Wednesday, June 17, 2015

The ignored problem: the unsustainable U.S. debt

      For the most part, the deficit has faded from he headlines. It is ISIS, or Ukraine, or other things  that are in the news. The deficit is fairly low, running at around $880 billion annualized as of the end of the first half of of the 2015 fiscal year. It has plummeted since the recession of 2008, when the deficit(Sept, 2008-Sept. 2009) was nearly 1.9 trillion in today's money. However, the situation is not as good as it seems. Today, we are about 5 years after the end of the last recession. Recessions, or series of recessions, have occurred about every 9 years during the past 35. While it is difficult to predict recessions, the last 35 years suggest the next one should occur within the next 5.

     When the next crisis hits, it will be more difficult to make up for it using stimulus. On September, 30, 2007, shortly before the official beginning of the recession, the U.S.  government debt outstanding as a percent of GDP stood at about 70.5%, while between the official end of the recession, and peak unemployment, on September 30, 2009 the U.S. national debt as a percent of GDP was about 94.5%. It has somewhat stabilized, today at around 102.7% 5 years later. The concern isn't that the U.S. has debt, only once has the U.S. had no debt, and that was back in the 1830s. Running a deficit isn't too concerning either, times such as the surplus in 1990s are rare. Rather, the major concern is nearly 5 years after the last recession ended, during relatively good economic times, the total debt isn't shrinking as a percent of GDP. 

     With projections of the debt to GDP ratio at about 105.2% in 2019, the U.S. would probably use stimulus once again to increase Aggregate Demand and help lift the U.S, economy out of recession. However, the debt to GDP ratio is bound to increase significantly after this, making it harder to use stimulus. With Social Security and Medicare taking up a ever larger portion of the budget, the debt to GDP ration should continue to increase. After all, using a narrower definition of debt, to only that held publicly, the debt to GDP ration should increase from 74% of GDP in 2014 to 106% by 2039. The numbers are even worse if we use the total (public AND private) debt in our calculations, which the treasury, the debt clock, and most news networks do. Using the same ratio of public to private debt as today for 2039, the total outstanding debt would be about 146% of GDP.  This is higher than all of PIIGS(Portage, Italy, Ireland, Greece, & Spain) except Greece at the peak of the Euro crisis. Regardless of which projection method is used, the outlook it not good. This is all long term, and the U.S. has a huge advantage these countries don't, being able to borrow in its own currency. That being said, in a few decades, if another recession such as the previous one strikes, it will be much more difficult to use expansionary fiscal policy1or stimulus, an important weapon during the previous recession(up to 11.4 million full time equivalent employment years, which are a year of 40 works weeks, created or saved). Eventually, the U.S. will have to make some very difficult decisions about its budget. As we have learned from Greece, it is far better to do this sooner rather than later.

    1: According to the Economist(June 13-19th edition), the United State's wriggle room for dealing with a recession decreased by about 37.5% in the last 8 years. Since the deficit will increase in the future, its wriggle room will only decrease further.

Saturday, April 18, 2015

The never ending negotiations: Iran and P5 +1

For over two years negotiations have been taking place between the P5+1(U.S., China, Russia, U.K., France, and Germany) and Iran over its nuclear program, which Iran claims to be for peaceful purposes but is widely believed to have the goal of developing a nuclear weapon. In June of 2013, Hassan Rouhani, considered a moderate relative to Iran, was elected President. He signaled wanting a less hostile relationship with the rest of world. A few months afterward  October of 2013, negotiations ramped up.  In November of that year, an interim agreement was reached in which Iran would halt its nuclear program. The U.S. agreed not to put on any new sanctions.

However, negotiations were less than successful. The U.S. wanted to halt Iran's nuclear program, limit to several hundred centrifuges, be able to re-instate sanctions if Iran broke the deal, a gradual removal of sanctions, to ship fuel out of Iran, and limit breakout time to over a year. Iran wanted immediate sanction relief, to be able to keep many of its 18,000+ centrifuges, a shorter breakout time and to be able to keep most of its nuclear program.

Because of the huge gaps, talks were extended from July 2014 to November 2014. Some gaps were closed, but not enough to make a deal, or even a framework, so they were extended March 31, 2015. Negotiations hit a pitfall once Iran signaled its unwillingness to ship nuclear fuel out of the country, backing out  of hypothetically shipping its fuel to Russia in exchange for commercial fuel rods. The talks kept going until the last minute, and then were extended to a day later, and then again to April 2nd.

Finally, last minute, a framework was reached.  The  outline for this deal includes cutting centrifuges by two-thirds to about 6,014 with 5,000 allowed to enrich uranium, extending breakout time from 2-3 months to over a year. Several of Iran's reactors, notably in Arak and Fordow, will be redesigned but not closed. Fordow is burried under a mountain, was hidden until 2009, and will be able to keep 1,000 centrifuges, but won't be able to enrich uranium. Two-thirds of its centrifuges and infrastructure will be removed. The sanctions will be lifted in phases but can be reinstated if Iran breaks the terms of the treaty. It will be subject to stringent IAEA inspections. Iran has agreed to ship spent nuclear fuel, but not its nuclear stockpile. Research and development can continue, but not any allowing it to get within a 1 year breakout time. However, after 10 years, Iran can rebuild its nuclear program. In fact, Obama admitted that it could build a bomb after 13 years under the framework.

     Despite the framework, things began to unravel quickly. About a week after the framework was agreed to, the Iranian supreme leader stated that sanctions must be lifted immediately once a deal finalized. The U.S. insists that the sanctions be lifted in phases. While this may get sorted out, it is not promising that a key disagreement came up so soon after the framework was agreed upon.
The final deadline if June 30, 2015, but it may be extended once again.

     With Iran so close to bomb, there are only 3 options: a deal, allow Iran to get a nuke, or a regional war. The first one is optimal. If this latest dispute isn't worked out in the U.S.'s favor, any deal would be a bad one. If a bad deal is reached in which the sanctions were lifted immediately, they could cheat and the sanctions would have to be put on once again. This is a possibility with any deal. If a deal is reached, it could be rejected the Senate, but under the deal Obama made with Congress, it would take 67 votes to override any deal the President makes. Still, I think that nearly any deal would be preferable to no deal. The only exception would be if the sanctions were to be lifted immediately, and the inspectors wouldn't get access to the facilities. In this case, it would be very difficult to monitor Iran's activities and the sanctions would have to be re-instated.

   Allowing Iran to get a nuke is highly undesirable for several reasons. It would deeply damage Israeli and Saudi trust in U.S. since it has repeatedly said Iran will not develop a nuke. It could also cause an nuclear arms race in the middle east. A four way nuclear standoff between Iran, Israel, and then probably Saudi Arabia and Turkey would be awkward enough. If Iran or Saudi Arabia, both known to sponsor terrorism, were to give a nuke to a third party organization, or more likely a terrorist group were to obtain a nuke if these authoritarian governments fell, the situation could go down hill very quickly. Lastly, it would make a mockery of the U.S's policy of nuclear-nonproliferation.

    A war is undesirable. While it would allow the U.S. to prevent Iran from getting a nuke, and the weakening of Iran would likely topple Assad and the Houthi rebels in Yemen, and force Iran to engage less in militaristic activity, it would also be incredibly expensive. It could also costs thousands of lives. Russia is arming Iran, and may arm Iran even more with a war. In fact, the war could easily expand into a regional wide sectarian war. If the U.S. opts with bombing Iran because of a bad deal, it  would likely destroy consensus with isolating Iran, especially with Russia and China. Unilateral strikes would also likely hurt the U.S. popularity in the muslim world. Iran could close the Straight of Hormuz, where a large amount of the world's oil comes across.

 Strikes wouldn't even be very successful.  Best case scenario is about four years being set back, after which Iran may be even more dedicated to getting a weapon. This would incur most of the costs of a full scale war with few of the benifits. The U.S, would really need a full scale continuous war. Securing the Straight of Hormuz would need to occur simultaneously with strikes on Iran's nuclear facilities. Ground operations may be necessary to destroy the centrifuges. This would probably lead to a full scale war with Iran and its proxies. In this scenario, there would certainly be American and Israeli casualties. Despite this, if it comes down to it I would reluctantly choose war, but only if the U.S. is willing to engage in a prolonged effort to prevent Iran from getting a nuke, partition Iraq and Syria and prevent the region from completely falling apart. This could cost trillions of dollars. This would have to come from somewhere else such Social Security or Medicare.

In the past Prime Minister Netanyahu's warnings about Iran developing a nuclear weapon were exaggerated and sometimes flat out wrong. Despite this if the deal fails, the remaining options will show he was right to bring it to the world's attention very early on. Had serious negotiations started in 1992 when Iran was decades from a nuke, rather than so recently, the U.S. would not be facing such difficult options.

Tuesday, January 20, 2015

Middle Path part two: Afghanistan and Iraq

       In the last post, I discussed the U.S. military strategy in Vietnam. Now I will discuss U.S. strategy in Afghanistan and Iraq.

  Since the U.S. was not engaged in any major wars for several decades(Persian Gulf War lasted for less than a year), the next example of this predicament is the post 9/11 Afghan War. After 9/11 President George W. Bush had two extremes he could have chosen: a massive full scale invasion to permanently removed the Taliban and then rebuild the country, or not get involved at all. The first would have helped secure Afghanistan, the later avoid a very costly war. Instead, Bush opted for a middle path: a not so full scale invasion of merely 2,500 troops in the first few months when it was removed. The Taliban was removed, but not enough troops were kept to keep the country stable, only 20,000 by 2006, in part because of the U.S.'s preoccupation of Iraq.  This allowed the Taliban to resurge, by 2006 threatening large parts of the southern portion of the country. The U.S. responded, but not with a large troop presence, as by 2009 there were only 34,400 troops in the country. Another key decision was made when Obama took office. He could have chosen a large and sustained troop presence in order to eliminate the Taliban, or he could have withdrawn all troops and saved 2415 lives(deaths from Jan 2009-present) and about 800 billion dollars. Instead, he opted for a middle path: a somewhat large and not very sustained troop presence. The President  responded with a surge in troop numbers, to similar to the one in Iraq. By mid-2010 there were about 100,000 troops in Afghanistan and it stayed this way until mid-2011. The country was somewhat stabilized, with the Afghan government gaining control and the Taliban steadily loosing it. However, after this, troop levels began to decline. With the decline in troops, violence began to steadily rise. In September 2014, there was a sucessful transfer of power in the civilian government. In October 2014 the U.S. ended its combat role in the country. Long term, the U.S. will keep 9,800 troops in the country. However, its is unclear if such a small troop presence can keep together an area with such a long history of falling apart. Although progress has been made, this troop presence is less than half the size of that of the U.S. during the Taliban revival in 2006. I expect that the middle path will have failed again, and that American blood and Treasure will have been spent for a country that will not stay together, let alone have a semi-functional government.

     The Iraq war started on March 20, 2003 after President George W. Bush claimed Saddam Hussein, the Sunni dictator of the mostly Shia Iraq, had weapons of mass destruction(WMD). Years of sanctions against Saddam had seemingly failed to deter his nuclear program. The U.S. was unable to convince many countries to join, but formed a "collation of the willing." On March 20, 2003 a huge force was sent, up to 192,000 U.S. troops, was sent to defeat Saddam, along with tens of thousands of troops from the Peshmerga, the Kurdish fighting force, Britain, and help from Australia and Poland. On April 10th, less than one month after the initial invasion, Bagdad was taken and the regime fell. Saddam escaped and went into hiding for a few years, but his rule was over. WMDs were found, but not the kind America had in mind during the invasion. Instead of nuclear weapons, chemical weapons were found. While not necessary considered WMDS at the time, they would later by ruled so by the State Department. Never the less, the main reason the U.S. gave for the invasion proved misleading.

The President declared victory, but the job proved far from finished. Over the next two years, troop levels would hover around 150,000, and in 2005 elections occurred for most of the Iraqi government. The region of Kurdistan gained more independence, but the Sunnis were in large part left out of the newly formed government. Had the U.S. kept troop levels as high and kept a large influence in the Iraq government to include Sunnis, the disaster of the next few years could have been avoided. Had the U.S. left all together, trillions of dollars and thousands of lives could have been saved. Instead the President Bush choose a middle path, staying in Iraq, but with somewhat diminished troop levels and not much control over the Iraqi government. That same year saw an escalation in violence, which would turn to large scale sectarian violence in 2006. That same year, Shia leader Nouri al-Maliki was elected Prime Minister. In 2007, a new strategy was implemented, the surge, led by General David Petraeus, who replaced General George Casey to be in command of all American troops in Iraq. A strategy of including Sunni was implemented. The Sahwa, a U.S. employed Sunni militia, was expanded. Awakening council was formed in September 2006 to counter Al-Quida in Anabar province, a sparsely population Sunni dominated in Western Iraq. Their influence was expanded in 2007, and Al-Quida in Iraq was largely dismantled. The situation somewhat stabilized, enough for the U.S. to consider an exit. In April of 2008, Petraeus testified in congress not to withdraw troops. However, the U.S. government, war weary, went against his advice. This was another crucial mistake. An immediate withdrawal would have saved billions of dollars and hundreds of lives. In November 2008, a pact was signed to withdraw all U.S. troops by the the end of 2011. Staying longer may have extended the relative peace and helped build a better foundation for the new Iraq. President Obama campaigned on leaving Iraq, and by 2011 this was completed. No residual force was left because the U.S. failed to reach an agreement with the Iraqi government. The country quickly began to unravel, with Kurds being increasingly autonomous and the government losing control in parts of the North of the country. Its exclusion of the Sunnis in politics after the 2010 Iraq elections, the dismantling of the Sahwa and the exclusion of the Sunnis in the military, and closer ties with Iran, the major Shia power in the region, increased strains with the large Sunni minority in Iraq. Oil production rising slower than expected hurt the economy. Meanwhile, ISIS(Islamic State of Iraq and Syria) was taking control of large parts of eastern Syria, and its power rapidly rising in land, money, and troops. The terrorists organization preached a radical version of Islam, one that proved attractive to many  disgruntled Sunnis in Syria fighting against a Alawite, a Shia offshoot, government. By June 2014, Iraq was weak and divided, and any significant military power could cause it to completely fall apart.

Overall, the Iraq war was a failure. Saddam was removed, but America's main reason for invading was true only on a technicality. The war cost over 2 trillion dollars, and the country quickly splintered. Ironically, while Bush thought Saddam was a disrupting force, he was actually keeping the country together. The middle path proved disastrous, failing in either keeping the country together or avoiding a long and expensive war. The latter part of the war shows that making military decisions against the advice of your generals and in spite of the conditions on the ground is a often a bad idea (see Vietnam post). The three wars I discussed, the three largest wars since the 1960, show that America has an unfortunate habit of entering wars without a plan for long term success, failing to provide enough resources in to ensure success, lingering in a half commitment to war, and then quitting the war years later at a cost of hundreds of billions of dollars and thousands of lives.  There will unfortunately be many opportunities in the future for the U.S. to become entangled in military conflicts, particularly in the very unstable Middle East.  Hopefully, our leaders will be able to learn from past mistakes and only intervene when they are willing to make a full commitment to war.  If the conflict is not worth a full commitment of our military, then we should not put our military in harms way.  If the conflict is worth the full commitment of our military, then we should do so because  our military will have a much better chance of success.

Sunday, October 26, 2014

Why the Middle Path is often the worse option (regarding U.S. foreign policy)

       Ever since the Buddha spoke of the middle path over 2400 years ago, it has become an attractive option. To navigate between two extremes seems like a good idea, and it is often the most stable one. However, as the past 60 years have shown, regarding wars and foreign policy, this can be the worst.

     A classic example of this was the Vietnam War. In 1961, as tensions between the North and South were shapely escalating, the Pentagon gave Kennedy a report, the December 1961 White Paper. It proposed a sharp increase in military and civilian assistance to South Vietnam. Had Kennedy ignored the report, the war could have been avoided all together, and had he fully done what it recommended, these actions would have strengthened the South Vietnamese government and allowed it to better defend itself against North Vietnam. But instead, Kennedy went for the middle path, which dragged the U.S. into a long war but did not support Saigon as much as it could have. Another decisive mistake was made in 1968. In the Tet offensive, after initial victories the Viet Kong was beaten back  and faced heavy losses. General Westmoreland, the general in charge of the war in Vietnam, requested 206,000 addition troops to deliver a decisive blow against North Vietnam. By granting his request, it is possible that the Vietnam War could have been won, or ended in a stalemate. Alternatively, by withdrawing completely, the U.S. would have saved billions of dollars and thousands of lives. Instead, Johnson choose the middle ground, neither a decisive counter-offensive nor a complete withdrawal. Because of this mistake, the U.S. allowed its ally to be defeated at a high cost of both human lives and U.S. dollars.  A few years after the U.S. eventually withdrew, South Vietnam was conquered, with 58,220 American casualties and about 758.4 billion American dollars (in today's dollars) spent. However, the war was not a complete failure, for it did help prevent communism from spreading anywhere else in South-East Asia. It also cost the U.S.S.R. money in aid, training, weapons and solders stationed there, thus indirectly leading its demise. However, an inefficient economy and the Soviet-Afghan War more directly effected its collapse, and since the actual costs cannot be obtained easily, the real impact of the Vietnam War on the U.S.S.R. is uncertain. Additionally, the countries on the Southeast Asian mainland that were not hostile toward the U.S. (Laos, Cambodia and Thailand) had a combined population of 53.935 million at the end of the Vietnam War in 1975, while Vietnam had a population of 48.03 million, nearly the same amount. Thus the most populous country in the region had completely fallen to communist. The middle path led to the worst of all plausible outcomes: a costly war in both lives and dollars that ended in defeat.!ctype=l&strail=false&bcs=d&nselm=h&met_y=sp_pop_totl&scale_y=lin&ind_y=false&rdim=region&idim=country:VNM:THA:LAO:KHM&ifdim=region&hl=en_US&dl=en&ind=false

Thursday, August 28, 2014

The decline of the tea party

     The Tea Party is a somewhat vague term that has been used for far right conservatives for the past ten years. It sprung up quite suddenly, during 2010, in the first mid-term election. In some ways it is similar to Gingrich's Contract With America. This contract was a list of promises made by Republicans in the 1994 elections, and influenced Gingrich and the Republican House for large parts of the Clinton administration. It was a conservative reaction to the electing of a Democratic President in a tough economy. Both of these movements managed to help Republicans regain the House. However, there is a crucial difference. While the Contract With America was organized and under direct leadership of Gingrich, the Tea Party has no such leadership or organization, there are many potential leaders, and it is a very grassroots organization that is often organized locally.

    Some of the long term causes of the rise of the Tea Party are cultural changes in America. According to Gallup, In 1996, support for Gay marriage was 27%, while in 2010 it had risen to 44%. Legalization of Recreational Marijuana rose from 25% in 1996 to 44% in 2010. The percent of Americans who were Christian (Protestant, non-specific or Catholic) was 83% in 1994, and had fallen to 74% in 2010. In 2010, with 81% of people identifying with the Tea Party being Christian, and only 18% in favor of Gay marriage, the Tea Party became more distinct from the general electorate. 

     Obama's election and the worsening economy were immediate causes to the rise of the Tea Party. Since Tea Party voters tend to be on the far right of the political spectrum, the election of a leftist President would clearly cause a backlash. This was seen in 1994 with the rise of Gingrich following Clinton's election. Additionally, a poor economy also likely caused the Tea Party to gain momentum. The unemployment rate in the U.S. as of January 2009 was 7.8%. It rose to 10% by October 2009, and stayed very high throughout the entire election season. In November 2010, it stood at 9.8%. The poor economy hurt the President's approval rating. In late January of 2009 President Obama's approval rating stood at 67%. By the week of the mid-term elections, it had dropped to 45%. The unpopularity likely sparked the rise of the Tea Party.

    However the middle 2011 saw the debt ceiling debate. Many in the Tea Party threatened not to raise the debt ceiling if they did not get the spending decreases and tax cuts they wanted, If the debt ceiling were not increased, the U.S. would default on its loans, likely leading to global reccession. As the year went further along, fear that this might actually happen increased. Real GDP growth fell from a good 3% in the 2nd quarter of 2011, to a slow 1.5% in the third quarter of that year. A deal was made, but it was only a short term fix.
       In the 2012 election, there were several Tea Party candidates who were at one point front runners in the polls nationwide: Newt Gingrich, Rick Santorum, Michelle Bachman, and Herman Cain. However, none would be successful, as Mitt Romney was elected the Republican Candidate. Never the less, the prominence of Tea Party candidates showed their rise in influence.

      Not long after the 2012 election was over, the U.S. faced the possibility of the fiscal cliff. This became a major concern in large part because of the Tea Party's refusal to pass a bill preventing it unless certain conditions were met. It was avoided, but taxes on the top income tax bracket did rise from 35% to 39.6%. However, sequestration did go into effect. Although it did not effect the economy as badly as predicted, it did have an significant effect on U.S. GDP.

     From October 1st to October 16th  parts of the government shutdown. The Tea Party refused to avoid this shutdown unless the Affordable Care Act was defunded. There was also a threat of going over the debt ceiling, which would have required the government to stop spending and/or raise taxes by over 500 billion dollars in the course of the next fiscal year. This could have had catastrophic effects on the U.S. economy. However, this was narrowly averted, as the debt ceiling was raised and the government shutdown was ended. In the immediate aftermath of the end of the crisis, Tea Party approval stood at an all time low of 28%, while Republicans approval stood tab a paltry 30%

    The Tea Party had already cost the GOP several winnable seats, such as the one Todd Akin lost on Missouri and Richard Murdock lost in Indiania, both after stupid comments related to rape. And with the prospect of the Tea Party costing the GOP in 2014 and 2016, the establishment was angry with the Tea Party and clamped down on it. 
       Karl Rove's American crossroads began to go against the Tea Party. The Tea Party suffered several electoral defeats in the primaries. Senate candidate House Speaker of North Carolina Thom Tillis,  eight term house incumbent Mike Simpson of Missouri, and Senate Minority Leader Mitch McConnell of Kentucky all crushed their Tea Party opponents with huge margins of victory. In Georgia, the most right wing candidates for Senate also lost.   Senator Lindsey Graham of South Carolina also prevailed to avoid a runoff. The eventual winner of the Georgia primary, David Purdue, was a business friendly non-Tea Party candidate. 
      The Tea Party may be down, but it will not go quietly. A startling example of this is when Eric Cantor of Virginia, the House majority leader, lost to Dave Brat by a significant margin. 
     Despite this, the outlook for the Tea Party looks bleak. Tea Party support is at an all time low and it has several electoral losses. Marco Rubio, Jeb Bush, and Chris Christie, non-tea party candidates, all have a good chances of winning the 2016 nomination, while Rand Paul's popularity has largely been confined to that of the Tea Party and of Libertarians. In all likely hood, the importance of the Tea Party will continue to decline, but it will continue to produce electoral upsets along the way.

Tea Party candidates Ted Cruise and Rand Paul are considered  contenders for the 2016 nomination.