) was equivalent to 5.4% of one year’s economic output. Including the interest burden, the (publicly held) debt to GDP ratio would be 6.3 percentage points lower than what it currently is (65.0%).


Former Vice President Dick Cheney’s remarks about the benefits of the United States’ expedition in Iraq are interesting in this context. From CNN:

When asked if the current fatality count of more than 4,000 troops in Iraq, coupled with the hundreds of billions of dollars spent on the war, made it a worthy endeavor, Cheney said “yes.”


“No doubt about it,” Cheney said. “When we went in and took down Saddam Hussein, first of all, we got rid of one of the worst dictators in the world.”


….


Still talking about the war in Iraq, he later said: “I think we made exactly the right decisions.”
“There were a lot of things that came out of what we did in Iraq that were very positive,” Cheney said. “We’re much better off today with Saddam Hussein gone. We’ve got Moammar Gadhafi gone. We got a lot done. We didn’t get it all done, but we got a lot done.”

Vice President Cheney makes no mention of the costs.


Note that figure 1 does not incorporate the debt servicing costs associated with these expenditures which were unmatched by any tax revenue increases. Nor does it necessarily include all the reset costs to refurbish and restore the equipment that experienced economic depreciation during operations (i.e., was worn out). [CSBA, 2011, pp.8-9] [CSBA, 2009, p. 29]


It is also of interest to tabulate the costs in real (i.e., inflation adjusted) dollars, so we know the resource costs associated with the invasion and occupation of Iraq. Those are depicted in FY2010 dollars in figure 2.


trilliondollarwar2.gif

Figure 2: Cumulative real direct costs, in constant (FY2010) dollars by fiscal year, in the Iraq theater of operations (“Operation Iraqi Freedom”). Does not include debt service costs. Source: Nominal figures from Amy Belasco, “The Cost of Iraq, Afghanistan, and Other
Global War on Terror Operations Since 9/11,” RL33110, Congressional Research Service, March 29, 2011
, Table 3. Data for FY2011 is for continuing resolution, for 2012 is Administration FY2012 request. Deflated by CPI-all. CPI for 2011 assumes September 2011 m/m inflation is the same as August 2011 m/m inflation. Assumes 2012 inflation is equal to August 2011 CBO forecast for CY2012 inflation.

Real direct costs as of end-September will be 857 billion FY2010$; it will be approximately 874 billion as of end of FY2012.

Clearly, these direct fiscal costs are not the only costs associated with this venture. Since some Econbrowser readers have requested it, I also include a tally of US casualties in the Iraq theater of operations.


trilliondollarwar3.gif

Figure 3: Killed in action (blue), and wounded in action (red) in Iraq theater of operations. “Mission accomplished”: End of major combat operations declared by President Bush. “Last throes of the insurgency”: Statement by Vice President Cheney. Dashed line at 2009M01, end of Bush Administration.
Source: icasualties.org.

By the way, the macro challenge posed by the unfunded war (combined with tax cuts and a new, unfunded, Medicare Part D mandate) was not unforeseen. Nearly five years ago, I predicted that running big budget deficits when the US economy was near full employment would constrain fiscal policy in a dangerous way when we encountered a downturn. [1].

StumbleUponLinkedInReddit

65 thoughts on “The Trillion Dollar War of Choice, and the Constraints on Macro Policy

  1. colonelmoore

    I often said that George Bush was channeling Lyndon Johnson. He had a big unfunded war, a big senior entitlement and a civil rights bill (legalization of undocumented aliens). Like Johnson, the war and the civil rights bill fractured his party.

  2. C Thomson

    The professor was right!
    But the fiscal impact is the least of it. Running bumble-headed, doomed to failure wars – on poverty, on drugs, on towelheads – is stupid.
    Remember: MYOB is cheap and MYOB is moral. Viva the libertarian individual!

  3. Ricardo

    I guess I am just not smart enough to understand. If WWII got us out of the Great Depression because of massive Keynesian spending then why would massive military spending on the wars in Iraq and Afghanistan, and now the additional cost of our war with Pakistan, Libya, and Yemen, not bring prosperity? Am I missing something? Perhaps things are really good but we are just pretending to be in a huge economic contraction?
    Perhaps the problem is a Krugman problem. Perhaps it would have been better to pretend we were at war and engaged in a massive buildup without actually going into war. Oh, but that still leaves the miracle of WWII.
    Perhaps I should just take the advice of my grad school professor when I told him that Keynesian economics was illogical. He said just accept it and some day you will understand. What a great capacity he had for accepting principles in the face of contradictory logic and history! Oh, I managed to memorize enough to make a B+.

  4. Richard A.

    The Vietnam war cost as much as 150 billion dollars when the GDP was about one trillion dollars (ball park figures on my part). This amounts to about 15% of US GDP for one year. This would be borrowed money. The government keeps borrowing to pay past expenditures on this war (and all wars). The result is that the 150 billion dollar debt of the early 70s is much higher today as the result of compounding interest (but has been shrinking as a percentage of GDP).

  5. jonathan

    1. The problem is not the cost of war but that we as a nation chose not to pay for it. That, as I noted in a comment on an earlier post, is the fundamental dishonesty: as much as we talk about sacrifice and say “thank you for your service” to the soldiers, we were and continue to be unwilling to pay for the wars. We added them to the debt, meaning we pushed the cost off into the future and now, of course, are trying to pay for them by extracting money from the poor, sick and old.
    2. The total cost of the wars should include Afganistan, which I don’t think this does. That cost is closer to $1.3T.
    3. If we’re being remotely complete, we should then add in the cost of the tax cuts that we took and added to the debt rather than leave taxes where they were and pay for the wars. That would add nearly $2T to the total, given it was $1.6T 3 years ago. If we simply netted out war costs and only lowered taxes, by the margin over that, we would be somewhere around $2.5T better off.
    My point, however, isn’t math but morality: we chose, Bush/Cheney and the GOP chose to defer the costs of war rather than pay for it. That is immoral: if we’re sending our young men and women off to die and are killing people in other countries, then we should have at least had the moral decency to pay for the war rather than inflict the cost on the future.

  6. Chris

    Particularly unconvincing are Cheney’s “justifications” for the war. While Saddam was not lovable he probably was not the worst dictator in the world and of course it isn’t our duty to get rid, at vast expense, of dictators who are not nice. Cheney and Bush had nothing to do with the removal of Gaddafi. For the rest he uses “a lot” without any further explanation. He needs to clarify what “a lot” is. Indeed, when I ask war supporters to tell me what benefits the US got from the Iraq war I get ugly stares, suggestions I “go to hell”, or just no answer at all.

  7. Menzie Chinn

    Ricardo: Clearly the professor was grading on an easy curve. There is a time for stimulus (e.g., output 6% below potential) and not (say, when close to potential, as in mid-2003).

  8. mclaren

    Ricardo asked: If WWII got us out of the Great Depression because of massive Keynesian spending then why would massive military spending on the wars in Iraq and Afghanistan, and now the additional cost of our war with Pakistan, Libya, and Yemen, not bring prosperity?
    This paper by economist Robert Rollin published in 2007 by The Political Economy Research Institute at the University of Massachusetts, Amherst – entitled “The U.S. Employment Effects of Military and Domestic Spending Priorities” explains it.
    From the paper:
    The authors compare the effects of a $1 billion military investment military and the same investment in clean energy, health care, education, or individual tax cuts. They show that non-military investments create a much larger number of jobs across all pay ranges. With a large share of the federal budget at stake, Pollin and Garrett-Peltier make a strong case that non-military spending priorities can create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military.
    Here’s an updated 2009 version of their paper.
    http://www.peri.umass.edu/fileadmin/pdf/published_study/spending_priorities_PERI.pdf
    Military spending creates far fewer jobs than any other kind of spending. Economists understand why. Consider, for example, the knock-on effect of a factory that produces (say) trucks. The trucks get bought by a delivery service which use them to make money to pay delivery drivers. Thus there’s a huge multiplier effect in the economy. Each dollar spent generates many more dollars in the U.S. economy.
    Now consider the same factory producing M1A1 Abrams tanks. The tanks get shipped off to some third world hellhole to get blown up by insurgents. This generates no dollars in the U.S. economy.
    Incidentally, the actual military-terror-surveillance spending per year by the U.S. government, broadly defined to include the VA and military retirements and the CIA (which now runs its own private army, Xe, fields global assassination squads, and runs squadrons of missile-equipped drones), is 1.4 trillion dollars per year. If you want to know why America runs an unsustainable deficit, our military spending is the answer. Slash U.S. military spending to some reasonable value, and our deficit vanishes tomorrow.
    Until then, Americans face the prospect of having their medicare and social security benefits cut to support spending for endless unwinnable wars fought with weapons that don’t work.

  9. CoRev

    I love rhw war is “BAD” talk that liberals using revisionist history can make. Her’s just one example from Jonathon: “we chose, Bush/Cheney and the GOP chose to defer the costs of war rather than pay for it. That is immoral: if we’re sending our young men and women off to die and are killing people in other countries, then we should have at least had the moral decency to pay for the war rather than inflict the cost on the future.
    Revisionist? The US has run a debt since ~1865. What happened then to cause that ole debt?
    While claiming the moral high ground with a moral decency argument, what is more moral killing foreigners or US citizens in a war, and failing to pay for it?
    So we have the weak argument of we should pay for our wars, when the reality is that we have yet to pay off the Civil War and every war since.
    Sheesh! What are they teaching today?

  10. Stephen Kriz

    A country that is constantly at war is a poor country. War is an incredibly expensive and wasteful use of resources. Richard Bruce Cheney is a war criminal who should be facing the gallows, and not writing self-aggrandizing books and collecting millions of dollars.

  11. Steven Kopits

    This is, of course, another reason for an incentive system for politicians. Democracies seemingly have a deficit bias, in good times and bad. Indeed, this same bias can be seen with public pensions and other unfunded or off balance sheet liabilities.
    It is not at all clear that voters would approve such spending if they had the choice. For example, $4 trillion in incremental debt represents about $40,000 per household in the US. Trying walking down your block and asking the homeowners there whether they would personally guarantee $40k for either a war or stimulus. I think it would be a hard sell. And yet, these very same homeowners have in fact been signed up for just such a debt (in fact, if they own a home, probably much more).
    Thus, we appear to have a significant disconnect between politicians and the taxpayer–the incentives are not aligned.
    If bonuses were paid to politicians for maximizing GDP growth and minimizing debt, then incentives would be aligned and we could see how important politicians really think various spending initiatives are.
    This would be the critical innovation to address the problem you identify, no?

  12. Jeff

    “There is a time for stimulus (e.g., output 6% below potential) and not (say, when close to potential, as in mid-2003)”
    The real-time output gap in mid-2003 was around 2%. Why is a 2% output gap not worthy of fiscal stimulus?

  13. dilbert dogbert

    “I guess I am just not smart enough to understand. If WWII got us out of the Great Depression…… ”
    Confession is good for the soul. Thanks for that.
    In WW2 the US economy was effectively nationalized. There was the draft, rationing, wage and price controls, war bonds, high taxes and rules about war profiteering. If you tried to change jobs they would draft you.
    The Keynesian’s understood that they had to sterilize the war stimulus. Comprentdo? We sure got “Full Employment”. In this small depression all we are getting is a tee shirt that says: The Banks Got Trillions and All I Got Was A Pink Slip and A Foreclosure Notice.”

  14. Menzie Chinn

    Jeff: Because in 2001, the Bush Administration had already implemented a (very poorly designed) stimulus (really, a give-away to the highest income deciles) called the EGTRRA.

  15. Menzie Chinn

    CoRev: We have run deficits for many years over the history of the Republic, but at certain times, we actually have reduced the debt-to-GDP ratio (e.g., under the Clinton Administration).

  16. GK

    Chris,
    What a fool you are.
    While Saddam was not lovable he probably was not the worst dictator in the world and of course it isn’t our duty to get rid, at vast expense, of dictators who are not nice.
    Debating the cost of the war is a valid point, but to say Saddam was not among the worst is ignorant.
    Oh, and it was US policy since 1998 to remove Saddam. Clinton attacked Saddam in 1998 specifically on account of his WMD programs. This is before you even knew who Dick Cheney was.
    It is amazing that being a leftist on Iraq matters involves pretending that World History began in 2003.

  17. GK

    W.C. Varones,
    Ten years of war involving hundreds of thousands on troops on the far side of the world and we’ve only spent as much as Obama’s first Porkulus?
    Shh!!! Don’t confuse leftists with facts!
    Note how they silent on Obama’s Libya War and Afghanistan escalation.
    In reality, Warfare is one area where ‘who is President’ matters the least. Iraq would have been invaded even if Al Gore was Presdient (Clinton said so himself).
    Next, you will have leftists denying that Hitler was left wing (as all genocidal dictators are – Stalin, Hitler, Pol Pot, Mao, Saddam, Kim Il Sung).

  18. GK

    CoRev,
    Sheesh! What are they teaching today?
    They have substituted education with left-wing indoctrination.
    But the higher-education bubble is popping, as it should.

  19. GK

    Menzie,
    CoRev: We have run deficits for many years over the history of the Republic, but at certain times, we actually have reduced the debt-to-GDP ratio (e.g., under the Clinton Administration).
    I am perfectly happy to return to the Clinton tax rates if we ALSO return to Clinton spending levels (a 33% cut as a % of GDP from now).
    Any takers?
    Funny how no leftist wants the full Clinton equation. Sort of dishonest, eh? Then again, pointing out a leftist’s hypocrisy and selective use of facts does nothing to correct their behavior.

  20. Menzie Chinn

    GK aka Heterosexual, aka David: I think Econbrowser readers should be apprised of the fact that your definition of left-wing encompasses the Nazis as well as me, as you stated in your David guise on August 26, 2010, 3:42PM. One is impelled to ask, what’re the right thinking people to the right of the Nazis?

  21. GK

    Chris,
    While Saddam was not lovable he probably was not the worst dictator in the world and of course it isn’t our duty to get rid, at vast expense, of dictators who are not nice.
    So which dictators of the same time period were worse than Saddam? Remember that Saddam used chemical weapons on his own people, as well as invaded two other countries, Iran and Kuwait, plus paid $25,000 to the families of Palestinian suicide bombers. It is no coincidence that Palestinian suicide bombings have stopped in Israel after 2003.
    Oh, but he is not such a bad guy. He admired Stalin, so he can’t he that bad (in Chrisworld).

  22. GK

    your definition of left-wing encompasses the Nazis as well as me
    But you yourself call yourself a leftist.
    I don’t think you adhere to Nazi principles (i.e. you are not a violent man, probably not even gleeful when Republicans die, unlike some Obama supporters). Rather, I do think you subscribe to revisionism that refuses to admit that Nazi Germany was a leftist regime. Genocide is quite often a tool that leftists use when their policies don’t work. They view humans as on the ‘liability’ side of the ledger, rather than the ‘asset’ side.

  23. Ricardo

    Menzie wrote:
    Ricardo: Clearly the professor was grading on an easy curve.
    LOL! Menzie, this was before I knew enough economics to make a lower grade – before I read Human Action.

  24. Simon van Norden

    I see the comments are reflecting Goodwin’s Law, so I don’t feel quite so guilty about asking a slightly off-topic question.
    Dick Cheney is scheduled to give a book talk tonight in Vancouver, Canada. Some Canadians have been arguing that he should be arrested and charged with violations of the Geneva Conventions. My question is; is this the first time that the former VP has left the US since he left office? Has W.? Would anyone know?

  25. Menzie Chinn

    GK: Actually, I’ve characterized myself as a moderate. I believe in balanced budgets over the business cycle, that agents optimize intertemporally when unconstrained, that taxes and subsidies should be used to internalize externalities.

  26. AS

    Dear Professor Chinn,
    Could you translate your comment below for those of us who are not members of the economics priesthood,
    “…that agents optimize intertemporally when unconstrained, that taxes and subsidies should be used to internalize externalities.”
    Thanks

  27. Gus Satkowski

    Interesting, when ascribing something good perceived to have happened in he mid-late 90s – if one is:

    Left leaning he says: Clinton Administration

    Right leaning, he says: GOP House and Senate

    Though it could equally be said: Internet Bubble

    Also, for what it’s worth, blog commenter names stemming from the same IP address do not mean they originate from the same person. For example, “GK”, “Heterosexual”, and “David” may very well may be the same person, but assuming such to be true and accusing a commenter of attempting this “guise” smacks a bit hypocritical considering one’s concerns for the privacy attacks on William Cronon.

  28. Menzie Chinn

    Gus Satkowski: Yes, I understand that comments coming from the same IP are not necessarily from the same individual. I made that mistake once, and to my knowledge have not repeated. Here I have additional information that you do not have that they are indeed the same individual. Thank you for your deeply felt concern, however.

    I would note that Professor Cronon’s case was different (he was being threatened with prosecution), while in this case, nothing more than accountability is threatened. Should we be afraid of being reminded of what one wrote, even when in all cases remaining anonymous?

  29. Bruce

    The US spends 10-11% of private GDP and 15% of wages on imperial wars for oil. A significant share of US industrial activity is related to war and secondary and ancillary war- and security-related production and services.
    Spending for war, household debt service, and medical services accounts for an equivalent of 50% of private GDP. Add in gov’t spending (less war and public medical services), and the total spending for gov’t, war, medical services, and debt service is over half of GDP and more than 80% equivalent of private GDP.
    BTW, fascism was defined by Mussolini as the combining of the largest firms with the state to achieve the largest scale efficiencies possible in terms of production, planning, and military expansionism to secure resources beyond the homeland. The Nazi regime and Japanese imperialists certainly adopted this system well to disastrous results for the world and to the Germans and Japanese in the 1930s-40s.
    The Anglo-American imperial trade regime today puts the Nazis, fascisti, Japanese imperialist, and Stalinist militarist imperialist Soviets to shame in terms of scale of military, industrial, commercial, financial, cultural, and geopolitical expansionism around the globe.
    The Anglo-American oil empire is the first and so far only truly global empire the world has ever known, and we owe (owed, past tense) it in large part to abundant supplies of cheap crude oil
    But the cheap oil is gone, growth is no longer possible, and thus the Anglo-American imperial trade regime is likewise no longer viable, nor are the neo-imperial/neo-colonial cheap labor and resource colonies and client states in China-Asia, Africa, the Middle East, and the Americas.
    The end of the Oil Age means the end of growth and the end of Anglo-American empire. Now the post-Oil Age, post-imperial epoch begins.

  30. Gus Satkowski

    Menzie Chinn: No one afraid here. Perhaps you referring to my comment of 9/9/2010, 11:55pm:

    “Wow, Menzie. What a shameless, disingenuous, deceitful, and epic failure of integrity, though perhaps a stunning propaganda piece. Academics should be disheartened by this partisan stunt in your suggesting there is no “ever-expanding” government sector. It’s one thing to be frustrated by conservative and libertarian philosophies on the role and size of government. But if you seriously do not understand why the data you presented here in no manner supports your claim, you have no business claiming authority on this subject and do a tremendous disservice to economics and logic in general.”

    I’ll let the readers go back and review the discourse there. You have already repeated it once before, so this should help you save some time.

    By the way, since you characterize yourself a moderate, please let everyone know how you are doing with: “If I can find similarly misguided views prevailing in the other party, surely I will mention it. [Posted by: Menzie Chinn at March 27, 2011 04:53 PM].

  31. 2slugbaits

    mcclaren Now consider the same factory producing M1A1 Abrams tanks. The tanks get shipped off to some third world hellhole to get blown up by insurgents. This generates no dollars in the U.S. economy.
    While I agree with your broader point, I do have a quibble. Strictly speaking Abrams tanks for foreign countries are mainly built at the General Dynamics Land Systems tank plant in Egypt. There is an M1A2 (pre-SEP version) built there. The other GDLS tank plant in Lima, OH is dedicated to converting US Army M1A1 and M1A2-SEP tanks. The GDLS management folks earn income from the Egypt plant that is scored as gross national income.
    One of the first studies I did for the Army was to look at price and income elasticities of demand for foreign military sales across various weapon system categories (e.g., small arms, aircraft, tactical, etc.). It is possible to corner some rents from tin horn dictators.
    There is a good case to be made for increasing operations & maintenance dollars (but not procurement appropriation dollars for new end items) as part of a fiscal stimulus program. The bad news about the Iraq war is that it degraded a lot of equipment. The sand is more like talcom powder. The sand literally turns to glass inside the “hot section” of turbine engines. So that’s the bad news. The good news is that all that potential workload should be thought of as “shovel ready” projects. The even better news is that spending a lot of money today to refurbish and remanufacture tired iron would allow us the luxury of not having to spend as much money on defense in the outyears when (presumably) the economy is at full employment and you really need to cut back on govt spending.

  32. Gus Satkowski

    Menzie Chinn: Hence the wording “perhaps” when I suggested you may have been referring to my comment. In spite of your nebulous use of “one”, since I last used it to refer to you, “perhaps” you continued the same line of reasoning in applying it to me.

    So perhaps you can be less nebulous. Everything does not have to be about your politics. It still would be quite interesting for you to explain how you can reconcile characterizing yourself a moderate with: “If I can find similarly misguided views prevailing in the other party, surely I will mention it.” [Posted by: Menzie Chinn at March 27, 2011 04:53 PM]

  33. Menzie Chinn

    Gus Satkowski: Stimulus should’ve been bigger. Tax cuts for the +$250K households should not have been extended. Ozone rule shouldn’t have been delayed. Administration should have pushed harder for setting up cap-and-trade regime. Those are criticisms of the current Administration, and at least two of them are in multiple blogposts. Not that I think they will mitigate your determination to call me a partisan. Here’s my take; if one criticized the South in 1861 for adhering to their peculiar institution, more than criticizing the North, I think one could still be called a moderate. I suspect you would’ve called such a person a partisan.

  34. colonelmoore

    The left-right dichotomy is not very successful at describing fascism. Fascism in Germany and Italy attacked both communism and capitalism as internationalist philosophies. Fascist economics is called corporatism, in which the government controls both companies and unions, with the aim of having them serve the aims of the state.
    Roosevelt’s economics had a strong corporatist bent, most notably the NRA. His personal letters reveal that he was impressed by what Mussolini was doing and said that he kept in close touch with that “admirable gentleman.”
    Mussolini denounced supercapitalism for causing the “standardization of humankind” and for causing excessive consumption. Mussolini claimed that at the stage of supercapitalism “[it] is then that a capitalist enterprise, when difficulties arise, throws itself like a dead weight into the state’s arms. It is then that state intervention begins and becomes more necessary. It is then that those who once ignored the state now seek it out anxiously.”
    It is unfortunate that one cannot have a rational discussion about fascist economic philosophy due to the war and the Holocaust.
    ]

  35. Gus Satkowski

    Menzie Chinn: You mention a preference for fiscal, tax, and environmental policies that are disproportionately held by self proclaimed Keynesians and Liberals and denounced by those on the right. Perhaps you are spot on in your assessment, but left and right are relative things that are compared to current, not future political opinions. There are not too many people farther left leaning than those who hold the policy views you prefer. You seem to be saying that the Obama administration is not left leaning enough. If he is not leaning left or a moderate, does this align him with the GOP? How else is one a moderate?

    I’m not sure exactly what percent of people in 1861 criticized the institution to which you refer. Right or wrong, if it was somewhere in between commonly held left and right views, it would have been a moderate view. Certainly a person of the time had views on policies in the North as well. It doesn’t seem your views fall in between commonly held views of the left and right. Your fiscal and environmental preferences may be best, and may be considered moderate, even common sense views at some date in the future as with some historical partisans, but they are not middle of the road today.

  36. colonelmoore

    I would prefer if people stopped trying to claim the great middle, since as far as I am concerned the middle is a muddle. One should have a crisply defined philosophy, especially when the world is so sharply divided between competing philosophies of government.
    I am curious how Prof. Chinn would criticize the North over its insistence that the South give up its peculiar institution. Is there an argument to be had? I think that to be a moderate at such a time would be as bad as being a moderate German in 1939. Aren’t the moderate Germans, the good people who did not actively oppose the government, the ones most criticized today?
    Some synonyms for conservative are prudent, cautious, careful. Liberal on the other hand can mean generous, caring, and so forth. So why would someone wish to hide one’s light under a bushel?
    Prof. Chinn opposes the Administration on the whole for not being liberal enough, judging by the list of things he criticizes them for. I do find it strange that he portrays himself as a moderate. Perhaps he thinks that by casting himself as a moderate he can cast his oppponents as extremists.
    But I would agree that he is nonpartisan in his criticisms, which tend to be that the federal government isn’t activist enough in trying to use its resources and powers to have a positive effect on the economy, the environment, and so forth.

  37. Menzie Chinn

    Gus Satkowski: Only people with an extremely short memory think balanced budgets over the business cycle was a “liberal” view, or that “cap and trade” was originally propounded by liberals. It’s just that some conservatives have gone to strange land of denial over global warming.

  38. economer

    In your so-called advanced country, government spending on defense is 10 times higher than the government spending on education. And you are wondering why the economy doesn’t grow? …poor education, awful leaders who lack ingenuity!
    Anyway, to answer the question on WW II: after WW II stock of capital was massively depleted in Eruope, Japan and partly in the US and it is often hypothesized that the growth miracles of the 50-70 was in part due to capital accumulation (global demand for investment). The next phase of growth was obviously due to the IT revolution in the 80s. And as the economy needed a new push (perhaps in new energy technologies) Bush took the country to a ridiculous war so he can get re-elected, the government would go bankrupt and to make sure the long-run Republican party plan of having a small government with near-zero tax rates comes to reality.
    Democrats are just as much at fault in this as Republicans, simply for failing to provide a better alternative.
    And finally, I see posters using “lefty” as a derogatory term. Explain if being a lefty or a socialist is so bad then why are countries like Sweden, Norway and Canada doing so well in Human Development Index rankings?
    THINK then type, it won’t hurt!

  39. GK

    colonel moore,
    I do find it strange that he portrays himself as a moderate. Perhaps he thinks that by casting himself as a moderate he can cast his oppponents as extremists.
    Yes. That is Leftism 101.
    Now, Menzie is a harmless academic, unlike, say Bill Ayers or the people who beat up Kenneth Gladney for being a black Tea Partier.
    However, Menzie is (was?) unusually pro-Obama for a long time. This is not moderate.

  40. C Thomson

    Wow, Professor Chin – great segue into racial politics with the 1861 reference! Some things, like Madison think, never change.
    Just when I wonder if there are still laughs to be had in wonkery, this blog cheers me up. Thanks, everyone.

  41. CoRev

    Menzie answers: “CoRev: We have run deficits for many years over the history of the Republic, but at certain times, we actually have reduced the debt-to-GDP ratio (e.g., under the Clinton Administration).”
    Your proof is that we are not comparing two mathematical constants? That they change, and therefore their relationships change? WOW!!!!
    Also, your Global Warming ignorance is amazing. Saying: “It’s just that some conservatives have gone to strange land of denial over global warming.” Clearly politicizes a scientific issue. Its politicization is the core/underpinnings of the difference in the arguments.
    Your current GW “denial” argument is akin to the ratio comment above, no reality-based evidence, just more arrogance, sarcasm and blind belief in unsupported articles (scientific and mostly otherwise.)
    When you say others are in denial of Global Warming theory, to what specifically do you believe they are in denial? The globe warms (and cools)? There are anthropogenic impacts? Temperatures are part of climate?
    Or are you claiming those who disagree with your accepted/proposed solutions are in denial of their efficacy to change climate?
    Y’ano, just a little bit of detail might make for an interesting discussion, but the generalities (GDP ratio and denial of GW) you are presenting are meaningless. Try actually discussing a real issue.
    CoRev, (just another conservative sitting on the political sideline watching liberal/progressive heads explode as the wheels come off their bus of political beliefs)

  42. Gus Satkowski

    Menzie Chinn: You said:

    “Stimulus should’ve been bigger. Tax cuts for the +$250K households should not have been extended. Ozone rule shouldn’t have been delayed. Administration should have pushed harder for setting up cap-and-trade regime.”

    Depending on which survey one looks at, most of these have a majority of popular support, but because they are heavily favored by those identifying as democrats. Republican support is almost always in the minority. The left of the democratic party has been upset at Obama for not supporting the policies you favor.

  43. CoRev

    economer, your examples, Sweden, Norway and Canada, have one common theme, excess raw resources, that they are marketing. That, in turn, allows them to spend some what more freely on their populace than the rest of the world. There are other similar rich raw resourced examples in the world that are not Social Democracies. So??????
    Please think before typing.

  44. Menzie Chinn

    C Thomson: The “peculiar institution” would have been indefensible, regardless of who was being enslaved — so I don’t think of it as being a racial issue. Just like your comment (March 17, 2011): “If you can’t feed ‘em, Don’t breed ‘em.” is not necessarily a class-based (but certainly illustrates an interesting world view).

  45. C Thomson

    ‘Humankind cannot bear very much reality.’
    - T.S. Eliot
    Always has particular application to the left side of the groves of academe with regard to the human condition, such as high school drop-outs or the US race industry. Or just the nature of people.

  46. Menzie Chinn

    C Thomson: But economists of pretty much any stripe believe that incentives (relative prices) matter, so rather than merely berating people, we think of taxes and subsidies.

  47. colonelmoore

    I like economer because he is unapologetically proud of his “lefty” stance.
    Economer, you might want to investigate Canada further, which since its Liberal government began the process in the 1990s has been busy decentralizing, getting rid of government workers and privatizing. This happened before Gingrich and the GOP won. Here is the story:
    http://mercatus.org/sites/default/files/publication/Canada%27s%20Budget%20Triumph.WP__0.pdf
    As for Canada’s universal healthcare that too is changing. Their Supreme Court declared Quebec’s single payer healthcare system unconstitutional, saying that there is a right to seek private healthcare services outside the single payer system. So the process of privatization is taking place there too, albeit through the agency of the courts.

  48. C Thomson

    So, Professor Chinn, who is berating whom for suggesting paying for women on food stamps or under the poverty line to be sterilized after two live births? Sounds like a subsidy. Might even make Head Start workable. Surely economists can argue the point? Numbers are involved.
    Broader point. Judgements are implicit in all taxes, subsidies, views on the human condition, thoughts on string theory, whatever. Anyone working at the chalk face in Madison is likely to be left of center so they have a leftish take on the world and leftish judgements. We accept that; its part of the fun.
    Economics isn’t a science so why pretend to be a ‘moderate’ – whatever that means? Each side lines up its own economists to suit its case. Time sorts out who was right. Or at least who won.

  49. economer

    oh yea you are right! I have no idea Canada was a such a resource-based economy… very much comparable to countries like Saudi Arabia, Iran, Zambia etc.
    Thank you for opening up my eyes fellows!
    GDP Decomposition as of 2010, partial:
    75 bil mining/gas
    74 bil construction
    160 bil manufacturing
    76 bil retail trade
    260 bil finance
    83 bil healthcare/social assistance
    75 bil public admin

  50. economer

    @ Chinn
    You are not clear on your point. Canada is moving towards more privatization… ok… and? Are you suggesting there that Canada is not more socialist than the US? (the US is obviously socialist to some degree with medicare, a welfare system etc.)
    And what does being “lefty” mean? I believe in private markets but also believe in a social safety net which includes universal health care, social unemployment services/benefits, welfare and food stamp for those below the poverty line. I think certain taxes are discretionary but not most are. Taxation and regulations are absolutely detrimental for a healthy market-based economy. If you think otherwise then you can convince me using examples of the recent 2008 financial melt-down.
    So am I a “lefty” for being pro-tax and regulation and a s social safety-net?
    or am I a “righty” for being pro free markets and private institutions?
    The days of seeing the world black and white are way over. In case you didn’t know the cold war ended in around 1989. Move with time. Prejudice will only make you blind and irrational in today’s world.

  51. colonelmoore

    Economer,
    I will try to keep answers short by omitting the backup for my statements.
    I see posters using “lefty” as a derogatory term.
    I was not intending to be derogatory. I am not going to sweat what you call yourself.
    Canada is moving towards more privatization… ok… and?
    I was responding to this:
    Explain if being a lefty or a socialist is so bad then why are countries like Sweden, Norway and Canada doing so well in Human Development Index rankings?
    Canada has moved far away from what I would call socialist. The fact that it is doing well in human development rankings tells me that there is not such a strong correlation between human development and the amount of government spending on human development.
    I have a personal story that deals with universal healthcare in Canada. I will give you a hint. The ruling of the Supreme Court of Canada saying that universal access to waiting lists is not universal healthcare was “dead” on. I’ll give you another hint about Canadian healthcare. There is a reason why Toronto was the only place in North America where SARS took root.
    In general schemes such as this are coercive and lead to serious problems that often make the solution worse than the problem they were trying to cure. There is nothing “free” about such markets.
    or am I a “righty” for being pro free markets and private institutions?
    The word “righty” covers a lot of territory. I am not a libertarian. I believe in careful, well targeted regulation that does not promote large increases in government power and spending. I believe that much of the recent attempts at regulation has been misguided and therefore will not solve the problems it attempts to solve and will cause real harm. If you want to know what I think of the financial crash, search on my moniker here: http://www.econbrowser.com/archives/2011/09/lost_decadesthe.html
    and skip over my comments about how money is created and destroyed.

  52. westslope

    The USA is bankrolling an on-going demographic flooding or ethnic cleansing in what remains of the occupied Palestinian mandate. From the failure of the obviously doomed Oslo Peace Accords, one can draw almost a straight line to the Sept. 11 blowback in which low-budget, bumbling anti-American terrorists succeeded beyond their wildest dreams.

    As a result of the on-going demographic flooding and ethnic cleansing in occupied Palestine by an Israeli state receiving 3 to $4 billion a year in mostly military aid form the USA, modest numbers of Americans have died in New York City, in Iraq, and
    Americans will continue to die in Afghanistan.

    Despite the high kill ratios, Israelis are still dying but the willingness of Israelis to kill their citizens for territorial expansion makes some kind of sense, though the near-term economic costs for Israel are enormous. What I don’t fully understand is the willingness of Americans to kill their citizens in the support of this people displacing project. Is making the desert bloom all that important?

    The USA is now the premier international terrorist organization based on civilian body count. But instead of targeting the civilian populations of industrial superpower enemies as was the case in WW II, the USA is running after a dysfunctional resource-cursed society like Iraq or righteously killing primitive hill people in Afghanistan and Pakistan.

    Saddam Hussein offered a small cash compensation to the families of Palestinian suicide terrorists. He was one of the few to maintain an anti-western imperialism discourse. Was it worth invading an occupying Iraq in order to support the on-going ethnic cleansing/demographic flooding of the territories taken in 1967?

    How could Herr Paul Krugman be so vocally critical of the invasion of Iraq but never once mention Israel? Why did so-called faithful ally Israel fail to counsel the USA to avoid invading and occupying Iraq?

    Or is this simply American exceptionalism at work? Will nothing change until US hegemony is knocked down to a small fraction of its former glory?

  53. GK

    Anyway, to educate the rest :
    The word Nazi is the Anglicized version of the German NSDAP (National Sozialistische Deutsche Arbeiter Partei) – National Socialist German Worker’s Party. I can’t think of any political organization with the words “Socialist” and/or “Worker’s” that inhabits the right side of the political spectrum.
    So Nazi Germany was left wing.

  54. GK

    Why did so-called faithful ally Israel fail to counsel the USA to avoid invading and occupying Iraq?
    Israel benefited immensely from the removal of Saddam.
    Remember that Saddam was paying $25,000 to Palestinian families who send a child off to be a suicide bomber. This was going on well into 2002, and notice how Palestinian suicide bombings virtually stopped after 2004.
    He also fired Scuds at Isreal before, and financed a lot of the 1982 war against Isreal.

  55. colonelmoore

    Westslope, you are right about 9/11. Osama stated clearly that it was Israel that inspired him to attack the USA. Japanese history states that the US oil blockade was what prompted the attack on Pearl Harbor. It is commonly held that the Versailles Treaty inspired Hitler’s rise.
    So in the end all wars could be called wars of choice, since choices were made by our side that the attackers found justification in.
    But the question arises, if that choice were not made would there be something else? Why after the Spanish withdrew from Iraq does Al Qaeda keep insisting on the return of the Caliphate to Andelusia?

  56. Menzie Chinn

    GK: Ja, wir verstehen was bedeutet “Nazi”; aber wenn mann sagt “compassionate conservatism”, meinen Sie wirklich “compassionate conservatism”? (Excuse the grammatical errors, but that’s what I remember from high school German.).

  57. Troy

    I guess I am just not smart enough to understand. If WWII got us out of the Great Depression because of massive Keynesian spending then why would massive military spending on the wars in Iraq and Afghanistan, and now the additional cost of our war with Pakistan, Libya, and Yemen, not bring prosperity?
    WW2 gave us transcontinental 4-engine aircraft, jet engines, radar, radio improvements, nuclear power, Operations Research, tens of millions of Americans getting OJT in myriad fields, the list is long and full of significant tech and social advances.
    Bush’s wars have given us jack.
    WW2 also displaced the UK and France from owning the world, putting the US and its multinationals in the catbird seat of international finance and capital deployment, especially in the mideast, a formerly British domain.
    So this is what you didn’t understand from WW2, plus of course the advantage of controlling the reinvestment into all the first-world economies destroyed by the war.

Comments are closed.