July 05, 2008
Iraq is a success if...
...oil was the objective. Maybe.
Five years after the US-led coalition stormed into Iraq there is set to be another western invasion.
This time it is the world's biggest oil companies leading the charge, 36 years after Saddam Hussein kicked them out.
The oil giants are seeking access to Iraq's rich crude reserves, Australian companies BHP Billiton and Woodside are among them.
The Iraqi government wants to make up for the lost opportunities under Hussein's rule and has the ambitious goal of doubling Iraqi oil production to more than 4 million barrels a day within five years.
Peter Zeihan, an energy analyst at geopolitical intelligence group Stratfor, says there is plenty of incentive for the big oil companies.
"They have the largest, easiest reservoirs to tap, they're very close to existing export points, there's infrastructure in place for over double the amount of oil that currently is being produced in Iraq," Mr Zeihan said.
"When Iraq does ultimately open up in a big way and allow greenfield investments, every single oil major in the world wants to be part of that play. And if that means signing deals that you're not exactly thrilled with today, so be it."
The Iraqi government insists the companies that win contracts must take on a local partner who in turn must have a minimum 25 per cent stake in the deal.
In an attempt to fast track oil production the government will award six contracts on a no-bid basis, to a handful of mainly US companies.
The move has been criticised by some US law-makers but State Department spokesman Tom Casey insists Iraqi arms were not twisted.
"The United States was not involved in any decisions to award contracts, to make determinations of what kinds of contracts would be offered," Mr Casey said.
Still the mad rush for Iraqi oil has reignited debate over why the US invaded Iraq in the first place.
Rick Barton of the Washington based Centre for Strategic and International Studies says gaining access to the Iraqi oil fields was always a key strategic motivation.
"Of course oil is important. It matters to the world, it is one of the true assets of this region," Mr Barton said.
"And to be more matter of fact about it and then to make it clear to people that really the more oil that is produced and exported, it's better for the world markets and it's better for the Iraqis."
"Instead of people being coy about it, my feeling is that total transparency makes it - takes away the argument."
Actually, I'm not quite as optimistic as this article. And the reason I'm not is that it's not clear that these oil contracts will be implemented. And that's because, as the GAO made clear in its recent exhaustive analysis "Securing, Stabilizing and Rebuilding Iraq" [pdf] of how many -- or more accurately, few -- of the benchmarks associated with "the surge" have been achieved. Most importantly, the central elements of the hydrocarbons laws have not been achieved. In fact, Figure 10 from the GAO report puts this point in pretty stark relief.
Figure 10 from GAO, SECURING, STABILIZING, AND REBUILDING IRAQ: Progress Report: Some Gains Made, Updated Strategy Needed, June 2008.
The report's motivation recalls for us the original rationale for "The New Way Forward", aka "the surge":
Since 2001, Congress has appropriated about $640 billion for the global war on terrorism, the majority of this for operations in Iraq. In January 2007, the President announced The New Way Forward to stem violence in Iraq and enable the Iraqi government to foster national reconciliation. This new strategy established goals and objectives to achieve over 12 to 18 months, or by July 2008.
GAO discusses progress in meeting key goals in The New Way Forward: (1) improve security conditions; (2) develop capable Iraqi security forces; and help the Iraqi government (3) enact key legislation, (4) spend capital budgets, and (5) provide essential services. GAO also discusses U.S. strategies for Iraq. [emphasis added -- MDC]
Summing up, GAO concludes:
The New Way Forward responded to failures in prior strategies that prematurely transferred security responsibilities to Iraqi forces or belatedly responded to growing sectarian violence. Overall violence, as measured by enemy-initiated attacks, fell about 70 percent in Iraq, from about 180 attacks per day in June 2007 to about 50 attacks per day in February 2008. Security gains have largely resulted from (1) the increase in U.S. combat forces, (2) the creation of nongovernmental security forces such as Sons of Iraq, and (3) the Mahdi Army’s declaration of a cease fire. Average daily attacks were at higher levels in March and April before declining in May 2008. The security environment remains volatile and dangerous. The number of trained Iraqi forces has increased from 323,000 in January 2007 to 478,000 in May 2008; many units are leading counterinsurgency operations. However, the Department of Defense reported in March 2008 that the number of Iraqi units capable of performing operations without U.S. assistance has remained at about 10 percent. Several factors have complicated the development of capable security forces, including the lack of a single unified force, sectarian and militia influences, and continued dependence on U.S. and coalition forces.
The Iraqi government has enacted key legislation to return some Ba'athists to government, give amnesty to detained Iraqis, and define provincial powers. However, it has not yet enacted other important legislation for sharing oil resources or holding provincial elections. Efforts to complete the constitutional review have also stalled. A goal of The New Way Forward was to facilitate the Iraqis' efforts to enact all key legislation by the end of 2007.
Between 2005 and 2007, Iraq spent only 24 percent of the $27 billion it budgeted for its own reconstruction efforts. More specifically, Iraq’s central ministries, responsible for security and essential services, spent only 11 percent of their capital investment budgets in 2007 -- down from similarly low rates of 14 and 13 percent in the 2 prior years. Violence and sectarian strife, shortage of skilled labor, and weak procurement and budgeting systems have hampered Iraq's efforts to spend its capital budgets.
Although oil production has improved for short periods, the May 2008 production level of about 2.5 million barrels per day (mbpd) was below the U.S. goal of 3 mbpd. The daily supply of electricity met only about half of demand in early May 2008. Conversely, State reports that U.S. goals for Iraq's water sector are close to being reached. The unstable security environment, corruption, and lack of technical capacity have contributed to the shortfalls.
The Departments disagreed with our recommendation, stating that The New Way Forward strategy remains valid but the strategy shall be reviewed and refined as necessary. We reaffirm the need for an updated strategy given the important changes that have occurred in Iraq since January 2007. An updated strategy should build on recent gains, address unmet goals and objectives and articulate the U.S. strategy beyond July 2008. [emphasis added -- MDC]
According to Congressional Research Service, we are now spending in the area of $12.5 billion per month.
Table 2 from CRS, The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11, Updated May 30, 2008.
Or, about 1% of U.S. GDP. [late addition -- on an annualized basis]. Of course, this does not include costs for medical care out of theater, and VA costs, etc. These are only direct fiscal costs, as best as they can be counted. Furthermore, the expenditure per troop is rising (at least through FY06). From the CRS report:
GAO, CBO and CRS have all testified to Congress about the limited transparency in DOD's war cost estimating and reporting. While DOD has provided considerably more justification material for its war cost requests beginning with the FY2007 Supplemental, many questions remain difficult to answer -- such as the effect of changes in troop levels on costs -- and there continue to be unexplained discrepancies in DOD's war cost reports.
Posted by Menzie Chinn at July 5, 2008 07:23 AMdigg this | reddit
very good quick summary.
Posted by: spencer at July 5, 2008 08:46 AM
Please God, more of this left wing stuff pretending to be objective analysis. The world is really short of this stuff.
Posted by: anon at July 5, 2008 09:54 AM
"According to Congressional Research Service, we are now spending in the area of $12.5 billion per month.Or, about 1% of U.S. GDP."
Last time I checked, 2007 GDP was about $13 trillion. And my calculator tells me that $13B/$13T is 0.1%...unless maybe we meant over one year's time? Either way, this is truly left wing crap. Defense spending, including expenditures on the "GWOT" are low, historically, as a percentage of GDP.
what has ballooned, even tripled over the same period of time, is the expenditure on entitlements.
I didn't make that up. You can look at Ross Perot's charts at http://perotcharts.com/category/challenges-charts/
all of them are sourced to the GAO.
Posted by: Mr. K at July 5, 2008 10:15 AM
anon: The Government Accountability Office and the Congressional Research Service are "left wing"? What's your idea of "middle of the road"? The Heritage Foundation?
Mr. K: Sorry to be unclear. $150 billion (the annual rate, not the monthly rate) is a bit over 1% of GDP, at the SAAR recorded in 2008Q1, last release. This is now fixed in the text
Posted by: Menzie Chinn at July 5, 2008 10:27 AM
That's fine, but the spin you have spun is what it is. Total spending on defense, including Iraq, is still lower as a percentage of GDP than it was 20 years ago. You can't say that about mandatory spending - entitlements. My point is, that expenditures on Iraq are just a blip compared to the mess we created by massive bloating of entitlement programs. We now spend about a billion a day just on interest as result.
There has been a fair amount of discussion on this website concerning the run up on oil prices. Oil was about $50 a barrel in Jan 2007. That was about the time that the surge started in Iraq.
Has anyone considered the possiblity that the run up on oil is part of a collusive strategy to get us out of Iraq, by squeezing the economy? I think its possible. Iran would certainly like to see us leave. Could they buy oil in the spot market, store it, and run up the price? Resell it the next day, and cut output and lie about? Any of the major OPEC producers could do so, and they have all benefited from the big run up...
also, about 100 years ago when I was an econ major in college, I recall some study of a theory call "rational expectations". The gist of it was as I recall, that can "expect" our way into a run up like we have seen...as such, the big investment banks warn of declines in the market, the falling dollar, the real estate crisis, so billions leave equities and real estate and head into commodities. Of course, the investment banks make it coming and going...so meanwhile...
Take a look and see who has received the lion's share of campaign contributions from investments banks...and ask yourself which candidate will benefit most from the economic distress caused by the run up on oil. who would benefit the most from things going south in Iraq...January 2007 also happens to be when this person announced their intention to run.
These may just be coincidental facts. But it is also a fact that there has been a significant drop in violence in Iraq. And despite arguments for or against the whole venture, it is also a fact that there have been no successful attacks here in the US since 9/11, and none elsewhere in the West in 2 years. Maybe that's just another coincidence. And give the Iraq oil angle a chance. Iraq is known to have enormous reserves, perhaps with potential to pump as much as 11 MB/D, once tapped. Think that would help burst the speculative bubble?
Posted by: Mr. K at July 5, 2008 11:56 AM
Great post Prof. Chinn.
Mission actually accomplished
[New York Times, 14 October 2001
''If bin Laden takes over and becomes king of Saudi Arabia, he'd turn off the tap,'' said Roger Diwan, a managing director of the Petroleum Finance Company, a consulting firm in Washington. ''He said at one point that he wants oil to be $144 a barrel'' -- about six times what it sells for now.]
On Wed Jul 2nd, 2008 WTI (and Brent both) went above $144.
Posted by: koteli at July 5, 2008 11:57 AM
That's fine, but the spin you have spun is what it is. Total spending on defense, including Iraq, is still lower as a percentage of GDP than it was 20 years ago.
Hmm just exactly what enemy is poised to invade us or obliterate us.
Of course, thanks to the stupidity of Iraq, either Mexico or Canada could invaded us successfully with so much military expended overseas.
Posted by: vader at July 5, 2008 02:35 PM
Interesting how the echo chamber changed the subject. The subject was "oil was the objective". This exact kind of manipulation by propping up Saddam in his early days to get extremely favorable prices for oil was where our present adventure began. Then, when Saddam consolidated his power, he "renegotiated" the contracts in their favor.
So our latest puppet government (which really isn't a government) is likely to have second thoughts when a strong leader arises and consolidates his power. Then . . .
Enjoy the cheap oil while you can. If the pipelines stay intact long enough.
Posted by: Old Bogus at July 5, 2008 06:20 PM
"Hmm just exactly what enemy is poised to invade us or obliterate us."
Exactly. None are, though the jab at Mexico or Canada was nice hyperbole. Perhaps you are suggesting the Marines machine gun the Mexicans as they cross the Rio Grande?
The expenditures on military have worked.
Meanwhile, federal government expenditures have ballooned in nearly all other categories, but there is still the outcry for more. Look at education, for example. Over the same time period, expenditures have tripled...but we have gained zero ground, or even lost ground, as far as the capabilities of high graduates are concerned.
Ok. So we got off track. Was the objective in Iraq to secure the oil? If it was, then why spend so much time, effort, money, lives, securing Bagdad and Al Anbar? There is no oil there. Why not just isolate those areas, and secure Basra and Kirkuk? For that matter, why not just invade Saudi Arabia, and get more bang for the buck?
Way back when, as that econ major, I remember the professor in Econometrics drawing a cross section on the board and stating that it was James Watt's head. I remember him proving that Reagan's supply side policies would never work, that the budget deficit would crowd out private investment, and on and on. As a kid, I did not have an opinion, and really did not care. I just took notes and went on.
Interesting how little things have changed over even such a long time.
Posted by: Mr. K at July 6, 2008 05:47 AM
Mr. K.: Your econometrics professor was right. Reagan's supply side policies, in the sense of increasing tax revenues so much as to reduce the deficit in response to decreasing tax rates, did not work. I do agree with you that it is indeed surprising how little things change, as people still make that particular supply-side argument. (On investment crowding out, I admit to a mea culpa; it was net exports that were crowded out. Please refer to... any standard intermediate macro textbook).
Posted by: Menzie Chinn at July 6, 2008 08:22 AM
Ok, so supply side does not work. Voodoo economics as they say. The problem with macro texts or economics, period, is that you attempt to model the real world with mathematics. You have those pesky people who cheat, and think, and so the models break down. Almost every time. That's why you can't pinpoint the source for the oil price run up (that's what brought me here).
Yes, its got to be supported by fundamentals. But you know well that oil and all commodities are markets that can be manipulated.
I won't debate the merits of S-S econ but will gleefully agree that tax cuts without spending cuts simply do not make sense. I am not so sure about exports because you gloss over environmental policies and unfair trade practices that have helped create an imbalance in trade. Back then we were oh so worried Japan was going to buy up the whole country, and even Manhattan.
But my econ professor was dead wrong on the merits of Reagan's military spending policies. Where is the USSR today? But we are about on par, or are spending less on defense today, in terms of percent of GNP. can't say that for mandatory (aka entitlement) expenditures. Can't say that for other portions of discretionary spending either. Those have all exploded. And it looks like they will continue to explode, if demographic projections are correct. You could eliminate the military expenditure entirely, and it won't come close to offsetting it at all.
I can point to the $500B and agree that we are not in danger of attack. And though we are told repeatedly we are not safer, I can point at that $500B and say, I have not seen any attacks here lately. Maybe Iraq won't ever pay off. Maybe they won't pump enough oil to break the run on oil.
Now as for all those other bloating federal government programs, subsidies, etc...if tax cuts and resulting deficits can crowd out net exports, what will enormous federal government spending and resulting deficits crowd out? let me guess...I bet that macro text says the economy will just boom along, the proletariat will be better off, and the people and companies that pay for it all will happily to continue to do so. The cow that is constantly milked will just continue to gush forth. They will continue to take risks for less and less reward. The big firm hand of government is really, really needed to guide the invisible, but mean and greedy hand of capitalism.
Posted by: Mr. K at July 6, 2008 10:14 AM
"The expenditures on military have worked"
Nope, they have failed. Saying "demand for education spending has tripled" is mumbling nonsense. Actually, the American education system did ok up to Bush. Surprise surprise. Bush wants internationalism running American schools. What did you expect? When you have a nation falling to debauchery and degeneration, things fail including education.
Oil Capitalists are like gypsies. They should be treated like them as well.
Posted by: Sandman at July 6, 2008 12:47 PM
Mr K., when you say that military spending has not increased, are you including the $170 billion in supplemental funding not included in the initial defense budget used to fund the wars in iraq and afghanistan?
Posted by: Dave S at July 7, 2008 04:40 AM
1. Let's separate issues. to the tolls, is Iraq a colonial adventure where we establish an American protectorate and control the foreign and economic policy of Iraq or was it a liberation, where once the Iraqis have established self-government, we leave when they ask us to leave? Are have we caused the deaths and maiming of tens of thousands of people not for liberty, but oil?
2. In 2000, defense spending had reached the post-Korean War low of under 3% of GNP. It is now back above 4% of GNP. It may be necessary, may not all be necessary (F-22?, F-35?, ABM program?). Nevertheless, if we are going to raised defense spending, intelligence, and homeland security spending by more than 1% of GNP, should we not tax ourselves to pay for it?
3. Reference entitlements, social security is of course paid for, including the bonds in the fund, to at least 2042 according to the trustees. Apparently, some of you trolls want to give those Treasury notes a special, social security only, haircut, to pay for keeping the high tax rate at 33% rather than seeing it rise to 37%. If that is your case for cutting benefits, then please just make it.
4. Reference health care entitlement, medicare and medicaid, like private health insurance costs, are skyrocketing, in part driven by monopoly prices charged by drugs under patent, the fact that most patients don't choose medical care base on price (or do you put out bids for your cancer operation to choose the lowest "responsible" bidder?). An older population, overweight and underexercised, is also prone to more chronic diseases. So these costs are rising. More people and higher prices means that if you reduce funding, then those people will get less service, which in health care means less treatment for diseases and conditions, which usually does not end well with things like cancer and diabetes. My question to you trolls is who are you going to say should just drop dead and die (a lot of the noninsured working poor are doing just that already)? Inquiriing minds want to know.
5. It is ironic for the trolls that what is supporting the current economy are exports due to the weak dollar (an anathema for trolls), energy and agricultural commodities, health care, and Government spending on entitlements since people on social security and retirment pensions are not subject to layoffs and are less impacted by gasoline since their driving is more discretionary. Without these factors, we would not be creeping along with 1% growth. Their policy prescription is raise interest rates, strengthen the dollar (nip that export boom in the bud), further taxcuts for upper income earners, and cut entitlemnets. Given the current credit crunch/bank insolvency situation, this experiment might work just as it did 1930-31. According to the old black and white movies, that was a wonderful time for the rich.
5. Mississippi is the best state in the union according to the trolls, and Paraguay must be the best country in the world.
Posted by: Rickster Sherpa at July 7, 2008 05:12 AM
1. It's possible that the "oil" this war was fought for might have been the cronies of Bush/Cheney in the oil business, is it not? They make a lot more money when oil gets more expensive. Think about all the folks in Texas making a mint now.
2. As for defense spending as a % of GDP, a lot of this spending is off the books - and a lot more is future unfunded mandates like somehow treating all the people who have been crippled physically or mentally by the war. And as noted by at least one, we've borrowed the money to pay for this war - which is why I think the dollar has crashed more than anything else.
Posted by: M1EK at July 7, 2008 06:34 AM
Mr. K.: Your econometrics professor was right. Reagan's supply side policies, in the sense of increasing tax revenues so much as to reduce the deficit in response to decreasing tax rates, did not work.
Originally I was going to only point out that you failed to mention that congress increased spending almost two to one over the increase in revenue and that this ommission distorted the truth, but as I reread what you posted I realized that you did more than leave out this fact. Please give me your source for the above statement and please be specific to the Reagan Tax reductions. I am not saying such a study does not exist, but I have my doubts about its methodology if it does exist.
There has been much "analysis" of how supply side tax cuts "do not pay for themselves" but show me a tax increase in the past 50 years that has "paid for itself." Every analysis of supply side tax cuts has found that they do increase business activity, but those studies that also studied tax increases have shown that they do not increase revenue as expected and in most cases reduce revenue and economic activity.
Now to a comment on those studies claiming to disprove supply side tax cut benefits, usually in the study the "exogenous" changes are eliminated and only "endogenous" changes are taken as part of the data, but econometrics cannot make this psychological and social observation necessary in the study of economics. Econometrics gives you only as much as you put into it and because of this it has limited value based on the analyst's bias for or against. Econometrics can prove that Mussolini made the trains run on time but cannot assess the oppression of the people under Fascist central planning.
It is important to understand that supply side economics is based on economic freedom and free markets while demand side economics is based on central planning and coercion.
Posted by: DickF at July 7, 2008 08:09 AM
In support of DickF' and Mr. K's comments, a check of federal receipts by source shows that they rose from $601BN in FY 83 when tax cuts kicked in to $991BN in FY 89. That's a compound growth rate of 11% per year. The deficit increased as Democrats reneged on promises to cut spending in exchange for tax increases. It began to come down later in the 80s as spending was reined in.
Revenues did their work after the cuts - the deficit went up because spending went up. Can't blame that on tax cuts.
BTW - 550 metric tons of yellowcake uranium successfully removed from Iraq. Joe Wilson, where are you?
Posted by: Rich Berger at July 7, 2008 10:35 AM
Is a troll someone who disagrees? You may notice that I did not attack anyone personally.
My numbers on education spending, and all spending, came from Ross Perots website, and I presented a link to that above.
Posted by: Mr. K at July 7, 2008 11:53 AM
There are some not very advertised oddities about this oil "opening," which warn that there could be some problems with it. To get one issue out of the way, despite all the denials, it is pretty clear that the short-term contracts are pretty much going to Bush cronies, and look like the Halliburton deals during the war. So, there is at least some payoff to the oil buddies, but this does not amount to enough to justify or motivate the entire war, even if the New American Century crowd was looking at Iraqi oil as the last best chance for US companies.
The main problem is that there is no national oil law and increasingly it looks like there will be none. This seems to be due to a private deal cut between the leaders of the Iraqi central government (probably Maliki, maybe with his oil minister Sharistani) and the leaders of the Kurdish Regional Government (KRG), either its president Barzani, the president of Iraq, Talabani, or both of them. The Kurds have been sent the signal that they can increase their activities, which have amounted to something like 18 contracts with foreign companies, all officially denounced as illegal by the central government oil ministry. So, the two are just going to proceed without any formal revenue sharing agreement. Not a very stable setup for the longer term, especially given the lack of resolution over who ultimately will control Kirkuk and its rich fields.
BTW, while the companies with the edge in the central government contracting are mostly international majors, the ones dealing with the KRG tend to be oddball minors, with the best known (and most controversial in the US) being Hunt Oil, headed by Bush crony Ray Hunt, a former member of his Foreign Intelligence Advisory Board. Of course that deal was signed last fall and most of the fuss over it was back then.
Posted by: Barkley Rosser at July 7, 2008 12:54 PM
Too much analysis and not enough data.
Needs charts of:
1Q) Total real military spending for 10-20 years.
2Q) Military spending as percent of total spending for 10-20 years.
3Q) Barrels per year exported by Iraq for 10-20 years, with dollar value on opposite axis.
4Q) Barrels per year exported by Iraq as percent of total oil barrels per year consumed globally.
That would answer the questions:
1A/2A) Are we spending more than normal on the military? (cherry picking one high or low year is not reasonable)
3A/4A) How important are Iraq's oil exports? (how much can American corporations wring out of it)
That would help support the headline "worth it if..."
The actual article looks like political nonsense to me. How do you value a dead soldier with three kids at home? How do you value 5 years without an attack on US soil? A PHD in economics gives one no special way to measure those things.
Posted by: KevinM at July 7, 2008 01:27 PM
DickF: I'll just overlook your unfortunate analogy about "exogenous" effects in which apparently you are comparing Ronald Reagan with Mussolini.
You and Rich Berger seem to make a big deal about the simple fact that tax revenues increased during Ronald Reagan's administration. But as you can see from this chart from the OMB, tax revenues have increased every year under every administration since 1940 -- oh with the single exception of G.W. Bush. Why is that? Because of inflation, population increase and GDP growth. So increasing revenues is no proof that tax cuts increase revenues -- they always increase. Its like saying that tax cuts cause the sun to rise in the east every morning.
So the next obvious question is did revenues increase especially quickly after the Reagan tax cuts. Rich cites the numbers $601 billion growing to $991 billion in six years. You can see where these numbers came from in the OMB chart I linked above. That is a 65% increase which works out to about 11% compounded annually.
But this is a nominal growth rate. Inflation was relatively high during this period so the chart also gives the revenue growth in real terms. It turns out to be a much less impressive 5.1%. This still seems like good growth, but compared to what. Well since you looked at the last 6 years of the Reagan administration let's look at the last 6 years of the Clinton administration. In real terms, looking at the same chart, revenues increased at a compound rate of 6.2% per year, faster than under Reagan. And this was after what supply-siders called the greatest tax increase in history which would destroy the economy.
In addition to revenue you can look at growth of the economy. Annual growth in GDP per capita was higher under Clinton than under Reagan.
So where does that leave supply-siders. Well, first it was tax cuts pay for themselves. When that was proven wrong by mathematics, they claimed that it was true if you included "dynamic scoring." When that was also proven to be false by mathematics they've finally resorted to religious faith, "exogenous changes" that acted on people's psyche to grow the economy simply because they believed in the gospel of supply-siderism. As Peter Pan said "Clap harder if you believe in fairies." The supply-siders are clapping madly now.
Posted by: Joseph at July 7, 2008 02:32 PM
Bill Clinton was one of the best supply side President we have ever had. To mention just two supply side acts he slashed welfare and reduced the capital gains tax. Economically he was a much better supply sider than either George H. W. Bush or George W. Bush.
If you believe that the road to prosperity is higher taxes and more central planning all I can say is welcome to the Great Depression.
Posted by: DickF at July 7, 2008 03:19 PM
I notice that after the big Clinton tax increase in early 1993, real tax revenues were only up 3.2% in FY93. Given that Clinton also inherited a economy growing quickly out of recession, the effects of the large tax increase weren't very impressive. Furthermore, his 6.2% number was inflated by the jump in revenues in the late 90's, a good bit of which was given back when the internet bubble burst. Tax cuts look quite a bit better than tax increases.
Posted by: Rich Berger at July 7, 2008 06:20 PM
Rich Berger: Given that Clinton also inherited a economy growing quickly out of recession, the effects of the large tax increase weren't very impressive.
Given that you cherry picked a starting date in 1983 from the trough of the worst recession since the 20's, the growth in tax revenue under Reagan was unimpressive. You don't think the fact that the Fed lowered interest rates 14 points from a record 20% had anything to do with the expansion?
The bottom line is that growth in revenue and growth in GDP has been faster after tax increases than after major tax decreases for the last 30 years. That goes for Reagan, Clinton and GWB. Each empirical case contradicts your theory. Under GWB we have the lowest tax rates since WWII and the growth in in revenue and growth in GDP is worse than Clinton, worse than Bush I, worse than Reagan and worse than Carter. You currently are experiencing the supply-sider tax-cut nirvana and the economic performance is anemic. Thank goodness the long national nightmare of peace and prosperity under the Clinton administration is over.
Keep clapping. If that doesn't work try "La la la la I can't hear you."
Posted by: Joseph at July 7, 2008 07:29 PM
that is I thought I posted it. A lot of the charts someone requested are available here:
as for oil production from Iraq, you can find that here, but you have to hunt around a bit for it:
By the way, one other thing I remember about my econ professor - he was a great guy, and he is still there, at that great small southern school that came one shot away from going to the national championship. He also liked to say that economists spent all day trying to predict what would happen tomorrow, and then spent the day after explaining what went wrong.
Posted by: Mr. K at July 8, 2008 03:46 AM
Another thing I had forgotten- the capital gains tax cut of 1997 - capital gains taxes rose from $62 BN in 1996 before the cut to $109 BN in 1999. Even the Clinton administration demonstrated the efficacy of tax cuts.
You may also want to recheck your claim that President Bush's tax rates were the lowest since WWII. After the 1986 TRA, the top marginal rate was 28%. Of course Clinton raised that the 39.6%, but the revenue growth was only slightly higher than during Reagan (with help from the cap gains cut in 1997).
Posted by: Rich Berger at July 8, 2008 05:49 AM
Supply side benefits mathematically proved wrong? WTF?
Looking only at tax revenue, if it can be determined that a tax cut leads to growth, IT WILL ALWAYS LEAD TO HIGHER REVENUE IN THE LONG RUN. It's just a question of when. If growth increases only .1% on a 1% tax cut, it will happen 56 years out.
The question is only of whether or not the tax cut will lead to growth. If government spending is too high/ineffective, deficit spending will lead to inflation and higher interest rates, which will washout the stimulus effect.
Posted by: aaron at July 8, 2008 07:25 AM
(that's with taxes at 18% vs 19% of GDP)
Posted by: aaron at July 8, 2008 07:33 AM
Rich Berger, tax revenues grew much faster under Clinton than under Bush -- look it up. Also, private investment and job growth grew faster after the Clinton tax increases than after the Bush tax cuts. Again, look it up.
Also, military spending is today at its highest real absolute level since WWII. 2009 projected outlays (in 2007 dollars, adjusted for the defense spending GDP deflator) will reach $620 billion. At the highest point in the Cold War they were at about $525 billion per year (again 2007 dollars, adjusted for defense deflator). This Cold War peak level was reached three times, in the Korean War, Vietnam War, and in 1989 at the crest of the Reagan defense buildup. What you are basically saying is that it is OK to throw far more money at defense today than we ever did against the Soviet Union just because the economy is bigger. According to the latest figures from the International Institute for Strategic Studies in London, the U.S., NATO, and other allies (Japan, South Korea, Israel, and Australia) now spend some 70 percent of total world U.S. military spending. (Yes, this includes the new, higher estimates of Chinese spending).
Entitlements are not directly comparable to military spending because the majority of entitlements are a transfer as opposed to a real resource cost. Of course, given the defense contracting scandals a good chunk of defense is probably a raw transfer to profiteers as well...
Posted by: mq at July 8, 2008 09:06 AM
whoops, should obviously have been "total world military spending"...without the U.S.
Posted by: mq at July 8, 2008 09:07 AM
I know you like to attack the Bush economy but can you name any other president who dealt with an attack similar to the WTC and Pentagon, five major hurricanes hitting Florida in one year (three directly on Orlando), a major hurricane hitting Mississippi with the edges virtually destroying New Orleans, 100 year flood damage along the Mississippi, and then a major war with troops in most of the countries of the world but especially Iraq and Afghanistan. But even with all of this the economy was actually growing and oil and gas prices were reasonable while the deficit was coming down (until the Democrats won control of congress.) Bush took small supply side steps but these small steps had such a huge impact on our economy that they reversed the impact of major wars and natural disasters.
Posted by: DickF at July 8, 2008 09:29 AM
Very good response, thank you.
"What you are basically saying is that it is OK to throw far more money at defense today than we ever did against the Soviet Union just because the economy is bigger."
I accept the accusation. What I believe we are paying for is not the same service at a higher price, but a better service at a better price.
My criteria for better service is the one I believe is most important. We've defeated a nation of strategic importance and are molding their new govenrment at a cost of 6000 lives (compared to around 60,000 in VietNam, where we never defeated the opponent and were not very successful nfluencing the post-war government).
You also skipped one of the four items that I thought were important in the argument:
2Q) Military spending as percent of total spending for 10-20 years.
You call the cost "a lot more" but I scale it to the size of the government. The smaller government I would prefer would not have the budget to run the adventure, but this one does. I millionaire that leaves 5% tips at dinner is a jerk.
Posted by: KevinM at July 8, 2008 07:17 PM
Anon, I think you are confusing monthly GDP and annnual GDP. CRS is saying 12.5 billion per MONTH, which is about $150 billion per year. Annual GDP is 13 Trillion. So it is actually more than 1 percent.
Posted by: Randy Miller at July 12, 2008 01:02 PM
There is no way that the Iraq war will ever be worth the cost, or even pay for itself. The term war is a misnomer as the end game here is and has always been to install puppet governments and "support" them with an indefinite occupation of the country. The American bases in Iraq are not temporary, they are permanent as John McCain knows full and well and has publicly stated.
The intention is to pacify Iraq and then move on to Iran, to salvage American pride which was badly bruised when Jimmy Carter "lost" Iran to an Islamic revolution.'
The "winners" will be the international Oil gang and fellow travellers, from which many of the current administration are drawn. The American people will pay for the war through a seriously devalued currency and the subsequent confiscation of savings and home equity through inflation and the bursting of the liquidity bubble.
Social Security will be as bankrupt as Fannie MAy, Medicare a non starter, the only government spending left will be on the military to support a bloated military bureacracy and obsolete aircraft carrier battle groups.
Posted by: Broxburnboy at July 14, 2008 06:56 AM