Thursday, February 28, 2008

Counting the costs

This story in The Australian ties in rather well with my current reading, and helps bridge the gap of the decade since it was written.

THE Iraq war has cost the US 50-60 times more than the Bush administration predicted and was a central cause of the sub-prime banking crisis threatening the world economy, according to Nobel Prize-winning economist Joseph Stiglitz.

The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US3trillion ($3.3 trillion) compared with the $US50-$US60-billion predicted in 2003....

Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen.

The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said.

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

"The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said.

That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.

Professor Stiglitz, an academic at the Columbia Business School and a former economic adviser to president Bill Clinton, said a further $US500 billion was going to be spent on the fighting in the next two years and that could have been used more effectively to improve the security and quality of life of Americans and the rest of the world.

The money being spent on the war each week would be enough to wipe out illiteracy around the world, he said.

Just a few days' funding would be enough to provide health insurance for US children who were not covered, he said.

The public had been encouraged by the White House to ignore the costs of the war because of the belief that the war would somehow pay for itself or be paid for by Iraqi oil or US allies.

"When the Bush administration went to war in Iraq it obviously didn't focus very much on the cost. Larry Lindsey, the chief economic adviser, said the cost was going to be between $US100billion and $US200 billion - and for that slight moment of quasi-honesty he was fired.

"(Then defence secretary Donald) Rumsfeld responded and said 'baloney', and the number the administration came up with was $US50 to $US60 billion. We have calculated that the cost was more like $US3 trillion.

"Three trillion is a very conservative number, the true costs are likely to be much larger than that."

This is just the kind of thing Shutt is going on about in this book. (My reading in it is currently far ahead of my posting about it.)

Afterthought (added 03-01): I might also point out that that sum comes to around $10,000 for every man, woman, and child in the United States. Enjoy your tax cuts!

Sunday, February 24, 2008

The Trouble With Capitalism blogging

Note: To get this blog off to a start, I'm copying my recent entries on economics from my more political blog, Liberal Hyperbole. Henceforth, the Trouble With Capitalism blogging will continue here, for the most part.

So, since I've gotten myself an old new book from the library, The Trouble With Capitalism: An Enquiry into the Causes of Global Economic Failure by Harry Shutt, and I'm reading it now, I thought I'd share some of the choicer excerpts as I go along. Some, I'll just post without comment; others, I might point out things that have come to pass since then, or how it relates to my own beliefs in the area, or even where I feel it might be in the wrong. Keep in mind, it is a 1998 book, so some of it is a bit dated. I might even pick on it a bit in places, for instance where it says the Interwebs don't seem to be really taking off. But it'll be good-natured; in that example, his thoughts seem to have been born out eventually by the bursting of the New Economy dot-com bubble.

A choice bit from the very first page of the introduction, to start off with:

The rapid advances of this new consensus [the superiority of laissez-faire capitalism] to near universal acceptance owes much to the recent conspicuous failure of economic models based on extensive state intervention to deliver adequate levels of prosperity or security — most spectacularly in the fallen Soviet empire. Yet despite this apparently compelling logic, anyone endowed with a reasonable capacity for impartial observation of everyday realities — and for treating official propaganda with due scepticism — might recognise that such claims of a triumph for the free market and of its supposedly magical powers are profoundly perverse, for at least three reasons.

Further on in the introduction (added 2-28):

This book is an attempt to expose the realities of the contemporary evolution of the global capitalist economy, and thereby to dispel the illusions which lie behind the neo-laissez-faire prospectus. By viewing it in the context of the longer-term development of the world economy it also seeks to demonstrate that the reason for the aggressive and irrational dogmatism of the Western political establishment in trying to forge this new consensus is a growing sense of the increasing fragility of capitalism rather than of its enduring strength. Indeed the reader may well conclude that only acute awareness of a genuine threat to the survival of the dominant vested interests could explain such systematic distortion of reality.

In some respects, it may be noted, the analysis presented here of the chronic weakness of profit-maximising capitalism is traditional, in that it emphasises the distorting and destabilising effects of the recurrent excess supply of capital in relation to the demand for it. What is perhaps less familiar is the revelation that technological change is leading to a long-term relative decline in the demand for fixed capital, thereby rendering traditional capitalist structures obsolete — much as the new technology of steam power made inevitable the replacement of feudal structures and cottage industries by capitalist enterprise some two hundred years ago.