Cut And Run Strategy - History

It's a bit disconcerting to hear various leaders talk about how important it is to leave behind a stable government in Afghanistan.

Just how are we going to do that?

Our record of accomplishment in nation building (in other people's nations) isn't all that sterling. We ran the Philippines for half a century, for example, and more than six decades after we turned the government over to the Philippinos, the country has yet to become a showcase of democracy.

That wasn't President McKinley's promise when we decided to occupy the country.

Take Vietnam. We decided in 1946 to assist France in its reoccupation of French Indo-China (as Vietnam, Laos and Cambodia were then called). That didn't turn out well. In 1954, at the time of Dien Bien Phu, President Eisenhower decided against direct intervention, but we provided advisers and lots of equipment. In 1961 Kennedy sent even more advisers and equipment. By 1965, we owned the war.

In 1973, President Nixon withdrew the last American troops. In 1975, North Vietnamese forces conquered the entire country.

Upshot: after thirty years of war, loss of nearly 60,000 US servicemen and millions of Vietnamese lives, we achieved the same outcome that had been available in 1946 at virtually no cost.

There are times when it is best to stop throwing good money (and lives) after bad. But deciding to do so after the nation has made a commitment is hard to do.

Still, withdrawal always has to remain an option. It was Senator Aiken of Vermont, I believe, who advised President Johnson to just "declare victory" and bring the boys (they were mostly male warriors then) home.

Good advice.

How To Hold Water

The society which scorns excellence in plumbing as a humble activity and tolerates shoddiness in philosophy because it is an exalted activity will have neither good plumbing nor good philosophy: neither its pipes nor its theories will hold water. \

John W. Gardner

Per Capita Growth In Government Spending

Economist Mark Thoma has an interesting post today on his blog. He has done an analysis of real per capita growth in government spending under every president since Lyndon Johnson.

It turns out that the most austere was Bill Clinton and next most austere is Barack Obama. Spending growth was less under Jimmy Carter than it was under Nixon-Ford or under Reagan. Here is Thoma's graph:

http://economistsview.typepad.com/.a/6a00d83451b33869e2016763df2c09970b-popup

On Taxing The Rich And Other Options

I want to share some thoughts I recently sent to a relative concerning taxation.

This was triggered by a recent spate of what I view as mean-spirited comments about how lucky poor people are, since they don't have to pay income tax. Of course, if they have a job, they pay payroll tax and Medicare tax, as well as state taxes like sales tax and property taxes (if they own anything at all).

The discussion has become more heated since the disclosure that many super wealthy individuals pay income tax at a lower rate than their secretaries.

A frequent question is, "what's fair?" This may be the wrong question. I think a better question is, "what taxation policy leads to greater general prosperity?" That is, "what works best?" But we need to keep the goal in mind - improved general prosperity.

I shared the following thoughts:

There is, of course, a whole literature on taxation issues. Some of it is even interesting. I commend to your interest the article at this link and the ensuing discussion.

I find the idea of taxing the superrich at a marginal rate of 70% intriguing. Some things I know because I have lived a long time and have been paying attention for most of that time. I know, for example, that the period of greatest general prosperity in this country (say, 1946 to 1976) was also a period of high marginal income tax rates and a very progressive tax structure. It was also a period of powerful (or at least influential) labor unions.

In that period, banking was a pretty boring activity. Bankers were generally stolid and unimaginative, but reliable. Interest rates were low. Regulations to insure a stable banking system were pretty strict. Savings and Loans played an essential role in expanding the nation's housing stock at affordable prices.

There was great concern after the war over the possibility of high inflation, but also over the possibility of a postwar depression. Neither happened, in part because we had a skilled bunch of economists working to bring us in for a soft landing. Elements of the solution: GI Bill took millions of returning GI's off the labor market during a crucial period; the Marshall Plan provided the wherewithal to foreign countries to buy industrial and agricultural products from us (anti-depressant); great pent up demand for housing and automobiles as well as other durable goods, plus significant savings accumulated during the war (war bonds, etc) when there was little to buy, anyhow and what there was was rationed.

These were all practical measures, mostly driven by what works.

My view of economics is that it should continue to be driven by what works, not by theories (or conjecture or assertion) divorced from reality and unsupported by real world data.

By the way, if you are looking for a country with low (or no) taxation, little regulation, etc. I can think of several.  Somalia comes to mind.

I have no problem with the idea that people with little income should pay no income tax.

I do have a problem with measures favoring one kind of income over another. Why shouldn't we value wages and salaries at least as high as dividends and capital gains?

How about a flat income tax deduction? Same for everybody. You want to buy a mansion? Fine. You get the same housing deduction as the guy who rents. 

Just a thought.

Follow The Money

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General Prosperity Or Particular Prosperity?

Along the same lines as yesterday's post by Robert Reich is an interesting examination of why business leaders aren't calling for economic stimulus. As this article points out, in the 1940's business leaders joined together to press for a substantial federal stimulus to protect against a postwar depression.

It worked.

Even in an earlier period, Henry Ford recognized that if his workers couldn't afford to buy his products, his factories wouldn't prosper. So he paid well and prospered greatly himself.

But in today's world, executive compensation is divorced from the overall performance of the economy. For that matter, it seems divorced from executive performance in any normal sense.

This needs attention.

Public Morality

It seems like every even year, we have a flurry of political rhetoric about SEX. For many, it seems that morality = SEX and associated discontents.

There is a different view: public morality has to do with questions of who benefits and who pays. Government's principal activity is to make the rules that control economic outcomes. Members of the public who believe the deck is being stacked against them should see this as the moral issue of our day.

There are those who spend a lot of time thinking and analyzing such issues. Foremost among them is Robert Reich.

I commend to your attention his latest article, "The Difference Between Public And Private Morality."

The heart of his argument: "There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign 'donations.'"

That hits the nail on the head.

White Man's Burden II?

I spent my adult life in defense of democracy. Not because our own democracy is perfect, but because it has the chance of standing up to various forms of authoritarianism and despotism. I was not an anticommunist crusader. I did support the late George Frost Kennan's approach of defending American interests by containing Soviet power.

At the same time, I agreed with the late Marshall Shulman's view of the Soviet-American conflict as a "limited adversary relationship," not an apocalyptic one.

Through all of the Cold War period, I never thought the United States had an obligation to establish democratic regimes in other countries. Not our job. Beyond our power.

My entire life has been spent against a backdrop of war and rumors of war. But the most important efforts in defense of democracy have been right here in the USA.

Authoritarianism and despotism continually lurk in the wings. And they have deep pockets.

The overwhelming question was raised by Abraham Lincoln: can a nation "of the people, by the people and for the people" long endure. The "existential threat" so frequently mentioned by the G.W. Bush administration, comes not from abroad, but just as in 1861, it comes from ourselves.

These thoughts are pondered in the somber light of the actions by an American sergeant in Afghanistan. That sergeant's systematic murder of sixteen Afghan citizens in their beds for no apparent reason highlights the tensions between our servicemen and local residents in Afghanistan.

Here, in an article by David Rieff, is one of the most thoughtful and thought-provoking examinations of our proper role in the world I have seen recently. It's worth reading and pondering. 

Maybe it's time to bring our forces home.