Friday, October 20, 2006


Money for War

A new Opinion piece by WSJ argues that there is not enough money going to the war effort.

Is there a "right" number to spend on a war?
Is a percentage comparison even appropriate?

Shouldn't a real dollar comparison be used. And alongside that, a timeline trend to compare each conlfict?

BTW-if anybody wants to do that, I would like to see it and I will post it if you do...

I actually think % of GDP is probably the best way to go. It reflects how much of our "national income" goes to paying for the war effort.

Think of it in this example. Say a man buys a car in 1995. Let's say that ten years later the price of gas has stayed the same and he drives the same ammount of miles he did when he first bought his car. This leads us to believe that he is spending the same ammount of real dollars in gas each month as he was in 1995.

Let's say that in 1995 this accounted for 10% of his monthly budget. But, ten years later, he has a better job and his monthly income has doubled. Now, even though he's spending the same number of real dollars on gasoline each month, it takes up only 5% of his monthly income. From this information, would you say the man's "gasoline burden" has decreased or stayed the same over the last ten years?
One thing I did not like about the article (which was recently cited by Greg Mankiw's blog btw) was that he claims an increase in taxes to fund the war would have stunted economic growth.

First, there is a difference between not raising taxes in the face of a war and cutting them. Second, can we honeslty make this claim?

If the war is not funded by tax revenue it has to be funded one of two ways: printing money (not really an option in the US) or borrowing money.

If the US borrows money, it will bid up interest rates and crowd out private investment (at least somewhat), which will certainly have an impact on economic growth.
There is an important ratio involved in the how much to spend question: Offense/Defense
At the end of WWI the ratio was offense heavy, meaning, for example, that $10 of offense was required to overcome $1 of defense (think of the board game Risk)
At the outset of WWII the ration swung further in the direction of offense, so we saw massive invasions.
In the current war the pendulum has swung again in favor of defense, as is true of all guerrila wars. 1 terrorixt can hold down 30 marines for as long as a week, at virtually zero cost to the terrorist.
Some have said that Bid Ladin is just draining the American economy in order to exact revenge for US attacks on Arabs.
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