Armed Revolution and Gun Control

Fairleigh Dickinson University just published the stupefying results of their recent national survey about armed revolution and gun control.  Asked for their opinion about this question: “In the next few years, an armed revolution might be necessary in order to protect our liberties”, 29% said an armed revolution may be necessary.  That’s three in ten of my fellow citizens.  Three in ten!

The survey also shows how belief in the potential need for armed revolution against our government correlates with beliefs about gun control.  Only four in ten (38%) who believe a revolution might be necessary support additional gun control legislation.  Additional legislation is supported by over six in ten (62%) who do not think armed revolt will be needed.

The results also differ by party, with two in ten (18%) Democrats thinking an armed revolution may be necessary versus more than four in ten (44%) Republicans.  That’s a lot of Republicans!  It’s also a lot of Democrats.

The survey also asked if respondents believe that: “Some people are hiding the truth about the school shooting at Sandy Hook Elementary in order to advance a political agenda.”  I feel naive to be shocked that a quarter of us does believe facts about the shooting are being hidden.

One of the poll analysts said: “The differences in views of gun legislation are really a function of differences in what people believe guns are for.  If you truly believe an armed revolution is possible in the near future, you need weapons and you’re going to be wary about government efforts to take them away.”  That sounds accurate.

As I wrote here, I once owned a .22 rifle, but not in case I needed to overthrow my government, and I didn’t get rid of it because it would be outmatched by my government’s weaponry.  I always thought democracy was the least bad of all possible arrangements for a large society.  That’s why I vote.

It’s very disturbing that three in ten Americans believe our democratic form of government may have to be overthrown.   It’s downright peculiar that they also believe their firearms could do the job.

The Purpose and Performance of Our Tax System

What is the purpose of our democratic society’s tax system?  It’s very different from, say, Louis the Sun King’s France.  His Minister of Finance defined taxation as:  “plucking the goose to obtain the largest possible amount of feathers with the smallest possible amount of hissing”.   We only want to collect enough, not as much as possible.  How well does our system perform?  We have better measures than hissing:

  • Effectiveness – % of government activities it funds – is it enough?
  • Overhead – % of what is collected the process costs
  • Fairness – % of the population considering it fair
  • Clarity – extent to which the population understands what the taxes pay for

Effectiveness has two aspects.  First, a perfect tax system would, not every quarter or year, but over the long haul, fully fund our government’s activities.  By this measure, our current system is an abject failure.  The problem is not so much that the gap widens during economic downturns, e.g., lower collections and higher spending post-2007, but that what’s collected is almost always significantly lower than what’s spent.  I’ll comment below (see clarity) on why that is so.  At this point we only need acknowledge that our current tax system is seriously ineffective.

Revenue_and_Expense_to_GDP_Chart_1993_-_2008

The other aspect of effectiveness is what % is collected of the amount the system intends to collect, i.e., how much is illegally evaded.  This 2011 study by the Federal Reserve Bank says: “18-19% of total reportable income is not properly reported to the IRS, giving rise to a “tax gap” approaching $500 billion dollars”.   It is estimated that around $3T of income tax was evaded from 2001-2010.

Overhead means the cost of collecting.  By this measure, too, our system gets a failing grade.  This report, using IRS data, estimates it at 30% for the income tax system.  Local property taxes, for example, have lower overhead.  Embedded point of purchase taxes, e.g., on gasoline, have about 5% overhead.  I haven’t tried to estimate overhead for our overall system.  It would be good to get it a lot closer to 5% and have it cause less hissing.

Measuring fairness is a challenge.  How to define it?  The dictionary definition is simple, “a proper balance of conflicting interests” or “showing no more favor to one side than another” but it is not so obvious how to measure that in a tax system.  Since we are a democracy, the best way is what % of the people considers it fair.   From a recently published 131 page compendium of survey results I selected some of the most illuminating ones about fairness and clarity.

How many of us consider the current system fair?  See below.  A little under half (3% + 40%) and mostly only moderately fair.  A quarter (24%) considers it not at all fair.  Three of five, however, (59%) regard what they personally must pay as fair.  Perhaps they are the same 56% who consider that middle-income people pay their fair share?  Many more, however, (68%) feel the system benefits the rich and three of five (60%) want those who earn more than $1M a year to pay a minimum of 30% in taxes.  Two of five (40%) consider that lower income people pay too much.  Maybe they are lower income?  Fully two thirds (66%) believe everyone should pay some tax although that question is somewhat loaded.  Almost two thirds (64%) think corporations pay too little tax.

  • Would you say that our [federal] tax system is very fair, moderately fair, not too fair or not fair at all? (p. 20, Dec. 2011 Pew) Very fair – 3%,  Moderately fair – 40%, Not too fair – 31%, Not fair at all – 24%)
  • Do you regard the income tax which you will have to pay this year as fair? (p. 23, Apr. 2012 Gallup) Yes – 59%, No – 37%
  • Do you feel the present tax system benefits the rich? (p. 25, Apr. 2012 CNN/ORC) Yes – 68%, No – 29%
  • Are middle-income people paying their fair share in federal taxes, too much or too little? (p. 26, Apr. 2012 Gallup) Too much – 36%, Fair share – 56%, Too little – 6%
  • Are lower-income people paying their fair share in federal taxes, too much or too little? (p. 27, Apr. 2012 Gallup) Too much – 40%, Fair share – 33%, Too little – 24%
  • Are corporations paying their fair share in federal taxes, too much or too little? (p. 27, Apr. 2012 Gallup) Too much – 11%, Fair share – 21%, Too little – 64%
  • Would you favor requiring households earning $1 million a year or more to pay a minimum of 30% of their income in taxes? (p. 31, Apr. 2012 Gallup) Support – 60%, Oppose – 37%
  • [Should] everyone pay some minimum amount of tax to help fund government? (p. 20, Feb. 2009 Harris/Tax Foundation) Should – 66%, Current system is fair – 19%, Not sure – 15%

So, our current tax system is perceived to be less fair than we want.  Another way to look at it is in terms of results.  The tax system takes money from people at different rates and redistributes some of it to others depending on relative circumstances.  How fairly do we think it does that?   Almost three of five (57%) feel money and wealth should be more evenly distributed.  Opinions are, however, equally divided (47% to 49%) on whether the government should redistribute it by heavy taxes on the rich.

  • Do you feel that the distribution of money and wealth in this country today is fair? (p. 33, Apr. 2011 Gallup) Fair – 35%, Should be more evenly distributed – 57%
  • Do you think that our government should or should not redistribute wealth by heavy taxes on the rich? (p. 33, Apr. 2011 Gallup) Should – 47%, Should not – 49%

Another perspective is, are we paying the right amount of tax relative to government spending?  Half of us (47%) think we pay too much tax and half (47%) think what we pay is about right.   But twice as many (61% to 26%) want to pay less, two thirds (67%) are against raising taxes and almost as many (61%) are unwilling to pay more.  How to reconcile the desire to pay less with closing the government’s deficit?  Three of five (61%) believe the deficit can be cut substantially without raising taxes and more than half (53%) favors balancing the budget by cutting spending.

  • Do you consider the amount of federal income tax you have to pay as too high, about right, or too low? (p. 4, Apr. 2012 Gallup)  Too high – 46%, About right – 47%
  • Would you like to see the amount Americans pay in federal income taxes increased, decreased, or remain about the same? (p. 6, Jan. 2012 Gallup) Increase – 13%, Decrease – 61%, Same – 26%
  • Would you favor or oppose raising taxes as a way to reduce the budget deficit? (p. 55, Mar. 2011 PSRA/Pew) Favor – 30%, Oppose – 67%
  • Would you be willing to pay more in taxes to reduce the federal deficit? (p. 50, Jun. 2011 Bloomberg) Willing to pay more – 36%, Not willing – 61%
  • Do you think it is possible to bring down the deficit substantially without raising taxes? (p. 54, Mar. 2011 Bloomberg) Is possible – 61%, Not possible – 37%
  • Which would you prefer to balance the federal budget deficit? (p. 56, Jul. 2011 Economist/YouGov) Increase taxes -10%, Decrease gov’t spending – 53%, Both – 29%

Now we arrive at our tax system’s clarity.  How accurately do we understand the cost of our government’s activities and how that relates to the taxes we pay?  This is where our system fails most spectacularly.  We want to pay less taxes and we imagine we could cut government spending to make that possible.  What spending do we want be cut?  Waste!

We believe almost half of all government spending (47%) is wasted.  Where?  Social Security, the largest program?  Four of five (79%) oppose cutting Social Security spending.  There is less opposition to raising the Social Security eligibility age (44% in favor, 54% opposed).  Opinions are quite evenly divided on what we could save by raising the age of eligibility.  I don’t know what % of the population knows Social Security does not in fact contribute to the deficit – we collect more Social Security taxes than we pay in benefits.

How about cutting Medicare etc, our second largest program?  Opinions are equally distributed from a lot to not much on what that would save but three quarters of us (76%) are in any case against cutting Medicare.

Should we cut defense spending, the third largest area of spending?  Three of five (58%) oppose that but almost half (47%) think we could make very large savings by pulling out of Iraq and Afghanistan and two thirds (66%) favor doing that.  Will they oppose spending the money to invade Iran?

Since the top three areas of spending account for 62% of the total, how to eliminate that 47% of waste?  Two of every three of us (42%) believe we could make very large savings by cutting aid to foreign countries and 72% favor doing that.   Sadly, our total non-military foreign aid in 2011, $32M, is one thousandth of one percent of total federal spending.

  • Do you think people in government waste a lot of money we pay in taxes, waste some of it, or don’t waste very much of it? (p. 15, Apr. 2011 CNN) A lot – 73%, Some – 23%, Not Much – 4%
  • For every dollar you pay in federal taxes, about how many cents do you think are wasted by the government? (p. 16, Jan. 2013 Reason-Rupe) Wasted – 47%
  • In order to reduce the budget deficit, would you favor or oppose reducing spending on Social Security? (p. 60, Mar. 2013 CBS) Favor – 18%, Oppose – 79%
  • Would you favor or oppose gradually raising the age of eligibility for Social Security to 69? (p. 53, Mar. 2011 Bloomberg) Favor – 44%, Oppose – 54%
  • Savings by gradually raising the age of eligibility for Social Security to 69 would be? (p. 53, Mar. 2011 Bloomberg) Very large – 19%, Fairly large – 28%, Fairly small – 24%, Little difference – 24%
  • Would you favor or oppose significantly reducing benefits for Medicare? (p. 53, Mar. 2011 Bloomberg) Favor – 22%, Oppose – 76%
  • Savings by reducing benefits for Medicare would be? (p. 53, Mar. 2011 Bloomberg) Very large – 19%, Fairly large – 25%, Fairly small – 27%, Little difference – 24%
  • In order to reduce the budget deficit, would you favor or oppose reducing defense spending? (p. 60, Mar. 2013 CBS) Favor – 38%, Oppose – 58%
  • Savings by pulling all troops out of Iraq and Afghanistan would be? (p. 53, Mar. 2011 Bloomberg) Very large – 47%, Fairly large – 28%, Fairly small – 12%, Little difference – 11%
  • Would you favor or oppose pulling all troops out of Iraq and Afghanistan? (p. 53, Mar. 2011 Bloomberg) Favor – 66%, Oppose – 30%
  • Savings by cutting aid to foreign countries would be? (p. 53, Mar. 2011 Bloomberg) Very large – 42%, Fairly large – 30%, Fairly small – 14%, Little difference – 10%
  • Would you favor or oppose significantly cutting aid to foreign countries? (p. 53, Mar. 2011 Bloomberg) Favor – 72%, Oppose – 26%

Fed Spending Pie Chart

This is already a long post so I will make only two comments about state and local taxes.  Property taxes are considered the most unfair of all, perhaps because they may force folks whose incomes drop sharply at retirement to sell their home.  Estate taxes, primarily federal but which have also been levied by some states, are also very unpopular, which is inconsistent with our idealization of the “self-made man”.

The next post in this series will say more about fairness.  How should society’s wealth be distributed?  The cynic would expect all of us to think we personally should have more.  What do we actually want?  My analysis of our current tax system and how its results compare to what we want will at that point be sufficiently complete.   I will then force myself to establish some proposals for a better system.

Opposing Senate Resolution 65 re Iran & Israel

Please, everyone, join me in urging your Senators to defeat Senate Resolution 65 which would commit us to a disastrous war with Iran that would not even be entered into by our own decision.  Use my letter below as a base if it helps.  I’m sending a slightly different version to my other Senator, Angus King, because he has not sponsored the Resolution.

With these links you can get your Senators’ email address and if they sponsor S.Res.65 as well as its text.

Dear Senator Collins,

With utmost seriousness I urge you to withdraw your support for, and in fact work to defeat Senate Resolution 65.

S.Res. 65’s conclusion, “if the Government of Israel is compelled to take military action in self-defense, the United States Government should stand with Israel and provide diplomatic, military, and economic support to the Government of Israel” would commit us to war with Iran whenever Israel decides.  It  would not be our Government but Israel’s that decides whether or not to invade Iran.

Although S.Res.65 ends: “Nothing in this resolution shall be construed as an authorization for the use of force or a declaration of war”,  that is exactly what it is.  If the Government of Israel decides to strike Iran, S.Res.65 would commit us, too.

War on Iran is very much against our interests.    As former Secretary of Defense (2006-2011) Robert Gates, said in a speech on October 3 last year: “The results of an American or Israeli military strike on Iran could, in my view, prove catastrophic, haunting us for generations … An attack would make a nuclear-armed Iran inevitable.  They would just bury the program deeper and make it more covert.” 

Just like the claim that Iraq had weapons of mass destruction, the claim that Iran is making nuclear weapons is false.  US Director of National Intelligence James Clapper told the Senate on March 12 this year: “We do not know if Iran will eventually decide to build nuclear weapons”.  He said Iran is not enriching to weapons grade and we could quickly detect it if they do.  Inspectors at the International Atomic Energy Agency who monitor Iran’s nuclear sites say the same thing.

I care deeply about this both as an American and a parent.  I proudly support our son’s service in the military.  I believe you care about him, too.  Do not blindly commit him to a war that is against our interests and would not even be entered into by our own decision.

Respectfully,

Essential Financial Reforms

Congress asked the Government Accountability Office (GAO) to assess the cost of the 2007 financial crisis and if the 2010 Dodd-Frank legislation will prevent future crises.  GAO just released their findings:  “the present value of cumulative output losses could exceed $13 trillion” and “[there is] no clear consensus on the extent to which, if at all, the Dodd-Frank Act will help reduce the probability or severity of a future crisis”.  $13 trillion?  If at all?  That’s alarming.

GAO studied not just the bailout cost, which looks to be $1.5T to $3T, but the overall cost.  “While the structural imbalance between spending and revenue paths in the federal budget predated the financial crisis … From the end of 2007 to the end of 2010, federal debt held by the public increased from roughly 36 percent of GDP to roughly 62 percent.  Key factors … included (1) reduced tax revenues … (2) increased spending on unemployment insurance … (3) fiscal stimulus programs … (4) increased government assistance to stabilize financial institutions and markets.”  36% to 62% is one big jump.

Consumer spending (70% of our economy) fell, GAO notes, because: “median household net worth fell by $49,100 per family, or by nearly 39 percent, between 2007 and 2010”.  They also show the high human cost of long-term unemployment from the financial sector’s collapse.

Unemployment Rate GAOMaybe later I’ll explore why Congress passed legislation GAO found may or may not “reduce the probability or severity of a future crisis“, legislation that is both enormously too complex and not what we normally think of as regulation.  The Glass-Steagall Act that transformed finance after the 1929 Wall Street Crash has 37 pages.   Dodd-Frank has 848 and does not specify rules people must follow but new regulations bureaucrats must create along with enforcement agencies.  That’s not how we do things where I’d like to come from.

The immediate, urgent question is, what must we make Congress do instead?  Now I understand the problem (see previous pasts), the solution looks pretty straightforward:

  1. Eliminate too-big-to-fail.  The collapse of the big banks and AIG threatened to paralyze our entire economy.  They were bailed out because they were considered too big to be allowed to fail.  Businesses that go wrong should fail.  And they should fail without damaging the economy.  This means banks must be limited to a maximum of, say, 5% of total US deposits and any that become insolvent must be forced into receivership under the FDIC.
  2. Regulate derivatives.  The collapse of any one financial institution could trigger the collapse of the whole system because inter-dependencies via derivatives were gigantic and invisible to regulators.   To make them visible, derivatives must be traded on exchanges like stocks and futures, and ones that could require a future payout must be treated like insurance with their underwriters required to carry reserves.
  3. Restore 12:1 leverage.  The big banks failed so fast because their capital reserves were too low.  Our economy depends on lending and they had to stop when they became insolvent.  The SEC waiver of the 1975 net capitalization rule must be reversed and SEC discretion over the rule must be eliminated.
  4. Restore Glass-Steagall.  Tax-payers have to foot the cost of the mega-banks’ mismanagement because speculation and underwriting is no longer separate from taxpayer-backed depository banks.  The separation must be restored.
  5. Regulate non-bank lenders.  Many of the loans most likely to default were originated by non-banks who securitized and sold them.  Any institution that originates a loan must be required to keep, say, 10% of its securitized loans and absorb the first 10% of default losses incurred by investors in the securitized loans.

Among other things, the Dodd-Frank Act mandates the SEC to require US public companies to repossess executives’ short-term profits that result in long-term liabilities that require an accounting restatement.  There is also discussion of ways to make senior management personally liable in the event of a taxpayer bailout.  I have little confidence in either approach.  Compensation committees will indemnify executives from such provisions.  Shareholders and taxpayers will continue to pay.

The Justice Department recently sued S&P for up to $5B for defrauding investors with inflated credit ratings.  I assume Moody’s will also be sued because they, too,were paid for ratings by investment banks that issued  mortgage securities.   We might hope S&P and Moody’s will change the way they do business to eliminate the conflict of interest.  More proactive would be to open the ratings business to competition.

Hmm, my Buddhist practice must be helping – I got through exploring all this Washington/Wall Street malarkey without feeling angry.  I feel wrathful determination to do whatever I can to get it fixed, but wrath can be positive.

Fixing the negatives will discourage allocation of capital where it will have little or no value.  Next I’ll turn to the positive and explore what could guide good allocation.

It Takes a Pillage

Our finance system stopped allocating capital where it will have most value and efficiently reallocating risk.   Previous posts showed how deregulation and bailouts introduced moral hazard, how leaders of big financial institutions responded, and how in 2007 it all blew up.  But why did Washington allow the moral hazard to develop and respond as they did to the result?  Was there a cabal of corrupt Mr. Moolas?

Fat Cat

Probably not.  The protagonists seem genuinely to have believed markets would regulate the behavior of their participants.  When it went wrong, they did not consider it self-interested to preserve the big financial institutions they understood to be the financial system.

How we conceptualize the world is shaped by our experience.  It’s instructive to explore the experience of those whose beliefs got us so far off course but future Fed Chairpersons and Treasury Secretaries will also have conceptual blinders.  To avert repeating the catastrophe we must make structural changes.

In this post we considered Alan Greenspan’s expansion of the Fed’s mission to include managing asset prices.  His successor, Ben Bernanke, holds the same belief.  Central banks do influence asset prices while raising and lowering interest rates to help manage inflation and unemployment but they overestimate monetary policy hoping it can compensate for poorly managed fiscal policy, i.e., government revenue and spending.

What set the beliefs of Treasury Secretaries?  Robert Rubin, 1995-1999, had worked at Goldman Sachs for 26 years and was co-chairman from 1990 to 1992.  He later became a director of Citigroup and was its chairman at the height of the 2007 crisis.  Larry Summers, 1999-2001, formerly Rubin’s deputy, followed his lead against regulating derivatives and for deregulating big banks.   Paul O’Neill, 2001-2002, formerly CEO of Alcoa, deplored Bush’s tax cuts, investigated al-Qaeda funding by American allies, objected to the invasion of Iraq, and was fired.  John Snow, 2003-2006, formerly CEO of CSX, had to resign when it was revealed he failed to pay income taxes on $24M at CSX .  Henry Paulson, 2006-2009, was formerly chairman and CEO of Goldman Sachs.  Tim Geithner, 2009-2013, was at Treasury from 1998–2001 under Rubin and Summers, then President of the NY Fed.

With the exception of O’Neill and Snow who had little impact, the beliefs of all these men were shaped by Goldman Sachs.  Did they act always in what they believed to be the best interests of all the people?  Let’s assume they did.  What they believed would have led them to the actions they took.   Of course they believed big financial institutions must be saved, and of course they believed it essential to bail them out.

They may well have been right.  Deregulation probably had made the big financial institutions too big to fail and bailouts had become Washington’s Pavlovian response to confidence-threatening failure of big enterprises.

But what about after the bailouts?   We already considered moral hazard created by bailouts that protect fools from the disasters they create.  What about moral hazard created after the bailouts by weak punishment of those who committed fraud?  This is where more folks think they see Mr. Moola.

Financial institutions have agreed to settlements that sound large.  Global banks agreed to pay almost $11B in the US last year.   This January, Bank of America reached a $10.3B settlement with Fannie Mae.  The Fed and Treasury reached a separate $8.5B settlement with 10 banks, including BofA.   But no institution or executives have been brought to trial.  And while $11 + 10.3 + 8.5 = $30B of settlements is a big number, financial sector stocks in the S&P 500 earned $168B in profits last year, up 21% from 2011.  The cost of the settlements was inconsequential, $30B of what would have been $200B.

The settlements make even less difference to those responsible.  Angelo Mozilo, for example, was paid almost $470M as CEO of Countrywide Financial but paid none of BoA’s settlement for what Countrywide did under his leadership.   He did settle with the SEC on unrelated insider trading charges but even there he paid only $47M of the $67M settlement because he had a $20 million indemnification in his employment contract.  Criminal convictions have discouraged insider trading.  Mortgage and other financial frauds should also have been vigorously prosecuted.

But far more important than punishment for crimes past are major changes we must make (1) to minimize moral hazard and the likelihood of another financial crisis, and (2) so the financial system will allocate capital where it has the highest value.  The first, which I will itemize in the next post, are easy to see now that I understand the problem.  The second requires more exploration.

Why I Feel Like an Extraterrestrial

Maybe it’s because I don’t watch TV.  But I’m getting ahead of myself.

I’m lying in the dentist chair.  The TV on the ceiling is tuned to CNBC.  The technician asks, “Would you like me to turn the TV off or shall I leave it on?”  I tell her it’s OK either way.  I think I don’t care and most of the time I am indifferent but every so often the moving images and voices attract my attention.  “Look,” says an intelligent looking young man, “if we eliminated the entire defense budget it still wouldn’t fix the deficit.”

The voices were being processed by my brain all the time.  Recognizing “defense budget”, something said, “heh, pay attention” and presented the entire sentence the man had spoken.  The interviewer thanked the young Congressman.  Nobody broke out howling with laughter.

We can’t know everything so maybe the Congressman didn’t know how much we spend on defense.  Maybe he didn’t know what he said was factually incorrect.  Perhaps he’s too busy to investigate what took me only a short time to learn (see this ) but can he really be a stranger to logic?

Let’s say it was true we would still have a deficit if we entirely eliminated defense spending.  Does that mean we have no choice but to continue defense spending at the same rate?  If those we elect can say such things and be treated as wise and suitable leaders, I must be an extraterrestrial.  Why isn’t anyone laughing?

The technician continues to chip away.  I try to relax, telling myself, “you’re over-reacting.  He probably knows what he said is nonsense and that many people like to hear such things.”  It doesn’t make me feel better but you can’t expect to feel all that great in a dentist chair, anyway.

The pattern recognizer alerts me again: “If we make enough laws, we can all be criminals”.  It remembers I was interested when I heard that before.  The speaker is another thoughtful looking man who also seems to be an elected representative.  He’s being asked about the President’s push for stronger gun control legislation.  He says new legislation will only make things worse.  Again, my hopes for a raucous laugh track are disappointed.

In the decade since 9/11 when 3,000 were killed, there were no additional terrorist killings on the USA mainland.  In that same ten years, 340,000 of us killed ourselves and others with firearms (40% homicides, 60% suicides).

We took action to avert more terrorist attacks.  We took too much of the wrong kind but we also took some that was both appropriate and effective.  Pretty much all of us are pleased by the results of the effective action.  Why, then, would it be impossible to take effective action to avert more firearm deaths?  Isn’t that why we elect representatives – so they will establish effective legislation?

Maybe I’ve forgotten my extraterrestrial childhood but I remember and never regretted choosing to become an American.  So what if I feel like an extraterrestrial when I watch TV or read things like this ?.  I’m committed to this society and I will keep doing everything I can to help it grow ever better.

Evaluation of War on Terror Strategy

Our War on Terror strategy (see this) implies readiness for large and small scale action in multiple theaters throughout Africa, the Middle East and Central Asia, Southeast Asia, and Northern and Western South America.  How likely is its success, how long will it take, can we afford the cost, and is there a better approach?

The goal of the strategy is to eliminate Islamic “holy war” terrorists who might attack us from anywhere in the world.  It is unachievable.  That kind of threat can not be ended, only mitigated and endured.  Military action is in fact counter-productive because the collateral destruction creates more terrorists and strengthens their support.  Even if we could utterly destroy al Qaeda, we could not declare victory because we declared war on all Muslim terrorists.  Since there are over a billion Muslims, there will always be a few Muslim extremists just as there will always be some who are Christian.

Response to aggression should always be proportional to the threat, and it must be able to succeed.  Our response is massively disproportional and it can never succeed.

A strategy of unending military engagement everywhere would exhaust any nation.  That strategy for the USA predates the War on Terror.  We spend more on military activities than the next 20 nations combined, which is half our total expected Federal tax revenue.  The cost of our already high Federal debt must become unaffordable when our spending is persistently so much higher than revenue.  No nation can afford war that is permanent.  We cannot afford this strategy’s cost.

And the strategy will make us permanently less free.  When we go to war to preserve our liberty, we willingly forgo some of the freedoms we enjoy in everyday life, expecting them to be restored when victory is achieved.  If victory never can be won, those freedoms never will be regained.

Finally, the strategy creates unwarranted suffering for our own people.  Enormously more of our troops are killed than the number of US citizens threatened by terrorists and enormously more of them suffer physical and/or psychological damage from which they will never recover.  Caring for them has a high dollar cost.  Far more important, we are wrong to demand their sacrifice.

So, we are forcing future generations to pay for a war that cannot succeed and which limits the very freedoms we claim it will preserve.  How did this happen?

For the first half century after we emerged as a great power early in the 20th century, we acted overseas only after deliberation and then with decisive power.  The great good fortune of our geography gave us time to prepare and sufficient resources to do so.  We entered WW1 and WW2 when we were ready and we brought about rapid victory.

We radically changed strategy following WW2.  We began managing the world whether or not our immediate interests were threatened in any particular situation.  We took the lead in Korea, which the Allies had split into two nations at the end of WW2.  Then we initiated a long, bloody and fruitless war in Vietnam that spilled over into Laos and Cambodia.  And we established a nuclear strategy of “mutually assured destruction” which we did not change after Soviet Russia, our only military rival, collapsed and we no longer faced any existential threat.

In response to the 9/11 attack on two mainland USA targets by al Queda terrorists, we initiated not just detective work but war, as if we had been attacked by a nation.  We invaded Iraq even though we knew there was no Iraqi involvement in the attacks.  We heavily bombed Afghanistan where al Queda’s leaders were based and inserted ground forces there.  After Al Queda’s command cell relocated to Pakistan, we greatly increased our activities in Afghanistan.  By about 2004 we had lost focus on what our War on Terror was intended to achieve.

No satisfactory reason for our invasion of Iraq emerged, civil war broke out, and opposition to us was so strong by 2004 that we could only maintain our presence by allying with our enemies.  Furthermore, by destroying Iraq’s power we had eliminated the only regional balance against Iran, which we now view as our enemy.  After entering Afghanistan to disrupt al Qaeda’s leadership, we drifted into fighting the Taliban, a different and far more costly objective that required massive force.  We then, as in Iraq, set a far longer term objective, building a democratic society.  When we installed the Karzai government, the Taliban retreated to the mountains to wait us out.  We are now downsizing our presence but the end of our war in Afghanistan is indefinitely far distant.

Meanwhile, we began to capture and monitor all electronic communications to identify terrorists.   Believing we were threatened by potentially massive new attacks, we could only hope to avert them by monitoring all communications between everyone, and storing everything so we could monitor earlier communications of new suspects.  We partially suspended habeas corpus so suspects could be jailed indefinitely without trial.  We began torturing them, illegal in the USA even in wartime, in camps overseas.  We began killing suspects without due process.  The President can now direct even US citizens to be killed.

In the past 10 years we have killed around 3,000 terrorists and civilians with drones in Pakistan, Somalia, Yemen and elsewhere, i.e., inside nations on which we have not declared war, and the Joint Special Operations Command (JSOC), which killed bin Laden, has established commando teams in Africa for operations throughout NE Africa and the Middle East.  Attorney General Holder asserts: “Our legal authority is not limited to the battlefield in Afghanistan… We are at war with a stateless enemy, prone to shifting operations from country to country.”  That authority extends, he says, to killing US citizens without regard to geography or due process.

War changes society by limiting citizens’ rights.  Inspecting the private communications of citizens is routine during war, habeas corpus and due process are routinely suspended, and what would be assassination in time of peace becomes legal.  But if our war on terror never ends, our civil liberties and peacetime rules of law will never be restored.  They will be further eroded.

We are now, 12 years into this war, committing massive resources to missions that are not even clearly connected with preventing Islamist terrorism and we are making permanent what were introduced as emergency overrides on the Bill of Rights, e.g., the need to obtain a warrant for certain actions.

No nation can afford the dollar cost of permanent war or the spiritual cost of war that can never be won.  When we do take military action it should be with clear goals and sufficient force applied in a way that will achieve the goals.  Our present strategy has none of these attributes.

Chaos Theory and What we Do

We’re raised to believe chaos is a bad thing, a state of disorder.  “Your room is a mess, it’s in chaos, clothes everywhere, everything filthy!”   But recent scientific discoveries shed new light on chaos.  We now know how deterministic systems like the weather can produce unpredictable behavior, a situation we think of as chaotic.

This discovery re-frames causality, the old debate about free will or determinism.  A deterministic system is one where the result of every cause is inevitable.  That seems to imply the system can only develop in one way so we could forecast its state perfectly at any future time.  Why, then, can we not predict the weather two weeks, two months or two years out?  Because very small changes can have very big results.

Chaos theory is known as the butterfly effect after a 1972 paper by Edward Lorenz: Predictability: Does the Flap of a Butterfly’s Wings in Brazil set off a Tornado in Texas?”  What Lorenz showed is that a flapping wing, a tiny change in a big system, can trigger a chain of events that lead to large-scale phenomena.  If the butterfly had not flapped its wings in Brazil, the system could have developed in a vastly different way.

Chaos theory does not say if we can or can not choose what we do, it does show that a tiny good act could nudge the system of behaviors and results in which we live toward an immensely happier state.  Or the reverse.  Our tiniest actions, a little bit bad, uncaring, or a little bit good could lead to results of unimaginable scope and power.  We don’t have to know whether humankind has free will, we do now know it matters very much what we do.

What should we do then?  I’m beginning to realize I completely misunderstood Eastern thinking about what to do.  They teach acceptance.  What do they mean by that?  Raised in the West, I  understood acceptance to imply an uncaring, uninvolved, inactive stance.  After quite a bit of study and reflection I realize Buddhists understand acceptance very differently; seeing things as they really are and taking action that really is helpful.

What does it mean to “see things as they really are”?  What we “see” is our interpretation of phenomena via concepts we trust.  That’s essential in many situations.  When we’re driving and we see a red traffic light, that small red signal triggers the appropriate response.  The triggered response can also be useful even when a signal is falsely interpreted.   If the tree stump that quick-matched my concept really had been a robber, my response would have been appropriate.

But there can be great harm when we “see” people behave in ways that we interpret via concepts.  Nothing like the tree stump will appear to reveal our mistake.  The wealthy-looking man will continue to look industrious and trustworthy, the raggedy one unambitious and maybe a free-loader or dangerous.  We will act toward them based on our concept and the harm will increase because we will keep “seeing” what we expect to see and reinforcing it by acting as we always do when that’s what we “see”.

I’m also realizing the definition I grew up with is fundamentally different from the Buddhist understanding of “perfect” and how Buddhist “perfect” relates to “acceptance”.   To a Buddhist, “perfect” is not a value judgment just acknowledgment that the situation at any instant is complete.  “Acceptance” means we don’t waste time and energy wishing it was some other way.  It can at this instant be no other way, it has been “perfected”.

“Seeing” is also related to “Acceptance”.  It requires training (or sudden insight) so, with undistorted awareness and acceptance of the situation, we know what really is most beneficial to do.    As chaos theory explains, we might at any moment take some small action that would nudge our fellow beings toward enormously greater happiness.

“Identity” is also related to “chaos”, “causality” and “seeing”.  What we “see” as a tornado is phenomena solidified into a concept.  It has no fixed identity.  It’s more a force than what we see and hear of dust, broken fragments of houses, and maybe Dorothy and her dog.  They’re just bits and pieces, not the essence of a thing.  What we seem to hear and feel are not an object but the manifestation of a collection of forces.  The collection would be better named by a verb, not a noun.  It’s an ever-changing aggregate of forces picking up an ever-changing collection of objects composed, if we look closely, of tinier and tinier particles.

A tornado is a different thing in the next moment, and a tiny change in what led it to appear here and now could have led to something utterly different.  It’s the same with beings.  If any one of so many small things had gone a different way, I would not exist, and any tiny change later could have led me to do entirely things with very different effects.

It is more accurate to consider tornadoes and people as processes than things, ever-changing aggregates that manifest in ways only chaos theory illuminates.

The Military-Industrial Complex

In The Federal Budget and GDP and The Canary and the Colly Bird I said I’d take a flashlight, calculator and canary to investigate the “Military-industrial mine-shaft that keeps us in a ruinously costly perpetual state of war”.  There’s a lot of camouflage but my flashlight shed some light on the business results of what I’ll call Military Operations Inc (MOI).  The canary was distressed at times but it’s OK now, maybe because I didn’t yet take it very deep.

What I mean by camouflage in this context is none of the numbers I found so far can entirely be trusted.  As the Congressional GAO repeatedly says: “serious financial management problems at the Department of Defense make its financial statements unauditable.”  Nonetheless, the following numbers are sufficiently OK to show relative sizes. To set them in context, DOD spending is 20% or more and DOD plus non-DOD military spending 30% or more of federal spending, i.e., around half of total estimated Federal tax revenues.  Military spending grew 9% annually since 2000, much faster than GDP, and now accounts for 5%-8% of GDP.

Our stated military spending, which exceeds the next 20 nations combined, is actually a lot higher than the $711B for 2011 shown below.  That number is said to include War on Terror spending but I doubt all those costs are included.  Additional spending on defense-related programs, e.g., Veterans Affairs, Homeland Security, and nuclear weapons maintenance brings the total above $1T and even to $1.4T with interest on debt incurred in past wars.   We have military bases in at least 150 countries, almost 1.5M active military personnel, an additional 100K DOD personnel and substantially more than 100K contractor personnel in Iraq and Afghanistan.

US and Other Nation Military Spending 2011

Spending dropped after the collapse of the Soviet Union but greatly increased following the 2001 terrorist attack that killed 3,000 US civilians.  The canary was distressed to learn that the War on Terror response to that attack, recast by the Obama administration as Overseas Contingency Operation, has so far resulted in over 6,500 US military personnel killed and 50,000 wounded.  The bird may not have recovered if I’d been able to find dependable counts of Iraqis, Afghanis and others killed and wounded.

Although the canary sees ratios, it is fundamentally innumerate.  It recovered while I returned to my calculator.  The numbers in the chart below are understated, as noted above, but they do correctly illustrate the spending pattern.  A 2011 Congressional report estimates the total cost of the Iraq and Afghanistan wars will be $1.8 trillion.  An academic report the same year that includes other areas of related spending estimates $5.4 trillion.

Total US Defense Spending since 1947

The canary showed new signs of distress when I examined the spending rationale.  When President Bush declared war on terror he said it “will not end until every terrorist group of global reach has been found, stopped and defeated.”  The canary was troubled because:

  • Such a war can never end
  • The justification for the first big operation was false – satellite images said to be of Iraqi factories for enriching uranium were not
  • That operation was followed by ones the public barely questioned in Afghanistan, the Philippines, Somalia, Trans Saharan Africa, Pakistan and Yemen
  • We are repeatedly told to be prepared for future actions against North Korea and Iran

The canary recovered while I looked at more numbers.  We can’t know for sure where the money goes, but the next chart gives a sense of the breakdown.  Pay and housing for military personnel fluctuates fairly closely around $100B.  Spending on weapons and procurement increased steeply during the Vietnam War, again toward the end of the Cold War and again from the start of the War on Terror.   Spending on war operations, in other words MOI’s revenue from conducting war, which also grew during the Vietnam War and Cold War escalation, increased dramatically in the past decade.

Defense Spending Composition since 1962

Defense R&D spending remains relatively consistent.  I’ll come back to this another day because it yields some civilian benefits, e.g., the Internet.  Most of the $700B to $1T we spend on defense is simply a burden on income tax payers, a tax whose only rationale is to prevent the possible occurrence of negative things.

What, then, have I learned on Day 1 of this exploration?  MOI’s Overseas Contingency Operation (OCO) product line is yielding greatly increased revenues.   The obvious next question is the OCO product line’s longer term potential in the “negative things” market.   How much further can OCO revenues be grown and for how long?  To approach answers, I will next explore OCO product strategy in the context of MOI’s overall business strategy and organizational structure.  I’ll carefully watch the canary for signs of distress.

The 2nd and 3rd Amendments

We should periodically review assumptions that direct our beliefs.  The world may have changed so they are no longer accurate.  We may need to make structural changes to direct new behavior.

Businesses that don’t update their assumptions fail.  My 1980s minicomputer consulting clients no longer exist.  They were ex-pioneers who imagined their competition was still each other.  They were aware of networked microprocessor-based systems but not the implications of a competing technology with a cost advantage that was already tenfold.  Their customers were little harmed because they could simply switch to new suppliers.

A nation’s customers, its citizens, can be greatly harmed, however, because it’s not easy to switch to a new one.  Nations keep going where they’re headed like giant cruise ships whose passengers were happy enough for long enough so the captain assumes they always will be happy.  He’s still happy.  He doesn’t notice the passengers’ distress now they’re in Antarctic waters in summer clothes.

Just as businesses degenerate slowly then collapse when their structure is not kept up to date, so it is with nations and empires.  The structure of GM, for example, where each brand (Chevy, Buick, Cadillac, etc) was targeted to a distinct market segment within which it battled competitors later ossified into baronies whose leaders fought each other.  Our Congress in the USA has similarly degenerated into warring factions whose eyes are closed to new realities.

The problem is in part institutional.  Our direction is governed by a Constitution established two and a half centuries ago with no requirement for periodic update.  Let’s consider two Constitutional Amendments to illustrate this issue.

The 3rd Amendment decrees that: “No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.”  That is just about as useful today as prohibiting an elephant from being quartered in our house without our consent.  Citizens once needed such protection.  We no longer do.  This Amendment is now so completely irrelevant that must people are unaware it even exists.

The USA 3rd Amendment echoed the English Bill of Rights 1689 that prohibited the monarch from “raising and keeping a standing army within this kingdom in time of peace without consent of Parliament, and quartering soldiers contrary to law”  and was in response to 1760s and ’70s British Quartering Acts that required American colonies to pay the costs of British soldiers here and colonists to provide space for them to live.

The English Bill of Rights was passed when Protestant William and Mary were invited by parliament to replace Roman Catholic King James II and become joint sovereigns of England.  It set limits on the powers of the crown and among other things reestablished the right of Protestants to own firearms.  James II had tried to disarm Protestants and maintain a standing army.  Civilians were at that time required to help suppress riots.

So the English Bill of Rights was also the basis for the 2nd Amendment to the US Constitution as one of our Bill of Rights which decrees that: “A well regulated militia being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed.”  It was adopted on December 15, 1791, along with the rest of the Bill of Rights and, interestingly, is the only amendment to the Constitution that states a purpose.

There was at that time substantial public opposition to a standing army from both Anti-Federalists and Federalists.  On May 8, 1792, Congress passed an Act decreeing that:  “every free able-bodied white male citizen of the respective States, resident therein, who is or shall be of age of eighteen years, and under the age of forty-five years […] shall severally and respectively be enrolled in the militia…[and] every citizen so enrolled and notified, shall, within six months thereafter, provide himself with a good musket or firelock, a sufficient bayonet and belt, two spare flints, and a knapsack, a pouch with a box therein to contain not less than twenty-four cartridges [and etc] and shall appear, so armed, accoutred and provided, when called out to exercise, or into service”.

The purpose of the 2nd Amendment, to provide for “the security of a free state“, has for many years been met in a different way.  We now have a standing militia armed with weapons whose power could never have been imagined in the days of muskets and firelocks.  Unlike the 3rd Amendment, however, its provisions are still relevant but are applied to a different purpose.

It would be better to retire both the 2nd and 3rd Amendments and draft new legislation suited to the purpose today.

People still want successors to muskets and firelocks for some of the same reasons left unstated in the 2nd Amendment, to hunt animals for food, defend themselves if police are unavailable, or just recreation.  It would be far easier to establish broadly acceptable legislation specifying who could own what firearms if we were now drafting legislation specifically for that purpose.