Publication: IBD; Date:2008 Apr 18; Section:Issues & Insights; Page Number: A1
PERSPECTIVE
Cost Of War Or Price Of Freedom?
LAWRENCE KUDLOW
Surprise, surprise. Having failed to puncture Gen. David Petraeus’ story about great improvements on the ground in Iraq, liberals are now saying the cost of the Iraq War has somehow undermined the economy — even caused the current slowdown. What complete nonsense. First point: The United States has spent roughly $750 billion for the five-year war. Sure, that’s a lot of money. But the total cost works out to 1% of the $63 trillion gross domestic product over that time period. It’s minuscule. But here’s the real question we ought to be asking: What is the cost of freedom? While the left refuses to acknowledge it, the U.S. homeland has not been attacked since Sept. 11. Right there is a big economic plus. Since President Bush went on the offensive and took the battle to Iraq, al-Qaida and other extremist terrorist groups have been utterly routed by U.S. forces. But in tying the jihadists down on their home turf, and keeping them from mounting another coordinated attack on the United States, our economy has benefited incalculably. Then again, the antiwar forces might want to recall John F. Kennedy’s inaugural address, in which he called on Americans to “let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to ensure the survival and the success of liberty.” Do these folks actually think 1% of GDP is too large a price, too heavy a burden? I sure hope not. The leader of the “Iraq is sinking the economy” school is Joseph Stiglitz, a former Nobel Prize winner who worked for President Clinton and now teaches at Columbia University. Even Stiglitz admitted to me in a recent interview that the United States can afford the Iraq War. His real agenda, however, is to cut Iraqi funds and defense spending in general in order to launch a Keynesian bigspending campaign here at home. Of course, the liberal government-spending appetite is insatiable during wartime or peacetime. And for nearly three decades voters have rejected it, opting instead for the low tax rates that spur economic growth while allowing them to keep their money. And by the way, despite the current slowdown, the U.S. economy has performed remarkably well during the five years of the Iraq War. Real GDP has increased by 16%, or 3% annually. The unemployment rate has hovered below a historically low 5% for quite some time. Nearly 10 million jobs have been created. Household net worth has increased by $20 trillion. Industrial production has expanded by 13.5%. Even home prices, despite the current correction, have increased by 20%. Lest we forget, anti-freedom, anti-capitalism jihadists were attempting to drive a dagger through our economy. That was the point of hitting the World Trade Center, wasn’t it? But they failed miserably to stop the rising tide of free-market capitalism throughout the world. Global GDP growth has averaged nearly 5% annually in the last five years. The capitalization of the world’s stock market has increased 159% — or $35 trillion. New emerging-market economies have seen their stock markets collectively rise by 223%. Incidentally, the Congressional Budget Office estimated that if troops in Iraq were reduced to 75,000 by 2013, war costs would amount to just over $1 trillion for the entire period — roughly one-half of 1% of $177 trillion in newly created GDP. Still a tiny amount. And how can anybody truly approximate the cost of permitting Saddam Hussein to remain in power? In 2006, several economists at the University of Chicago estimated that in certain scenarios, the containment of Saddam might have produced security costs that are similar to the actual expenses of the Iraq War. But what of the benefits of removing the totalitarian Iraqi dictator? How are we calculating those? It was Saddam who launched a 10-year war against Iran, invaded Kuwait, and gassed and killed hundreds of thousands of his own people. And it could well have been Saddam who blew up the entire Middle East had he been left in power. Where is the liberal price-out of the potential consequences of not going to war? And should the Iraqi surge continue to safeguard an American ally and promote the kind of 7% economic growth that is now occurring in Iraq, how does one estimate the economic benefits to that nation, the region, the United States and the rest of the world? Liberals like Stiglitz have blinders on when it comes to the strategic course of U.S. civilian and military operations in Iraq, Afghanistan and elsewhere. They’re only willing to evaluate the negatives, rather than think through the positives. This is called single-entry bookkeeping. It makes for bad economics and even worse national security.
Monday, April 28, 2008
Better Off From Free Trade? Absolutely!
Publication: IBD; Date:2008 Apr 17; Section:Issues & Insights; Page Number: A1
PERSPECTIVE
Better Off From Free Trade? Absolutely
WALTER E. WILLIAMS
Presidential candidates Hillary Clinton and Barack Obama, pandering to antitrade activists, suggest that should they become president, they will restrict trade agreements. Before you buy into their promised paradise, there are a few trade questions you might consider. Suppose you were choosing a country to live in. Which country would you prefer: a country that has the world champing at the bit to put its money into or one where the world is unwilling to invest? Let’s look at the numbers. The U.S. is the world’s largest recipient of foreign direct investment. In 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7% of total U.S. private output, and employed 5.1 million workers — or 4.7% of the U.S. work force — in 2004. In 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Clinton, Obama and the anti-trade lobby is: Would Americans be better off if there were no foreign investment in our country? Between 1996 and 2006, about 15 million jobs were lost each year and 17 million created. That’s an annual net creation of 2 million jobs. Roughly 3% of the jobs lost were a result of foreign competition. Most were lost because of technology, domestic competition and changes in consumer tastes. Some of the gain in jobs is a result of “insourcing.” Foreign companies such as Nissan, Honda, Nokia and Novartis set up plants, hire American workers and pay wages higher than the national average. According to Dartmouth College professor Matthew Slaughter, “insourced” jobs pay 32% higher than the U.S. average. So here’s my question to anti-traders: If outsourcing is harmful to the U.S., it must also be harmful to European countries and Japan. Would you advise them to take their jobs back home? Wal-Mart has become the whipping boy for political demagogues, unions and antitraders. I suggest that they have the wrong target. The correct target is revealed by answering the question: “Why does Wal-Mart exist and prosper?” Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart to be a suitable source of goods and services. Clinton, Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop there and keep it in business. There’s great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it’s mainly a result of technological innovation — and it’s a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, notes that U.S. manufacturing employment between 1995 and 2002 fell by 11%. Globally, manufacturing job loss averaged 11%. China lost 15% of its manufacturing jobs, 4.5 million manufacturing jobs, compared with the loss of 3.1 million in the U.S. Job loss is the trend among the top 10 manufacturing countries that produce 75% of the world’s manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada and Mexico). But guess what: Manufacturing output rose 30% globally during the same period, and 100% in the U.S. from 1987 to today. Technological progress and innovation is the primary cause for the decrease in manufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology? Economist Joseph Schumpeter referred to this process witnessed in market economies as “creative destruction,” where technology, innovation and trade destroy some jobs while creating others. While the process works hardships on some people, any attempt to impede the process will make all of us worse off. Williams is a syndicated columnist and John M. Olin Distinguished Professor of Economics at George Mason University.
PERSPECTIVE
Better Off From Free Trade? Absolutely
WALTER E. WILLIAMS
Presidential candidates Hillary Clinton and Barack Obama, pandering to antitrade activists, suggest that should they become president, they will restrict trade agreements. Before you buy into their promised paradise, there are a few trade questions you might consider. Suppose you were choosing a country to live in. Which country would you prefer: a country that has the world champing at the bit to put its money into or one where the world is unwilling to invest? Let’s look at the numbers. The U.S. is the world’s largest recipient of foreign direct investment. In 2004, foreigners owned $5.5 trillion in U.S. assets and had $2.3 trillion in sales. They produced $515 billion of goods and services, accounting for 5.7% of total U.S. private output, and employed 5.1 million workers — or 4.7% of the U.S. work force — in 2004. In 2006 alone, foreign investors spent $184 billion investing in U.S. businesses and real estate, the highest amount foreign investors have spent since 2000. My question to Clinton, Obama and the anti-trade lobby is: Would Americans be better off if there were no foreign investment in our country? Between 1996 and 2006, about 15 million jobs were lost each year and 17 million created. That’s an annual net creation of 2 million jobs. Roughly 3% of the jobs lost were a result of foreign competition. Most were lost because of technology, domestic competition and changes in consumer tastes. Some of the gain in jobs is a result of “insourcing.” Foreign companies such as Nissan, Honda, Nokia and Novartis set up plants, hire American workers and pay wages higher than the national average. According to Dartmouth College professor Matthew Slaughter, “insourced” jobs pay 32% higher than the U.S. average. So here’s my question to anti-traders: If outsourcing is harmful to the U.S., it must also be harmful to European countries and Japan. Would you advise them to take their jobs back home? Wal-Mart has become the whipping boy for political demagogues, unions and antitraders. I suggest that they have the wrong target. The correct target is revealed by answering the question: “Why does Wal-Mart exist and prosper?” Wal-Mart exists and prospers because tens of millions of Americans find Wal-Mart to be a suitable source of goods and services. Clinton, Obama, unions and anti-traders should direct their outrage and condemnation at the tens of millions of Americans who shop there and keep it in business. There’s great angst over the loss of manufacturing jobs. The number of U.S. manufacturing jobs has fallen, and it’s mainly a result of technological innovation — and it’s a worldwide phenomenon. Daniel W. Drezner, professor of political science at the University of Chicago, notes that U.S. manufacturing employment between 1995 and 2002 fell by 11%. Globally, manufacturing job loss averaged 11%. China lost 15% of its manufacturing jobs, 4.5 million manufacturing jobs, compared with the loss of 3.1 million in the U.S. Job loss is the trend among the top 10 manufacturing countries that produce 75% of the world’s manufacturing output (the U.S., Japan, Germany, China, Britain, France, Italy, Korea, Canada and Mexico). But guess what: Manufacturing output rose 30% globally during the same period, and 100% in the U.S. from 1987 to today. Technological progress and innovation is the primary cause for the decrease in manufacturing jobs. Should we save manufacturing jobs by outlawing labor-saving equipment and technology? Economist Joseph Schumpeter referred to this process witnessed in market economies as “creative destruction,” where technology, innovation and trade destroy some jobs while creating others. While the process works hardships on some people, any attempt to impede the process will make all of us worse off. Williams is a syndicated columnist and John M. Olin Distinguished Professor of Economics at George Mason University.
The Business Cycle
Everyone would like the nation’s economic results to constantly average a good growth rate year after year. However, that’s not possible. When times have been ‘good’ for a while, the seeds for a drop in economic performance are naturally occurring. As business profits increase and home prices rise in good times, more people and companies have entered the industries with increased opportunities. Initially, the effect is good – providing more jobs, new companies, higher household incomes and wealth, etc..
However, until ‘too many’ (a number that can’t be predicted so that it could be avoided) people invest in companies, jobs, technology, homes, etc., it is unclear at what point these investments need to stop to be ‘in balance’. Therefore, at some point, a surplus is created (that is, supply exceeds demand). In other words, the economy has too much ‘wasted’ resources in place to continue at its old growth pace. Price reductions and job loss are the natural economic tools to correct this imbalance over time.
While that can be personally and financially painful (more for a few, than for all), the seeds to correct and reverse the downturn are already being planted. People who previously could not afford to buy a home can eventually afford to buy them at lower prices and probably lower interest rates (since inflationary pressures are dwindling with lower demand), raising their standard of living. Others, who could not afford to start a new business that they previously wanted to create or expand their current business, now have lower rents and possibly lower wages to help them get started and some will take the plunge, creating new jobs. In some cases, the job losses of some industries, because they are no longer needed to the same level as before, will become permanent losses.
That still can be good as most of those human resources are eventually redirected into new and/or growing industries. For example, we lost hundreds of thousands of phone operators in the 1990s when cell phones became popular. However, the new industry for cell phones created more jobs and better jobs than before (in addition to becoming a much wanted and purchased consumer item that delivered valued consumer benefits). This increase in economic activity will grow over time and the good times will be returned. It can be messy – destroying jobs that need to be destroyed and moving people into industries and jobs that need them which in total increases nearly everyone’s standard of living. That’s the business cycle working to produce higher standards of living and doing it better in a free capital market than in any other economic system.
However, until ‘too many’ (a number that can’t be predicted so that it could be avoided) people invest in companies, jobs, technology, homes, etc., it is unclear at what point these investments need to stop to be ‘in balance’. Therefore, at some point, a surplus is created (that is, supply exceeds demand). In other words, the economy has too much ‘wasted’ resources in place to continue at its old growth pace. Price reductions and job loss are the natural economic tools to correct this imbalance over time.
While that can be personally and financially painful (more for a few, than for all), the seeds to correct and reverse the downturn are already being planted. People who previously could not afford to buy a home can eventually afford to buy them at lower prices and probably lower interest rates (since inflationary pressures are dwindling with lower demand), raising their standard of living. Others, who could not afford to start a new business that they previously wanted to create or expand their current business, now have lower rents and possibly lower wages to help them get started and some will take the plunge, creating new jobs. In some cases, the job losses of some industries, because they are no longer needed to the same level as before, will become permanent losses.
That still can be good as most of those human resources are eventually redirected into new and/or growing industries. For example, we lost hundreds of thousands of phone operators in the 1990s when cell phones became popular. However, the new industry for cell phones created more jobs and better jobs than before (in addition to becoming a much wanted and purchased consumer item that delivered valued consumer benefits). This increase in economic activity will grow over time and the good times will be returned. It can be messy – destroying jobs that need to be destroyed and moving people into industries and jobs that need them which in total increases nearly everyone’s standard of living. That’s the business cycle working to produce higher standards of living and doing it better in a free capital market than in any other economic system.
Sunday, April 13, 2008
Capitalism
We live in a free market economy. Prices of goods and services are determined by supply and demand. That type of system is called capitalism. Countries that employ a true captilalistic economic system enjoy the highest standards of living in the world. The reason is that free markets balance supply and demand. Those individuals or companies that ‘waste resources’ (i.e. produce goods and services in greater quantities or poorer quality than people want to purchase at a given price) suffer through less or no profits or profit losses and eventually go out of business if the situation is not corrected. They have to lower prices to sell what won’t sell until eventually, if at all, demand finally equals supply.
Those that give people what they want in the right quantities and qualities profit (i.e. are rewarded) if they keep their costs in line. If instead, they charge too much to customers or deliberately get ‘greedy’ with their prices to increase their profits, that profit factor acts as an incentive to other individuals or companies to enter the market. That increases supply, which in turn lowers prices to levels that will inspire additional demand from consumers to snatch up the available supply.
In other words, capitalism gives people what they want efficiently, at the right price, and with the least amount of cost and waste. The complete opposite of the capitalist economic system is communism. Communism controls one or more of the three variables of a free market system, supply, demand (e.g. through rationing), and prices (including wages). Waste is subsidized by the government and companies are not penalized for it. Therefore, less of wanted or needed merchandise is available to the citizens and their standard of living suffers. There is no effective worker motivation to do well in their jobs or to innovate and/or start new businesses. This also lowers the standard of living and quality of life.
However, totally free markets really do not exist. Even in free markets, governments, in the cause of social justice or other reasons, impose varying restrictions and even trade barriers. For instance, to protect an industry (e.g. agriculture). This throws supply and demand (and thus prices) out of whack. We are no longer efficient. Instead we are wasteful and lower our standard of living as we pay more than would be the case under free markets. That extra money we pay means less money to spend on other goods and services, or savings, and we are poorer for it as less of those goods and services are produced and ultimately less people are needed/hired in those industries, raising the nation’s unemployment rate.
The government, labor unions, and liberals only sees and cares about the industries and jobs it protects. In the aggregate we are worst off. Fortunately, we do this a lot less than the Europeans who suffer from high unemployment and much lower standards or living than us. In effect, governments are enforcing a dosage of communism on capitalism. That guarantees waste and higher prices (e.g. farmers are paid more for their milk and/or produce though government price supports than a free market would pay, so that consumers also must pay more to buy it while at the same time, the government must pay to store the surplus, wasting more resources). We all suffer economically for it as less money to purchase other goods and services are available to us after paying those higher prices.
Sadly, the poor are hurt the most since they have little or no discretionary income to absorb the higher prices for basics such as milk and produce. In the meantime, agricultural corporations are the beneficiaries. The romantic notion of helping the small farmer is a fabrication since in reality, the number and more importantly the percentage of agriculture they represent is nearly non-existent in reality. If the small farmer needs help, he/she needs to become more efficient or go out of business, not be subsidized. His/her labor can be more beneficial if employed elsewhere.
Those that give people what they want in the right quantities and qualities profit (i.e. are rewarded) if they keep their costs in line. If instead, they charge too much to customers or deliberately get ‘greedy’ with their prices to increase their profits, that profit factor acts as an incentive to other individuals or companies to enter the market. That increases supply, which in turn lowers prices to levels that will inspire additional demand from consumers to snatch up the available supply.
In other words, capitalism gives people what they want efficiently, at the right price, and with the least amount of cost and waste. The complete opposite of the capitalist economic system is communism. Communism controls one or more of the three variables of a free market system, supply, demand (e.g. through rationing), and prices (including wages). Waste is subsidized by the government and companies are not penalized for it. Therefore, less of wanted or needed merchandise is available to the citizens and their standard of living suffers. There is no effective worker motivation to do well in their jobs or to innovate and/or start new businesses. This also lowers the standard of living and quality of life.
However, totally free markets really do not exist. Even in free markets, governments, in the cause of social justice or other reasons, impose varying restrictions and even trade barriers. For instance, to protect an industry (e.g. agriculture). This throws supply and demand (and thus prices) out of whack. We are no longer efficient. Instead we are wasteful and lower our standard of living as we pay more than would be the case under free markets. That extra money we pay means less money to spend on other goods and services, or savings, and we are poorer for it as less of those goods and services are produced and ultimately less people are needed/hired in those industries, raising the nation’s unemployment rate.
The government, labor unions, and liberals only sees and cares about the industries and jobs it protects. In the aggregate we are worst off. Fortunately, we do this a lot less than the Europeans who suffer from high unemployment and much lower standards or living than us. In effect, governments are enforcing a dosage of communism on capitalism. That guarantees waste and higher prices (e.g. farmers are paid more for their milk and/or produce though government price supports than a free market would pay, so that consumers also must pay more to buy it while at the same time, the government must pay to store the surplus, wasting more resources). We all suffer economically for it as less money to purchase other goods and services are available to us after paying those higher prices.
Sadly, the poor are hurt the most since they have little or no discretionary income to absorb the higher prices for basics such as milk and produce. In the meantime, agricultural corporations are the beneficiaries. The romantic notion of helping the small farmer is a fabrication since in reality, the number and more importantly the percentage of agriculture they represent is nearly non-existent in reality. If the small farmer needs help, he/she needs to become more efficient or go out of business, not be subsidized. His/her labor can be more beneficial if employed elsewhere.
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