Economics 101 and Iraq

The Thinker by Rodin

One of the more useful courses I took in college was Economics 101. Surprisingly, I retained a few nuggets of gold from that course I took some 28 years ago. One nugget was the notion of a sunk cost. For those of you who never took economics, or conveniently forgot about sunk costs after taking the exam, the economic dictum basically says that any money you spent on the past is irrelevant if it no longer meets your current needs. The present matters, not the past. Perhaps it is better stated as: don’t continue to pour more money down a black hole.

The tendency to do so anyhow is very human. You can invest years trying to repair a marriage that cannot be repaired because your spouse has no interest in repairing it. Of course you want to believe it can be repaired. You can build your house on a fault line and keep pouring concrete into the foundation to raise it up again. We want to think, “If I spend just a little more to fix something, it will be fixed right this time.” When the expected result doesn’t happen we spend a little more and a little more, or perhaps tinker along the edges, but the solution we seek continues to fail us in the long term. Hope springs eternal.

The key to making these judgments is to understand when an implemented solution is fundamentally flawed. If you can analyze your approach objectively, you can determine when you have a sunk cost and when you don’t. Once you lose your objectivity though the consequences get dangerous and increasingly costly, and endeavors can turn into pure folly.

Those of us old enough to remember Vietnam remember that the Johnson Administration was going to stop communism from spreading in Indochina no matter what the cost. By 1968 we had over half a million soldiers and airmen in Vietnam. There were over 800,000 men in the South Vietnamese Army too. B-52s were blitzing Hanoi and bombing the Ho Chi Minh trail.

The Bush Administration is engaged on the same sort of myopic thinking. Last night President Bush pulled a rabbit out of his hat. Apparently the $75B he asked for earlier isn’t quite enough to do the job needed in Iraq. But now with another $87B we are going to solve the problem. For $87B we can win the war on terrorism in Iraq, rebuild its infrastructure, and bring peace, security and democracy.

I have of course a few questions that are unlikely to be answered for the Bush Administration:

– Why wasn’t $75B enough?
– Since $75B wasn’t enough how can we trust you when you state that $87B will be enough, given your track record?
– If we spend $87B and the situation has not markedly improved, are we going to spend more money?
– If we spend the money and the situation does not markedly improve, do we have an exit strategy? Or is the strategy to spend whatever it takes in money, lives and time to win this war?
– How do we know the money will be spent wisely?
– If this strategy did not work in Vietnam why are you certain that it will win in Iraq? What is the probability of long term success or failure and what assumptions did you use, if any?
– If you are certain this strategy is going to work, why hasn’t it worked in Afghanistan where similar tactics are being used but have not achieved the desired result?
– Can our military and police force in Iraq truly stop a war on terror if a police and interdiction force can’t stop a drug war which has lasted now for over 30 years?
– Has anyone polled the Iraqi people to see if they want a western style democracy?
– If the Iraqi people democratically voted for us to leave immediately, would we withdraw?
– Given the long history of ethnic and religious conflicts in Iraq, what makes you think in the short term we can do a better job of managing it than Saddam did?

I do know this: the $75B allocated already, unless we get out immediately, is a sunk cost. It’s largely been spent and won’t be coming back. I and future generations will be paying the interest on this money that so far has brought no discernable results except for Saddam Hussein’s overthrow. It hasn’t resulted in the find of weapons of mass destruction. It hasn’t kept the lights on or the water flowing reliably for the citizens of Iraq. It hasn’t ensured public safety; indeed the streets of Iraq are now much more dangerous than before we started this war.

We can’t afford to lose this one, Bush is telling us. We could not afford to lose the Cold War either, but we lost in Vietnam and still won the Cold War. Why is withdrawing or losing this skirmish in the war on terrorism mean we’ve lost the war? Couldn’t it also mean that we could use our resources more effectively somewhere else to win the war on terrorism?

In reality the American people don’t care very much about the people of Iraq. It’s not that we wish bad things to happen to them, it’s just that we don’t really believe that what happens there affects our national security. In reality it is not we (the American people) who cannot afford it to lose in Iraq. Rather it is Bush who cannot lose face and admit he made a mistake and waged a war on false pretenses. This $87B means we are essentially hedging a bet to cover Bush’s ass for his miscalculations and mistakes.

In a way, the money is going into the coffers of his reelection campaign. But let’s not fool ourselves. If Iraq was no threat to our national security before we invaded, it probably isn’t one now. It may turn into one by giving terrorists and people who hate our country an easy way to lash out at us. But if we withdraw, that easy target goes away.

A better example of what awaits us can be seen on the West Bank and the Gaza Strip. For more than 30 years Israel has occupied these Palestinian areas. The more they try to root out terror, the more terror they get back in return. It appears that there is a force greater than the best military in the world. It is the human spirit. Short of being able to read the minds of everyone on the planet, there is no way to tell friend from foe. If sufficient numbers of people are against us then success in Iraq is impossible. In that case we should realize our money was wasted and is a sunk cost. I believe that point has been reached. Any economist worth his salt would say bring our soldiers home.

One thought on “Economics 101 and Iraq

  1. I never did an economics course, so I have to trust you on sunk costs. This reads like a great heady gust of welcome fresh air, and I agree that it’sa black hole and the only sane (pragmatic?) thing to do is pull out. The money will NOT be spent wisely. Iraq DOESN’T affect America’s national security. Et cetera. BUT – BUT- What’s after pull-out? I mean, after the civil war and regional turmoil that will follow? The fallout from England’s messy occupation of Ireland still doesn’t go away 400 years later. The mess after the Balfour Declaration on Palestine is still killing people eighty years later. America can pull out of Iraq, but Iraq won’t go away. Also: I suspect the Brits won’t pull out BTW – although a rough half of the UK was pretty much anti the war, Blair is rerouting troops back in. He seems to be remembering the Thatcher line to Bush pere: This is no time to go wobbly, George.

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