Archive for March, 2011

A Real War of Choice

Sunday, March 27th, 2011

Some who criticized the Iraq War maintained that it was a war of choice. Whatever the merits of that argument, there can be little doubt among those who support or don’t support the current action in Libya that it is a matter of choice. It the broadest sense all wars are wars of choice. However, the intervention of the US in Libya is a war of choice in that the sense that the US is not acting to protect the US or US interests. It is not a war of self-defense. It is war conducted for humanitarian reasons.

Unfortunately, justifications for the action are not as well articulated as they should be. Are we there to remove longtime tyrant Muammar el-Qaddafi? Is it to keep the “rebels’’ from being overrun? Is it to protect civilians? Do we protect civilians if the rebels threaten them?

Just War Theory requires that before engaging in the evil of war, there must be convincing evidence that the likely outcome of the war is less evil. Will the Libyan people be more free? Will less civilians be killed?

One can imagine circumstances where there would be a moral obligation to use military power for humanitarian purposes. However, given the blunt instrument that military action is, it is necessary to have a high degree of certitude that the the outcome will be positive.

In such circumstances clarity is necessary and the Obama Administration has not lived up to this standard. When euphemisms like “kinetic military action’’ action instead of “war’’ are invoked, moral clarity suffers. When missiles deliver large amounts of ordinance on the ground it is an act of war. When B2’s fly from Missouri and drop bombs on military targets, it is an an act of war. Perhaps the acts are justified, but they are acts of war, nonetheless.

When the Bush Administration took the country to war in Afghanistan and Iraq, it went to Congress, explained its purposes and was granted authorization to use force, a de facto declaration of war. The advantage of going to Congress is the discipline that it imposes. It forces an Administration to place its reasons on the record in a clear and consistent way. Moreover, if we are going to commit US service personnel, a commitment that may cost their lives, they should enjoy the full support of the country. One step in solidifying this support is obtaining Congressional authorization. If the Obama Administration had sufficient time to make their case for action in Libya to the United Nations, there was time to consult Congress.

It would be easy to score political points, by pointing out that then Senator Obama said that his interpretation of the Constitution required Congressional authorization to use force unless US citizens or interests where under immediate or imminent threat: a case no one is arguing for Libya We could indulge in guilty political amusement by playing back the video of an sanctimonious Senator (now Vice-President) Joseph Biden bravely declaring that he would support impeachment of President Bush if Bush used military action against Iran without Congressional authorization. More important, however, is whether a Congressional authorization would have made the action in Libya more likely to succeed. We submit here that the clarity of intention required to obtain such authorization would have benefited the Obama Administration and made success more likely.

If actions drag on in Libya, the US and the US Administration will suffer politically and Libyans may physically suffer. The US military may find country-building difficult, but it is has proven adept at deposing of governments and destroying other military structures. We may be fortunate if Qaddafi is deposed and there is not too much disorder after his fall. Victory heals wounds. In victory, Americans will forget exactly how the action began. However welcome such an outcome would be, it will not affect the validity of the case that Congressional authorization should have been sought.

Growth May Not Be Enough

Sunday, March 13th, 2011

This year the budget deficit will be $1.6 trillion. Total spending will be $3.8 trillion. For every dollar we spend as a country we will have to borrow 42 cents. This level of debit accumulation does no seem prudent or sustainable.

A budget deficit is the consequence of the difference between the amount of spending and the revenues generated. A plot of revenues and spending over time, shown below may be revealing. The red curve represents spending, and the blue curve represents revenues. Since 1980, the spending has been generally higher than revenues. Fortunately, at the end of the 1990’s there was a surplus. During the period of the surplus, spending increases moderated, but not much. The increase in revenues caused by increased growth bringing in increasing revenue largely accounte fro the surplus.

The recession in the early 2000s reduced revenues, and spending did not abate, so we had widening budge gap. However economic growth kicked in an we approached a balanced budget. For all intents and purposes we were in near balance. It is hard to believe that the budget deficit was only $160 billion in 2007, less than the budget deficit accumulated this month alone.

A combination of high gas prices and an over-leveraged mortgage market caused a large decrease in GDP with a loss of revenue. The government decided to increase spending to stimulate economic growth, but growth has been anemic, with only very modest increase in federal revenues. Spending rolls on and the deficit balloons.

If we had revenues equivalent to what we had in 2007, this years deficit would be $1.2 trillion. If we maintain the same revenues as 2007, and same rate of increase in spending from the previous few years, the current budget deficit would be $500 billion, very large, but a third of the current deficit. Therefore, spending increases more than revenues shortfalls have been the primary cause of the current deficit.

It is clear from the graph, that spending has risen too quickly and revenues have not. It would seem that the wisest course at this point to reduce the rate of spending increase. However, even if we had no increase in spending for the next few years, we would require very high levels of economic growth to narrow deficit to more historic levels.

We have a $14 trillion GDP and the federal government brings in revenues equivalent to 20% of GDP per year. We gain an increase in revenues of about $30 billion per year for every 1% increase in GDP growth. If we can grow by 4% a year over 10 years that would represent a $1.4 billion revenue increase. Remember, the long-term growth rate of the US has been about 3.5% and it may be hard to achieve such a rate as more people move to retirement.

In other words, a very high ten year growth rate of 4% per year would balance the budget only if we froze spending at current levels for a decade. However, given that Social Security and Medicare costs will inexorably grow just because of the entrance of new retirees into those systems, and the increase debt payment will have to be paid, all other government programs from the military, to education aid, to food stamps would have to undergo dramatic decreases to maintain a freeze.

No one expects government spending to be constant over ten years, given only modest increases we will still need extraordinary rates of growth to bring total debt levels to even a more reasonable fraction of GDP. It used to be we could endure deficits, because growth would rescue us from ourselves. We are rapidly approaching spending levels , where no reasonable rates of growth can bends the two lines in the curve back together.

A Little Education Math

Sunday, March 6th, 2011

With the on-going controversy in Wisconsin about teacher compensation and collective bargaining issues, the sides seemed to have hardened. One side sports the green eye shades claiming there is no more money and teacher compensation needs to be limited. The opposite side claims compassion for teachers and concern for the students. We submit here that the entire structure of public education with a state monopoly teamed with public service unions is inefficient and results in lower compensation for teachers than would otherwise be the case.

I live in Prince George’s County, Maryland, a suburb of Washington DC with a median household income of nearly $72,000, substantially higher than the $52,000 median household income of the entire US. By any reasonable definition, the county can be considered affluent. Perhaps, it is not as affluent as other counties in the Washington, DC area, but it is certainly affluent by national standards.

With the weak economy, the county like others is struggling to maintain spending. Part of the problem is decreased local revenues and part of it is reduced revenues from the similarly pinched state of Maryland. However, a closer look a the numbers is revealing.

The restricted school system budget of Prince Georges County this year is $1.6 billion dollars, which represents a $155 million shortfall. The school system has an enrollment of about 128,000 students for a per student expenditure of about $12,500. In the county, the average class size (although there is variation at different grade levels) is 27 students. Hence, each class room represents an expenditure of $350,000. An average teacher earns about $55,000. Let us make the extremely generous assumption, that total compensation including medical care and retirement is about $100,000 per teacher. It still means that a classroom costs at least three and half times the cost of the primary education provider, the teacher.

These numbers are very approximate. There are legitimate costs outside the classroom including school buses and bus drivers, school nurses, and counselors. In addition, some students have special needs that require greater-than-average spending. Nonetheless, it seems that a disproportionate amount of spending is not going directly into the class room.

If we offered as a choice a voucher to parents, even a smaller amount per student of $10,000 to spend at any school, public or private, my guess is that parents would find options for which teacher compensation would be greater both relative to total expenditure and in absolute terms. This system would offer better education at a ower cost and probably with higher teacher compensation.