In Today’s Wall Street Journal, John Bolton explains why economic sanctions will not persuade Tehran to abandon their nuclear ambitions:
Existing sanctions have doubtless caused some pain, but Iran’s real economic woes stem from nearly 30 years of mismanagement by the Islamic Revolution.
In other words, the fundamental diplomatic tool being applied to Tehran is fundamentally broken. We cannot take away from Iran what they do not have. The economic disaster engendered by the Khomeini revolution is more staggering than most people realize. According to the CIA’s World Fact Book, forty percent of Iranians live below the poverty level. Oil production has fallen by at least a third since the revolution and any profits are shared only within the regime. According to Iran Focus, the country’s inflation rate is rising ten times faster than its national growth, and the average price of household goods has increased by twenty percent in the last year.
Moreover, the mullahs aren’t terribly concerned with the viability of Iran as a state at all. In the words of the revolution’s founder, Ayatollah Khomeini:
We do not worship Iran, we worship Allah. For patriotism is another name for paganism. I say let this land [Iran] burn. I say let this land go up in smoke, provided Islam emerges triumphant in the rest of the world.
Yet, here we are. Broken sticks, no carrots left. As Bolton says,
Thus, instead of debating how much longer to continue five years of failed diplomacy, we should be intensively considering what cooperation the U.S. will extend to Israel before, during and after a strike on Iran.
We need to start hearing from our candidates on this question.
All true, but this explailns why Gates might have served the country better not taking the job.
The economy is cratering out. Defense has to take a hit like everybody else. I’m cofident that if DOD really tried,they could find a lot of cost reductions that would not jeopardize our national security. Remember, DOD is government,and Contentsionsistas hate government. Are Contensionsistas Anarchists,in the closet?
Artists are part of the economy too. Just because you can survive on a diet of Robert Kagan books and Hogan’s Heroes doesn’t mean the rest of us should do without symphony orchestras.
RCAR AND FRANGLO: Here is the answer to both of your posts (it is long but worth it):
Summary:
The distinction between past and present budget deficits can’t be stressed enough. Whatever the differences in cost, the real distinction is that past deficits were largely caused by military spending meant to protect our mostly capitalist economy. Conversely, today’s deficits are being used to author our economic decline. While investors would buy at low interest rates debt that theoretically protected our capitalism, it’s hard to imagine there will be similar interest in funding our transformation into a corporatist welfare state. Written for Forbes.com.
This Budget Deficit Is Different, and Dangerous
John Tamny, 02.02.09, 12:01 AM ET
Since the U.S. ran its first budget deficit, there have been arguments over the economic implications. The more austere among us have suggested we’re living on borrowed money that will eventually cripple us as a nation, while the more optimistic have noted that, so long as foreigners are willing to fund our profligacy at low rates, there’s nothing wrong with borrowing.
In defense of the optimists, over the last 50 years, investors have hardly blinked with regard to nominally high spending by our minders in Washington. Indeed, as much as the federal deficits in the ’70s and ’80s spooked some, relative to the size of our economy, they were minuscule.
Going back to the end of World War II, our national debt as a percentage of GDP soared as high as 125%. Though it’s not as low now as it was in the ’70s and ’80s, with the current figure around 70%, modern Washington has been relatively parsimonious when it comes to borrowing. At present, our debt as a percentage of GDP is roughly 60%.
What’s being missed, however, is the nature of past and present government spending. When the U.S. Treasury borrowed during World War II, indebtedness made sense. Other than Pearl Harbor, the U.S. mainland was never attacked. Heavy borrowing meant to fund our national defense ensured we would emerge largely unscathed as a nation in the aftermath of the war.
It’s also important to remember that, with the dollar defined as one thirty-fifth of an ounce of gold during the war years, the U.S. was an excellent credit risk. Contrary to former Treasury Secretary Robert Rubin’s admonition that deficits equal high rates of interest, despite total debt larger than our economy, the Treasury was able to borrow at the lowest rates of interest in the world. We were a good bet, thanks to to the soundness of our currency, not to mention that the purposeful nature of the borrowing, when it came to protecting our individual and commercial interests, ensured a quick post-war economic recovery that would make paying it off very simple.
Fast-forward to the ’80s: Even though our yearly deficits under Ronald Reagan rose in nominal terms, Treasury rates fell during his presidency. The fall was first and foremost the result of better dollar policy from the Reagan Treasury, and it should be noted that a more credible dollar combined with tax cuts made the U.S. a worthy debtor. So while our aggregate debt rose under Reagan, investors in no way blanched; our growing economy during the Reagan ’80s comforted the buyers of our debt.
Of perhaps even greater importance during the Reagan years was the nature of the spending. Revisionist history says the Soviet Union was no threat, but at the time, fear of the Soviets was very real. Contrary to the austerity crowd who suggested at the time that we were borrowing on the backs of future generations, it would have been more realistic to say we were borrowing in the ’80s to build up our military so future generations would not have to.
Ultimately, our heavy deficit spending on the military bankrupted the Soviet regime, and deficits fell in the ’90s as we enjoyed what many termed a “peace dividend.” There was a real purpose attached to the ’80s deficits when it came to protecting the homeland that made them a very good buy. So long as we were safe, so was our capitalistic economy that made us the richest country in the world. And so long as our economy grew, the size of our national debt would shrink relative to GDP. In short, the Reagan deficits made a lot of sense.
Moving to the present, President Barack Obama has made plain that future deficits of the trillion-dollar variety will be the rule until we fix what some consider the worst economy since the Great Depression. And given the orgy of spending that occurred on the watch of former President Bush and the profligate GOP, there’s no credible opposition in Washington to Obama’s spending plans.
Importantly, if Obama’s spending initiatives mostly involved protecting the homeland and our capitalistic ways from terrorists, the resulting deficits wouldn’t matter as much. Sadly, the spending isn’t targeted at defense. While the military surely won’t be ignored under Obama, a great deal of government spending going forward will be meant to “stimulate” the economy through other means. Rather than aggressive spending meant to protect the homeland, Obama is essentially asking investors to fund a massive giveaway program stateside. The federal government will prop up corporations and pay individuals to work, all with money taxed or borrowed from the private economy.
Simplified, the Obama economic plan is one whereby we’ll run deficits to fund welfare programs that, by definition, will slow economic growth. Indeed, individual stimulus will involve taking from the productive to aid the less productive, and it’s easy to see how this will cause the productive among us to reduce their efforts.
Meanwhile, corporations propped up by federal largess will end up subsidizing their ailing competitors. This is the opposite of what Schumpeter meant when he talked about “creative destruction.” In the Schumpeter model, company failure was essential for economic growth, given the certainty that failed or weakened companies would be snapped up and run better by new management. The prevailing economic models of today suggest this true economic stimulant will be shown the door in favor of corporate welfare.
Returning to our national debt, while we may, for now, be able to borrow on good terms from the rest of the world, it seems charitably naïve to assume that this will continue to be the case. Good or bad, our past deficits were largely meant to protect a growth-oriented, capitalistic way of life that made the U.S. a credible debtor.
Our present-day deficits have everything to do with running away from a purer form of capitalism in favor of a corporatist welfare state. That being the case, future economic growth stateside promises to be more sluggish, and if we stop growing, our debt we will necessarily become less attractive to investors. Unless this sad economic chapter can be unwritten, high interest rates are just around the corner.
The main obligation of our government is to protect the country. Whoever loves symphony orchestras must pay from their own pockets.
The Article is 100% correct,but so what? How do you turn the tide without destroying what’s left of our prosperous economy? Name the alternate strategy. The only thing I’ve heard is lower taxes which doesn’t touch the problems outlined in your article?
The big question is will Obama go along with the far left of his own party? Max, sorry to have to point this out to you, but Obama is the annointed leader of the far left of his own party.
Max Boot pretending to know what “moderate” Americans want is hilarious. Got news for you Max, you are on the far right fringe. Moderate America wants money spent at home, and a military big enough for defense, but not big enough for costly neocon adventures. Are you telling me that we can’t find 10% waste in the military? And not lose a step as far as readiness? We should be able to cut spending and improve effectiveness. Unless you believe that the military is any less ineffecient and wasteful than the other parts of federal government. Please.
You know RCAR – I think they could save 10% of the DoD budget just by getting rid of the earmarks to defense contractors. I know that during the 80s the Navy kept buying A-6 attack planes, long after they planned to stop because it essential to keep the plant open in that district. John Glenn was notorious for threatening to block any budget that didn’t include purchasing ASROCs – made in Ohio.
And if you want to raise the level of the debate, try painting the readers and writers here with a smaller brush. I personally believe that defense, law enforcement and transportation infrastructure are about the only places where the government is more likely make more productive use of my taxes than a private firm would be able to. Healthcare and education need at least private sector competition in order to fix their systemic weaknesses. I don’t care about gay rights, as long as they come through the legislative, not the judicial process. Does that make me conservative, I suspect I am compared to you, but I have friends who consider me dangerous liberal for the same opinions.
If we want to “change the tone in Washington” – as Bush in 2000 and Obama in 2008 both promised, I suggest we try starting it here and now. Washington’s tone won’t change until ours does.
baisegueule (3) seems to exist (if it does at all) in the hyperrealistic universe of Spielberg’s magnum opus, “1941.” It wd be great to see the LA Symphony gear up to defend the homeland.
wheelless, on the other hand, is bumping harder than ever. How does it afford a ‘net connection and the time to abuse it, with the economy cratering-out all around it? Don’t it need a handout too?
8 (busted pipe): How far IS readiness? Have you ever considered trying to learn English before tackling “strategic t’inkin’”?
#9,”writers here with a smaller brush. I personally believe that defense, law enforcement and transportation infrastructure are about the only places where the government is more likely make more productive use of my taxes than a private firm would be able to.”
Who do you want in charge of our currency and trade policy? How’s our track record been in those areas?
RCAR, you write that “Defense has to take a hit like everybody else.”
Would that “everybody else” include the intended receipients of the pork in the “stimulus” bill?
#11
By all means, show me where you think I fell short and I will be happy for the lesson.
13
Pete Madsen Says:
February 2nd, 2009 at 3:01 PM
RCAR, you write that “Defense has to take a hit like everybody else.”
Would that “everybody else” include the intended receipients of the pork in the “stimulus” bill?
The City,County and State that I reside in are all experiencing large operating deficits. They are in the process of laying off workers and lowering their expenses in general. I have no idea if they will receive any pork,but even if they do,the pork won’t make up for the revenue shortfall. The DOD will do the same;they will have layoffs and expense cuts, Is that a problem?
How hypocritical. For so many months, we heard from Dems and liberals that the Bush Administration was not upgrading armor, slow in getting vehicles, and denying critical funds for medical care for wounded soldiers. Now they are preparing to cut spending while we’re in the middle of two wars. Anyone who thinks that the Dems don’t care about America’s security have no had those thoughts validated.
“So we’ve got to look to the future and make savings there. There’s the fact of life.” says Levin.
Cut future security of the nation?
While doubling and tripling deficit spending?
And that’s the fact of life?
I have a cunning plan that will save billions:
Draft everybody in ACORN and ship them off to Afghanistan. ACORN’s people can “community organize” over there and, if Lord Obama bats his eyelashes and asks them “pretty please,” they’ll do it for peanuts.
Steamboat, thanks for clarifying that now any instinct to preserve and defend the country from current threats and future unforeseen ones is the fringe, far-right school of thought. We’re about to spend 900 billion dollars on pork in a bill that’s deceptively presented as “infrastructure investment” (5%) and “stimulus” (Democrat constituency group giveaways) and yet the place to cut is the most critical and essential sector of society — defense? It is reckless and irresponsible.
The military paid for the irresponsible, short-sighted deep cuts of the nineties by being “stretched thin” for six years. Yet again, we’re about to short-change our defenses and abilities to meet threats over the next twenty years that are impossible to predict now. Take a cold hard look at the world around you. Anyone who thinks spending can be ramped up for the symphony and cut from basic defenses, isn’t playing with a full deck.
The arts can survive without massive government underwriting. The military, and you and future generations’ safety, cannot.
Defensive and military capabilities can’t just materialize. Men and materiel have to be in a pipeline over years, unlike groups like the NEA, or ACORN, which can be written a check and have the money in hand immediately.
Weakness attracts aggression, and there are plenty of moderates and liberals — not “the fringe” — who prefer to have defense and national security squared away before funding the wonderful “art” the NEA routinely sponsors.
The core function of the US Government is national defense. Welfare and ‘entitlements’ are not. Cut ‘entitlement’ spending. Indeed the entire War on Poverty has been a abject failure. Lets call it quits on this illegal war on the taxpayers. And lets get rid of Davis-Bacon and the union subsidizing that is infinitely more expensive than anyone in their right mind would ever spend if it was there own personal money.