‘Truly this is the sweetest of theologies’, William said, with perfect humility, and I thought he was using that insidious figure of speech that rhetors call irony, which must always be prefaced by the pronunciato, representing its signal and its justification – something that William never did. For which reason the abbot, more inclined to the use of figures of speech, took William literally …
Umberto Eco The Name of the Rose
As in most recent wars, military casualties on the US-led side have been minimal in the war on Iraq. But there is another sense in which the cost in American, British and Australian lives has been high.
The money spent on the war could have been allocated instead to improved health care or public safety measures. The cost-effectiveness of such measures varies a lot, but a fair rule of thumb is that at the margin, health interventions cost about $US5 million per life saved (because of lower costs here, a marginal cost of about $A5 million per life saved is also appropriate for Australia).
So if we assume that the war and occupation will end up costing $100 billion, the opportunity cost is around 20 000 American lives. Assuming Australia spends $1 billion, the opportunity cost here is around 200 lives.
To take a more optimistic view of the question, it’s worth noting that the cost of saving lives through health care and other interventions is far smaller in poor countries like Iraq than in rich countries. So, if the US were prepared to spend another $100 billion* rebuilding (as opposed to occupying) Iraq, and allocate a substantial portion of that to health and education [especially education for women, which has big health benefits], many more than 20 000 lives could be saved. A commitment to reconstruction spending on this scale would go a long way towards justifying the war.
*Of course, for any net benefits to be realised, the money has to be new money from America or other donors, not Iraqi money recycled through American contractors.
This Washington Post article is the first I’ve seen based on extensive interviews with Iraqi civilians (in this case, in Basra) in the absence of the armed forces of either side. For those tempted to believe the official statements of one side or the other, it makes interesting reading. The headline “People in Basra Contest Official View of Siege: Life Was Mostly Normal, Residents Say; Doctors Report Many Civilians Killed” gives a reasonably accurate summary.
Responding to my piece on PPPs in last Thursday’s Fin, Dennis O’Neill of the Australian Council for Infrastructure Development concedes that the obligations associated with PPP are similar to those of sovereign debt, but then says that governments prefer PPPs because they are unwilling to take on additional debt for fear of jeopardising AAA credit ratings.*This makes about as much sense as saying that people who are worried about the size of their mortgage should borrow on their credit cards instead.
At lower credit ratings you could make an argument about transfers of systemic risk (very tenuous in my opinion), but the only question that should affect a AAA rating is the ratio of total obligations (including debt and PPP contractual obligations) to income.
Despite his protestations, O’Neill belongs among the believers in the magic pudding theory of private finance for infrastructure.
* [the letter is not on the Fin website yet, I’ll try to post it later].
This is pretty much the antithesis of blogging. I read an article by Will Hutton a few days ago, thought I’d noted down the link and now I can’t find it anywhere. Anyway, Hutton produced statistics to show that the increased public spending of Blair’s second term was producing the desired results – shorter waiting lists, better school performance, lower crime and so on. But I don’t have a link, so you’ll just have to take my word for it.
As I recall, Hutton had a go at the standard free-market line that ‘you don’t solve a problem by throwing money at it’. It’s easy to make fun of this kind of claim. After all, no-one, least of all free-marketeers believes this in relation to their daily lives – there aren’t that many problems that can’t be eased to some extent by a generous application of money.
But I thought that it might be worth exploring the underlying argument a bit further. At its weakest it’s a statement about logical implication, namely that spending more money is neither necessary nor sufficient to bring about better outcomes. This is true, and can be backed up by supporting examples and counterexamples, but it isn’t very helpful. Training is neither necessary nor sufficient for swimmers to win races, but that doesn’t mean it’s a good idea not to train.
A more serious version of the claim rests on the factual claim that the public sector is inefficient compared to the private sector. If true, this means that it would be possible to improve performance without cost, and it raises the possibility that an increase in funds will simply lead to an increase in inefficiency. But most plausible models of public sector inefficiency don’t yield this conclusion.
Finally, there is statistical evidence. Taken in aggregate, statistical evidence produces the commonsense result that, other things equal, more input implies more output. The apparent counterexamples, such as US studies showing no relationship between class size and academic performance, generally don’t stand up to scrutiny very well. (at last, a link!)
Update In the comments thread, Mark Chambers comes to my rescue with this link to the Hutton article.
Although I don’t keep careful track, I had always thought of Alan Wood as being relatively optimistic about the performance of the US economy, and its implications for Australia. But his latest piece puts him firmly in the camp of the ultrabears. He endorses the calculations of British economist Wynne Godley
But according to Godley’s calculations, using conservative assumptions about US growth, interest rates and private borrowing behaviour, this can’t go on. As the private sector swings back to saving, even if only modestly, the US is heading for current account and budget deficits of the order of 8 per cent or 9 per cent of GDP, with implied foreign borrowing rising from about 25 per cent of GDP to 60 per cent.
The US may be able to sustain the deterioration for some time if it is seen as the best place to invest, as it may be because of the poor economic performance of Europe and even more so Japan. But it is unlikely to be sustainable politically or in financial markets indefinitely. Investors have already taken a pretty big haircut betting on US share prices and the dollar.
So how to adjust? A huge rise in US exports relative to its imports would do it, but that needs a powerful demand expansion outside the US, and how is that going to come about given the state of the European and Japanese economies? Well, a large depreciation of the US dollar could do the trick, but is likely to be resisted by US trading partners.
Godley’s conclusion, which seems all too plausible, is that the US economy will not recovery properly and there will be a long, depressing era of growth recession. Unless, of course, the US can revive the new-economy miracle. Don’t hold your breath.
I’ve been putting forward much the same viewpoint for years, and I’ve done the same calculations on the current account blowout. But a deficit of 8 or 9 per cent is one of those trends that can’t be sustained and won’t be.
I disagree with the assumption that, because US trading partners don’t want a depreciation, they can prevent it happening. I see the adjustment coming through a combination of low growth, inflation and real depreciation – basically a rerun of 70s stagflation.
Shortly before the fall of Basra (4 April), I noted a report in The Times, saying that the British were encouraging looters. The report said
The British view is that the sight of local youths dismantling the offices and barracks of a regime they used to fear shows they have confidence that Saddam Hussain’s henchmen will not be returning to these towns in southern Iraq.
One senior British officer said: “We believe this sends a powerful message that the old guard is truly finished.”
I thought I’d better record this before it went too far down the memory hole. When we come to allocate the responsibility for the destruction of archeological treasures and so on, it will be important to recall that this was the product of deliberate policy, not mere neglect.
Update I’m stunned. A string of commentators in the thread take the line that if the Coalition encourages desperately poor young men to loot government buildings, then stands back while they do a comprehensive job of stripping everything in sight, they’re not to blame because “they only meant Ba’ath party offices and the like”. I was struggling for an analogy for this but res ipsa loquitur .
Further update A further line of exculpation is that the Coalition forces couldn’t have anticipated, when they encouraged looters, that the looting would extend to sites like the Museum. Except that, as the WashPost reports, they were repeatedly warned about the likelihood that the Museum would be looted under the cover of civil disorder (it appears that professional thieves, looking for gold, played a major role in the attack, while generic looting helped them overwhelm any resistance and cover their tracks). The Coalition response was to create as much disorder as possible, then ignore pleas from the Museum for protection.
One last update Bargarz has been particularly sniffy about this post. Interesting, given that he himself approvingly noted the looting of a French cultural centre.
La Divina Commedia by Dante Alighieri. Well, not exactly. I’m not reading the original, but an English translation (the much-praised and much-criticised Dorothy Sayers version). And, as with Das Kapital, I’ve only read the first volume, L’Inferno, so far. On a previous reading, a few decades ago, I got to the end of the Purgatorio. My ambition is to read it all in Italian with the assistance of a translation, but I think that’s a long way off. In the meantime, I’m enjoying the image of the simoniacal Popes, stuffed headfirst in a hole, with each new arrival pushing the others further down. I also recently read At the Court of the Borgias, a relatively restrained private diary kept by the official in charge of protocol.
But my main activity for the weekend has been more physical – along with my son Daniel, I’ve been at a karate camp. Martial arts are an essential skill for modern academics , but not one of my natural strengths. So karate camp was like travelling back in time to school, except this time I was at the back with the slow kids. Top Deja vu experience – being made to do fifty pushups for talking in class.
Despite my limitations, I’m enjoying karate very much. Brisbane and Gold Coast readers might want to check out our dojo website.
My opinion piece in yesterday’s Fin (subscription required) was about public-private partnerships (PPPs). Final para
As long as financial innovation is seen to be good in itself, politicians will continue to pursue these schemes, not as a method of optimally allocating a complex set of risk, but as a source of fairy gold, from which valuable public assets can seemingly be spun out of thin air. Of course, just like fairy gold, this illusion will disappear in the light of day, leaving a mountain of debt and poorly-structured projects.
The military phase of the war has been neither the disaster I feared, and predicted, for much of the last two weeks, nor the bloodless victory I hoped for in the first few days.
As this NYT report says, the total number of Iraqis killed in the war will probably never be known, but it is clearly in the tens of thousands. The vast majority were guilty of no crime greater than serving in the army, mostly as conscripts, and subject to the threat of death for desertion or failure to fight.
Compared with Australian experience, the death toll appears comparable with that for the whole of World War II, but lower, relative to population, than that for World War I.
Saddam’s was an evil and brutal regime, but the war is not justified simply by his overthrow. The US and its allies are obligated to deliver the promise of a free, democratic and prosperous Iraq, and a just settlement of the Israel-Palestine issue. These will be difficult, expensive, and often thankless tasks. My opposition to the war (leaving aside the spurious debate about weapons of mass destruction) was based mainly on my doubt that the Bush Administration would have the capacity, or the will, to carry through with these obligations once Saddam was gone. My doubts have not been allayed by the conduct of the war
However, I was overly pessimistic about the course of the war, and perhaps Bush (or, more realistically, Blair) will prove me wrong about the peace. I hope so.
John Quiggin 