Wednesday, April 25, 2007

Bloggin' Be My Life - War and Economics

War and Economics Part III

Conclusion – Utopia Revisited

By Richard E. Noble

We have established in War and Economics I and II that War as business can not be profitable unless the residual businesses and the secondary revenue sources are able to bring in returns greater than the initial and subsequent investments. In other words the government’s spending on producing a War must be out-distanced by the taxes collected, plus the expanding residual industries created, plus the excess sales of superfluous or outdated weapons produced by the War Industries and manufactures. If all this truly happens, as it seems to be happening and as most Americans consciously or subconsciously believe - then War is in fact profitable. And just to repeat for clarity’s sake - War is basically a Government business which manufactures a product that is given away for free or actually used to destroy other things.

If, in fact, this is the case then we see why governments promote war and we substantiate the basic notion brought forward in the beginning of this thesis - “War is a profitable and good business practice.”

War begins with government spending or investment. Government investment leads to profit and employment. Profits and employment lead to consumption in residual industries. If tax returns from the War Industries amount to 1/3 of initial government outlay and tax return from residual industries return the other 2/3 - then we have a government or taxpayer based industry that is paying for itself.

If returns from residual industries (some of which have real products to produce) are greater than 2/3 of original taxpayer outlay and borrowed money to create the industry then we have a profit making industry without even selling or using the products produced by the Industry or collecting booty from a war.

Is this really possible? Can an industry be created where an actual product is not necessary? Where no capital goods are necessary? Well, it seems to be the case. War it does seem is exactly that type of industry.

What we are suggesting here is that all we need to do is expend taxpayer’s dollars (or even borrowed dollars - or better yet un-borrowed, debt free, created dollars) so that they are redistributed to a portion of the public in the form of wages and profits which are then spent for real products that then start a chain economic reaction of societal sustaining residual industries - with the original tax investment returned to the taxpayers to fund future investment? We have thus created perpetual economic motion.

If we can sell the products from our War Industry we can further increase the profits from our Tax funded business, but this would be gravy - not necessity. The products can be sold or they can be thrown away - or blown up or exploded - or buried in a land fill or whatever.

If what has been established in the above is true - war is in fact a profitable business which has cured depressions, recessions and monetary catastrophes of any kind and serves as a viable policy for the sustenance of a nation - then how could we apply the principles learned above to benefit our nation in a more positive way - possibly eliminating all the death and destruction?

Well, if you have understood and accepted the above formula it should be quite obvious that if war can work as a profitable business venture - anything can work.

This is all pure Keynesian economics. In other words; we the people or the government get investment capital via borrowing, deficit spending and general taxation (or just employing a free monetary printing press). We invest that money in any enterprise that creates jobs. The jobs produce a product - the majority of which is thrown away, given away or destroyed. If any of this product is sold to anybody at any cost - that’s gravy. Our real profits come from the taxes collected on the new jobs created and on the profits of the new businesses and corporations along with the residual businesses established as a result of the prosperity created by our “seed” industry.
So for example, if we wanted to replace the Military Industrial Complex with the Health Care and Drug Industrial Complex, it would be simple. We start “factories” with our government seed revenues that produce drugs that cure diseases. As with bombs and bullets we don’t sell these products; we give them away. We hire researchers to find new products and we set our goal to cure every disease known to mankind. We hire additional people to go around the world curing people with these drugs. Or we can be “Capitalistic” and loan the money to the sick people so that they can buy these drugs from our company. When they become well we employ them in our industry or a residual industry of their own creation (free enterprise) and then they pay us back with interest or simply by creating more prosperity from which we all gain.

Now we have money coming in from the income taxes on the employees and the profits of the employing company.

The increased spending from the people with the good jobs in this industry promotes residual enterprises and more jobs. These businesses and jobs are also taxed and now we have more “cash flow”. As with arms, we sell our drugs to countries who can afford to pay for them – wherever and whenever we can. Through our research we make new and better drugs but then we sell the old technology to lesser developed countries. They will be more than happy to buy our old drug technologies - even if there are better products available, just as they have eagerly bought our old guns and bombs.

This whole scenario is exactly the same as our war machine but instead of destruction we bring Health. We have no cleanup program but instead we have an absence of sick and diseased people - who will work to produce other products that will serve to increase the World Gross International Product.

All our other industries - banks and whatever - will continue to work in their traditional ways - nothing will change. We will still have profits, salaries, wages, investments, invention, stocks and bonds, entrepreneurship and Capitalism. We will simply have constructive Capitalism instead of destructive Capitalism.
Different countries can pick different humanitarian industries to promote and they can develop their own Industrial Complex - if anyone can think of an Industry that actually sells a useful product so much the better.

We will all, of course, still be required to have our militaries but they can be geared down due to the obvious “peace divided’ that will result from an economic system that is clearly designed to do good and promote prosperity and health and happiness for all.

Almost any “business” that we could invent would be better than War. The products of our War industry are all blown up and destroyed and they are used to destroy other things. If we substitute producing an actual product - like health care drugs - we eventually sell them - possibly at a profit - instead of just giving them away. They develop in spin off industries and other residual business that involve building things instead of blowing things up. This creates rents, loans, interest payments salaries and whatnot. The world’s populations are employed, taxes are collected and this utopian business Complex becomes self perpetuating.

This whole concept is created on the idea of concocting a business without a true viable product - as the business of War does. The “product” of war is destruction; the product of our new industry will be creation - creation of anything positive.
If we accept that war works in the way that I have described it, then this business based on manufactured creation - as opposed to manufactured destruction - should work even better.

But if this whole scenario is false and War is nothing more than a sophisticated Ponzi scam that can only be sustained by another war and which will then only come to an end with the eventual destruction of all nations and their populations - then my Ponzi scam will also end accordingly but with positive as opposed to negative results.

The difference is that my economic Pozi scam, based on the “creation” of a better world, will only end after the whole world and everyone in it has been cured of all disease and benefited from every kind of knowledge; and every nation in the world has improved the living conditions of all of its population to the point where nothing better can be created or conceived.

If this be Ponzi, then so be it!


RoseCovered Glasses said...

Hi Edward,

I have been following this series on your blog and find it very interesting and well thought out.

Just for a bit of frequency change, here's an extract from Stratfor on our involvement in wars over the last 40 years or so. I had never thought of it in quite this way, and thought you might may this perspective as fascinating as I did:

Geopolitics and the U.S. Spoiling Attack
By George Friedman

The United States has now spent four years fighting in Iraq. Those who planned the conflict never expected this outcome. Indeed, it could be argued that this outcome represents not only miscalculation but also a strategic defeat for the United States. The best that can be said about the war at the moment is that it is a strategic stalemate, which is an undesired outcome for the Americans. The worst that can be said is that the United States has failed to meet its strategic objectives and that failure represents defeat.

In considering the situation, our attention is drawn to a strange paradox that has been manifest in American foreign policy since World War II. On the one hand, the United States has consistently encountered strategic stalemate or defeat in particular politico-military operations. At those times, the outcomes have appeared to be disappointing if not catastrophic. Yet, over the same period of time, U.S. global power, on the whole, has surged. In spite of stalemate and defeat during the Cold War, the United States was more in 2000 than it had been in 1950.

Consider these examples from history:

Korea: Having defeated the North Korean army, U.S. forces were attacked by China. The result was a y stalemate, followed by a partition that essentially restored the status quo ante -- thus imposing an extended stalemate.

Cuba: After a pro-Soviet government was created well within the security cordon of the United States, Washington used overt and covert means to destroy the Castro regime. All attempts failed, and the Castro government remains in place nearly half a century later.

Vietnam: the United States fought an extended war in Vietnam, designed to contain the expansion of Communism in Indochina. The United States failed to achieve its objectives -- despite massive infusions of force -- and North Vietnam established hegemony over the region.

Iran: The U.S. containment policy required it to have a cordon of allies around the Soviet Union. Iran was a key link, blocking Soviet access to the Persian Gulf. The U.S. expulsion from Iran following the Islamic Revolution represented a major strategic reversal.

Iraq: In this context, Iraq appears to represent another strategic reversal -- with U.S. ambitions at least blocked, and possibly defeated, after a major investment of effort and prestige.

Look at it this way. On a pretty arbitrary scale -- between Korea (1950-53), Cuba (1960-63), Vietnam (1963-75), Iran (1979-1981) and Iraq (2003-present) -- the United States has spent about 27 of the last 55 years engaged in politico-military maneuvers that, at the very least, did not bring obvious success, and frequently brought disaster. Yet, in spite of these disasters, the long-term tendency of American power relative to the rest of the world has been favorable to the United States. This general paradox must be explained. And in the course of explanation, some understandings of the Iraq campaign, seen in a broader context, might emerge.

Schools of Thought

There are three general explanations for this paradox:

1. U.S. power does not rest on these politico-military involvements but derives from other factors, such as economic power. Therefore, the fact that the United States has consistently failed in major conflicts is an argument that these conflicts should not have been fought -- that they were not relevant to the emergence of American power. The U.S. preoccupation with politico-military conflict has been an exercise in the irrelevant that has slowed, but has not derailed, expansion of American power. Applying this logic, it would be argued that the Soviet Union would have collapsed anyway under its own weight -- as will the Islamic world -- and that U.S. interventions are pointless.

2. The United States has been extraordinarily fortunate that, despite its inability to use politico-military power effectively and its being drawn consistently into stalemate or defeat, exogenous forces have saved the United States from its own weakness. In the long run, this good fortune should not be viewed as strategy, but as disaster waiting to happen.

3. The wars mentioned previously were never as significant as they appeared to be -- public sentiment and government rhetoric notwithstanding. These conflicts drew on only a small fraction of potential U.S. power, and they always were seen as peripheral to fundamental national interests. The more important dimension of U.S. foreign policy was statecraft that shifted the burden of potential warfare from the United States to its allies. So, regardless of these examples, the core strategic issue for the United States was its alliances and ententes with states like Germany and China. Applying this logic, it follows that the wars themselves were -- practically speaking -- insignificant episodes, that stalemate and defeat were trivial and that, except for the domestic political obsession, none were of fundamental importance to the United States.

Put somewhat differently, there is the liberal view that the Soviet Union was not defeated by the United States in the Cold War, but that it collapsed itself, and the military conflicts of the Cold War were unnecessary. There is the conservative view that the United States won the Cold War in spite of a fundamental flaw in the American character -- an unwillingness to bear the burden of war -- and that this flaw ultimately will prove disastrous for the United States. Finally, there is the non-ideological, non-political view that the United States won the Cold War in spite of defeats and stalemates because these wars were never as important as either the liberals or conservatives made them out to be, however necessary they might have been seen to be at the time.

If we apply these analyses to Iraq, three schools of thought emerge. The first says that the Iraq war is unnecessary and even harmful in the context of the U.S.-jihadist confrontation -- and that, regardless of outcome, it should not be fought. The second says that the war is essential -- and that, while defeat or stalemate in this conflict perhaps would not be catastrophic to the United States, there is a possibility that it would be catastrophic. And at any rate, this argument continues, the United States' ongoing inability to impose its will in conflicts of this class ultimately will destroy it. Finally, there is the view that Iraq is simply a small piece of a bigger war and that the outcome of this particular conflict will not be decisive, although the war might be necessary. The heated rhetoric surrounding the Iraq conflict stems from the traditional American inability to hold things in perspective.

There is a reasonable case to be made for any of these three views. Any Stratfor reader knows that our sympathies gravitate toward the third view. However, that view makes no sense unless it is expanded. It must also take into consideration the view that the Soviet Union's fall was hardwired into history regardless of U.S. politico-military action, along with the notion that a consistent willingness to accept stalemate and defeat represents a significant threat to the United States in the long term.

Resource Commitments and Implications

Let's begin with something that is obviously true. When we consider Korea, Cuba, Vietnam, Iran and even Iraq, it is clear that the United States devoted only a tiny fraction of the military power it could have brought to bear if it wished. By this, we mean that in none of these cases was there a general American mobilization, at no point was U.S. industry converted to a wartime footing, at no point were nuclear weapons used to force enemy defeat. The proportion of force brought to bear, relative to capabilities demonstrated in conflicts such as World War II, was minimal.

If there were fundamental issues at stake involving national security, the United States did not act as though that was the case. What is most remarkable about these conflicts was the extreme restraint shown -- both in committing forces and in employing available forces. The conservative critique of U.S. foreign policy revolves around the tendency of the American leadership and public to recoil at the idea of extended conflict. But this recoil is not a response to extended war. Rather, by severely limiting the force available from the outset, the United States has, unintentionally, designed its wars to be extended. From this derives the conservative view that the United States engages in warfare without intending victory.

In each of these cases, the behavior of the United States implied that there were important national security issues at stake, but measured in terms of the resources provided, these national security issues were not of the first order. The United States certainly has shown an ability to mount full-bore politico-military operations in the past: In World War II, it provided sufficient resources to invade Europe and the Japanese empire simultaneously. But in all of the cases we have cited, the United States provided limited resources -- and in some cases, only covert or political resources. Clearly, it was prepared on some level to accept stalemate and defeat.

Even in cases where the enemy was engaged fully, the United States limited its commitment of resources. In Vietnam, for example, the defeat of North Vietnam and regime change were explicitly ruled out. The United States had as its explicit goal a stalemate, in which both South and North Vietnam survived as independent states. In Korea, the United States shifted to a stalemate strategy after the Chinese intervention. So too in Cuba after the Cuban missile crisis; and in Iran, the United States accepted defeat in an apparently critical arena without attempting a major intervention. In each instance, the mark of U.S. intervention was limited exposure -- even at the cost of stalemate or defeat.

In other words, the United States consistently has entered into conflicts in which its level of commitment was extremely limited, in which either victory was not the strategic goal or the mission eventually was redefined to accept stalemate, and in which even defeat was deemed preferable to a level of effort that might avert it. Public discussion on all sides was apoplectic both during these conflicts and afterward, yet American global power was not materially affected in the long run.

The Spoiling Attack

This appears to make no sense until we introduce a military concept into the analysis: the spoiling attack. The spoiling attack is an offensive operation; however, its goal is not to defeat the enemy but to disrupt enemy offensives -- to, in effect, prevent a defeat by the enemy. The success of the spoiling attack is not measured in term of enemy capitulation, but the degree to which it has forestalled successful enemy operations.

The concept of a spoiling attack is intimately bound up with the principle of economy of force. Military power, like all power, is finite. It must be husbanded. Even in a war in which no resources are spared, some operations do not justify a significant expenditure. Some attacks are always designed to succeed by failing. More precisely, the resources devoted to those operations are sufficient to disrupt enemy plans, to delay an enemy offensive, or to create an opportunity for political disruption of the enemy, rather than to defeat the enemy. For those tasked with carrying out the spoiling attack, it appears that they are being wasted in a hopeless effort. For those with a broader strategic or geopolitical perspective, it appears to be the proper application of the "economy of force" principle.

If we consider the examples cited above and apply the twin concepts of the spoiling attack and economy of force, then the conversion of American defeats into increased U.S. global power no longer appears quite as paradoxical. In Korea, spoiling Communist goals created breathing space elsewhere for the United States, and increased tension levels between China and Russia. A stalemate achieved outcomes as satisfactory to Washington as taking North Korea would have been. In Cuba, containing Fidel Castro was, relative to cost, as useful as destroying him. What he did in Cuba itself was less important to Washington than that he should not be an effective player in Latin America. In Vietnam, frustrating the North's strategic goals for a decade allowed the Sino-Soviet dispute to ripen, thus opening the door for Sino-U.S. entente even before the war ended. The U.S. interest in Iran, of course, rested with its utility as a buffer to the Soviets. Being ousted from Iran mattered only if the Iranians capitulated to the Soviets. Absent that, Iran's internal politics were of little interest to the United States.

If we apply the twin concepts to Iraq, it is possible to understand the reasons behind the size of the force deployed (which, while significant, still is limited relative to the full range of options brought to bear in World War II) and the obvious willingness of the Bush administration to court military disaster. The invasion four years ago has led to the Sunnis and Shia turning against each other in direct conflict. Therefore, it could be argued that just as the United States won the Cold War by exploiting the Sino-Soviet split and allying with Mao Zedong, so too the path to defeating the jihadists is not a main attack, but a spoiling attack that turns Sunnis and Shia against each other. This was certainly not the intent of the Bush administration in planning the 2003 invasion; it has become, nevertheless, an unintended and significant outcome.

Moreover, it is far from clear whether U.S. policymakers through history have been aware of this dimension in their operations. In considering Korea, Cuba, Vietnam and Iran, it is never clear that the Truman, Kennedy, Johnson/Nixon or Carter/Reagan administrations purposely set out to implement a spoiling attack. The fog of political rhetoric and the bureaucratized nature of the U.S. foreign policy apparatus make it difficult to speak of U.S. "strategy" as such. Every deputy assistant secretary of something-or-other confuses his little piece of things with the whole, and the American culture demonizes and deifies without clarifying.

However, there is a deep structure in U.S. foreign policy that becomes visible. The incongruities of stalemate and defeat on the one side and growing U.S. power on the other must be reconciled. The liberal and conservative arguments explain things only partially. But the idea that the United States rarely fights to win can be explained. It is not because of a lack of moral fiber, as conservatives would argue; nor a random and needless belligerence, as liberals would argue. Rather, it is the application of the principle of spoiling operations -- using limited resources not in order to defeat the enemy but to disrupt and confuse enemy operations.

As with the invisible hand in economics, businessmen pursue immediate ends without necessarily being aware of how they contribute to the wealth of nations. So too, politicians pursue immediate ends without necessarily being aware of how they contribute to national power. Some are clearer in their thinking than others, perhaps, or possibly all presidents are crystal-clear on what they are doing in these matters. We do not dine with the great.

But there is an underlying order to U.S. foreign policy that makes the apparent chaos of policymaking understandable and rational.

Richard Edward Noble said...

to rose covered glasses - Well, my good friend, I have read this only once and I will read it a few more times before I give you an opinion if I have one. But thank you very much for your interest and for the information.