Paying (both meanings) for War
By Barry Ritholtz - January 29th, 2011, 5:00PM
My friend (and Washington State money manager) Carl writes about our three trillion dollar war post:
The biggest reason the U.S. is marching towards receivership—-the U.S. refused to pay for the wars in Iraq and Afghanistan.
Instead of raising taxes like we did to pay for WW 1 —we lowered them. Instead of having a high marginal tax rate for the wealthy, President Bush and the congress lowered taxes.
The following is just about Iraq and does not include the cost of Afghanistan.
Read about steps taken to prepare for and pay for WW 1.
And tax rates during WW 2.
Fascinating stuff — thanks Carl!
Tweet
Facebook
Reddit
Digg this!
January 29th, 2011 at 5:34 pm
The Bush Administration knew their reckless war in Iraq would lose most of its support if it was going to cost Mr. and Mrs. Patriotic Heartland Taxpayer more than the price of a yellow ribbon magnet for their SUV.
January 29th, 2011 at 6:16 pm
I hate to tell you this, but there is no war in Iraq or Afghanistan, never has been, never will be. We haven’t been in a war since 1945. Only Congress can declare war, everything since then is just a police action, or an illegal invasion, and should be treated as such.
Perhaps we should start impeaching Presidents who invade sovereign nations for spurious reasons. It also wouldn’t hurt if our army and navy where half their current size. If you have a big hammer, then the solution to every problem is just whack-a-mole.
January 29th, 2011 at 6:22 pm
It was always clear that the Tea Party’s claims that they stand for balanced budgets and fiscal responsibility was a fraud.
And yet for two years no one in the MSM called them out on it.
I doubt that it was stupidity or laziness; one has to assume that their self interest demanded they go along with the charade.
January 29th, 2011 at 6:31 pm
Great post. We leave Iraq radioactive, and Afghan as once again the opium capital of the world and give our seniors and needy a sound whack in the wallet.
What leadership.
All of the above comments were dead on. Thanks.
January 29th, 2011 at 6:32 pm
Hell, Bush didn’t pay for any other silliness “authorized” by the Republicans, why fund a “war” effort? Does anyone remember any spending vetos issued by Bush?
January 29th, 2011 at 6:50 pm
Check this guy out Barry, Truth is like a breath of Fresh Air:
http://www.youtube.com/watch?v=N9DpPP9TEn4&feature=player_embedded#
January 29th, 2011 at 6:54 pm
You have a war in Iraq? I was pretty sure I heard the general say on the way out he wasn’t going to be gone for long and that he was just going to fill up the tank
January 29th, 2011 at 8:09 pm
Frankly the other thing I hate to hear coming from the Austerians is that most of them are Bankers or economists which supported the transfer of about $13 trillion to the banks ( http://www.pbs.org/wnet/need-to-know/economy/the-true-cost-of-the-bank-bailout/3309/ ).
Now they say the people have to sacrifice to maintain fiscal order in the future.
Frankly that’s BS with big capital letters and it makes me sick that these people go on the air every minute of every day repeating this spectacular hypocritic oath.
The people MUST sacrifice because they are the reason we are in this CRAP hole.
Right…it has nothing to do with the rich taking over.
We need to sacrifice social services because the banks needed $13 trillion and the Military Industrial Complex needed a $3 trillion war.
It’s sickening and yet that word is vastly inferior to the task of describing what is occurring in our public discourse with respect to austerity.
Let the banks pay higher taxes, let the military be choked. Let them feel the sting of austerity before the people give up necessities like health care and social security.
January 29th, 2011 at 8:16 pm
That was the whole point. It is a win win situation for the conservative movement. They can go to town spending on “war” and cut spending at home. To convince the country to preemptively attack a country would be impossible if the costs where covered out of pocket. So just do the opposite and cut taxes. As far as ethics are concerned, just throw down a little scare tactics; works every time. They are now exactly where they want to be. “Fighting” a costly war with only the smallest murmurs of cutting DOD budget while singing the cut spending song over and over.
Great topic.
January 29th, 2011 at 8:21 pm
Washington Post says Egypt “near-anarchy”. Hmmm…
January 29th, 2011 at 8:24 pm
What about?
A WAR TAX … Automatically kicks in when US ground troops enter another country for the purpose of military engagement. A progressive tax on individuals and corporations. Including corporations with headquarters outside the US, especially US corporations that have moved their nominal headquarters to tax havens.
A MILITARY MAINTENANCE TAX … Specifically to cover the costs of US bases abroad. Progressive, of course.
“No taxation without representation” in our corrupted democracy has become “No taxation, no opinion, no care.”
January 29th, 2011 at 8:40 pm
Imagine the difference if in mid-September 2001, President Gore had said, “last week, a rag-tag group of criminals posing as revolutionaries engaged in horrific crimes against humanity. Crimes, nothing more, nothing less. We will bring them to justice, repair their acts, and move on.” And then he gave the Taliban a few weeks to dither, blew the crap out of them, and with the support of the moderate Islamic world the UN moved into Afghanistan with the USA at a calculated arms-distance. It would have destroyed the Islamic fundamentalist movement, and al-Qaeda would be an obscure footnote in history.
George W. Bush was a small man, doing small things, and did the USA incalculable harm.
January 29th, 2011 at 9:05 pm
Must not be a whole lot going in the Business/econ world….
…Going to the well with more 2008 Crisis Post-Mortems and now, we’re revisiting the Bush regime and the Iraq War.
C’mon Man!
We need some fresh material….
January 29th, 2011 at 9:26 pm
I hate to inform you of this… but… we’re not on the gold standard anymore. Nor do we convert our currency in to gold either. I thought you understood MMT where paying Federal debt is not an issue. It’s all about allocating current resources to pay for current consumption. At present we have excess resources in the form of unemployment and underused factory capacity to pay for everything we consume, including the wars. Nor can we fear inflation in what is clearly a deflationary ZIRP environment.
Barry, you haven’t done your homework. You should at least understand MMT before you go around posting this drivel.
January 29th, 2011 at 9:54 pm
@aiadvisors: If that’s so true, I would assume the Tea Partiers and Republicans that insist on cutting the budget have the same naivete.
Is that correct?
January 29th, 2011 at 11:41 pm
rip:
Anyone that insists on eliminating stimulus (cutting the deficit) during high unemployment and deflation is demanding that we make matters worse. When, as now, the private sector (business and consumers) is curtailing expenditures to pay down debt, the government must step into the breach and close the output gap with additional spending. The added side benefit is that the government is the issuer of the currency and has the capability (some would argue, the obligation) of injecting money into the economy when the money supply has collapsed. The Fed can’t perform this task alone because its only means of money creation is for the banking system to create new loans. But having been burned badly, banks don’t want to lend anymore and consumers don’t want to be in debt anymore. The Fed is pushing on a string. To argue against fiscal stimulus in a deflationary environment is, imo, intentional fear mongering for political purposes (which I detest).
Back to Barry’s original argument that we need to pay for our wars, or any other federal expenditures, appears to be derived from fully discredited gold standard dogma. We don’t pay for anything in gold (which we must acquire in trade) anymore, neither do we buy things, borrow or pay debts in any foreign currency which we would have to acquire in trade. We don’t even borrow in our own currency which we create. We issue Treasury’s for the sole purpose of managing term structure interest rates. Back when Clinton was running a surplus, the chief concern of the Fed was running out of Treasuries with which to enact monetary policy (fact). They went so far as to contemplate issueing Federal Reserve bonds. Fortunately for the Fed and unfortunately for the rest of us, the surplus created an economic crash as it always has will, and the Treasury consequently started issueing more bonds again.
The notion mentioned above of US marching into receivership is ludicrous. Just keep in mind that the risk of default of any currency issuing sovereign entity defaulting on securities denominated in that currency is… zero. There exists however, a risk of inflation, but again, in the current surplus capacity deflationary environment, the current risk of inflation is remote, of hyper-inflation, near zero. Simply put, we need more money in circulation. Since the beginning of time, the peasants always understood that in hard times money was scarce and in good times there was plenty of money around. It ain’t rocket science.
January 29th, 2011 at 11:42 pm
Profitable war mongering only works when you are funding both sides and staying away from the conflict for a reasonable amount of time…silly.
January 29th, 2011 at 11:59 pm
Andy said: Must not be a whole lot going in the Business/econ world….
…Going to the well with more 2008 Crisis Post-Mortems and now, we’re revisiting the Bush regime and the Iraq War.
C’mon Man!
We need some fresh material….
Maybe the point is to remind that we need to get out now. As in debt as we are, we can’t pay for it.
January 30th, 2011 at 1:11 am
The day Washington tries to make the citizens pay for those fraudulent wars, is the day the US turns into Egypt. You can fool a few (young men) into suicide, but you can’t fool an entire population into voluntary theft.
Let them raise taxes and try austerity, because when they do, the lies, manipulations and all their bull$#!t will be exposed for all the world to see. It’s about time the Oil industry and Military Industrial Complex get what’s coming to them!!!
January 30th, 2011 at 2:16 am
The breathtaking hypocrisy from the right and the tea party regarding the war debt is very much a story that is just as important today (one trillion and counting) as it was in 2008. The wars are still going strong and we will be paying for them for years to come.
As long as they could use the phony ginned up war on terror as a political bludgeon, the staggering cost of the war in money, lives and ruined families, the conservatives didn’t care about the debt.
Every single day that we have to pay the debts created by the insane tax policies of the Bush administration which continue to this day, is a day that it is relevant to talk about it. 5 trillion dollars of debt was accumulated during the Bush administration and now we should not talk about it?
January 30th, 2011 at 6:20 am
Yep, bought gold and other hard assets when this country started a two front war and cut taxes. A true prescription for a financial disaster.
1) http://stockcharts.com/charts/historical/djiagold1980.html
Gold has gone from $250 in 2001 to $1300-$1400 range today. The Dow is a little lower than it was in 2001.
The chart of gold prices is on the bottom of the page.
2) The first book about war THE ART OF WAR by Sun Tzu said when armies march inflation follows. Military schools still use this famous and first book on wars.
3) Historically financial upsets have always followed wars.
Written 2000 years ago THE ART OF WAR still applies.
“For there never has been a protracted war from which a country has benefited. ”
Also “There never has been a protracted war from which a country that has benefited”
The ART OF WAR is worth reading for the next time a politician wants to start a war.
January 30th, 2011 at 8:07 am
Carl said, “The biggest reason the U.S. is marching towards receivership . . .” Utter nonsense. The U.S. is Monetarily Sovereign, meaning it has the unlimited ability to create it’s sovereign currency. The U.S. never can run short of money. Period.
Because Barry does not understand Monetary Sovereignty,he likes to quote people who also do not understand monetary sovereignty, thus perpetuating the myth that federal financing is like personal financing. I’ve written to Barry many times about this, but he simply refuses to understand it. ( I say “refuses,” because I’m sure he is smart enough; he’s just too proud to admit his error.)
Sadly, not understanding Monetary Sovereignty, means he doesn’t understand economics, and all his posts should be viewed in that light.
Rodger Malcolm Mitchell
January 30th, 2011 at 8:17 am
pintelho;
It’s time the left start “The Not Fake Tea Party” movement within the democratic party, demanding higher taxes on the rich, cutting military spending in half and an end wasting hundreds of billions on fake security measures. Motto could be “we have more to fear from fear itself”. Obviously those who want fiscal responsibility need another choice than those clowns from the right.
January 30th, 2011 at 9:13 am
aiadvisors:
Paying for a war at the time has less to do with economics than the big $$$ suggests – agreed– but much to do with psychology. The decision is given more weight if attached to a tangible consequent (another tangible one would be if we kept the draft). Gold standard or not, there are costs to going to war $$ and human and to act obscure those costs is irresponsible at best and criminal at worst. Taxing to pay for the war makes it more real even if economically the costs can be handle over time and indirectly.
January 30th, 2011 at 9:33 am
on that topic of jobs – gold – sovereign currency
they all have 1 thing in common – Flow Rocks
with more words – cash flow rocks ..
what do you do when your currency is no longer pretty
what do you do after you spend your gold profits
what do you do when theres no reason to flip the feet out of bed in the morning .. in a world that everything needs pretty’ies
answer: in years past – it’d be go break something (today too)
January 30th, 2011 at 9:57 am
I caught this last night on tv .. not sure of it’s original release day but probably less than 90 days old .. checked imdb and it links to History Channels BuyItNow page .. anyway thought you all might like to check it out to see if you were misquoted
History Channel – Prophets Of Doom – Economy
http://www.youtube.com/watch?v=nSpLUpiMkj0
January 30th, 2011 at 10:31 am
if Submit allows me to hit a Triple
.. a cross post link to unbreak what I broke & 2 steps up before 1 step back ..
I also checked out a suggested new site & sent some emails out to clients to be watchful (thanks someone)
they have robots pull encyclopedia entries and www images together into little videos for the reading impared
http://www.qwiki.com/
next step .. on that HistoryCh post above – a work of video that was pickpocketed in full .. maybe quicky & Utube could pull 9 seconds drop 60s pull 9 drop 60 etcetcetc .. www works without robbing the store
January 30th, 2011 at 10:55 am
Questions for Carl et al. Was the huge gradient during WWII of % taxed versus income due to an effort to force the more affluent into buying a higher % of war bonds? Was the purchase of war bonds deductible from taxable income?
A comment: Rice/Bush mantra was always democracies don’t war on democracies. We must realize that our representative government allows for non-democratic action by the Administration, albeit at great political risk, in times of dire circumstance.
Unfolding now is perhaps (most hopefully) the desired end of decades long US foreign policy in the Middle East and the reason for the ascendancy of Obama. Or not and that is scary.
January 30th, 2011 at 12:07 pm
The United States of America before and after 1970: Same name, different countries.
January 30th, 2011 at 1:58 pm
BusSchDean:
Agreed. However, there are greater disincentives to going to war than financial costs. One of them being that of sending our sons “over there”. Would to God that my own son hadn’t joined the Army. Thanks be to God that he served his tour in Afghanistan and returned safely and in one piece!
January 30th, 2011 at 2:26 pm
‘The biggest reason the U.S. is marching towards receivership—-the U.S. refused to pay for the wars in Iraq and Afghanistan.’
Nope — plausible sounding, but wrong.
It’s the malinvestment in negative rate-of-return projects such as Iraq and Afghanistan which made us poor — not the way they were financed.
Paying for these wars with taxes would knocked the US economy to its knees earlier. Deferring the cost with borrowing merely postponed the pain.
One reason the US is screwed is because of this tendency to dance around the real issue: a broke country cannot afford a military empire. Bring all the overseas troops home now, or they’ll come home when their paychecks bounce. Tax policy is immaterial to this result.
January 30th, 2011 at 2:26 pm
‘The biggest reason the U.S. is marching towards receivership—-the U.S. refused to pay for the wars in Iraq and Afghanistan.’
Nope — plausible sounding, but wrong.
It’s the malinvestment in negative rate-of-return projects such as Iraq and Afghanistan which made us poor — not the way they were financed.
Paying for these wars with taxes would knocked the US economy to its knees earlier. Deferring the cost with borrowing merely postponed the pain.
One reason the US is screwed is because of this tendency to dance around the real issue: a broke country cannot afford a military empire. Bring all the overseas troops home now, or they’ll come home when their paychecks bounce. Tax policy is immaterial to this result.
January 30th, 2011 at 2:50 pm
Machinehead:
The US is not broke, nor can it go broke. We are not in debt to any foreign entity since all of our debt is denominated in the currency we produce. Insolvency or bankruptcy is mathematically impossible. On the other hand, as you aptly pointed out, we can choose the amounts of our national productive resources to allocate to various activities such as wars. Despite the fact that we are allocating substantial resources to wars, we still have vast excess capacity in the form of unemployment and idle manufacturing capacity. Allocating resources is a political question, not an economic one. The checks won’t bounce, they cannot. We need to maximise our production capability before we start curtailing any activity. While I disagree with the wars, immediately terminating them will result in more unemployment and the associated social costs unemployment carries.
January 30th, 2011 at 4:05 pm
aiadvisors:
Glad your son made it back safe and sound. I have two sons so I can imagine the worry. I served during though not in Viet Nam. I am old school about the draft or the idea of each young person doing military or community service for a year or so. That idea now seems quaint and an aberration to most parents and young people. Funny how things change.
January 30th, 2011 at 7:23 pm
aiadvisors and RM in some thread ..
just how do you see Materials from foreign lands like OIL paid for when green printed paper is debased thru the printing press .. are you just NUTS or attempting to get me to make your case for your yellowmetal ? Sorry its the YellowGrain – you can eat it, heat with it, and run an engine on it. “Dont mess with the bull you might get the horns”. I’ve got a printer that has green ink in it – will that work to buy your house – a house I don’t need but I can flip it – for – umm what big boy toy do it want to flip your house for ?
January 30th, 2011 at 8:18 pm
Greg0658,
“Debased,” when referring to money, means inflation. The federal debt has expanded an enormous 3600% since we went off the gold standard. Yet, today we fear deflation. If you prefer facts to sarcasm, and knowledge to ignorance, I suggest you read Monetary Sovereignty.
You will learn why federal financing is quite different from your intuition.
Rodger Malcolm Mitchell
January 31st, 2011 at 7:34 am
please accept an appology for the sarcasm .. I’ll try to say this with less punk .. but what are a bride & groom to trade at the vows if wedding rings are going to float to world sovereign currency levels .. no one in power is going to let gold bugs take over that issue
not sure why (possibly shouldn’t have) I captured the sovereign currency link to gold levels in your thesis
January 31st, 2011 at 8:02 am
To ( TerryC) you must be from mars, even if you are correct who do you think is signing for the bills {Congress}
As For Michell i feel the only one not understanding it may be you, your own words “No one seems to get it” well may be the someone may be in the mirror, as i can see your point of printing money, but if you were correct than there would be no reason for any type of budget or gdp ratio’s and anything like the such.
January 31st, 2011 at 2:20 pm
bsmi021,
If I said, “No one seems to get it,” that would be wrong. Many people get it. The MMTers and the Chartalists get it. The problem is, the politicians and the Nobel winning economists don’t get it.
I don’t know why you translate the government’s unlimited ability to create money into not needing a budget. It is a simple fact that the government does have this unlimited ability, but that does not mean the government should create infinite amounts of money. Federal government money-creation is limited by inflation — only inflation — and nothing else. So there is a limit, but we are nowhere near the point where spending should be limited.
I don’t know what you mean by “GDP ratios.” It happens that the Debt/GDP ratio is meaningless. “Debt” merely is the total of all outstanding T-securities. Since T-securities are unnecessary, and do not support federal spending, the ratio has no significance.
However, the deficit/GDP ratio may have some meaning. I, as yet, don’t know what it is. “Deficit” is the accounting difference between taxes received and federal spending, but there are so many expenditures not part of the deficit, it is difficult for me to ascribe a significance to deficit/GDP.
Contrary to popular wisdom, “Debt” is not the total of “Deficits.” They are related by law, but not by function. We could eliminate all Debt tomorrow, and still grow our Deficits. Similarly, we could eliminate all Deficits and still grow our Debt.
Rodger Malcolm Mitchell
January 31st, 2011 at 7:01 pm
RM – your convicted in your message – ok .. I captured ” money-creation is limited by inflation ” and paraphrased -government can but shouldn’t use money creation to pay bills- … so what is the plan again ? I’m getting the feeling – the government should dump money directly to pay its bills – don’t track the dump into Primary Lending Banks – dont charge any interest – let inflation on Materials sort it all out without a FED intermediary ?
February 1st, 2011 at 2:27 pm
Your paraphrase is way off target. I never said, meant or implied the federal government shouldn’t use money creation to pay bills. In fact, money creation is the only way the government pays bills. That’s a feature of Monetary Sovereignty. The federal government (unlike state and local governments) does not use tax money to pay bills. It creates money, ad hoc, to pay its bills.
I have no idea what your last sentence means.
Rodger Malcolm Mitchell