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Over the past two days, with my posts and your comments, we concluded that voters can't tell which candidate for president of the United States would be the better choice for growing the economy. I actually learned quite a bit through the comments.


My favorite comment was from Tigerfan who said, "When McCain says he doesn't understand economics, people seem to infer he must be an idiot. In fact economics (real economics, not the nonsense you get on talk shows and business hours) is very, very difficult and involves a great deal of complex math. They don't hand out Nobel Prizes for knitting after all."


That summed it up nicely. Our real choice is between two candidates who don't understand economics. And they both want to govern a country full of people who also don't understand economics while thinking they do. That makes the old, senile guy the only person in this scenario that isn't deluded or lying. He tells you up front that he doesn't understand economics.


This made me question my assumptions about the cost of the war in Iraq. Common wisdom is that Obama would pull American forces out of Iraq quicker than McCain prefers, thereby saving a few trillion dollars. But is that how you estimate the cost difference between the two candidate's positions on Iraq?


I think you have to do an "expected value" calculation. In other words, you would value a 50% chance of spending a hundred dollars as if it were fifty dollars. With so many unknowns, that is the only rational approach.


So if, for example, you think the realities in Iraq are that Obama is only 20% likely to draw down troops faster than McCain, you have to value the potential savings as only 20% as large as they could be. That's still a lot, but 200 billion isn't a trillion.


Second, you have to add an "insurance" value to McCain's approach of keeping relatively more forces in the area for a relatively longer time. There is a non-zero chance that having a robust base in the area, and a war hawk as president, would prevent future terrorist threats to the homeland. That has to be worth something. For example, if you think McCain's approach has a 1% chance of better protecting against an attack that would seriously damage the economy of the United States you would calculate the value of staying in Iraq at 1% of that potential destruction. That's a lot.


But you have to balance that theoretical benefit against the "making things worse" aspect of keeping military force in Iraq. Would a major long-term military presence just give the terrorists more reasons to attack the homeland? That depends if you think terrorists could hate the United States less as long as the U.S. supports Israel, which both Obama and McCain do. And of course the U.S. will probably never leave Afghanistan. So I think you have to assume the terrorists' incentive to attack America is permanently pinned at the maximum level no matter what happens with bases in Iraq. From an economics basis, the "might hate us more" element probably has zero value.


In addition, you have to consider the non-zero chance that a long-term American base in Iraq would support the fledgling wannabe democracy long enough (say fifty years) for a true democracy to emerge and become a model for other countries in the region. What is it worth to the United States to slowly "infect" nearby Iran and Syria with democracy? It seems like a lot.

You also have to factor in the economic stimulus of all the war spending. As much as you might not like boosting the fortunes of defense-related companies, that's a big part of the American economy. Cutting a dollar from the defense budget doesn't mean you have an extra dollar to reduce the deficit. When you take that dollar out of the economy, it can't get passed around to generate income taxes and sales taxes. Maybe you ultimately net ten cents in government savings by cutting defense by a dollar. I don't know the real number, but it is far less than a dollar.


The budget impact of the near term clearly favors Obama and his get-out-faster approach. The economics of the long term are unclear. McCain's approach is more of an insurance model; pay now so maybe you don't get in bigger trouble later.

I wonder if McCain's supporters have more insurance than Obama supporters. That would be an interesting poll. And I'll bet McCain's supporters own more stock in defense companies, which is in itself a form of insurance.

 
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Jun 20, 2008
Its nice to see all these lengthy comments about something that nobody really understands.
Pity don't have the patience to read them all.
 
 
Jun 20, 2008
No man's life, liberty, or property is safe while the legislature is in session.
-- Judge Gideon J. Tucker, 1866


It's like choosing between liver and onions or grits for supper. The only thing you can do is go with the one you least hate.
 
 
-3 Rank Up Rank Down
Jun 20, 2008
Its interesting to notice that Scott commented on 'Real Live Girl's post by mentioning her, but didn't mention the user ID for the person whose post he commented on next. Looks like the 'Girl' in her user ID got him excited enough to give her a special mention in his post. Lol, what a dork. Just like Dilbert.
 
 
-1 Rank Up Rank Down
Jun 20, 2008
It is easy to differentiate between the use of "democratic" in the phrases democratic process and the Democratic congress. Notice the capital letter? The word "democrat" is a noun, not an adjective. Just because President Bush is grammatically challenged doesn't mean it is correct to use it that way.

Of course, you can argue that usage is changing, and noun modifying nouns isn't bad grammar (see "shoe store" and "school bus") but don't argue that it is an adjective or that it always has been proper to do it and everyone else is wrong when they say "Democratic Congress."

Here, for a start on your quest for grammar purity, for please look here: http://en.wikipedia.org/wiki/Democrat_Party_(phrase)
 
 
Jun 20, 2008
My brain hurts...
 
 
-2 Rank Up Rank Down
Jun 20, 2008
Your ability to take hypotheticals and apply them to things to help your readers think about things in a light not otherwise considered is nice, but in this scenario, you have to give McCain so much credit and Obama so little, just so they can somehow tie. There comes a time where Occam's razor prevails, and further speculation is like saying "what would happen if someone won the lottery and got hit by lightning on the way to the bank... in a parallel universe?"
 
 
Jun 20, 2008
While it's true a dollar taken from war spending isn't automatically re-assigned to some other portion of the economy, it's helpful to remember that dollar came from somewhere. See "Ten Recurring Economic Fallacies: Myth #2"

http://mises.org/story/1568
 
 
Jun 19, 2008
I do apologize for not talking about the economy (like McCain, I find it WAY too confusing, though I am trying to figure stuff out). I just was a bit confused by something odd that happened when I viewed the blog. It seems to be displaying posts in reverse chronological order, which means I was stuck trying to figure out where the recent blog had gone, when all the new posts were at the bottom of the page. Could somebody please tell me why this is and help me set it back, if they know?

Thank you.
 
 
Jun 19, 2008
Pursuing war in any form, declared or undeclared, is nasty business and should not be entered into lightly but with serious forethought and trepidation. Democracy espousing is tricky as it depends on the historical setting and social environment of the target. Predicting the sum total of the risk-rewards of any foreign policy is at best crap shoot.

Overall economic growth over time has almost always followed a major war for the combatants. Birth rates skyrocket after the cataclism and populations soar to the point of overcrowding. A cold view but true none the less.

The War On Terrorism is this generations Cold War, one in which many of us lived through for over half a century. This new terrible struggle is now in the hands of the new generation. I wish our country and them the best.

Humbleness, self-depreciating humor, a proven character and an admission they do not have all the answers is much more appealing than a pontificate espousing a Utopian world based on the warm and fuzzies.

 
 
Jun 19, 2008
I think McCain will likely be better for the economy is he is less likely to get anything done with a Democratic Congress than Obama.

I don't think either one could (or would be likely to) do much positive for the economy - but both could do much harm. That leaves the calculation as who would be able to get less done.
 
 
+5 Rank Up Rank Down
Jun 19, 2008
While I don't understand all of the complexities of our economic system, there is one physics concept to consider. Parasitic drag. The parasites are the IRS. This country spends billions of dollars on IRS employees and accountants, and needless meetings figuring out how to avoid them. The US taxes business at one of the highest rates in the world. No wonder so many corporations are abandoning ship. And both Obama and McCain are sold on this "corporate greed" crap. I like wealthy guys. I don't know anybody who has a job that wasn't given to them by a rich guy or a profitable corporation. Two words for ya. FAIR TAX. Read the books, don't listen to the talking heads who make a living off of the lobbyists.

The only intelligent comment on the economy I have heard from either candidate is McCain's statement about earmarks. Congressmen and senators spend BILLIONS of dollars not on what the government needs, but what people in their district or state want to sell. It is criminal and needs to be stopped.
 
 
Jun 19, 2008
*** "And to those who said, "No blood for oil," well, you got your wish. Congratulations. I hope you're enjoying the cost of filling your tank." ***

I'm not "enjoying" it, per se, but it would be worth paying $10 a gallon if it meant that thousands of people weren't dying....(at least, it would according to my worldview....and it would push us to IMMEDIATELY look for a new source of fuel...) Those who condemn the "no blood for oil" crowd are quick to invoke the we're-there-to-prevent-terrorists-from-taking-lives argument when challenged. (FYI, I'm not attacking you, Phantom II - I enjoy your posts! I'm just commenting on the general statement and sentiment you mentioned.)

And on a broader note about some of the comments, I'm still kind of amazed that people are still connecting the War in Iraq with keeping us safe from terrorism...the government's own 9/11 commission report showed that 15 of the 19 hijackers were from Saudi Arabia, and the others were from Lebanon, Egypt, and the U.A.E.

Just some thoughts.
 
 
Jun 19, 2008
Your analysis leaves out other important parts of the equation. What is the cost in raw dollars and economic impact to the country of another significant terrorist attack? Not to mention the personal tragedies and the loss of life.

Here's what one analysis (Robert Looney of the Center for Contemporary Conflict) said in part about the economic costs of 9/11, which on its face was a relatively small attack (three buildings, four planes, 3,000 lives):

" Lower Manhattan lost approximately 30 percent of its office space and a number of businesses ceased to exist. Close to 200,000 jobs were destroyed or relocated out of New York City, at least temporarily. The destruction of physical assets was estimated in the national accounts to amount to $14 billion for private businesses, $1.5 billion for state and local government enterprises and $0.7 billion for federal enterprises. Rescue, cleanup and related costs have been estimated to amount to at least $11 billion for a total direct cost of $27.2 billion.

"Immediately after the attacks, leading forecast services sharply revised downward their projections of economic activity. The consensus forecast for U.S. real GDP growth was instantly downgraded by 0.5 percentage points for 2001 and 1.2 percentage points for 2002. The implied projected cumulative loss in national income through the end of 2003 amounted to 5 percentage points of annual GDP, or half a trillion dollars. . . Overall however the short-term adverse economic impact of the attacks was far less than feared initially, thanks in large part to good economic crisis management.

He goes on to say that the medium effects were even more costly, listing a number of areas where costs were incurred or revenues lost. He then says, "While it is too early to say with any precision, the medium term costs to the economy may be considerable. The shrinkage of terrorism related insurance coverage may have a detrimental impact on investment as lenders become wary of greater potential risks, although there is no strong evidence yet of such a pattern. While providing a much needed short-run stimulus to the economy, the increased levels of fiscal deficits stemming from the acceleration in defense expenditures may, in the medium-to-longer term, retard growth by increasing interest rates and thus reducing private capital formation and productivity." He follows with an analysis of the long-term impacts (if you're interested in reading the whole article, here's the URL: http://www.ccc.nps.navy.mil/rsepResources/si/aug02/homeland.asp)

Now, consider one fact: we haven't been hit by a terrorist attack since 9/11. One pretty good theory is because al-Qaeda has been tied up in Iraq and Afghanistan, and agressive action by the US to shut down their money supplies have proven effective.

Now consider the cost in lives, property and impact to the economy of a really major terrorist attack, say a nuclear or biological weapon being released in a major US city. Not to mention the impact on the world economy. The US GDP is around $14 trillion annually. If another terrorist attack hit that by just five percent per year for five years, we're talking $3.5 trillion just in US economic impact. And it probably would be a lot more than that. The world economy (excluding the US) is about $41 trillion - think of the impact of a 5% hit on that. Think of the unemployment, the impact on social services, the human impact, and you'll get the idea that it may not be a good idea to think of the war just in terms of its cost.

Also, take the figures on the cost of the war with a grain of salt. They include fixed costs (such as military salaries, non-combat equipment, etc.) that would have to be paid anyway to maintain our armed forces, and variable costs, which are attributable directly to the war in Iraq and Afghanistan. Those who oppose the war on an economic basis tend to lump all these sums together, inflating them beyond their real cost. And to those who said, "No blood for oil," well, you got your wish. Congratulations. I hope you're enjoying the cost of filling your tank.
 
 
0 Rank Up Rank Down
Jun 19, 2008
>>I'm sure it's less than a dollar, but 90 cents??? How much do you think the defense contract companies pay in taxes?

I'm pretty sure it's a lot, the poor dollar is taxed every time it changes hands. This is not limited to defense companies, think about it:

The companies pay taxes; then they pay you, the employee; you pay the IRS, then you go shopping, pay sales tax, the retailer pays taxes and we're back to square one. How many times does that poor dollar get taxed? Indefinitely for as long as it circulates... Too bad I don't have an economic background to be able to grasp this apparent paradox...
 
 
+1 Rank Up Rank Down
Jun 19, 2008
"Cutting a dollar from the defense budget doesn't mean you have an extra dollar to reduce the deficit. "
I think this could also work the other way. You say that it would turn out to be less than a dollar. I think it might be more if you consider that the US has a lot of debts. If the debts increase less by cutting the military budget you decrease debts and the US has to pay less debts. (But like Obama and MCCain I'm also not an economist.)
 
 
Jun 19, 2008
I just wanted to add that I am an expert on economics. How so? If there were a theory that worked, well, we'd go to equations instead of "expert" opinions. Right now we have the occasional Boyle's or Ohm's Law but no comprehensive theory. So why do my opinions make me an expert? Simple: I am tall and have great hair.
QED.
 
 
Jun 19, 2008
The closest comparison to the War on Terror is the Cold War, but the two are completely different. Discussion about future policy impacts has to be based on the result of past experiences and we are in uncharted territory. There is a chance that Obama's withdrawing of troops could cause chaos in Iraq, which would have a negative impact on the US economy, deepening our debt even further. On the other hand, McCain's plan to keep permanent military bases in Iraq might actually increase terrorism by inflaming Muslims around the middle east who see it as further American encroachment. Its not to say that their differences in policy make no difference, we each have our own beliefs as to what the best approach is, but to claim the other side is completely wrong is like saying "I bet my guess is better than yours".

http://www.notthisgod.blogspot.com
 
 
+3 Rank Up Rank Down
Jun 19, 2008
I forget who said it, (maybe Real Live Girl?) but someone astutely observed that much of an economy is based on optimism. Since we are now in a global marketplace, I think it bears pointing out that as far as the war goes, most of the countries of the world (and the United Nations itself) was against the Iraq war in the first place, and the war has seriously strained many of our one-taken-for-granted relations with other large countries and marketplaces. From polls and news stories around the world, and even posts on this blog, we get the feeling that the world is looking at Obama as someone they can embrace in their dealings with us. I think that electing Obama might be a good step towards repair our ties and encouraging an attitude of optimism with other countries and the marketplace in general. This could be the steam-engine we need to get the economy chugging upward.

I don't understand the complexities of economics, but I do understand the simplicity of hope, and this makes sense to me.
 
 
Jun 19, 2008
The whole cutting defense spending by a dollar probably only netting 10 cents of savings is based in simple economics. Don't forget, factors of spending are a lot bigger than just one time spending that dollar.

The government spends money with a defense contractor - they pay taxes. They pay their suppliers, who pay taxes. They pay THEIR suppliers, who pay taxes. Then all of these people pay their employees. This is just one level deep!

Then the workers all pay income taxes too. But more importantly, the employees buy food, cars, go out to eat, pay babysitters, and rent movies from Blockbuster - which stimulates all of those industries as well. Cutting defense spending would derail all of that. Cutting the spending hurts the economy in other areas.

Government spending is a key factor of total GDP, which is the prime driver of our economy. I'm not a big supporter of the war, and think we could spend the government's money better, but like it or not, Scott's right. He may have even been conservative with the 10% savings of cutting a dollar.

 
 
Jun 19, 2008
I suspect that keeping troops in Iraq encourages terrorists. Imagine a scenario:
You're a potential terrorist looking at the recent past in terms of U.S. policy towards terrorism. If you attack the United States, you can not only expect an excellent return on your investment in terms of dead Americans (you get the initial attack, plus lots of U.S. troops involved in attacking back at the nation that harbors wrong-doers, in the President's opinion), but also you have a pretty good chance the U.S. will attack your neighbor and really mess up that country for a long time (this worked out pretty well for the 9/11 terrorists from Saudi Arabia). If you're, say, a Chinese terrorist, or one from Africa, you're probably salivating at the prospect of having North Korea or some other regional power getting whupped by angry neo-cons while you focus on building your economy by poisoning their children.

 
 
 
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