Nation-Building

So much economic hand-wringing , yet all its good for is to reiterate the same tired stale posturing from liberals and conservatives alike. Here's the basic problem. 1. Domestic spending can't go down. It's a fantasy to imagine that even draconian cuts would be tolerable or politically viable. Like it or not, Americans want their social services and safety nets. All the conservative handwringing about Socialism is a Red herring, pun intended. Anyway discretionary spending (non defense, non medicare, non social sec) is a tiny fraction of the overall budget anyway so theres very little to cut; American services are actually an incredible bang for the buck, especially compared to European counterparts. 2. Defense spending can't be cut. The world is a bad place. We have to spend a lot of money in a lot of places for basic reasons of security and global policy. Isolationism doesnt work; 9-11 proved that. Bottom line: we need resources to deal with the crap out there and that...

Steven Levitt of Freakonomics fame discusses this economic analysis of the Surge in Iraq by Michael Greenstone , an economist at MIT, calling it "thorough and thoughtful." Overall the analysis is neither uniformly negative nor positive, instead apolitical and dispassionate. One particularly interesting part is a discussion of the financial bond markets, which Levitt summarizes: The most interesting part of Greenstone’s paper is his analysis of the pricing of Iraqi government debt. The Iraq government has issued bonds in the past. These entitle the owner of the bond to a stream of payments over a set period of time, but only if the government does not default on the loan. If Iraq completely implodes, it is highly unlikely that these bonds will be paid off. How much someone would pay for the rights to that stream of payments depends on their estimate of the probability that Iraq will implode. The bond data, unlike the other sources he examines, tell a clear story: the financia...