Monday, October 16, 2017

The Big Business of American Wars

While it is a bit dated, a Congressional Research Service study takes a broad look at the history of war in the United States and provides us with a summary of the high cost of warfare.  The period covered in the CRS report looks at all major conflicts that have involved American armed services between the years from the American Revolution (1775 to 1783) to the wars in Iraq and Afghanistan (2001 to 2010) and summarizes the total military cost of the conflicts in "current year dollars" (i.e. the amount spent at the time of the conflict) and in 2011 dollars as well as the cost of each conflict as a percentage of GDP in the peak year of the war as well as total defence spending as a percentage of GDP in the peak year of the war.  

Here we go, in chronological order:

1.) American Revolution - 1775 to 1783
Current Year Cost - $101 million
In 2011 Dollars - $2.407 billion
War Cost as a Percentage of GDP - N/A
Total Defense Spending as percentage of GDP - N/A

2.) War of 1812 - 1812 to 1815
Current Year Cost - $90 million
In 2011 Dollars - $1.553 billion
War Cost as a Percentage of GDP - 2.2 percent (1813)
Total Defense Spending as percentage of GDP - 2.7 percent

3.) Mexican War - 1846 to 1849
Current Year Cost - $71 million
In 2011 Dollars - $2.376 billion
War Cost as a Percentage of GDP - 1.4 percent (1847)
Total Defense Spending as Percentage of GDP - 1.9 percent

4.) Civil War (Union side) - 1861 to 1865
Current Year Cost - $3.183 billion
In 2011 Dollars - $59.631 billion
War Cost as a Percentage of GDP - 11.63 percent (1865)
Total Defense Spending as Percentage of GDP - N/A

5.) Civil War (Confederate side) - 1861 to 1865
Current Year Cost - $1 billion
In 2011 Dollars - $21.111 billion
War Cost as a Percentage of GDP - N/A
Total Defense Spending as Percentage of GDP - N/A

6.) Spanish- American War - 1898 to 1899
Current Year Cost - $283 million
In 2011 Dollars - $9.034 billion
War Cost as a Percentage of GDP - 1.1 percent (1899)
Total Defense Spending as Percentage of GDP - 1.5 percent

7.) World War I - 1917 to 1921
Current Year Cost - $20 billion
In 2011 Dollars - $334 billion
War Cost as a Percentage of GDP - 13.6 percent (1919)
Total Defense Spending as Percentage of GDP - 14.1

8.) World War II - 1941 to 1945
Current Year Cost - $296 billion
In 2011 Dollars - $4.104 trillion
War Cost as a Percentage of GDP - 35.8 percent (1945)
Total Defense Spending as Percentage of GDP - 37.5 percent

9.) Korean War - 1950 to 1953
Current Year Cost - $30 billion
In 2011 Dollars - $341 billion
War Cost as a Percentage of GDP - 4.2 percent (1952)
Total Defense Spending as Percentage of GDP - 13.2 percent

10.) Vietnam War - 1965 to 1975
Current Year Cost - $111 billion
In 2011 Dollars - $738 billion
War Cost as a Percentage of GDP - 2.3 percent (1968)
Total Defense Spending as Percentage of GDP - 9.5 percent

11.) Persian Gulf War - 1990 - 1991
Current Year Cost - $61 billion
In 2011 Dollars - $102 billion
War Cost as a Percentage of GDP - 0.3 percent (1991)
Total Defense Spending as Percentage of GDP - 4.6 percent

12.) Iraq - 2003 to 2010
Current Year Cost - $715 billion
In 2011 Dollars - $784 billion
War Cost as a Percentage of GDP - 1.0 percent (2008)
Total Defense Spending as Percentage of GDP - 4.3 percent

11.) Afghanistan/Other - 2001 to 2010
Current Year Cost - $297 billion
In 2011 Dollars - $321 billion
War Cost as a Percentage of GDP - 0.7 percent (2010)
Total Defense Spending as Percentage of GDP - 4.9 percent

While the study did cover the wars in Iraq, Afghanistan and the post-9/11 costs of actions in Pakistan, they are somewhat dated since they only go to what was spent in fiscal 2010, I will refer to the costs of the post-9/11 wars including America's involvement in Syria as summarized by the Watson Institute:


Here is a graph showing the cost of each war in 2011 dollars (excluding the post-9/11 wars which are in 2016 dollars):


Since the American Revolution in the mid-1770s, wars have cost Americans $10.507 trillion, excluding the estimated future interest costs on the debt associated with the post-9/11 wars which is projected to reach at least $7.9 trillion to the total costs by 2053.  As well, outside of World War II which was fought on a much larger scale than most of America's other wars, the cost of conflict has risen significantly as the decades have passed, thanks in large part to the use of high-priced technology.  

Conflicts, both internal and external, over the past two centuries  have cost Americans trillions of dollars, much of which has ended up as profits in the arms sector without mentioning the high cost to American families who have suffered the loss of their sons and fathers along with a growing number of daughters and mothers.  When politicians try to sell us on the next "good war", we need to remember that wars have had a very high cost and that very few benefit from the misery inflicted on the many.

Friday, October 13, 2017

Seoul and Tokyo - Ground Zero for a North Korean Nuclear Attack

While North Korea has faded somewhat from global news coverage, a recent analysis by the U.S. - Korea Institute at Johns Hopkins SAIS otherwise known as 38 North takes a sobering look at what would happen during a nuclear attack on both Seoul and Tokyo, two of the world's most populous urban areas.  Having spent some time in Tokyo, the density of humanity in the world's largest urban area is rather stunning particularly given that its population is roughly the same as Canada's.

While most of North Korea's thermonuclear warhead tests have been modest by Cold War standards, falling in the range of 1 to 10 kilotons, the test of September 3, 2017 was a game changer.  Analysis by experts suggests that North Korea now has the expertise to arm ballistic missiles with nuclear warheads and has an arsenal of between 20 to 25 warheads with yields in the 15 to 25 kiloton range.   According to an analysis by 38 North, the yield approached 250 kilotons, roughly 10 times the yield of the Fat Man weapon that destroyed Nagasaki in 1945 and by far the nation's largest yield ever.  This suggests that the North could eventually upgrade its nuclear arsenal significantly.

The analysis by 38 North assumes the following:

1.) North Korea has 25 operational nuclear weapons.

2.) The yield of these nuclear weapons ranges from 15 to 250 kilotons.

3.) North Korea launches its entire nuclear arsenal against both Seoul (195 kilometres from Pyongyang) and Tokyo (1284 kilometres from Pyongyang).

4.) The weapons are timed for airburst detonation, the most efficient way to destroy infrastructure and kill civilians.

The population of Seoul/Inchon is 24,105,000 with a density of 8800 persons per square kilometre and the population of Tokyo/Yokohama is 37,900,000 with a density of 4440 persons per square kilometre.  By way of comparison, the population of the New York - Newark - Jersey City is 20,153,634 with a population density of 939 persons per square kilometre.  The population density varies widely across both metropolitan areas, reaching 17,002 per square kilometre in Seoul Special City and 14,950 in Tokyo's Special Wards.

Assuming that the North Koreans were to launch a single successful 250 kiloton thermonuclear device and detonate it over the centres of both cities, it is estimated that the following casualties would occur:

1.) Seoul:

Fatalities - 783,197

Injuries - 2,778,009

Using the following guide:


...from Alex Wellerstein's Nukemap website, here is the area of damage from a single 250 kiloton blast over central Seoul: 


2.) Tokyo:

Fatalities - 697,665

Injuries - 2,474,627

From Alex Wallerstein's Nukemap website here is the area of damage from a 250 kiloton airblast over Chiyoda, the area where the Imperial Palace is located in Tokyo:


According to the analysis by 38 North, total casualties for both cities in the event of a single 250 kiloton airburst is estimated to be 6,733,498.

Let's look at another set of scenarios.  North Korea launches all 25 of its nuclear missile warheads with the probability of detonation ranging from 20 percent to 80 percent, a reasonable range given that the THAAD defense system has been installed in South Korea and the Aegis Ashore Antiballistic Missile system is being installed in Japan.  Here are the estimates of casualties using 15 kiloton (the smallest likely) and 108 kiloton (the smallest likely yield of the most recent test) weapons:

1.) Seoul:

i.) 15 kiloton - 20 percent detonation - 1,016,845 casualties

ii.) 15 kiloton - 50 percent detonation - 2,452,122 casualties

iii.) 15 kiloton - 80 percent detonation - 4,067,379 casualties

iv.) 108 kiloton - 20 percent detonation - 3,795,891 casualties

v.) 108 kiloton - 50 percent detonation - 6,288,312 casualties

vi.) 108 kiloton - 80 percent detonation - 7,686,364 casualties

2.) Tokyo:

i.) 15 kiloton - 20 percent detonation - 917,997 casualties

ii.) 15 kiloton  - 50 percent detonation - 2,294,991 casualties

iii.) 15 kiloton - 80 percent detonation - 3,671,986 casualties

iv.) 108 kiloton - 20 percent detonation - 2,273,087 casualties

v.) 108 kiloton - 50 percent detonation - 5,644,584 casualties

vi.) 108 kiloton - 80 percent detonation - 6,867,557 casualties

As you can see from these estimates, if even a handful of 15 kiloton thermonuclear devices detonate over either of the world's most populous urban areas, cities which happen to lie within range of North Korea's current ballistic missile inventory, the number of casualties would be stunning.  Our only hope is that saner heads prevail and that both Donald Trump and Kim Jong-un back down from their posturing.


Thursday, October 12, 2017

The New Post-Great Recession Global Economic Reality

With the Federal Reserve looking to "normalize" its monetary policies by unwinding its massive asset base, a look at the balance sheets of the key central banks around the world shows that the global economy is far from normal and is unlikely to normalize without at least some economic stresses.  The global expansion of central bank balance sheets (i.e. the use of quantitative easing) since the Great Recession is unprecedented and will have obvious impacts on the economy as central bankers look to unwind their positions and return to a neutral monetary stance if one does exist in the post-Great Recession world.

Let's start by looking at the definition of a central bank balance sheet as shown on this graphic:


Since quantitative easing became the central banker's monetary tool of choice, let's now look at what has happened to the balance sheets of the world's most influential central banks since the Great Recession.  Here is a graphic showing the Federal Reserve's assets:


In October 2017, the Fed held $4.46 trillion worth of assets, up 405 percent from its level prior to the Great Recession.

Here is a graphic showing the European Central Bank's assets:


In August 2017, the ECB held $5.049 trillion worth of assets (€4,278,881 million), up 184 percent from its level prior to the Great Recession.

Here is a graphic showing the Bank of Japan's assets:


In September 2017, the Bank of Japan held $4.569 trillion worth of assets (¥5,133,985 hundred million), up by 349 percent from its level prior to the Great Recession.
  
Here is a graphic showing the Bank of England's assets:


In June 2017, the Bank of England held $0.568 trillion worth of assets (£430,159 million), up over 300 percent from its level prior to the Great Recession.

Here is a graphic showing the People's Bank of China assets:


In September 2017, the PBOC held $5.271 trillion worth of assets (347144 hundred million yuan), up roughly 170 percent from its level prior to the Great Recession.

In total, the world's five most influential central banks currently have balance sheets totalling $19.917 trillion, however, we must not forget that the less influential central banks around the world have also increased the size of their balance sheets.  According to Pimco, global central bank balance sheets have now exceeded $22.5 trillion in total.

Now, let's look at the total global economy.  If we take Statista's estimate of a global GDP of $75.278 trillion for 2016, this means that central bank balance sheets now comprise 29.1 percent of the global economy.  This suggests that the unwinding of the assets acquired during the unprecedented experiment with quantitative easing and other unconventional monetary policies are bound to have a significant impact on the global economy.

Let's close with this quote from Christian Noyer at the Bank for International Settlements:

"Unconventional monetary policies are necessary but complex. They create more interference with markets than policies conducted in ordinary times. As a consequence, it becomes more difficult to avoid unintended spillovers of stabilization policies on the allocation and distribution of resources. This reality should not prevent Central Banks from acting decisively when there are risks for price stability. But such actions demand rigor and precision in their implementation. For Central Banks, their balance sheet has become the main tool of monetary policy for the foreseeable future." (my bold)

Only time will tell whether the risks that central banks took by grossly inflating their balance sheets was worth the risks to the global economy, risks that will likely become apparent as central bankers look to unwind their positions and find that there are unintended consequences to every action that they took to "rescue" the world from an economic collapse.  We really are living in a new global economic reality.