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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 19, 2008
Very compelling arguments, I see why you don't vote. You may actually have made me switch parties. I am now officially apathetic and will no longer vote.
 
 
Jun 19, 2008
I was acknowledged! Which is really great given the other post I made yesterday about more inter-activity and being validated by celebrity.

I am so excited I want to print out the blog and post it on my wall, but the print function doesn't seem to work right. Oh, well.

Nothing pithy or substantive in my comments; you just made my week.
 
 
Jun 19, 2008
jgwilson. the haves might be more willing to be charitable if they didn't feel that they were already doing their part throught the taxes they pay for the benefit of the "poor" I do agree with you that unfortunatly we will probably have to suffer under increased socialism till we wise up.
Phil officer what are you? 5. get a clue. you don't become or stay a great county by letting people in other countries vote for what happens. Our politicians for better or worse affect us a h*** of a lot more than they affect anyone else
 
 
Jun 19, 2008
The world wants Obama. If only the people outside the US could have vote too. It tends to effect us more than you guys.
 
 
Jun 19, 2008
I plan on making up my mind on the weekend before the election based on the scandals that get leaked out just at that last minute. No need to waste time trying to figure out the economics, which you have already pointed out are way too complex for any of us.
 
 
Jun 19, 2008
Scott,

I don't why, but your posting instantly remainded me of this joke:

---------------------------------------------------------
So you want the day off ?
Let's take a moment to look at what you are asking for :
There are 365 days available for work. There are 52 weeks per year, of which you already have two days off each weekend, leaving 261 days available for work.
Since you spend 16 hours each day away from work, that accounts for 170 days. There are 91 days left available for work.
You spend 30 minutes each day on breaks, which account for 23 days each year, leaving 68 days available for work.
You spend one hour a day at lunch, which accounts for another 46 days per year, leaving 22 days available for work.
You spend two days per year on sick leave, leaving 20 days available. You take nine holidays per year, leaving 11 days available for work. And you take 10 days vacation a year, leaving one day available for work.
And--NO WAY--are you going to take that day!
---------------------------------------------------------

 
 
-1 Rank Up Rank Down
Jun 19, 2008
Some cartoonist wrote:
"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."

Got any data to back up that claim? If I had to pull a number out of thin air (or some darker place), I'd say that cutting the defense budget by $1.00 results in over $0.90 of savings. The defense industry is big, but not *that* big.

As for the supposed benefit to national security from staying in Iraq, I'm not convinced. One could just as easily argue that our enemies are emboldened by the fact that our armed forces are bogged down in unwinnable war. Much better to withdraw our troops to their pre-war positions, leaving a sizeable -- but still much smaller -- force in the Persian Gulf region. From the safety of Qatar, for example, they could intervene rapidly to stop a budding Iraqi civil war *and* deter aggression by Iran.

This is the "you kids better play nicely and don't give me a reason to come back in this room!" strategy, and it's *way* cheaper than permanent bases in Iraq.
 
 
0 Rank Up Rank Down
Jun 19, 2008
Similar sentiments here.

http://freakonomics.blogs.nytimes.com/2008/06/18/whats-wrong-with-economists/
 
 
Jun 19, 2008
the big economic problem is that alot of american companies working as contractors oversees for the US government are trying to make as much money they can and according to some documentaries the whole finance is a dark hole where alot of companies get rich over the backs of ppl in the usa.

privatizing the war has made costs ridiculously high and accountabilty is something they sofar could get away from.

cost contracts are not working in favour of any taxpayer but only the companies having those contracts.

economics if you have the right friends like cheney or bush you can make lots of money of the war in iraq

so i wonder if any new president can change the stuff thats been going.
 
 
Jun 19, 2008
Finally a candidate is saying something interesting and relevant!

http://news.yahoo.com/s/ap/20080618/ap_on_el_pr/mccain
 
 
Jun 19, 2008
The problem is not economics, per say. It is monetary philosophy. Socialism vs. Capitalism. Socialist believe that there should not be distinctions between people (e.g. rich vs. poor). Therefore, they seek to distribute the wealth of the "haves" amongst the "have nots" in the name of compasion. Everyone should have just what they need, and no more. This egalitarian view looks great on paper, but there is a problem that socialists do not understand. In order for any society to progress and grow, it requires the tools to do so. Improvements and inventions do not come out of nowhere. It requires investment funds to do the research and development to bring new tools into existance. The only place where these funds exist, is with thoses who have the excess capital to invests. Thus, socialism pulls everyone down to the lowest common denominator, because the funds are not available for improvement. History shows this to occur in socialistic and communistic regimes. China is only prospering now, because they have loosen their laws to allow capitalistic enterprises in selected areas.

Unfortunately, we are experiencing a period right now where the majority of the "haves" have a high degree of greed. Thus, we are not seeing the degree of compassionate charity from the modern day "haves" as we have seen in times previous. They also tend to treat the emplyees underneath them as lower forms of life. This is creating a backlash, and rightfully so, against the "haves". Also, America is developing a taste for entitlements, seeking government to solve its problems. But since our school systems no longer teach critical thinking skills, most of America is being duped by the Socialist into thinking they can have their cake and eat it too. The only candidate who truly understood this is no longer in the race. So the choice is, "How do we survive the coming years until people wake up and smell the coffee?" Neither choice before us is what America really needs. I fear we must fail at socialism for a while, until a leason is learned. God help us.
 
 
Jun 19, 2008
McCain's approach remembers lessons learned after World War II. But I'm not sure democracy by itself would be infectious in that area of the world. Sure our continued military presence ended up working nicely in Germany, Japan, and South Korea - but that's because it also delivered improved standards of living and opportunity.

If we can get a big buy-in in Iraq, (and later Iran, Syria, et al) of an acceptable modified form of democracy that also provides mass availability of air conditioning, medical care, frappacinos, education, and self sufficiency, we'd probably see an eventual return on our dollars. We could gradually scale back our military presence while forming business partnerships, politically and economically moving the country from being an expense to an investment.

Once the majority is enjoying indoor temps in the 70's, hot wings, ice cold beverages and flat-screen TVs, my guess is that they wouldn't want to go back being tribes of overheated underfed stressed-out squabblers isolated in the desert. So, they'd cooperate to prevent any future troublemakers who might pop-up later on in surrounding areas that threaten business and national security here and abroad. The presidential candidate who can articulate how to make that happen, won't need as much insurance.
 
 
Jun 19, 2008
"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."

This misses the point. Yes, the terrorists are irrationally full of hate, but they can only operate effectively when the (mostly rational) population around them shares their hatred. Keeping/withdrawing forces from Iraq isn't to affect the mindset of the terrorists, but the general population who wouldn't normally support terrorism but are definitely not keen on having Iraq occupied, especially when it's done so incompetently.
 
 
+3 Rank Up Rank Down
Jun 19, 2008
Military might is not the best form of insurance, although some minimum military might is always needed. A strong economy and strong political alliances with other countries with strong economies that have some military might is all you really need.

You only need a small military base in Iraq, and I'm sure Obama will leave it in place.
 
 
-1 Rank Up Rank Down
Jun 19, 2008
I guess the blog is getting monotonous with the discussion on who will be the next president. Can we change the topic please!!!!
 
 
Jun 19, 2008
I think you're forgetting the important issue again... who has better hair?
 
 
Jun 19, 2008
Obama is an intelligent person that is willing to speak to America honestly. McCain is someone that has been tortured and is still willing to change his opinion on torture in order to garner favor with voters.
Judging from what I've seen Obama would hire an economist that would be honest with him and McCain would hire a golfing buddy.
 
 
+2 Rank Up Rank Down
Jun 19, 2008
Hi Scott,

Problem with insurance policies is that you never know what you saved if things don't happen. The Iraq base insurance policy you describe is somewhat analogous to the nuclear arms build up during the cold war. Some might argue that our stockpiles saved us from destruction, brought down the great evil empire and led to major technology advances. Others would say it created a paranoid self-destructive world. Viet Nam could also be used as a comparison. We pulled out, (cancelled the insurance policy against the red menace or the domino collapse of SE asia) saved some money and soldier’s lives. Lots of other people died because we left, but maybe just as many would have died if we stayed. Based on our past I would think our presence in Iraq probably is a good insurance policy and is one of the reasons I support McCain.

Btw, I carry earthquake insurance on my house (in MA) and a million dollar bubble on auto insurance.

dsg
 
 
-3 Rank Up Rank Down
Jun 19, 2008
"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." I'd say that was an opinion rather than a fact. I would put the chance at zero.
 
 
+2 Rank Up Rank Down
Jun 19, 2008
I believe you're making a very intresting point. But there's definitely a problem connected to using expected value to evaluate different options. E.g.: would you prefer a 100% chance on 10 dollars or a 0.01% on 1 gaziollion dollars and a 99.99% chance on zero? I'd take the 100% chance over the 0.01% everyday, even though the expected value of the second would indicate that this is the best option. (Unless people would actually ask me every single day - because the avarage payoff would close in on the expected value if you repeat the process often enough.)
 
 
 
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