Iraq is a Minefield

Have any of you ever realized that you just may be in a minefield? It’s a difficult conundrum because you don’t want to just stay there, but you also don’t want to move. It seems as though there is no good choice to make. That, according to an analyst at the National Defense University, is the US fate in Iraq currently.

During our relatively short discourse into international ethics, we discussed Table 2.1 from Amstutz’s book, which demonstrates the Three Dimensions of Moral Judgment.

Here it is:

We notice that in order to evaluate the morality of a foreign policy decision, we must judge the motives behind the decision, the means used, and the final result of the decision. A new paper by Joseph J. Collins, of the Institute for National Strategic Studies of the National Defense University analyzes the Bush administration’s decision to invade Iraq in 2003. According to the author,

To date, the war in Iraq is a classic case of failure to adopt and adapt prudent courses of action that balance ends, ways, and means.

The paper is an interesting and nuanced read and I encourage you to take a look. Here is the first page:

Measured in blood and treasure, the war in Iraq has achieved the status of a major war and a major debacle. As of fall 2007, this conflict has cost the United States over 3,800 dead and over 28,000 wounded. Allied casualties accounted for another 300 dead. Iraqi civilian deaths—mostly at the hands of other Iraqis—may number as high as 82,000. Over 7,500 Iraqi soldiers and police officers have also been killed. Fifteen percent of the Iraqi population has become refugees or displaced persons. The Congressional Research Service estimates that the United States now spends over $10 billion per month on the war, and that the total, direct U.S. costs from March 2003 to July 2007 have exceeded $450 billion, all of which has been covered by deficit spending. No one as yet has calculated the costs of long-term veterans’ benefits or the total impact on Service personnel and materiel.


The war’s political impact also has been great. Globally, U.S. standing among friends and allies has fallen. Our status as a moral leader has been damaged by the war, the subsequent occupation of a Muslim nation, and various issues concerning the treatment of detainees. At the same time, operations in Iraq have had a negative impact on all other efforts in the war on terror, which must bow to the priority of Iraq when it comes to manpower, materiel, and the attention of decisionmakers. Our Armed Forces—especially the Army and Marine Corps—have been severely strained by the war in Iraq. Compounding all of these problems, our efforts there were designed to enhance U.S. national security, but they have become, at least temporarily, an incubator for terrorism and have emboldened Iran to expand its influence throughout the Middle East.

As this case study is being written, despite impressive progress in security during the surge, the outcome of the war is in doubt. Strong majorities of both Iraqis and Americans favor some sort of U.S. withdrawal. Intelligence analysts, however, remind us that the only thing worse than an Iraq with an American army may be an Iraq after the rapid withdrawal of that army. The 2007 National Intelligence Estimate (NIE) on Iraq’s future stability said that a rapid withdrawal “almost certainly would lead to a significant increase in the scale and scope of sectarian conflict in Iraq, intensify Sunni resistance to the Iraqi government, and have adverse consequences for national reconciliation.” The NIE goes on to say that neighboring countries might intervene, resulting in massive casualties and refugee flows. No one has calculated the psychopolitical impact of a perceived defeat on the U.S. reputation for power or the future of the overall war on terror. For many analysts (including this one), Iraq remains a “must win,” but for many others, despite the obvious progress under General David Petraeus and the surge, it now looks like a “can’t win.” To date, the war in Iraq is a classic case of failure to adopt and adapt prudent courses of action that balance ends, ways, and means.

So What does the Price of Soybeans have to do with Smog in Buenos Aires?

When I was younger, my friend’s father would often respond to our childhood rantings with the question, “but what’s that got to do with the price of tea in China?”  I still don’t really understand what it means, but in this increasingly globalized world, there is a direct causal link bewtween the price of soybeans and smog in the Argentinian capital city of Buenos Aires.  The causal mechanism is outlined in this Bloomberg news report:

April 17 (Bloomberg) — Smoke from fires set by farmers to clear fields for grazing covered the city of Buenos Aires and shut down some highways leading into the Argentine capital.

Interior Minister Florencio Randazzo called the smoke a “disaster” and said 292 separate fires covering 70,000 hectares (173,000 acres) had been detected in the provinces of Buenos Aires and neighboring Entre Rios.

Farmers are burning more land as they create pastures for cattle that previously grazed fields now dedicated to soybeans, said Randazzo.  An 89 percent increase in soybean futures prices in the past year, part of a global explosion in food costs, has prompted Argentine farmers to increase the area sown to the oilseed by 10 percent, according to the Agriculture Secretariat.

“Those responsible are farmers who are burning their meadows to cut costs and maximize profits without considering the consequences,” said Randazzo in a news conference at the Presidential Palace. “We are conducting investigations to find those responsible.”

Notice this chart of soybean prices below and the fact that many farmers are moving into the soybean growing business and I think we could have the potential for an intermediate-term top in the soybean market.  As in many speculative markets, many would-be speculators rush in just at (or even just after) the top has been set for that particularly stock or commodity.  It’s not a surprise the the record number of sales transactions for US real estate occurred in the month (around Summer 2005) as a top was setting in.  If I had to bet, I’d wager that many of those new soybean farmers will wish they had remained cattle farmers.

Thomas Friedman’s First Law of Petropolitics

New York Times columnist wrote a fairly interesting article in Foreign Policy magazine a couple of years entitled “The First Law of Politics.” Here are some excerpts:

When I heard the president of Iran, Mahmoud Ahmadinejad, declare that the Holocaust was a “myth,” I couldn’t help asking myself: “I wonder if the president of Iran would be talking this way if the price of oil were $20 a barrel today rather than $60 a barrel.” When I heard Venezuela’s President Hugo Chávez telling British Prime Minister Tony Blair to “go right to hell” and telling his supporters that the U.S.-sponsored Free Trade Area of the Americas “can go to hell,” too, I couldn’t help saying to myself, “I wonder if the president of Venezuela would be saying all these things if the price of oil today were $20 a barrel rather than $60 a barrel, and his country had to make a living by empowering its own entrepreneurs, not just drilling wells.”

As I followed events in the Persian Gulf during the past few years, I noticed that the first Arab Gulf state to hold a free and fair election, in which women could run and vote, and the first Arab Gulf state to undertake a total overhaul of its labor laws to make its own people more employable and less dependent on imported labor, was Bahrain. Bahrain happened to be the first Arab Gulf state expected to run out of oil. It was also the first in the region to sign a free trade agreement with the United States. I couldn’t help asking myself: “Could that all just be a coincidence? Finally, when I looked across the Arab world, and watched the popular democracy activists in Lebanon pushing Syrian troops out of their country, I couldn’t help saying to myself: “Is it an accident that the Arab world’s first and only real democracy happens not to have a drop of oil?”

The more I pondered these questions, the more it seemed obvious to me that there must be a correlation—a literal correlation that could be measured and graphed—between the price of oil and the pace, scope, and sustainability of political freedoms and economic reforms in certain countries.

Mock German Election Simulation–Government Formation Results

In the second part of our mock German election simulation–the government formation negotiations–we were able to get a new government voted into power by the recently elected Bundestag.  (I refer you to this post for more information about the electoral results.)

To remind you, following the election, we had the composition of the Bundestag was:

FDP–6 mandate (formateur party)

CDU/CSU–4 mandates

SPD–3 mandates

Greens–3 mandates

In order to have a secure governing coalition, a governing coalition of at least 9 mandates would be needed in this sixteen-member parliament.

The FDP were unable to convince any of the other parties to form a governing coalition with them, and the government that was voted into office, by a majority vote of 10-6 was a three-party coalition of the Greens, CDU/CSU, and the SPD.

In the end, it was the personal ambition of the CDU/CSU leader–Patrick S.–that ruled the day.  He wanted to become Chancellor and this steely determination served him well as he, with his fellow party members and advisory committee, was able to effectively forge a rather wieldy three-party governing coalition.

Why did Patrick S. want to become Chancellor so desperately?  There have been reports in some of the leading journals that it has been his dream since childhood.  But in a sit-down interview with Deutsche Welle following his ascension to the Chancellorship, Chancellor S. claimed that it was because this election was crucial to the future of the German state.  According to the Chancellor, he and his party believe that a moral crisis of epic proportions has descended upon Germany and only his party had the necessary moral acuity to set Germany back on the correct path.

The Chancellor and the six-member Cabinet is composed of the following:

Chancellor–Patrick S. (CDU/CSU)

Minister of Education–Becky W. (Greens)

Minister of the Interior–Erick K. (CDU/CSU)

Minister of the Environment–Zhivko I. (Greens)

Minister of Foreign Affairs–Kyle B. (CDU/CSU)

Minister of Health–Rip F. (SPD)

Minister of Labor–Andrew S. (SPD)

One of the advisers to the SPD commented that the SPD actually had refused to sign a coalition agreement offered to them by the FDP, which in retrospect, was better for the SPD than the one they signed ultimately.  There seemed to be a consensus within the SPD that the arrogance of the FDP had created friction between the two potential coalition partners.

I look forward to reading your impressions of the simulation exercise on your blogs.

India’s Finance Minister Calls Biofeuls a “Crime Against Humanity”

In the WSJ article reference below, it is noted that one of the reasons for the dramatic rise in food prices over the last few years has been the decision by rich countries–particularly the United States–to use agricultural products not for food, but for fuel for motor vehicles. In fact, according to this NPR report:

“The grain required to fill a 25-gallon SUV tank with ethanol will feed one person for a year,” [Lester] Brown [author of the book Plan B 3.0: Mobilizing to Save Civilization] says. “And what we are seeing now is the emergence of direct competition between the 860 million people in the world who own automobiles and who want to maintain their mobility while the 2 billion poorest people in the world simply want to survive.”

For audio of the NPR report, click the link above.

Indeed, the issue of biofeuls is more than simply a matter of geopolitics. It has come to be viewed as a moral dilemma. Once again, from the WSJ article:

“When millions of people are going hungry, it’s a crime against humanity that food should be diverted to biofuels,” said India’s finance minister, Palaniappan Chidambaram, in an interview. Turkey’s finance minister, Mehmet Simsek, said the use of food for biofuels is “appalling.”

James Connaughton, chairman of the White House’s council on environmental quality, said biofuels are only one contributor to rising food prices. Rising prices for energy and electricity also contribute, as does strong demand for food from big developing countries like China.

But beyond taking shots at the U.S., there was little agreement this weekend on what should be done.

Wall Street Journal Reports on Rise in Food Prices, Riots

The WSJ has published a report on the outcome of last week’s annual meetings of the World Bank and the IMF and how leaders there proposed to deal with the very real problem of rapidly rising food prices worldwide. For a variety of reasons, there has been a dramatic surge in the prices of all commodities, including primary agricultural products, like rice and wheat. This has already led to rioting in Haiti and Egypt (see a previous blog post here) and could lead to even more social and political unrest in developing countries around the world, where large majorities rely on rice and wheat as staple foods. Here are some excerpts from the WSJ article:

WASHINGTON — Finance ministers gathered this weekend to grapple with the global financial crisis also struggled with a problem that has plagued the world periodically since before the time of the Pharaohs: food shortages.

Surging commodity prices have pushed up global food prices 83% in the past three years, according to the World Bank — putting huge stress on some of the world’s poorest nations. Even as the ministers met, Haiti’s Prime Minister Jacques Edouard Alexis was resigning after a week in which that tiny country’s capital was racked by rioting over higher prices for staples like rice and beans.

Rioting in response to soaring food prices recently has broken out in Egypt, Cameroon, Ivory Coast, Senegal and Ethiopia. In Pakistan and Thailand, army troops have been deployed to deter food theft from fields and warehouses. World Bank President Robert Zoellick warned in a recent speech that 33 countries are at risk of social upheaval because of rising food prices. Those could include Indonesia, Yemen, Ghana, Uzbekistan and the Philippines. In countries where buying food requires half to three-quarters of a poor person’s income, “there is no margin for survival,” he said.

I encourage you to read the whole article, which is free on the WSJ web site. Here is a chart demonstrating how rising food prices have affected balance of payments accounts in select countries around the world. As the graphic states, worsening balance of payments figures will make it much more difficult for some countries to pay off foreign debt and provide the infrastructure necessary for further economic and social development.

Newsweek Editor Fareed Zakaria Says “No” to Olympic Boycott

In a recent column, Newsweek’s Fareed Zakaria argues that the US should not boycott the Olympic Games in Beijing this summer.  He argues that it would have the opposite of the intended effect.  Here are some snippets:

Public humiliation does not work nearly as well on the regime in Beijing as private pressure. At first glance, China’s recent crackdown in Tibet looks like a familiar storyline: a dictatorship represses its people. And of course that’s part of the reality — as it often is in China. But on this issue, the communist regime is not in opposition to its people. The vast majority of Chinese have little sympathy for the Tibetan cause. To the extent that we can gauge public opinion in China and among its diaspora, ordinary Chinese are, if anything, critical of the Beijing government for being too easy on the Tibetans. The real struggle here is between a nationalist majority and an ethnic and religious minority looking to secure its rights.

In these circumstances, a boycott of the Olympics would have precisely the opposite effect that is intended. The regime in Beijing would become only more defensive and stubborn. The Chinese people would rally around the flag and see the West as trying to humiliate China in its first international moment of glory. (There are many suspicions that the United States cannot abide the prospect of a rising China.) For most Chinese, the Games are about the world’s giving China respect, rather than bolstering the Communist Party’s legitimacy…

…Some want to punish China for its association with the Sudanese government, which is perpetrating atrocities in Darfur. But to boycott Beijing’s Games because it buys oil from Sudan carries the notion of responsibility too far. After all, the United States has much closer ties to Saudi Arabia, a medieval monarchy that has funded Islamic terror. Should the world boycott America for this relationship?

Happy Tax Day–April 15th

Well, today is tax filing day and I’ve often wondered just where my taxes go.  I’ve often thought that given the extant technological capabilities, and the normative desire for more direct forms of democracy, that each and every taxpaying citizen should be given the opportunity not only to file her taxes electronically, but to be able to specifically allocate her tax dollars to the uses that she sees fit.  How would you choose to allocate your tax dollars?  How does the federal government choose to allocate its tax dollars?  Look at the figure below–from the Office of Management and Budget–to see what the Federal government spends its money on.  This graph goes a long way to undermining the demagoguery of politicians when talking about taxes and spending.  When a politician tells you that he is going to cut taxes and does not mention spending cuts, then he is playing politics (unless, of course, he thinks that budget deficits are a non-issue).

The fact is that discretionary spending is a small minority (18%) of total spending.  In order to put a real dent in the budget deficit and the federal debt (two different–but related–concepts), you must cut entitlements, cut defense spending, raise taxes, or a combination of the three.

Happy Tax Day!

H/T Andrew Sullivan

How Your Mortgage Payment Funds Norwegian Town’s Workforce

On the first day of class, I made the argument that in order for me to fulfill my pedagogical goals this semester, I need your help. I needed you to understand that what you choose to do (or not to do) in the classroom (and on your blog) will affect not only the grade you receive and how much you learn in this course, but will also affect the learning and grades of your peers sitting beside you in class. We live in societies, in which we all–to a greater or lesser extent–have an effect on those with whom we come into contact, with whom we share work places, roads, stadia, and class rooms. We all understand that if your neighbor’s house is unkempt and the lawn is overgrown, this will have a detrimental effect on your own property values.

Since we’re talking about property and the effects of social interaction, how is it that the town of Narvik, Norway (on the Arctic Circle) has had to miss a payroll for its municipal workers as the result of residents of Stockton (CA), Miami (FL), Flint(MI), and Worcester (MA), no longer being able to pay their residential mortgages? This New York Times article helps explain, and so does Jon Stewart’s guest, CNN Personal Finance editor Gerri Willis:

— At this time of year, the sun does not rise at all this far north of the Arctic Circle. But Karen Margrethe Kuvaas says she has not been able to sleep well for days.

What is keeping her awake are the far-reaching ripple effects of the troubled housing market in sunny Florida, California and other parts of the United States.

Ms. Kuvaas is the mayor of Narvik, a remote seaport where the season’s perpetual gloom deepened even further in recent days after news that the town — along with three other Norwegian municipalities — had lost about $64 million, and potentially much more, in complex securities investments that went sour.

”I think about it every minute,” Ms. Kuvaas, 60, said in an interview, her manner polite but harried. ”Because of this, we can’t focus on things that matter, like schools or care for the elderly.”

Norway’s unlucky towns are the latest victims — and perhaps the least likely ones so far — of the credit crisis that began last summer in the American subprime mortgage market and has spread to the farthest reaches of the world, causing untold losses and sowing fears about the global economy.

Where all the bad debt ended up remains something of a mystery, but to those hit by the collateral damage, it hardly matters.

Tiny specks on the map, these Norwegian towns are links in a chain of misery that stretches from insolvent homeowners in California to the state treasury of Maine, and from regional banks in Germany to the mightiest names on Wall Street. Citigroup, among the hardest hit, created the investments bought by the towns through a Norwegian broker…

…But Narvik has $34.5 million in a second Citigroup-devised investment, known as a collateralized debt obligation, which has also lost value as a result of the broader market turmoil. The town stands to lose at least some of that money, too.

Those investments represent a quarter of Narvik’s annual budget of $163 million, and covering the losses would necessitate taking out a long-term loan, which the town could only pay off by cutting back on services.

”You can calculate this in terms of places for schoolchildren or help for the elderly,” said Mr. Hermansen, a soft-spoken man who sat in his office in near-darkness, the lights switched off…

…In 2004, Narvik and a number of other towns took out a large loan, using future energy revenue as collateral. They invested the money, through Terra Securities, in the Citigroup debt vehicle, which offered a better return than traditional investments. In June 2007, as the subprime problems were brewing, Narvik shifted some money from that investment into an even more complex one, again through Terra Securities.

Do read the whole thing as it is interesting. Note, however, the really key part of the whole story in bold in the paragraph above and use the experience of Narvik to learn a very important lesson about investing. There is a clear immutable relationship in the investing world: the higher the expected return, the higher the level of risk associated with that return. If you expect to receive outsized returns, be prepared to accept outsized risk. Period. There may have been fraud perpetrated here (and it’s difficult to know without reading the signed agreements), but caveat emptor would have been valid advice in this situation.

What is the general link between subprime mortgages and other collateralized debt obligations (CDOs)–such as auto loans, student loans, and credit card debt–and the international political economy. Is there a general systemic risk to the global economy from new financial instruments, which Warren Buffett has referred to as “financial weapons of mass destruction?” Here is a panel at the 2008 World Economic Forum in Davos, which will shed more light on the financial industry.

Poor Countries, Agriculture, and IMF Policies

There has been a rapid increase in food prices over the last couple of years, seen most dramatically in the recent 30% one-day rise in the price of rice worldwide.  This is putting tremendous pressure on the poor and is leading to instability in countries around the world.  There have been violent demonstrations–and equally violent government responses–to food rioting in Egypt and Haiti in the last couple of weeks.  They may be but a harbinger of the economic and political instability to come.  Here is a report from the BBC, in which an expert argues that IMF policies have contributed to the rise in food prices:

“Poor countries need to invest heavily in agriculture to feed their people.  There’s been a dearth of investment in agriculture in poor countries, mainly because of IMF and World Bank policies…”