US Finances Israel’s Gaza War via Foreign Aid

The Israel Central Bank estimates the cost of the Gaza War to the Israel at $1.4 billion

From Reuters: The month-long Gaza war cost Israel's economy some $1.44 billion (855.51 million British pound), its central bank governor Karnit Flug said on Thursday, citing interim assessments. "The assessment is that it can reach up to around 0.5 percent of GDP, which is up to 5 billion shekels," Flug told Israel's Channel Ten television.

The CCTV has higher projections. They see that the costs of the war to Israel’s economy will accrue to $3 billion.

For Gaza the assessed cost has been at $ 6 billion, according to Haaretz.com

 

I’ll apply Murphy’s law here where “anything you try to fix will take longer and cost you more than you thought.”

Why? Because of the political economic dimension behind the war.

Of course, wars haven’t just been about damage to property or cost of armaments, the most important costs are people’s lives.

Nonetheless for Israeli politicians “costs” will likely be a less important consideration, why?

Well, because the “costs” to Israel have been financed by the US government via foreign aid.

2015 Foreign Aid has been appraised at $ 3.1 billion, which seems higher than those "cost" assessments.

As the Vox.com reports: (bold mine)

Even Egypt and Pakistan are not, in the grand scheme of things, particularly poor countries. It's just that American foreign aid mostly isn't economic assistance to needy people or needy countries. If it were, India would get more aid than Israel and Haiti would get more aid than Egypt.

Instead, the bulk of the money is spent on buying American military equipment, serving as a kind of indirect subsidy to the military-industrial complex. That's part of how a country like Israel that isn't objectively hard-up for money winds up getting more assistance than anyone else. Israel does have a healthy appetite for advanced military hardware, and it's considered a geopolitically reliable nation that can be trusted with it. So American foreign policy is committed to helping Israel maintain a qualitative military advantage vis-à-vis other Middle Eastern countries. Meanwhile, part of the Carter-era Camp David Accords is a guarantee of a lot of money to the Egyptian military to keep it favorably disposed to a pro-American foreign policy and détente with Israel.

The incentive to go to war is there because of subsidies provided to the Israel government. Consequently, such subsidies enriches the highly influential US military industrial complex. Take away those phony "foreign aid" and the incentive to go to war will most likely diminish. Perhaps the warring parties will learn how to use the markets and trade in order to develop cooperation instead of destroying each other.

And you can also see, foreign aid "flows" reveal that the US hasn’t been helping the poor, but rather helping nations allied to their goals of promoting their role as de facto “global policeman” regardless of their economic conditions.

And it could even be interpreted that the Gaza war could signify a proxy-surrogate war by the US channeled through Israel.

War is indeed a racket

Read more about the modern roots of Israel-Arab conflict from the dean of the Austrian school of economics Murray N. Rothbard here

Rock Star Bono Embraces Capitalism

Rock star and U2’s lead singer, Paul David Hewson popularly known as Bono, who formerly advocated alleviating poverty through government foreign aid. appears to have tergiversated to capitalism.

Mr. Hewson or Bono is more than a celebrity fighting for a social cause, he is both an entrepreneur and a devout Christian.

Watch Bono preach capitalism in a speech at Georgetown University

“Commerce is real. Foreign aid is just a stopgap. Commerce and entrepreneurial capitalism take more people out of poverty than foreign aid, of course we know that. We need Africa to become an economic powerhouse.” (hat tip Mark Perry)

Nice to see celebrities recognize reality. 

Quote of the Day: GDP Measure Will Never Be Correct

'Valid,' talking about the GDP measure, would be the question whether the GDP estimate is correct. Does it capture the real economy 100%? Now we know that a GDP measure of the U.S. economy, the Germany economy, the Norwegian economy, will never be correct. It will always be a little bit off. Some data–there will be some cheating, there will be some data which are questionable. But we know we are more or less within bounds, off a couple of percentage here and there. And so that would be the question of validity. As we’ve seen from recent events in Ghana, and also forthcoming events in Nigeria, the validity question is really huge in sub-Saharan Africa. We are talking about plus-minus 50 to 100% on GDP levels. This would maybe not be a problem if you were interested in change, as we were talking about: what one type of change has a causal effect on another, such as GDP, liberalization, and parity. The problem is if you have that the validity of the measure changes through time. So that would be if you equated this with your bathroom scale at home–it wouldn’t be such a big problem if your personal scale was off a pound or two, if you were basically just interested in measuring yourself on a weekly basis to see if you are gaining or losing. The problem that comes in is that of reliability, and that is if someone changes your scale in the middle of the night. And therefore you have a scale that shows an error in a different direction. And there you will have different problems talking about time series or changes over time. Another problem is that validity still remains with us even if the data was reliable, in that if you started comparing your own weight with that of the neighbor, who uses a different scale, then it would still be very different to determine who is the heaviest or lightest.

(bold mine)

This is from Simon University Professor Morten Jerven in a podcast discussion with Russ Roberts of the Café Hayek on the unreliability of GDP as a measure to determine a nation's accessibility to multilateral aid or “concessional lending through the International Development Association (IDA), the concessional arm of the World Bank”, applied mostly to African countries.

Two points here: statistical GDP can hardly be relied on to reflect on the real or genuine economic conditions since it is subject to significant statistical errors, and importantly, vulnerable to manipulation. If an analysis is based on an inaccurate tool, then the result would most likely be misdiagnosis. So I'd be leery about mainstream's unwavering or pious devotion to statistical growth.

Second, liberalization is the best alternative to economic development

Video: Ron Paul on Foolish US Foreign Policies

Neil Cavuto to Congressman Ron Paul "You were decades ahead of this" (hat tip Bob Wenzel)

End The IMF

The sexual molestation scandal has compelled the resignation of IMF’s Dominique Strauss Khan.

Now there are have been speculations on his replacement.

As of yesterday bookmakers have placed the odds on some possible replacement candidates.

This from the Economist

Here are some of the people viewed to be plausible contenders to replace Mr Strauss-Kahn, and the odds on their getting the top job according to William Hill, a British bookmaker. A win for a non-European would be a first for the IMF, as would the appointment of Christine Lagarde, who would be the first woman to head the organisation.

Meanwhile, the Wall Street Journal describes part of how IMF politics works.

From the WSJ

Because the U.S. and European nations together have always held a majority voting stake in the IMF, that unwritten convention has guided the leadership process for the past six decades. Any executive directors on the 24-member board — representing the IMF’s 187 governments — can propose candidates for consideration, generally based on guidance from their home countries. In turn, the board has used informal straw polls — rather than formal recorded votes — to gauge support for the candidates. (Though formal voting isn’t used, the distribution of voting shares helps determine who can garner enough support as a candidate.)

At times, though, the U.S. and Europe have been divided on their options. In 2000, for instance, the European Union formally backed German deputy finance minister Caio Koch-Weser to take the top post at the fund, replacing longtime IMF Managing Director Michel Camdessus of France. But the U.S. balked, leading the White House press secretary at the time to publicly oppose the choice. Many developing nations wanted then-Acting Managing Director Stanley Fischer, an American born in Zambia, to fill the job.

After a month of heated public debate, the IMF eventually settled on German national Horst Kohler, who was president of the European Bank for Reconstruction and Development.

The U.S. has been expected to take a back-seat role in choosing the next managing director, focusing instead on its traditional role of picking the IMF’s No. 2 official. The current No. 2, John Lipsky, is slated to leave his post in August. For now, though, U.S. officials have put that process on hold considering the rush to fill the top post.

Since the IMF’s founding, all 10 IMF managing directors have come from Europe. The managing director is typically a former finance minister or central bank governor from a Western European country.

So the IMF has been mostly been a US-Europe turf, where the US has allowed Europeans to take the helm since.

Yet some have floated that the Kahn episode could even be a frame up.

Writes Bob Wenzel,

I continue to believe that the most likely explanation for him coming out of the bathroom naked is that he was expecting someone.

If he did make a call to an escort service than I fully believe a government agency could have set DSK up. What's more, this is a major French hotel, which means it his highly likely that French government agents are floating around the hotel as guests and employees.

The reasons: perhaps because he “broke free from the party line” (may have offended some vested interest groups) with his current policies or perhaps it was about the upcoming national elections in France or a combination of both.

A French poll reveals that about 57% believes that Kahn had been a ‘victim of a plot’

This only shows how politicking could have played a nasty part in the sordid Kahn affair which also reveals on the operational procedures of the IMF—which seems indistinguishable from any national agencies which redistributes resources politically.

Also the US-European political hegemony of the multilateral institution translates to the channeling resources to uphold their political interest. And this is why Emerging Markets are unlikely to gain a leadership foothold in the near future. The division of spoils belong to the winners.

Besides, the fundamental role for IMF’s existence have been exhausted, where the agency’s operations has shifted from ‘monetary’ to ‘developmental’.

As Cato’s Doug Bandow writes, [hat tip Dan Mitchell] (bold highlights mine)

The IMF's founding purpose vanished when the system of fixed exchange rates collapsed in the early 1970s. But instead of closing up shop (no jobs for international bureaucrats in that!), the IMF switched to promoting development. That is, it became a welfare program for Third World governments (and, more recently, for Eastern Europe and even Greece).

So maybe it’s not time to seek a replacement. Maybe it’s time for the IMF to stop meddling in the affairs of nations.

Maybe it’s time for the IMF to stop propping up collectivist regimes, bailing out unsustainable systems and promoting interests of political operatives behind the scenes.

As Leland B. Yeager writes in Cato (Hat tip Don Boudreaux) [bold emphasis mine]

I am inclined to concur in points made by Ian V squez (1997) and Allan Meltzer (1995) about activities of the IMF (and similarly of the World Bank). These tend to support government domination of economies, despite ``conditionality'' purporting to do otherwise; and politicization of economies increases the scope for rent-seeking. Thrusting debt onto poor countries, putting them onto a debt treadmill, ill serves economic development. Funds for bailouts create moral hazard, tending to delay reforming crisis-prone policies (see The Economist 1997b). New issues of SDRs, which the IMF staff likes to propose, accomplish international transfers of wealth in a way that most legislators do not even understand. Self-important international bureaucracies have institutional incentives to invent new functions for themselves, to expand, and to keep client countries dependent on their aid.

Maybe it’s time to abolish the IMF.

The Failure Of Centrally Planned Democracies And Of Foreign Aid Dictatorships

GMU Professor Chris Coyne over at the Coordination Problem blog has some valuable insights on the current spontaneous People Power revolutions at the Middle East.

He cites two important lessons: The failure of the foreign policy of imposing ideals (democracy) abroad, and in accessory to the first, the failure of foreign aid to promote democracies via dictatorships.

On imposing western ideals Prof Coyne writes,

what is happening in the Middle East is an indictment of U.S. 'nation building' and more specifically the idea that social change toward freedom must be initiated by outsiders. Consider that the U.S has now been in Afghanistan for nearly 10 years and have been unable to ‘win the hearts and minds’ of Afghan citizens. In Egypt it was a matter of weeks between the initial indigenous uprising and Mubarek’s resignation.

The spontaneous and unexpected events in Egypt, and the Middle East more broadly, highlight the flaws in the planning mentality that underpins most, if not all, U.S. foreign interventions. This view holds that (1) certain societies are unable to move towards freedom without outside assistance and (2) that the complex array of institutions that underpin societies are the result of some ‘grand plan’ which can be engineered by experts.

People’s actions have fundamentally been aimed at achieving the removal of unease. Thus, the political economic conditions have always been evolving as people yearn and strive to attain satisfaction or a better life.

And through trial and error, society has reflected on such perpetual discovery process as seen from the lens of the economy, and subsequently, politics.

And this is why the character of Arab revolutions has shifted from Nationalist to Islamist and now to People Power movements.

The quest for liberty may not be an immediate outcome of the recent spontaneous MENA upheavals, but from signs we see, we can be confident that the appreciation and adaption of the concept of freedom and liberty by Muslims have been gradually deepening.

As Michael Novak writes at the Wall Street Journal,

Yet it took the Jewish and Christian worlds centuries to begin cashing in their own longings for liberty. And so also it took the consciences of nonbelievers from the slave society of Aristotle and Plato until the Universal Declaration of Human Rights. The universal hunger for liberty is not satisfied in any one generation, or in all the generations put together. It is an unlimited desire. (bold highlights mine)

And such endogenous ‘universal’ freedom inspired revolutions has NOT been imposed. The failed foreign policies designed for this has essentially backfired.

And to repeat what Mr. Novak points out, the desire for freedom has also been a long painstaking process mostly accrued from generational experience. I might add that this process will likely become accelerated as the facilities that stimulates these interchanges of experience or ‘emprical’ knowledge via the web or internet will dramatically be improved and whose usage will become widespread.

In addition, the concept of propping up dictators in the name of democracy via foreign aid has also been exposed as a disastrous model.

Again Mr. Coyne, this is

an excellent opportunity to reconsider the longtime U.S. practice of giving foreign aid to the world’s worst dictators...

These are not the only cases of the U.S. providing assistance to the world’s worst governments. Every year Parade magazine compiles a list of the “World’s Worst Dictators.”...

This means that the source of the problem—the predatory state—is tasked with playing a central role in solving the problem of which its very existence is the cause. The result is the well-known pitfalls of aid such as increased corruption and issues of aid effectiveness.” (bold emphasis mine)

At the end day, freedom is a bottom up process which can only be experienced, shared, learned, and assimilated, and not imposed from a top down dynamics especially through the state, or at worst, by dictatorships. As people learn about freedom, vertical structures and power centers are bound to crumble.