Tuesday, November 27, 2007

Iraq, the dollar, and the farm program...

Stay with me here. In one of those profound (or deeply misguided) sensations of insight, the news of the permanence of the US military in Iraq - as witnessed by this week's deal - coupled with the struggles of our economy (subprime, dollar, confidence, etc.) pushed me to some conclusions about the future of our tiny (1% of GDP) slice of the US economy.

We often forget about the economic consequences of our patriotic actions, but the bill is real and growing. Because it is disguised in the budget, the expense has been absorbed by good economic results. But this line item is going to be hard to hide much longer.
Naturally, advocates of the war wish to lower the fiscal stakes, whereas opponents wish to raise them. But cost estimates follow certain broad rules of logic and convention. Estimates differ along with definitions of scope and because of new information. Here are six reasons cost estimates for the Iraq war have varied and keep rising:
- The cost of invasion is a down payment. The cost of exit continues for years.
- If the war is financed by borrowing, some estimates may add interest costs.
- Costs are borne by the U.S. taxpayer, but also by others. Costs may be added relating to costs borne by individuals, especially military personnel, or by the economy.
- War is cruel and combatants bear the brunt of it. Unexpected new costs can emerge, such as undiagnosed physical damage among returning vets.
- Like life expectancies, cost estimates usually rise as the war continues. When the first estimates were prepared, the war was projected to last ten years at most. Now, five years later, the war is still being projected to last 10 more years, i.e., 15 years altogether.
- Some estimates include the war in Afghanistan or worldwide anti-terrorism costs. [More]
The rising tide of tax revenues which surprised almost all seem to be waning as capital gains become capital losses. On the other side of the ledger, our borrowing costs seem set to escalate as foreign investors need more incentive to buy our debt. In short, massive deficits could fall out of fashion - if only because nobody wants to pay for it.

The ability of the farm lobby to regularly extract $20B or so annually from the budget could come under serious pressure to scale back from both commodity price baseline effect and overall federal insolvency.

My point is farmers who are counting on the USDA to weave their "safety net" are likely in danger of being overrun by those who provide their own defenses. Whatever safety net future legislators can envisage will be competing for very scarce dollars.

Bottom line: gird your own loins.

1 comment:

John Tepper Marlin said...

John - Thanks for quoting from my blog. Whether we think military spending is excessive or too little, we need to know what it is all costing us so we can use our vote to make the best possible decisions.