Saturday, February 25, 2012

War with Iran:Would you go bankrupt for your country?

There has been a fair amount of chatter about a geopolitical risk premium on the price of oil stemming from a conflict with Iran. While I generally don't agree with candidate Ron Paul on most matters, I do agree with him when he said in a debate last week that America can't afford another war.

The Institute for Economics and Peace (h/t Josh Brown) came out with a paper called Economic Consequences of War on the U.S. Economy, which Josh summarizes as:
  • Public debt and levels of taxation increased during most conflicts;
  • Consumption as a percent of GDP decreased during most conflicts;
  • Investment as a percent of GDP decreased during most conflicts;
  • Inflation increased during or as a direct consequence of these conflicts.
Fiscal conservatives should be appalled by the march to war, especially when you consider the immense deficits that are facing the government today. I once rhetorically asked if the Pentagon has a downward sloping demand curve and today I very much doubt it. Consider this account of how gasoline costs $400 per gallon in Afghanistan - that's before the Pakistanis cut off supply routes that raised prices roughly sixfold. Are American interests in Afghanistan that important to warrant those kinds of costs? (I read somewhere once that the United States spent $1 million for every Vietnamese man, woman and child during the Vietnam War. Could it have achieved its objectives for a lower cost?)

Instead of fighting wars intelligently, the military industrial complex focuses on the development of gadgets like the iRobot’s Warrior, which is “strong enough to tow a car and dexterous enough to open its trunk using the handle.” Is this the sort of device the military really needs in a counterinsurgency?

Imagine if your local police force deployed such machines instead of real people and you interacted with them through an automated call center. How would that affect your interaction with the police? Would you trust them more? Or less?
Instead of fighting wars intelligently, the military industrial complex is now intent on building the Death Star - and damn the cost!
Star manager Jeff Grundlach compared the US to the Roman Empire. American share of global military spending is 43%, but meanwhile its debt is spiraling out of control.

During times of vital interest to a nation, its leaders have asked its young men to be prepared to die for their country. On the other hand, how many Americans are prepared to lose their jobs and homes and go bankrupt for their country?

Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest. 
None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

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