The First Offensive UN Force

A bit of history was made the other day, you may have missed it because it pertains to that Africa place everyone's heard so little about, specifically the Democratic Republic of Congo (or Congo for the rest of this post[1]). 

Conflict in eastern Congo has gone on for decades. All of Congo's neighbors have gotten involved at various points both directly and through proxies. The climax was the First and Second Congo Wars, Africa's deadliest conflict. Rwanda in particular has always been involved, partially to carry on fighting against Hutu militias that participated in the genocide. It is pretty much common knowledge that Rwanda sponsors rebel groups in eastern Congo.

Anyway, for the first time in UN peacekeeping history, a unit of 2,500 peacekeeping forces in Congo have been given an "offensive" mandate. Meaning they have been instructed to actively "neutralize" and "disarm" rebel groups. Unarmed US drones will also be deployed to assist with the fight. To assuage fears that this historic precedent is a historic precedent, the UN says the intervention force will be created "on an exceptional basis and without creating a precedent", oh politics.

In reality this is more of the UN making official what it has been trying to get away with in other conflicts. UN and French peacekeepers intervened on behalf of rebels (now the government) in Cote d'Ivoire, under the justification of protecting civilians from government forces. So now, in eastern Congo at least, its official, the UN has taken sides.

Laissez-faire and the Triangle Shirtwaist Fire

Here’s a story illustrating the need for some level of regulation on businesses. It's not about needing more or less necessarily, it's that there's an optimal level above none. 


The Triangle Shirtwaist Company (TSC) was one of the largest of nearly 500 garment factories on Manhattan in the early 1900s. It was a competitive industry, with no monopoly power. Around 70% of the workers in the garment industry in New York City were female. Most of the women were recent immigrants, or their children. They worked 7 days a week at least 11 hours a day for around $1 to $2 a day[1] minus what their employer deducted for electricity and supplies (adjusting for inflation, $1 back then was worth around $24 today). Given that 20% of the world population still lives on less than $1.25[2] a day, the wages paid, while low and for sweat-shop work, were still an initially attractive way out of poverty. 

But the women and some men of the garment shops came to believe they were paid too little given the value of their output.

Happy Anniversary!

Its been ten years since the United States launched an unprovoked invasion of Iraq. Iraq wasn't a threat to the United States or even its neighbors; so the only logical reason is George W. Bush having a personal grudge. The American people were deliberately lied to about the justification. In one such instance, according Hans Blitz (Chief UN Weapons Inspector at the time), a document alleging to show Iraqi intent to buy uranium from Niger, mentioned during a State of the Union Address, took the UN team "less than a day" to prove fake. But we all know it was bullshit; let's see what Bush spent to settle his grudge.

4,804 coalition troops were killed (of which 4,475 Americans), and over 32,000 wounded. Over 110,000 Iraqi civilians were killed (and that's low-balling it). Already over $1.6 trillion has been spent on the war. Estimates of the final bill for the United States range between $2.4 trillion to $6 trillion. And that's just in direct costs, to say nothing of the cost to families, the lost productivity and anguish from thousands dead and tens of thousands wounded, and the opportunity cost of lost benefits of anything else the money could've gone towards. The estimates are between 12.4% and 30% of where our national debt is projected to be in 10 years. Basically, people wouldn't really care so much about our debt right now had we not wasted trillions of dollars and gained nothing but dead and wounded for it. So good job America.

The Sequester, What’s its Deal?

The answer is it’s some economically damaging bullshit that won’t change our debt outlook. 

Blah blah automatic spending cuts, you get the point. Basically, it will cut around $1 trillion from government debt over the next ten years. $85 billion will be cut from the 2013 budget[1]. While those may be relatively small numbers compared to federal spending, it’s ignorant to think they are harmless. There’s a new and gathering body of evidence that shows government spending has a proportionally larger effect on the economy in times of economic weakness; cutting spending now is especially damaging to current economic growth.

Furthermore, the design of the cuts is especially inefficient. The cuts are across the board, meaning affected departments cannot pick the least effective programs to cut; they will be cut as much as the most needed programs. The cuts also treat any dollar the government uses as spending, when in fact much of what is being cut is investment. This is similar to saying you “spent” money by putting it in a retirement account. The government invests money in infrastructure, education, research, etc. which leads to future benefits. But investment will be cut the same as consumption or transfer payments, meaning the future benefits will be cut too.

Ignoring the horrible design, many have argued that the pain is worth the result. But the sequester fails to make significant cuts or change the long run trend in government debt. If current laws remain the same, federal debt will amount to $20 trillion by 2023, and will be growing by over $1 trillion a year. All the sequester does is buy a year of time through one-off cuts.

While 5% reduction in debt is still something, and we need to cut spending whether taxes are raised or not, the cuts that come in 2013 are especially damaging and foolish. The CBO and Macroeconomic Advisors (MA) project that the first year of cuts ($85 billion) will reduce economic growth by 0.6% in 2013. The CBO forecasts 750,000 less jobs by the end of 2013 than would be the case without cuts; more optimistically, MA projects the job losses, of 700,000, would take until the end of 2014 to fully occur[2]. This is for the equivalent of one month of spending by 2023. Why not push it back a year? It’d still be the same amount of spending without derailing what should otherwise be the best year of the recovery so far.

In the longer run, growth is projected to return to “normal”. My argument against that outlook is that the models they use don’t reflect dynamic factors such as the cost of poor infrastructure, or the inefficiency and inequality of an underfunded court system and other vital government functions. But leaving aside the fact that a functioning government is better for the economy than anarchy, the cuts are coming too early, and to the wrong areas of government spending. If we don’t reduce the spending growth of mandatory programs (which is primarily Medicare, Medicaid, and Social Security) then we will have gained nothing, at a high cost to the recovery. One only needs to look to Europe to see how a policy of spending cuts in a weak economy results. 

February Jobs Report

236,000 jobs were added in February, a relatively good number for the recovery. The unemployment rate went down to 7.7%, while the labor force participation rate was steady. November job growth was revised upward 23,000 to 219,000 jobs added. December job growth was revised down by 38,000 to 119,000 jobs.

Again, the job numbers show an improving labor market that has seemingly ignored the headwinds of tax increases[1] and the uncertainty of repeated deadline fiscal bargaining. While the cuts from the sequester have not yet impacted the economy, the uncertainty of them and expectations that they might happen already have. This suggests markets either didn't expect the cuts to happen or don't think they'll have much of an impact. We'll see what happens when the cuts are actually occurring.

Hugo Chávez is Dead!

Hugo Chávez died on March 5th after a two year battle with cancer. He had been president of Venezuela since 1999. It is great news. While the most likely outcome of a mandated election in 30 days of his death will be the election of his vice-president, Nicolás Maduro, Mr. Maduro lacks the charisma and loyal following of Chávez. The opposition has been making slow but steady electoral gains and is increasingly united. Either way, the new president will have to deal with the decaying façade of Chávez’s “21st Century Socialism”.