How we paid for the War on Terror
adamtooze.substack.com
adamtooze.substack.com
[1] https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...
[2] https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
Oh and you forgot the revolving door that exists between the military industrial complex and DC power Center. And how they influence the policy decisions. Our current defence secy for example is a former Rayethonian exec.
https://www.politico.com/magazine/story/2018/02/06/john-bren...
Its bordering on comical the degree to which people will mock this idea while failing to understand it.
https://en.wikipedia.org/wiki/Top_100_Contractors_of_the_U.S...
If it’s true that money motivates rich people to lobby for the option which makes them richer, maybe a high tax rate for war could balance the incentive of profiting from war. Of course, that would never happen in this scenario, because the rich would lobby against it, but it’s still interesting to think about how to incentivize us to stop going to war.
taken from https://en.wikipedia.org/wiki/Gold_standard
plus, whether you could redeem a greenback for gold or not is much less of an issue if the powers that be have already been acting as if the gold was no longer relevant in their policy decisions. that's the reason i point to '33 vs '71. i don't care about monetary exchange formats, but how the system was running.
Now, is that "gold is pegged to a fixed price" or "dollars are convertible to gold at a fixed price" the same as the gold standard? The very first sentence of that Wikipedia article says "A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold." So I would say that yes, by that definition we were still on the gold standard until 1971.
33 was only when direct exchange was killed.
You would be sorely mistaken if you believed that people paid 94% of their income as taxation. The tax code is entirely different today from then.
Yes, because that's a marginal rate, not a effective rate. There's a big difference between the two, that many people are quick to gloss over.
Oftentimes, that happens when it is desired for some people to pay more than they currently are. The entire tax code has changed, though.
On the other hand if you support lower tax rates, it's to your advantage for voters to be misinformed about this. The more people who think their taxes are going up, even though they aren't, the more people are likely to vote against raising the top tax brackets.
Russian, French and Turkish interventionism in the Middle East and Africa are an order of magnitude smaller but they seem to have accomplished more than the US/NATO did in Afghanistan.
The Iraq war is a complicated beast. The Iraqis I know feel the country improved for the better but US foreign policy on Israel-Palestine and warmongering against Iran (most Iraqis are Shia) has eroded whatever goodwill they had after the fall of Saddam.
While it wouldn't be true to say that the US hasn't had "military goals" in Afghanistan, I'd make the claim that these were never really the point. Like most of the defense budget, this has been about enriching a specific sector of the American elite, and by that metric they've succeeded tremendously. In fact, judging from the media reaction to the US leaving the past ten days, they seem to have thought it'd last a lot longer than 20 years.
How does that represent Iraq's wealth being transferred to the military industrial complex? The exact opposite happened. The US lost enormous sums of money and also didn't keep or take Iraq's oil (which is the extreme majority of their national wealth). The US has absolutely nothing economically to show for its ridiculously dumb attempt to nation build influence in Iraq.
If the US wanted a forever stable supply of Iraqi oil, Saddam would have happily arranged that, even at an under the (OPEC) table discount.
China will be by far the biggest economic beneficiary of both the war in Afghanistan and Iraq. They're going to partner with the Taliban and mine the heck out of Afghanistan, and they'll buy a lot of Iraqi oil. So what's the premise, we did both wars at the behest of China, because the US is now the puppet of China? I get it, we did it for China for the oil!
In 2019 Iraq exported $74b of crude. $21b of that went to China, $19b went to India. $6b went to the US.
So the US spent trillions of dollars to secure an annual $6b flow of oil, which could have trivially been secured from Saddam (and a lot more than that)? Nope. That's not why the US invaded Iraq at all.
Wait, that's it??
$74 billion in the grand scheme of things is... not much.
If you'd asked me to guess I'd have expected something like $500 billion or more.
note that the USA's fed can create money by decree.
>The US is the only Western nation with the demographics (population size and age), political will, technological capacity, and economic ability to challenge a surging China or resurgent Russia (which inherited the might of the Soviet Union to build off of) on the world stage.
>How many Americans would change their tone on military spending if China or Russia were calling the shots on world issues? On spreading their views on governance or human rights? Or if the balance of power shifted so much that more nations decided it was time for them to get nuclear weapons too (imagine Saudi Arabia getting nukes...)?
This was written in 2017. Man I would love to hear his assessment as to how the US is doing vs China today. So much has transpired since then.
I’m no apologist for the US, quite the opposite. However if you want a good comparison, compare the how various empires fared in Afghanistan, it’s as close to like-for-like as we will ever get.
The US, Britain and Russia all did miserably. Wasted time, lives and money and they have caused huge harm while losing.
The real question isn't why is it expensive, but why so ineffective?
Bollocks. The amount of productivity of each worker and the primary productivity of the land is finite.
That is The Pot.
Anything that drains that pot results in a poorer country.
It's the new form of trickle-down economics... "Let's print $5T and hand it to defense contractors... eventually we'll all be better off!"
There are definitely forms of mal-investment by government. With $5T we could have built high speed rail and fixed our bridges and airports and still have money left over for a moonshot, like, I don't know, sending humans to mars. Instead we bought nothing and thousands of people are dead.
> The real limit on government spending was not some artificial debt ceiling, or the risk of “running out of money”, but the productive capacity of the economy and the risk of sparking either inflation, or a ruinous multiplication of bottlenecks and dysfunctional backlogs of unmet orders. As Keynes said, we can afford anything we can actually do.
But the discourse about the war (as in your comment) focuses entirely on all the things we could've done with that money, as though building bridges vs bombing people was a binary decision.
It's not. We didn't spend $5T on war and leave our infrastructure crumbling because the war crowded out our capacity to build; we simply have decided, through our politics, not to bother with the latter.
The irony is that MMT has been perceived as a progressive theory to encourage spending on social programs. But progressives are arguing against war using the same austerity economics that conservatives use to justify not spending on said programs. Meanwhile, nothing about MMT is actually left or right; in practice the military-industrial complex in our government is evidence that MMT works.
And as any economist will tell you -- you can print money right up until you can't. And when you realize you can't print anymore money -- it's already too late to course correct without inflicting tremendous misery on real people.
So yes,it very literally reduces our capacity to construct infrastructure at home. Before you you get to the non imaginary budgetary issues.
The "fallacy" this article is trying to combat is econ 101
> That is The Pot.
It's not a pot, its a stream; using the available flow isn't draining it (some uses, in fact, increase the future flow.) There are tradeoffs at the limit between present realized value and future flow rate, but most of the time the actual value is inside rather than at the boundary of the possibilities curve, so you its possible to improve one value without a trade-off in the other (unfortunately, the effects on either axis of an action aren't unambiguously predictable, either, so there is often room for reasonable disagreement about the merits of particular courses of action.)
> It's not a pot, its a stream; using the available flow isn't draining it
WRT PAYGO style government spending this is perfectly accurate.
WRT debt-financed spending it's closer to correct than "The Pot" but still off (spending now doesn't drain the stream, but does reduce future flow for a fixed period of time).
WRT a massive war it distracts from the enormous second and third order effects.
They buy US Treasury bonds. Or oil.
The lowest peak year of total defense (not just war) spending during a war appears to be 1.5% of GDP in 1899 during the Spanish-American War [0]. 3.5% of GDP is nowhere near the lowest total defense spending has ever been.
Secondly, military spending is more than 3.5% GDP. It is only 3.5% if you exclude pension and health benefits due to retired military, interest on past military spending (past as in, last year's) and so on. The real military budget is always underreported to a large extent.
[1] https://www.thebalance.com/u-s-military-budget-components-ch...
But we don't have to imagine a different world. Even with Iran's shortfalls in democracy, their leadership is better on most measures than USA's allies in the region Saudi Arabia, UAE, Israel, etc.
But of course it does. How money is raised and how it is spent are separate issues.
You can say borrowing is ok, or not, for any given level.
But what you can’t do is spend the same money on massive military activity, with little hold over value, and that same money on investments that increase productivity for a generation, like targeted education, research and infrastructure.
Whatever you spend a dollar on, you have “crowded out” the alternative.
And saying well you can borrow more isn’t a valid point. You just have more money, but you are still choosing one thing or another with every dollar.
(In characterizing military activity as not an investment I am not addressing the case of wars that preserved our and our allies freedom, but the disastrous discretionary ones of the new century.)
HOW you spend money is always a trade off, no matter where the money came from.
> It wasn’t pouring money into the sand. Most of the dollars flowed back to America.
Fiat based money (in which currency -- circulating money, is actually debt) works fine when this money is used to build (and maintain?) infrasctucture, markets, industries, which can then "pay back" this debt; which can sustain a society.
The truly sad part, most would agree, is that they'd use this for destructive purposes.
First use fiat-credit to fund a war to break a foreign country and then loan out more credit to pay for rebuilding it. The end result is a transfer of (at least) ownership back to America.
If only someone had informed Zimbabwe that they could have kept on printing because government debts don't matter when you print your own currency.
Anyway, believe whatever you want to believe. Americans who run their personal finances like dollar hegemony will keep them wealthy forever will pay the price in the end.
It doesn't matter what your political slant is or even your economic philosophy. You don't even have to be constrained by your own economy. And even if you were, "your economy" might be so wound-up in the economies of other nations that those other nations end up supplementing your economy enough to pay for the war. Or you can just pillage. In any case, the money always comes from the people; you just have to figure out which people that ended up being.
There is of course the third option: "don't pay for it". In that case, your government (or rulers) are generally doomed, because there is always somebody with money who will see your faltering state as a juicy investment or acquisition. We seem to be in a "peaceful period", as countries like Venezuela still haven't been snapped up; but rest assured that somebody (cough China cough) will be by eventually to pick it up and give it a new coat of paint.
"When the US payment deficit pumps dollars into foreign economies, these banks (have) little option except to buy US Treasury bills and bonds which the Treasury spends on financing an enormous, hostile military build-up to encircle (today's) major dollar-recyclers China, Japan and Arab OPEC oil producers" - essentially a process by which they finance their own endangerment.
From https://www.countercurrents.org/lendman010709.htm
Additional links:
https://mronline.org/2021/02/09/michael-hudson-changes-in-su...
[1] https://sec.report/Document/0001582202-21-000003/?__cf_chl_j...
no one would deny that in an economy operating at 100 percent full capacity - as in the kind of European war economy that Keynes analyzed in the 1940s - crowding out may occur. But that is a highly unusual state of affairs and is precisely not what a progressive analysis of capitalism should take for granted. There is no reason to believe that the US economy at any point in the last 20 years has operated close to that absolute limit, at which trade offs are zero sum.
Keyne's "how to pay for the war" booklet is all about how to suppress consumption through saving, rationing and such. Actual consumption needed to be suppressed, because factories needed to make tanks instead of cars. The book is not about how to print money, deal with finance markets, etc. We'd call that "fiscal policy."
Fighting WW2 genuinely pushed the UK's financial limits. The problem wasn't ability to borrow, inflation, money markets & such. The problem was the ability of its economy to support such a big military effort.
The point of this blog, I think, is that there was never a "how to pay for the war" pamphlet for afghanistan. US & NATO industries and economies were capable of supporting the war, accounted for as a deficit, without austerity like Keyne's prescribed for the UK. Hence capacity.
And...
> Right around the start of the war on drugs.
What, specifically, are you vaguely hinting at?
You're right, there's not much to this until the monetary system is based on fiat-currency, at this point there's a soft obligation (maybe? I don't understand fiat well enough) to back the created money by building things in the real economy.
But what the USA has created with the fiat-based money is war, which adds bomb-making and building reconstruction into the real economy.
The war on drugs seems to create corruption. The only real connection is the time period in which USA's congress passed laws for money laundering, war on drugs, and fiat money (a little bit before, iirc)
> If we want to criticize the War on Terror from a perspective that does not betray sensible macroeconomics, we should not rely on calculations of cost, or suggestions of crowding out to do the work for us. America could easily afford the War on Terror.
How is "crowding out" still not a reasonable argument? Sure, he says you can print more money, but then you run against the constraints (like inflation) that he talks about earlier in the article. So there's a limit to how much can be printed, and does that not "crowd out" other potential spending targets?
- Having the global reserve currency
- Being able to raise taxes at will to fight inflation
It may be possible that with a one-world government and global agreement on central currency that we could get to this. But instead the US only has the global reserve currency, and the political will to print it seemingly infinitely, but not the ability to raise taxes dynamically.
We are already seeing high inflation (by recent US standards) that is beginning to become politically untenable. A full-throated MMT policy would be impossible in the current environment.
Even worse there are major threats to USD as the global reserve currency, from Bitcoin to China RMB. I fear the politicians are playing with fire and the lack of fiscal discipline will lead to serious backlash and the reduction in global financial power for the US.
I think the federal government needs to cut about 700,000 federal jobs and we need to shrink the discretionary federal budget by at least 500 billion. If we don't, you will keep getting iraqs and afghanistans until we collapse.
Spending money keeping people alive is a more productive use of that money than spending money to make people dead.
MMT doesn't change this equation. In fact, it points out explicitly that increased money supply MUST be used to increase productivity. The exact opposite of what happens when you spend money to bomb people.
But, a bit like those who specialise in Japanese economic history, I feel like it is pretty misleading to base your argument for MMT on purely wartime measures: not only is the level of govt spending changing but the allocation of resources is changing...that is very different to a non-wartime economy where there aren't huge supply changes.
After WW2, there was huge economic dislocation and inflation. But it seems very churlish to look at WW2 and say: there are no limits to spending. When: most economies in the world effectively shut down, trade shut down, there was massive destruction of supply, massive financial repression...financial repression in the US, by far the economy that was least negatively impacted, didn't end in truth until the mid-60s. The UK economy didn't recover in full until the 90s.
Crowding out does occur. It isn't unusual. There is ample evidence of it occurring. It is dangerous to point out too that "there is no limit" and then fail to mention that your only sources for this claim are dictatorships or countries at war...there is a reason for this (it is often politically unpalatable to take control over production such that crowding out is prevented).
The reason why there was no crowding out, to be blunt, is that these wars weren't very expensive. They provide no evidence to support the claim that: that we are nowhere close to the real limit on spending. Almost every industry right now has shortages, and the economy isn't close to full capacity because the labour participation rate is low? Rakakakakaka.
I like Tooze but this is very weak stuff (it is worth pointing out though, that the last part of the previous paragraph is essentially the Fed's position...so we will likely find out who is right).
It is also interesting that he didn't mention the 1920s more either...this is the ultimate "proof" that austerity makes no sense. But it is also worth pointing out that after WW1, lots of countries had the same issues after WW2. There were huge price changes in 1920 that basically felled the UK economy until the 90s (WW2 and US actions after were just the final nail in the coffin), it is quite foolish to suppose that the UK economy would have just magically recovered if the govt started spending...it was a supply-side issue, not a problem with demand (the US was the counter-point to this, the US started the decade with a relatively blank slate and this decade turned the US into a financial power competing with the UK...the UK was legacy, stuck with all the old industries that were shrinking, and struggled to retool after the war ended)...but yeah, usually every economic narrative that takes the Keynesian approach will mention 1920s UK...it is a classic (although misleading) example.
Apart from anything else he's written probably the best book on the 2008 financial crisis and the Eurozone crisis.
Either way, I don't think I made any specific claims about the limits of Tooze's knowledge (I have no real idea what Tooze does or does not know). My point was simple: if you look solely at Nazi Germany fiscal policy between 1931 and 1944, it will appear very much like there are no limits to spending. He references this multiple times throughout the article. I also mentioned that the other very common place that you see this is is people who have studied Japanese economic policy in the 70/80s. If you take these periods and you want to believe that there are no limits in spending, these periods will allow you to make that argument (and it is common to see this generally: people who are experts in one period of history, often see everything through that lens...human nature). It is extremely common for people who believe in MMT or some variant of MMT to reference these periods (and again, not make any reference to other aspects of how that was possible i.e. politics).
The problem with this is that this information does not generalize (and I have said specifically why this information doesn't generalize in these cases). He refers to post-WW2 as an example of there being no limit to spending but, again as I explain specifically, it is an example of the opposite. I made no claim about why that is: all I said is that Tooze's expertise is periods in which the limits to spending aren't clear, and he is referencing a period which is a the textbook example of limits to spending (post-WW2).
I didn't say this but I know why he is making this argument: Tooze is left-leaning. Most economists aren't particularly familiar with the details of 1950s monetary policy (there are very few books on this subject, it isn't fashionable) but even if there were, people would still believe in MMT. The reasons why people in believe in certain things are not limited to evidence (Tooze was one of the public figures that was behind Corbyn's MMT-funded spending plans, he has taken a political stance on this). If this wasn't the case, I do suspect he would have a different interpretation of the post-WW2 period.
Nope
> Tooze framed that book in terms of the bete noires of the left at the time, Trump and Brexit
Nope
> which massively takes away from the book's broader relevance
Nope
> it happens, it is how publishers sell books, it is not how writers produce great ones
So the publishers pushed Tooze to do it. I see.
You don't agree with Tooze - fair enough - you're playing the man rather than the ball here.
There's not much more I can add to this. Society is made up of choices and we chose to slaughter people around the world instead of choosing to provide healthcare, education, or any other constructive benefit.
The US spends more per capita on healthcare and education than any other nation, by far. The US didn't choose not to provide healthcare or education.
If you wanted to solve the healthcare equation in the US, you wouldn't need to spend an additional dime. Just bring US healthcare costs into alignment with Britain's NHS and the bottom ~45% of the country would be covered by Medicaid's existing outlays. Spending trillions more on healthcare would be the dumbest thing we could do, next to invading Iraq. We need to smash costs downward and spread healthcare wide, not continue the cost inflation spiral; you rationally do that without spending more than we already are. The same goes for education, the last thing we need is to spend more on education, we need to actually start getting a good return on our outrageous education spending, and push cost out of the system simultaneously.
> Society is made up of choices and we chose to slaughter people around the world
It's certainly true the US should have never invaded Iraq and should not have stayed in Afghanistan so long.
Slaughter people? Bull.
The US overwhelmingly did the opposite of slaughtering people. It lost trillions of dollars and thousands of soldiers trying to keep people from slaughtering each other, trying to prop up central governments (which has largely succeeded in Iraq). It stepped inbetween civil wars in both Iraq and Afghanistan.
Are you seeing what the Taliban are doing right now? That's one group of Afghanis trying to kill/enslave/conquer the rest. Regional warlords are already right back to fighting for territorial gains. That was going on before the US invaded. It'll be going on in another 50 years too. The US neither created the Taliban (despite what propaganda to the contrary claims) nor caused the civil war in Afghanistan; the US did step into the ongoing Afghanistan civil war, assisting the Northern Alliance at first and then fully invading second to prop up a new central government.
Do you know why so many people are fleeing from the Taliban and seeking escape with the US at the airport? Specifically because it was the US that was not trying to slaughter people in Afghanistan. The Taliban are the slaughtering group the US was trying to get rid of. If the US were the slaughtering faction, people would be running in terror from the US instead of seeking safety with the US. If the US were the slaughtering faction, those thousands of Afghani refugees landing at Dulles in Virginia would be getting executed at the airport on arrival.
The civil war in Iraq was directly caused by the US overthrowing Saddam Hussein, and that civil war was inevitable regardless of US involvement. That internal religious conflict has very long tentacles in history, going back many hundreds of years.
Most of those deaths listed on that page are directly from internal warring factions within the nations, killing each other in civil war. Not from the US "slaughtering" people. Those conflicts existed before the US and they will exist after the US. Which, again, is also not an argument for the US invading Iraq and doesn't excuse the stupidity of the US invading. There was no scenario where Saddam was going to be displaced and Iraq wasn't going to fall into a civil war, especially given the minority oppressor vs majority oppressed conflict that Saddam's power represented. Iraq wasn't stable before the US invaded, it was a disaster of instability, genocide and terror, which is why Saddam had to constantly purge and murder people to retain power. When you have stability, you don't have to do that. The US released a hyper oppressed majority population in Iraq, it's no wonder there were violent consequences to that; those consequences were always unavoidable, no matter how Saddam was removed. What's the counter premise? Saddam should have stayed in power forever, or that Saddam was going to be peacefully removed from power and it was going to be a lovefest? It's an ignorant fantasy.
The US had a moral right to step in and help the Iraqi people, who were under occupation by Saddam's dictatorship (especially true of the majority Shia), every bit as much as it had a moral right to step in and help the French people cast off the Nazis. The US had a moral right to help the people of Afghanistan depose the Taliban, every bit as much as the US had a moral right to help nations in Eastern Europe cast off the shackles of the USSR. The Soviets were no better than the Taliban ideologically. The people of Europe are no more worthy of help than the people of Iraq or Afghanistan. Which also doesn't mean it was in the US self-interest to get involved in either Iraq or Afghanistan.