Thursday, January 31, 2008

Iraq and Recession

"The Iraq war is a sucking chest wound on the American economy."
Kiko's House has a post essentially blaming the recession on Iraq. My response tries to put things into perspective.
Your thoughts mesh nicely with those of Paul Kennedy who points out that serious wars are generally won by the side with the biggest GDP. IMO, the big problem in Iraq is the dollar kill-ratio.

If we fought with the Soviet Union, it was pretty much straight up -- dollar for dollar. Whatever we spent, they had to match. At least, that's the CW on Reagan's success against them. The USSR ran out of money before we did.

In the case of asymmetric warfare, the money is the most asymmetric part of it. Force projection is very expensive. Any action on the other side of the planet is going to drain us. But this is worse because each dollar the enemy spends must be matched by some large number of dollars on our part. My swag is that the battlefield kill-ratio is at least 20 to 1 for sunni types. I heard much higher in anti-Sadr actions early on. Maintaining that ratio is expensive, but, I think you would agree, worthwhile.

My guess for the dollar kill-ratio, however, is that it is much higher. Let's just venture that it's $1 to $10,000. So every time we drop a meg worth of bombs, the enemy can match it with equal effectiveness using a hundred dollars worth of IED. The problem is that they are getting it. We have been giving it to them! We are paying for both sides in this war. It is extremely hard to keep the huge flow of petro-dollars from dripping a little bit into their hands. The Islamic "charities" are not helping either.

Our strategy, as far as I can tell, is now to emphasize the CLCs, who operate on a dollar-dollar basis against the AQ forces. Every dollar we give them that gets used against AQ saves us 10,000. Penetration is what matters here. How many of the dollars are directed correctly?

Now, to the question of whether we can afford it, remember that the war represents a fraction of our national debt. At two trillion, the per capita cost of the war is about $6,000 spread over, let us say, ten years. How much do you suppose we spend on SUV's? In other words, this is not the cause of our economic problems. Note also that much of the war money churns back into our own economy, upgrading, to a degree, generalizable skills and facilities, and keeping people employed.

IMO, our economy has been stung, not by the war, but by corrupt financial activity extending over a decade, causing extensive and pervasive misallocation of housing resources. This folly was also funded, or at least encouraged, by our own government. Please tell me, which party is the anti-bubble party?

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