Tuesday, January 20, 2009

The Great And Most Fortunate

The Great And Most Fortunate - not to mention Invincible - Spanish Armada set sail late in May in 1588 from the occupied port of Lisbon. Philip II was not pleased with Elizabeth I and was determined to put a stop to her activities by invading and conquering England. This would also disrupt some Dutch operations which were harming Spanish interests and prevent the British from attacking Spanish ships laden with gold and silver plundered from South America.

The slight problem was that the mission was an abysmal failure and helped to bankrupt Spain. Again. Yet Philip II later assembled more armadas which also failed. And his policies caused Spain to suffer more bankruptcies. Spain once had the largest empire on the planet, but it was based on flimsy economic foundations and poor policies and once decline set in Spain never really recovered.

Is Spain unique? No. Military adventures and associated expenditures have bankrupted or ruined country after country, and in even the more successful empires, the gains whilst impressive-seeming from some points of view, are always temporary.

It is possible that if someone is going to attack you, you might conclude that you had better attack them first rather than be slaughtered. This unfortunate and destabilizing behaviour seems to be inherited from some of our primate ancestors. However, it is not an iron law and it surely doesn't explain all modern military aggression, and even if it did, I think that rational leaders would look at the long-term costs and should conclude that wars don't pay.

In particular, the wars started by America since the end of World War II, seem to have been very bad value for money, even if to an increasing extent it was someone else's money. Looking at the fascinating and not much studied Bretton Woods money system, it is surely reasonable to conclude that whatever flaws it had (plenty), from America's point of view it was a very useful system and that it was brought down principally by the costs incurred by the Vietnam War.

It is possible to argue that the ending (officially in 1973) of the Bretton Woods agreement was one of the factors that allowed the recent, and now clearly disastrous, economic bubbles to form. However, it can also be argued that some of the seeds were planted by the agreement itself, in particular that Bretton Woods allowed the US to live beyond its means, a habit which once cemented in by the unique operation of the dollar, continues to this day.

In particular, America has used its special relationship with the world monetary system to build up a staggering and frightening military machine that it is all too willing to use overtly or covertly (by arms sales for instance). Few people think this is good for the world, and only a minority of Americans now appear to think it is good for America.

Why have such a huge and expensive military capacity? Which nation is going to attack the US mainland directly? The British tried it a couple of hundred years ago, but they seem to have been quite friendly lately. Mexico or Canada? Not very likely, since each nation is massively dependent on exporting goods and resources to the US, particularly energy resources.

Therein lies a clue. America's dependence on foreign oil imports is one of the reasons why it could argue that it needs a huge military. Interesting then to consider that the cost of running that military, not including the extra amount required for the wars in Iraq and Afghanistan (not to mention the war on terror and the war on drugs) is about the same as the amount that America pays for all its imported oil - very roughly half a trillion dollars.

The good news is that if the Fed's printing presses ever run out of ink or the Chinese stop buying US treasuries, Washington could always put the military on unpaid leave for a decade or two and use the money to pay the oil import bill. Any pennies left over could be used to buy some wind turbines and solar panels, thus delivering both fiscal prudence and energy security, which should please politicians and public of every stripe and help America avoid the fate of nations that fight too many wars.

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