Month: February 2015

My coldest winter since Chicago

Climate change is a politically charged subject. This makes it more difficult for us layman to evaluate the arguments over what is happening and expected to happen to temperatures (i.e. to know who to trust). “Climate change” is a more neutral term than “Global Warming” reflecting, I assume, the fact that scientists who specialize in climate and weather disagree not only over the impact of increases in CO2 on temperatures, but how to measure and compare temperatures over time. Should we measure land temperatures or sea temperatures or land and sea temperatures combined. Are these temperatures the result of averaging dozens or hundreds or tens of thousands of measurements and how is each reading weighed in the average? Which methods of measuring temperature are more reliable—satellite measures, ground stations, tree rings, etc. and how is one to be adjusted and matched to others in order to compare temperatures over long periods of time.

I suspect that one reason that global warming has been changed to climate change is that the global temperature has declined over the last 17 years. Temperatures have been rising and falling for thousands of years. By some measures (I have no idea which ones) it was hotter at the time of Christ than now and again in the 1300s AD and a lot hotter seven thousand years ago. But I don’t know how we can trust estimates of temperatures seven thousand years ago with now.

One of my favorite graphs is the “reconstructed global temperature over the past 420,000 years based on the Vostok ice core from the Antarctica (Petit et al. 2001).” The little red box on the far right is the most recent 5,000 years.

VostokTemp0-420000 BP

Thus I find the temperature information provided every morning in the Washington Post quite interesting. For example, yesterday at BWI the high was 23° and the low as 2°. The record high for BWI on the same date was 74° in 1930 (85 years ago) and yesterday’s low was the record low for that date. Fifty or so miles south at Reagan National (don’t quote me on the distance) the high yesterday was 27° and the low was 14° (well it is further south) while the record high and low for that date were 75° in 1953 and 7° in 1885. If those constitute a trend we must be moving into another ice age. Though it feels like it, I doubt it. Climate change seems the right words to describe what we have observed.

Greece, Debt, and Parenting

If you are a parent, you may have experienced something like the following:

Son number 1 and his children live in a much nicer home than you did at his age. It is the biggest house he could qualify to buy and you put up the down payment to assist him in his purchase. He worked hard as an auto mechanic earning a decent income. His wage was increased modestly each year as his productivity gradually increased with experience, though barely keeping up with inflation. He and his wife were loving parents with three wonderful children and enjoyed their family time together spending what they earned on their children. However, they spent his income as he received it and borrowed the maximum possible to buy a nice second hand family van. When the car needed more than the normal repairs, he had no savings and borrowed the money from you. The occasional family illnesses were paid for by additional loans from you as well and rather than paying off their mortgage and other debts over time these debts grew larger. When his children reached college age they took jobs that did not require college educations as no money had been saved for college.

Son number 2 was also an auto mechanic but ran his own repair shop. His wife and two children lived in a more modest home with lower mortgage payments and they consumed his earnings carefully and modestly in order to save for emergencies, the children’s college fund, and his retirement, and to invest in equipment that would make his repair shop more productive. For a number of years they enjoyed a lower standard of living than did son number 1, but gradually paid down their mortgage without incurring additional debt. More importantly, his income rose more rapidly than did his brother’s because of his investments in tools and equipment. Within 24 years his income was twice his brothers as a result of its growing 3% per year faster.

With the bursting of the housing bubble in 2007 and having his hours of work reduced because of the slowing economy, son number 1 was forced to sell his house in a short sale arranged with the mortgage holder and you wrote off what he owned you. His family was forced to cut many of their expenditures because no one would lend them the money needed to continue living beyond their means. They were forced to cut their consumption even further in order to have some savings when the inevitable health and mechanical emergencies occurred because you decided that your earlier financial help had only perpetuated their shortsighted behavior and refused to lend him more. They complained about the fall in their standard of living as they were now forced to consume within their means. Your son number 1’s family was now poorer. Or more accurately, their standard of living matched reality and became sustainable. Their earlier, higher standard of living was an unsustainable illusion.

Needless to say, son number 2’s future was brighter. His family took advantage of the fall in housing prices by 2008 to buy a larger home, keeping their original one for its rental income. His two daughters went to and graduated from college. His higher standard of living was real and sustainable (i.e. he paid for his higher consumption fully out of his higher earnings).

If you rename son number 1 “Greece”, and son number 2 “Germany” you can begin to understand the difference between the situation of each economy and the difference between competitiveness (exports that match and pay for imports) and productivity (the level of wages and income). For a while Greece enjoyed an artificial and unsustainable standard of living. It needed to “adjust” to reality, i.e. to bring its expenditure in line with its income both internally (the government and each household better matching their incomes and expenditures) and externally (imports matched by –i.e., paid for by—exports) and thus to recognize that it is really poorer than it had pretended. This is what is meant by being competitive. To raise its standard of living it must become more productive by creating a more business friendly environment, reducing its blotted government bureaucracy, and liberalizing labor and product markets. For more details see my earlier articles on Greece: https://wcoats.wordpress.com/2010/05/30/greeces-debt-crisis-simplified/ and https://wcoats.wordpress.com/2012/02/26/saving-greece-austerity-andor-growth/

Comments on the All-Volunteer Military

My friend and former University of Chicago classmate sent the following comments on my All-Volunteer Force note. From 1989-93 Chris Jehn was the Assistant Secretary of Defense for Force Management and Personnel.

Warren–
I read with interest your recent essay on unintended consequences of ending conscription in the U.S. Having spent a large part of my career on issues surrounding implementation of the All-Volunteer Force. I was curious to learn what consequences you had in mind. I was disappointed to read, “the top 20-30 percent of income earners in the United States provide almost none of their sons and now daughters” to the military. Where did you hear this? It is a commonly held view of liberal critics of the military, but, like many persuasions of the left, it is not based on fact. (You could have looked it up. See Table 41 of the DoD population report at http://prhome.defense.gov/portals/52/Documents/POPREP/poprep2011/appendixb/b_41.html.) Using the only available data on the issue, census tract home of record for new enlisted recruits, DoD/CNA analysis shows that 18.5% of recruits in FY 2011 came from the top quintile of the income distribution. Adding new officers to the analysis (not possible since officers’ original home is not carried in their military records) would probably raise that percentage somewhat since virtually all new officers are college graduates. It is surprising to many to learn that the recruits each year are drawn more or less evenly from across income quintiles, but this has been true for 30 years now.

However, the overall percent of the population recruited each year is quite low, regardless of income class. (About 4,000,000 kids turn 18 each year and the military recruits somewhat over 200,000.) This leaves most families without any first-hand connection to the military and that is another lament of the left (and some on the right). I think this is usually mindless World War II envy. At the end of WW II, about 12 million men and women were in uniform, about 10% of the TOTAL population of the U.S. So that meant everyone knew many in the military. That’s not true today. To match that percent today would require a military of over 30 million (compared to today’s 2.5 million, including reserves). And this demographic phenomenon was ultimately the source of draft opposition in the 1960s (and has been in many European countries recently). When most draft-age men serve (as they did in the ’50s) conscription’s inequities are more tolerable. The increasingly large birth cohorts of the baby boom changed that.

But fundamentally, all the debate about the military’s “representativeness” is silly (whether it’s representativeness in terms of socioeconomic class, race, geography or anything else). The requirement for representativeness is based on a view that military service is a burden to be equitably distributed rather than a profession freely chosen and well compensated. In other words, it is antithetical to the notion of a force of professional volunteers.

Another liberal criticism of the AVF is that it has enabled military adventurism. There is no evidence for this assertion either, despite its face appeal. Interestingly, the only Gates Commission member I’ve discussed this with, Allen Wallis, thought this was a positive aspect–freeing the President to use the military without immediate political pushback. So, at least for Wallis, this consequence was not unintended. Of course, pushback from the draft objectors didn’t slow Johnson and Nixon down much, despite an eventual 50,000 deaths in Viet Nam, ten times the toll of Iraq and Afghanistan.

I must apologize for not inviting you to a CNA event in September when we discussed many of these questions at a symposium to honor Walter Oi. I think you would have found it interesting. We did a reprise at last month’s AEA meetings in Boston. Most agree Walter was the most important economist in the battle to end conscription. Among my remarks, I said the following about Walter:

“There are many heroes in this story [of the end of conscription]: the Gates Commission members, Mel Laird, Marine Corps Generals Wilson and Barrow, Army General Max Thurman, and many economists and other analysts. But among the analysts and economists, none was more important than Walter Oi.

It’s tempting to cite instead the economists on the Gates Commission, Milton Friedman, Allen Wallis, and Alan Greenspan. They were essential. But they were advocates, cheerleaders. Walter made the first empirical, data-based argument for voluntarism. And that case helped convince President Nixon and, later, other Gates Commission members. It’s possible that without Walter’s early work—which, as the Hogan-Warner paper notes, stood the test of time and subsequent analyses—conscription would have ended much later, if at all. There were, after all, other politically plausible proposals to ‘fix’ the draft and end the controversy surrounding it, not just a force of all volunteers.”

Some support for my argument is contained in a short note Stephen Herbits prepared for the CNA event (also attached). As part of the planning for the two events, I interviewed the two surviving members of the Gates Commission, Herbits and Alan Greenspan. That was fun and educational.

I should also note that an AVF’s budget costs are not clearly higher than those of a conscripted force of equal capability, due to the high turnover and training costs for draftees. The most careful analysis of this question was GAO’s in 1988. I cite it (as well as my article on conscription in Europe) in my piece on conscription in David Henderson’s encyclopedia (http://www.econlib.org/library/Enc/Conscription.html).

Finally, I think your memory of the 1960s may have failed you here. You and your colleagues may have had some skin in the game. The first lottery in 1968 included those under 26 who had held student deferments. You were probably too old, but I and other classmates were subject to conscription depending on our lottery number (based on our birth date, not our Selective Service number). I luckily drew a number in the 300s.

As for your concluding proposal, while your draft-related arguments don’t support it, it has merit on other purely budgetary grounds, as you note. I too think it’s unconscionable that “overseas contingencies” (to use the Pentagon’s euphemism) are funded through supplemental appropriations funded from borrowing and the general revenues. (And DoD has not “suffered” as a result. You can safely ignore the whining on the subject by Pentagon leaders and their allies in Congress and the press.) But your proposal will never go anywhere. If the Congress had wanted do things differently, they wouldn’t have been doing it like this for as long as I can remember.)

I hope you find much of this interesting, perhaps even educational. If you do nothing else, please look at the Warner-Hogan paper: “Walter Oi and His Contributions to the All-Volunteer Force: Theory, Evidence, Persuasion”, by John T. Warner and Paul F. Hogan, presented at the Contributions to Public Policy: A Session in Honor of Walter Oi, American Economic Association Annual Meetings, Boston, MA, January 3, 2015

–Chris

Should the U.S. help finance Ukrainian weapons?

Ukraine is much more important to Russia than to the U.S. It borders Russia, was part of the Soviet Union, and much of what is now Ukraine, including Kiev, has been part of Russia from time to time for as long as the United States has existed. Ukraine’s importance to the U. S. is, however, more academic. It is reasonable to assume that as long as it is economically able Russia will counter any increase in Ukraine’s military capacity and activity in eastern Ukraine (the part bordering Russia) with equal or greater military force. If we increase our support and Ukraine elevates its military activities in the east, so will Russia. The Russian economy is suffering from years of exploitation by Putin and his friends as well as inadequate investment and is now suffering from the sharp fall in the prices of its primary exports– oil and gas. Russia will presumably only stop matching escalations from the West when it is no longer economically able to do so. Do we have a national security interest in escalating that far?

Our interest in Ukraine is humanitarian– not military out of a concern for our own security. We would like to see the people of every country enjoy the freedom and prosperity that we have. Moreover, most of us have long believed that healthy, prosperous, well-governed countries make better neighbors and a more peaceful and prosperous world. So it serves that interest and our humanitarian natures to encourage and financially support the new Ukrainian government’s efforts to reduce the corruption their country has long suffered from. Military aid is an entirely different matter.

Both we and Ukraine’s government in Kiev must accept and come to reasonable terms with Russia’s dominance in the area and its determination to remain in Eastern Ukraine as it has in South Ossetia and Abkhazia. The alternative, which would likely follow the injection of western arms into the conflict, would be a continued escalation of fighting with unknown consequences and an unknown end point. We don’t like to give in, and wouldn’t and shouldn’t whenever our national security is truly at stake, but this is not our war. What, after all, did our “victory” in Iraq (one of the most insane and ill-advised wars we have ever launched) gain us? ISIS!!

Let’s help Ukraine financially, which it desperately needs, as long as its government continues to seriously fight the corruption that has characterized it for so long (easier said than done). Ukrainian offensives in “rebel”/Russian dominated areas of the East are futile and we should not encourage them by providing the weapons that make them possible. Freeze the status quo until Russia comes to its senses (which we should encourage in every possible way) or collapses economically (which we should not hope for).