Category: War

Econ 101: Profits

Is it a bad thing for oil company profits to increase when oil prices jump?

A country’s economic wellbeing—its national income and standard of living—is maximized when its economic resources (capital and labor) are allocated to their most profitable uses. When that is the case, no other use of capital and labor can increase the value of total output. This includes goods produced for export in order to pay for goods and services imported.

An economy that has maximized its output in this way (allocated all its resources to their most productive uses), will suffer a drop in income if a tax causes a change in this resource allocation. As an example, consider a tax (called a tariff) on the importation of certain medicines now produced abroad. In fact, President Trump is threatening a 100% tariff on imported generic drugs, with the rate rising to 200% later, if manufacturers do not move production to the U.S. Hopefully it is obvious that if the existing allocation of resources between products and whether they are produced here or there is optimal (maximizing output), then shifting the production of the drugs now produced in India (for example) to the U.S. will result in a fall in our aggregate income. The resources devoted to producing what ever we exported (to pay for our drug imports) would have to be shifted to domestic production of the drugs now imported. We will lose the comparative advantage of the existing allocation. The reallocation will reduce overall output. In short, if the allocation was optimal to begin with, the tariff and reallocation will reduce aggregate income. It is a bad idea.

But what about the jump in oil company profits because of the Iran war induced increase in the price of oil?  When resources are optimally allocated, risk-adjusted profits will be the same everywhere because resources will be moved to where profits are higher (thus lowering them) until they are the same everywhere (risk-adjusted). Oil prices have increased because of the war-related fall in the supply of crude oil. Nothing has changed in the cost of lifting and supplying existing non-war-related supplies of crude. In the real world, of course all kinds of things are changing all the time and it is very desirable for resource allocations to change as well in response. That is precisely what chasing profits does.

The increase in profits from producing the same amount crude in the U.S. from the increase in the world price of oil, creates a profit incentive to allocate more resources to finding and pumping it up. That is very desirable for easing the current supply shortage. An increase in profit is a market incentive to increase the resources devoted to producing something. It would be counterproductive to interfere with that very desirable response.

Scoring the Iran War

What did we gain from the Iran war and what was the cost (so far)? Why did we launch this war? What was our objective and have we achieved it?

From a NYTimes article and JD Vance speech the US budgetary cost of our illegal attack on Iran was about $150 billion. This year’s conflict cost five to six thousand lives. This does not include the economic cost to the world from oil shortages and food shortages expected from the shortage of fertilizer, etc. NYTimes – Iran war costs

In evaluating what we gained from the war it is hard to know whether to treat the negative outcome as a negative gain or an additional cost. Prior to this war the Straits of Hormuz were open and passage was free. While Iran seems to have agreed to reopen them, they have now clearly demonstrated the potential to close them or charge for passage as potential future choke points. While Iran may be giving up its financing of friends in the neighborhood (Hamas, Hezbollah, Syria, Yemen), and this would be an import gain, it has established its military strength to defend itself while the US has demonstrated its vulnerability.

More importantly, Iran is now judged by many to be more likely to build an atomic bomb. The Iran Deal (Joint Comprehensive Plan of Action -JCPOA) negotiated by the Obama administration, which insured that Iran would not do so for at least ten years, was overturned during the first Trump administration. Hopefully such assurances can be reestablished during the 60 day negotiations still ahead. Though such a bomb would violate Islamic doctrine, the need for such protection has been greatly increased by US/Israel aggressions. But the MOU agreed to this week provides no assurance that a new agreement would be any better than the one Trump killed in May 2018. The Washington Post’s careful analysis suggests that it is not promising that a new agreement will be any better than the old one:  Trump condemned Obama’s Iran deal-here’s how his own compares

In an interview at the opening of his Presidential Library in Chicago, former President Obama stated that: “it feels like we are back where we were before we started the war, except maybe a little worse off…”  The Hill-Obama on Trump Iran war Obama’s assessment was not including the costs of the war noted above.

US support of Israel has been very costly. Virtually the whole amaworld, other than the US, has condemned Israel’s behavior in recent years. The number of Palestinians killed by Israel in Gaza alone since the Oct 7, 2023, attack on Israel by Hamas that killed 1,200, is hard to estimate in part because so many remain buried under the rubble. As reported in an interesting effort to estimate deaths, over half of those killed were women and children, Ralph Nadar stated that: “The recent report by Francesca Albanese, the United Nations Special Rapporteur on the Occupied Palestinian Territories, referred to a consensus of 680,000 deaths.  Fatalities by Israel-vast Gaza genocide-deliberately undercounted These deaths don’t include those in the West Bank, Lebanon, and Syria, which continue to this day despite a so-called cease fire.

More broadly the damage to America’s reputation because of our support of Israel’s bloody attacks of its Palestinian, Lebanon, and Syrian neighbors has been further increased by its illegal attacks on Iran. Our rapid decline continues.

According to Ian Bremmer: “The cease-fire does not mark the end of this chapter of conflict and regional division in the Middle East; it is instead driving a geopolitical realignment along new fault lines.

“More outcomes? A more polarized and fractured Middle East. Iran in a stronger strategic position. And American partners shaken by erratic and unpredictable conduct.

“The war has accelerated the collapse of the US-anchored order that held the Middle East together for decades. That arrangement kept oil flowing, rival powers out of the region, and Washington the broker of everything that mattered – from Iranian containment to the more recent Arab-Israeli normalization process. It was already fraying before the fighting started. The war broke it.”   Linkedin – What actually mattered

Obeying the rules is in our interest

The U.S. Department of Justice indicted former Cuban President Raúl Castro for his alleged role in the 1996 Cuban military downing of two civilian planes operated by the exile group Brothers to the Rescue, which killed four people (including three U.S. citizens).Since September 2, 2025, the U.S. military has attacked suspected drug boats in the Caribbean and the Eastern Pacific 59 times, killing 196 people. Shouldn’t we be indicting Secretary of War, Pete Hegseth, for murder?

“According to President Donald Trump’s mysterious math, that means this campaign of carnage has prevented around 1.5 million drug-related deaths in the United States—more than 20 times the total number recorded in the year before Trump started treating suspected cocaine smugglers as ‘combatants’ who can be killed at will, from a distance and in cold blood.

“Back on planet Earth, there is no reason to think the boat strikes have prevented any deaths at all. That could only happen if blowing up smugglers—as opposed to the previous practice of intercepting them, arresting them, and seizing their cargo, which Trump says was ‘totally ineffective’—reduced the supply of cocaine available to American consumers. Given more than a century of failed attempts to ‘stop the flow’ of illegal intoxicants, that never seemed likely. And nearly nine months after Trump launched his new, deadlier version of the war on drugs, there is no evidence that it is more effective than the traditional tactics he derides as insufficiently homicidal.” Jacob Sullum, “Blowing up boats hasn’t slowed cocaine traffic to U.S.”

Should we care about such a double standard? Yes. What we are doing is not only illegal but also immoral. Hopefully we aspire to behave morally because we aspire to be moral people. But there is a practical self-interest in playing by the rules as well.

We could often get our way simply because we are the strongest guy on the block. President Trump seems to like being a bully. However, pushing others around has a cost. The better we can live up to the high principles upon which our nation was founded, the more respect we will receive from others (nations and people). One of those important principles is adhering to the rule of law. Such respect means that others will cooperate with us more easily (at lower cost to us).

International norms and conventions generally serve the interests of all who have agreed to them. Win, win. When we violate them, the world pays a cost and so do we.

Abraham Lincoln

Last night we finished the three-episode 2022 History Channel mini-series on Abraham Lincoln. Thank you Jim Bailey for recommending it. In addition to the character acting, the story was narrated by Barack Obama: (former U.S. President); Catherine Clinton (Historian); Christy S. Coleman (Historical Consultant); Allen C. Guelzo (Lincoln Scholar); Harold Holzer (Lincoln Scholar); Caroline Janney (Civil War Historian); Edna Greene Medford (Historian); General Stanley A. McChrystal (Retired U.S. Army General).

There was so much about Lincoln and his struggles and wisdom in reuniting the American union that I had not known. That history was masterfully presented in this series. Most Southern states seceded from the Union in 1861 to preserve their right to own slaves. To reunite the union Lincoln launched a war with the south that eventually killed 620,000 to 700,000 American’s. In the midst of this war Lincoln issued the Emancipation Proclamation which declared that all enslaved people in Confederate states still in rebellion against the Union “shall be then, thenceforward, and forever free”.

When Robert E Lee surrendered his troops, thus ending the war, Lincoln allowed  members of the Confederate Army to return home and to their farms without punishment. In today’s environment it is hard to imagine such generous treatment of one’s enemies. But Lincoln had the wisdom, integrity, and kindness of heart to understand that reuniting the union required mutual acceptance of one’s previous enemies.

Lincoln’s tragic assassination by John Wilkes Booth shortly after his re-election deprived the South of his wisdom during the Reconstruction period that followed the war.

Homeland – Final

We have now completed all eight seasons of Homeland. After my review of the first two seasons my old U of Chicago friend and fellow libertarian, Joe Cobb, said that we would like the rest of it as well. He was correct. The story continued to confront the main characters with excruciating choices with more plot twists than I could keep track of. Would you take steps to save the life of a friend that could result in the deaths of several thousand—or the reverse.

But what I want to share with you here is how eerily like today the early 2000s were. We were fighting with Iran, then Iraq. Forever wars our current President promised to end (remember that?). Not only did the struggles being portrayed seem like today but reviewing my email and news flashes during our breaks between episodes seemed like a continuation of the TV series. It was really weird. Homeland moves into my list of all-time favorite series, which includes The Wire, The Jewel in the Crown, and Breaking Bad.

Homeland-part two

My apology for my lazy note on Homeland. It deserves much more so here goes.

The series, which ran for eight years from 2011-2020, centers on Carrie Matheson, a CIA officer with bipolar disorder and for its first two years (all we have watched so far) the Marine scout Nick Brody. Nick was captured in Iraq and held prisoner for eight years before returning to his wife and two kids. In the last few years of his captivity Nick was befriended by Abu Nazir a leader of al-Qaeda and charged with teaching Nazir’s son English. Nick adopts Islam and when an American drone attack kills Abu Nazir’s son, to whom Nick has become very attached, Nick agrees to work with Nazir against US interests. Nick returns home as a war hero, is elected to Congress and groomed to run as VP in the current VPs upcoming presidential campaign. Carrie correctly suspects that Nick has been turned by Nazir and sets out to expose him (or exploit his new position in the US government). Complicated enough?

Virtually every character, Carrie, Nick, Nick’s wife and son and daughter and his best friend (who fell in love with Nick’s wife during his absence and assumed death) as well as Carrie’s CIA colleagues, struggle with conflicting loyalties. Nick loves America and his family but hates what it has done (convincingly denounced as terrorism by Abu Nazir) and cooperates with Nazir in punishing it. The VP Nick expects to run with gave the orders for the drone attack that killed Nazir’s son. Each character is complex, which complex histories. Each side rightly sees the other as terrorists. The show is full of twists and turns and surprises. It is fantastic.

TV favorites

We watched and greatly enjoyed all ten seasons of Grantchester, built around the Clergymen of a British small town church and highly recommend it.

But we currently just finished watching the first of 8 seasons of Homeland and intend to watch the rest. It’s another CIA spy series build around a very talented but super intense bipolar female CIA analyst who drives everyone nuts but whose input they always want. It is a complex and fascinating story of an American marine who was captured and imprisoned for eight years in Bagdad and turned by his captures to work for our Islamic enemy but also loves the family he returned to after his eight years of imprisonment.

“The realism (Gansa consulted intel officers and diplomats) gave it serious weight. It racked up 6 Emmys and 7 Golden Globes, and even politicians like Obama openly praised it.

“If you’ve never watched it — or want to revisit peak paranoia TV — now’s the time. It’s smart, tense, messy, and still hits uncomfortably close to home.”

The series started in 2011 but often feels like it is depicting life today (war with Iran etc). Ito and I take a break after each episode during which I check email and the latest news on Trump/Bibi’s war in Iran and related events. It is truly weird. Going back and forth fifteen years as if they are the same. I highly recommend this.

Iran and the bomb

In the greatest public address any American President has ever given, Donald Trump claimed to have stopped Iran from developing atomic bombs (in the greatest lie every told).

Here are the facts. Ayatollah Ali Khamenei, the Supreme Leader of Iran at the time, supported the 2015 Joint Comprehensive Plan of Action (JCPOA) that provided international inspection of Iran’s enrichment of uranium used for its nuclear power plants to ensure that it did not enrich it to the level needed for atomic bombs. Khamenei repeatedly stated that the production, stockpiling, and use of nuclear weapons are forbidden under Islamic law. This religious position is formalized as a fatwa (a legal ruling under Sharia), which the Iranian government has cited for decades as proof of the peaceful nature of its nuclear program.

During his first term, President Trump withdrew the US from the JCPOA and international inspections stopped. A broad international consensus holds that the US/Israeli attacks on Iran this year will drive Iran to overcome its religious restraints on developing the bomb and proceed to do so out of its need to defend itself. Thus, rather than preventing Iran from developing atomic bombs Trump (and his friend Bibi) have probably forced Iran to do so. For good measure US/Israel killed Khamenei with an airstrike on February 28. Maybe Trump will find a way to blame NATO for all of this???

Winning the War in Iran

Most of you know that I am an optimist (though often disappointed). But I am quite optimistic that Trump will declare victory in his and Israel’s illegal war in Iran very soon. Moreover, he will offer Iran enough (lifting of sanctions, etc.) that they will end their attacks as well, including, of course, insuring safe passage through the Strait of Hormuz. Israel will also end its attacks on Iran (as well as on Lebanon, Syria, West Bank and Gaza) because Trump will tell them to (or is it the other way around).

But here is the really optimistic forecast. Trump will blame the mess in Iran on the worst, most damaging Secretary of Defense we have ever had and fire Pete Hegseth. How is that for good news!

Trump’s Board of Pease and Founding Executive Board

Trump’s current Gaza “peace plan” presented last September combines a 20‑point ceasefire and demilitarization while promising large‑scale reconstruction and investment. The ceasefire starting October 10 and hostage return that “ended” Israel’s two-year attack on Gaza following Hama’s Oct 7, 2023, attack on Israel, is to be followed by rebuilding the totally flattened Strip.

Hama’s Oct 7 attack killed 1,400 Israelis and Israel’s counterattack has killed over 72,000 Palestinians (over half of them women and children) with more yet to be counted under the rubble. Moreover, the attacks and blockage of food and medical supplies since the “ceasefire” starting October 10, have resulted in almost 500 more Palestinian deaths.

The next phase is the rebuilding of the buildings destroyed by Israel during its war on Hamas. For this purpose President Trump has created a Board of Peace. Wikipedia reports that: “Donald Trump is explicitly named in the Charter of the Board of Peace as its inaugural Chairman. The chairman has no term limit, and they alone have the authority to nominate their designated successor. Only the Chairman has the ability to invite countries to join the board. The Chairman has the exclusive authority to create, modify, or dissolve subsidiary entities of the Board of Peace. All revisions to the Charter and administrative directives issued by the Board of Peace are subject to approval by the Chairman.[1] Trump’s chairmanship of the Board of Peace is independent to him holding the presidency of the United States and he has indicated that he would like to remain chairman for life.” “Board of Peace”

“To operationalize the Board of Peace’s vision—under the chairmanship of President Donald J. Trump—a Founding Executive Board has been formed…. The appointed members are:

  • Secretary Marco Rubio
  • Steve Witkoff
  • Jared Kushner
  • Sir Tony Blair
  • Marc Rowan
  • Ajay Banga
  • Robert Gabriel”.

White House statement on President Trump’s comprehensive plan to end the Gaza conflict”

A long list of countries, including Canada, France, Germany, Italy and other European nations, were absent from the signing of the Board of Peace in Davos, and some have specifically rejected the invitation.  And why should they join an organization that puts Trump in charge of the world for life.

“His plan is to strip the United Nations – and thereby the international community – of any oversight of Gaza’s fate…. The US president hopes his “Board of Peace” will deliver the knockout blow, supplanting the UN and the system of international law it is there to uphold.” “Trump’s Board of Peace is the nail in the UN”

These concerns for the status of the UN are important, but I want to flag a different flaw in Trump’s “peace” plans having to do with its rebuilding.

“Jared Kushner on Thursday unveiled a sweeping U.S.-backed vision at Davos to rebuild the war-torn Gaza Strip into a “New Gaza” economic hub by 2035,” “Jared Kushner unveils new Gaza”  These plans reflect the statements made by Trump one year ago in which he proposed that the United States should “own” the Gaza Strip, “level the site” (clear the ruins) and build resorts there, calling it “the Riviera of the Middle East.” Rights groups and major news outlets noted that behind these pledges to make Gaza a “Riviera of the Middle East” was a plan to permanently “empty” Gaza of its more than 2 million Palestinian residents and not allow them to return. Trump said Palestinians would be moved to neighboring states such as Jordan and Egypt, providing them with “much better housing” and a “beautiful location” elsewhere.

In a statement by Tony Blair: “For Gaza and its people, we want a Gaza which does not reconstruct Gaza as it was but as it could and should be.”

What is missing in these plans is recognition that Gaza is the home of and owned by two million Palestinians, who surely should have a say in its future.

“What is Israel’s objective in Gaza”