Sunday, January 10, 2010

Rational Spending

The multiplier effect is an economic tool that measure how much additional economic activity a dollar spent will generate. For example, The New York Times tells us that, “Every dollar of additional infrastructure spending means $1.57 in economic activity.”

The article goes on to list the following multiplier effects for each dollar spent:
· General aid to states: $1.41
· Increases for food stamps: $1.74
· Unemployment checks: $1.61

It would appear that a viable social safety net—unlike the shredded remnant of the one now in place—pays economic dividends.

What is harder to pin down is the multiplier effect of the $57,000 per minute we are blowing in Afghanistan. Like all other concepts in the dismal science, multiplier effects are subject to a great deal of debate. So estimates of the multiplier effect of each dollar of defense spending range from eighty cents to $1.40. The high end figure is misleading because the expense involved in the care and rehabilitation of a young soldier suffering from a terminal brain injury (TBI) is listed as an asset since it adds money to the GDP. It doesn’t subtract the reduced input into the economy the young soldier will be incapable of providing. In light of this, the lower multiplier effect is probably more accurate.

One fact that is indisputable is that defense spending is a drain on the economy. The standard Keynesian approach of using government deficits to stimulate aggregate demand worked during the Great Depression because the country was not saddled with a DOD parasite that was draining its treasury.

As one writer points out:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

He goes on to list the number jobs produced by $1 billion in spending in various economic fields:

As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.

The bottom line is that defense spending is a fool’s game characterized by the law of diminishing returns. We are getting nothing in return for the $57,000 a minute we are wasting in Afghanistan.

How many homes could be saved with the money spent over there is an hour, a day or a month? How many struggling states could be bailed out with the money being spent just to satisfy the egos of fools who equate military prowess with potency even though this prowess is slowly rendering us impotent. After all, who got Iraq’s oil and Afghanistan’s copper? It wasn’t us.

The money isn’t making us any safer as it finances the production of even more terrorists.

But when a country’s institutions are corrupt, madness stalks the corridors of power. Lord Acton’s corrupting power does not result in greed or oppression. It’s corrupting influence is brain rot.

11 comments:

Ivan Hentschel said...

As always, the obvious is being obfuscated by the "official"propaganda that guarantees that the flow of money is always in a diametrically opposed direction to the one that would do the most good for the most people.

Instead of investing the public money for the public good, in "accounts" that yield the highest returns, we invest it in military deficit spending, both in terms of negative fiduciary benefits and international ill-will (the Iraqis and the Afghanis love us, don't they?).

We employ an over-all strategy akin to that of the alcoholic, drinking ever more to convince ourselves that we have no drinking problem.

Our thinking is perverse and inversely at cross purposes with itself to the extent that we elected an new anti-war president who is now escalating and promulgating war at every turn, just yesterday saying he would not send troops to Yemen (What the hell for?) or Somalia (say what?)..at least "not just yet", and will not "rule out any options". Sounds like double-speak for "Tomorrow we order a surge" to me.

All of which (to get back to your original point) means that you cannot spend your way our of debt by pouring your money down a black hole. We keep charging more against the national credit card, all the while ignoring the fact that the monthly interest charges are more than the actual balance.

For a smart people, we are pretty damn dumb.

Case Wagenvoord said...

It's called Ponzi Capitalism when your income isn't enough to service our debt so you have to borrow more to do so.

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