Tuesday, October 16, 2012
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The Price of Freedom
EDITORIAL: Views expressed are those of the author and do not necessarily represent an official position of GCF Bank
A couple of weeks back, we received a reader request for an article on the cost of war and how much money it takes away from job programs, infrastructure repair, research funding and other areas of importance to American citizens.
The question was posed on a purely economic basis, not political. Yet I hesitated. An article of this nature would be extremely difficult to write without becoming political. It could be a powder keg.
Americans have become a bit reactionary lately. I've been writing articles about the healthcare crisis since 2003. The last one we published resulted in a phone call to one of our branches by a reader upset that we covered a political topic.
We did receive far more positive feedback in reader emails, but I was still taken aback by the phone call. It was a clear indicator of just how polarized we've become.
Yet I couldn't let go of this one reader's request. So I'm giving this a whirl. Allow me to apologize in advance if you are offended in any way. Write to me at email@example.com, not a bank representative. They have far more important things to do these days. Like keeping your money safe.
Before I get into dollars, cents and lives, it should be noted that our government does not operate like your household budget. When we face an unexpected expense, we have to skip a ball game or eat hot dogs for a couple of weeks to stretch our budget and cover costs. Our budget is pretty much on paper only. We move funds wherever they're most needed at the time, and juggle to meet each new expenditure as they arise.
Our government does not do that. As much as we would wish otherwise, funds targeted for a specific department remain in that department. Whether they need it or not.
Should a specific group near the end of a fiscal year with unspent money, they find a way to use it before they lose it. Their allocation the following year will be less if they didn't really need all they were given the previous year.
Teachers have to supply their own classrooms, but roads are built to nowhere. Transportation money does not siphon to education.
Bridges deteriorate, but we know unequivocally that rats can't tell the difference between Japanese spoken backwards and Dutch spoken backwards. Research funding doesn't support infrastructure.
So while we would like to think money devoted to war efforts could be better spent elsewhere, history has proven that just won't happen.
Government agencies behave more like competitors. Walmart will not share their profits with Target. Nor will Ford Motor Co. do so with General Motors. Excess funds in the EPA budget are not shared with those concerned with national security.
Our government is funded by taxpayer money for the most part. One may wonder why it isn't channeled where it is best served.
Another noble pursuit with no method of instituting. Who is to decide which purpose is more important?
Certainly crumbling infrastructure in New York City may affect more people. But is it more critical than irrigation to the drought-stricken in our nation's food-producing heartland?
One could argue that war is not essential for our country's well-being. Therefore, money spent for this purpose is always better used elsewhere.
Others see war as the only means to keep secure the very foundation our country was built on. So in this light, we will take a look at the major wars in U.S. history and their effect on our economy.
War and the Economy
EDITORIAL: Views expressed are those of the author and do not necessarily represent an official position of GCF Bank
Wars have raged since the earliest days of recorded history. People of diverse ideology have never learned to accept each other on the grand scale.
Sure, there are individuals who overlook things like the color of one's skin, religious preferences or heritage before assigning value to another human being. But differences threaten one's preferred way of life. When threatened, it is human nature to protect.
You will never convince someone who holds a different set of beliefs that yours are right and theirs are wrong. Nor should you. Each holds significance in this world.
Nor will you ever convince an extremist that you have a right to live free in the manner you choose. They will not rest until all opposition is eradicated.
The founders of our nation fought this very battle in securing our independence from Great Britain. The Revolutionary War lasted eight years and came at a price tag of $2,407 million in fiscal year 2011 dollars. We'll use FY2011 dollars for accurate comparison throughout the remainder of this article.
There were no taxes in 1775. We went to war with the British over the issue of unjust taxation. It was too soon to introduce a tax code in what was not yet an independent country. No taxes meant no income.
So we borrowed. France lent our fledgling nation the funds to break away from Britain. Smaller amounts were received from Spain and the Dutch.
Thus began our first national debt. Our shaky finances caused us to default on that debt. But as our nation developed, so did our financial stature. We finally settled our debt to Europe in 1795.
Cost of independence: Priceless
Our Civil War cost the Union $59,631 million. Another $20,111 million was spent by the Confederacy. It represented 11.6 percent of our country's Gross Domestic Product (GDP) at the time for the Union.
By 1864, our national debt reached $2.7 billion. Our government has spent more than it receives in revenue ever since. CORRECTION: Our government did see a budget surplus from 1998 through 2001. Our thanks to an astute reader who brought this to our attention.
We covered the Civil War in the June 28, 2011 edition of GCFlash. We won't rehash what you can read here.
The industrialized northern states held an economic advantage over its southern foe. It had manufacturing, transportation and agriculture. It was the epicenter of our country's financial district.
Southern money was held in northern banks. Their crops were mostly cotton and tobacco, not food. The North had a stranglehold, the South couldn't access their money. They didn't have a railway system to get their crops to market. They didn't have food, clothing or the necessities of life.
The Civil War didn't become a slavery issue until its midway point in 1863 when President Lincoln signed the Emancipation Proclamation. Until that time, it was a battle over state's rights and economy.
Cost of a fragmented nation: Devastating
World War I raged from 1917 to 1921 at a cost of $334 billion in FY2011 dollars, representing 13.6 percent of GDP.
The U.S. economy was in a recession when World War I began. It began to rebound as Europeans bought our goods for their war efforts. Manufacturing plants were built and equipment added that caused our unemployment to decline from 7.9 percent to 1.4 percent during this period.
The U.S. also bankrolled the British and French war efforts. Loans to those two countries alone amounted to almost $2 billion. We risked the collapse of our economy if they couldn't pay us back.
And Germany didn't like us one bit for supplying its European foes, sinking the British supply ship Lusitania in attempts to starve the island. 128 Americans on board were killed. The U.S. joined its European allies on the battlefield, becoming a world power in the process.
Cost of sitting center on the world stage: Immeasurable
World War II was the most costly war in U.S. history by every measure. It took $4,104 billion or 35.8 percent of our GDP to claim victory.
We covered our involvement in WWII here. Another one we won't rehash here.
The postwar economic boom lasted until the early 1970s. Worldwide economic growth was spurred by redevelopment of areas devastated, international trade and evolving economic policies.
Population centers began to shift into suburban areas. Construction was booming. Automobiles became a necessity. Manufacturing prospered.
Cost of economic expansion: Immense
The Vietnam War brought a huge shift in wartime philosophy. For the first time, war was brought directly into our living rooms through the magic of new technology. The television.
War was no longer something we read about in newspaper headlines. We could actually see the bombing, the destruction, the loss of lives. The $738 billion spent, 2.3 percent of GDP, paled in comparison to the grizzly scene played out on the evening news.
The war effort strained our economy. Factories that would have produced consumer goods were instead making military goods. Funds were spent overseas, but not coming back into our country. Military expenditures led to budget deficits, fueling inflation.
Anti-war sentiment was strong. Vietnam was not lost on the battlefield. It was lost on the home front.
Cost of domestic turmoil: Colossal
We're now engaged in battle with a different type of enemy. We're not fighting country versus country as we have throughout history.
We're fighting ideology. We're protecting the citizens of America against a foe whose stated mission is to eliminate all who do not follow their belief. A foe whose faith teaches them that sacrificing their very life is the noblest path they can follow.
They can't be detracted by war. Their death is merely evidence of their conviction.
But we're confronting this one differently. We're rebuilding infrastructure in the arena. We're leaving schools and hospitals where terrorist strongholds once stood. We're training and supplying local officials to provide their own security once our military returns home.
This war will not be a win/lose situation. Terrorism will remain after we end our military involvement in the Middle East.
There are some things we cannot put a price on. Most importantly, the freedoms we enjoy in America. We can't sit back idly while enemies use commercial airliners to annihilate the World Trade Centers. We can't allow the bombing of our embassies, or murder of goodwill ambassadors.
To do so would be to lose more than a war. We would lose our liberty, our freedom and all that our forefathers fought to protect in every conflict throughout history.
You would be hard-pressed to find anybody who really wants war. But at this point in time, there isn't much alternative.
Cost of servitude: Unfathomable
Once again I won't mention the U.S. Market's sideways slide.
There are several noteworthy business news events today, but I will focus on what I believe to be the most significant: China's rate of growth has been revised downward to less than 7.6 percent. This is down from a high of 12 percent in 2010 (when the recovery began), to a level not much better than the 6 percent experienced in 2009 - during the final throes of the Great Recession (GR). It is notable that Chinese growth rates of the decade previous to the GR were well into the high teens.
Clearly, in China, the recovery has stalled. And the world economy needs growth in China, to offset what can only be called pathetic when describing the economic performance of much of the rest of the world. The previously important European Union (EU) is experiencing negative growth and the former economic powerhouse, the United States (U.S.), grows at paltry rates well under 2 percent.
Remember, in the U.S. it takes GDP growth rates of about 2.5 percent for unemployment to remain stable. But unemployment finally has started to dip, you note.
Not really. The most recent slight reduction reported in the U.S. unemployment rate, likely to be subsequently revised upward, is primarily related to long-term unemployed workers simply leaving the labor force, many hopeless. I know several and you may, too. Regardless, it now seems inevitable that the world will slip into a second "double dip" recession.
Next week we'll discuss what might be done about it...
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