The real goal of a zombie war

Nov 3, 2011

Paris, France

The markets continue trying to discover what things are worth. With so many things in motion, so much fog and so much doubt, they're having a hard time. Every day seems to bring 100+ moves in the Dow.

Yesterday, the Dow rose 178 points. Investors paused. They heard rumors that maybe Greece wouldn't hold a referendum on further austerity moves. They saw France and Germany twisting the Greeks' arms.

Maybe Europe will get its act together, after all, they said to themselves. But today's news tells us that the Greek cabinet has approved the call for a referendum...even though the French and the Germans are threatening to withhold money.
"If they want to have a referendum, that's of course their right, and we very much respect democracy," a senior official told the Financial Times. "But in that case, they probably should not expect the others to pay out money before they get the answer."
And hey, the news from the US economy wasn't terrible. It added 110,000 jobs last month.

Wait...the working age US population rises by about 200,000 a month. Even if only about half of them want jobs, that's still only keeping up with unemployment...not getting ahead it.

But the US economic forecast seems hardly to be improving. Even the Fed says the sky is getting darker. The New York Times reports:

Fed Lowers Its Forecast for Growth, but Takes No Steps

WASHINGTON - The Federal Reserve significantly reduced its forecast of economic growth through 2013, acknowledging that it had once again overestimated the nation's recovery from the 2008 financial crisis.

Despite the bleak forecast, however, the Fed said that its policy-making committee had decided against taking new measures to stimulate growth at a two-day meeting that concluded Wednesday. The Fed's chairman, Ben S. Bernanke, said that the central bank already was pushing hard to spur growth and create jobs.

"We have taken a lot of actions," Mr. Bernanke said at a news conference after the announcement. He added that Congress, by contrast, was not doing enough to pull the levers of fiscal policy. Lawmakers are gridlocked over a new jobs proposal from the White House, and a special bipartisan committee charged with reducing the deficit is struggling to reach agreement by Thanksgiving.

This is a difficult time for the Fed and its chairman. Republicans charge that the central bank's existing efforts have gone too far, sowing future inflation. Democrats say that in hesitating to do more, the Fed is ignoring the plight of more than 25 million Americans who cannot find full-time work. And the sluggish pace of growth, which continues to fall short of the Fed's predictions, is a bright marker of its failure to stimulate a recovery.
Gold went up yesterday, too. It rose $17.

Discovering...discovering...always discovering. We were surprised that gold had not fallen more. We were surprised that stocks had not fallen more too.

But just like Mr. Market to toy with string us tempt, tantalize...and then, He's like a cat playing with a mouse. The poor little mouse is doomed...

What better way for Mr. Market to deceive everybody! First, he pretends that a recovery has been set in motion.

Then, he pretends that inflation is heating up.

Then, he tips everything towards depression...

And then, he hesitates...neither gold, nor oil, nor stocks has corrected as much as we think they should. Investors get back into stocks. Oil goes above $90.

Surely, he is getting ready to pounce again...and take another pound of flesh out of investors' fat derrieres...

Stick with the program, dear reader. Sell stocks on gold on dips.

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*** In a perverse way, a zombie war is a perfect war. A lot of money changes hands. And relatively few people are killed, compared to a real war.

The British medical journal, the Lancet, estimates the total death toll from the Iraq war at nearly 700,000. When the war began, Pentagon experts estimated the cost of the war at about $60 billion. They underestimated by 8,000%. But if the war were to stop tomorrow...and if Joseph Stiglitz's estimates of total cost were close to correct...each Iraqi killed (let's hallucinate that he was an 'enemy combatant') would cost about $8 million.

You have to wonder why America would want to kill even a single Iraqi, let alone at a cost of $8 million each. WWII killed far more people -- 50 million. Total spending on the war, by all the combatants, was probably around $10 trillion (our estimate). This puts the cost per corpse at only $200,000. WWII was far more efficient.

But WWII was a real war, not a zombie war. The real goal of a zombie war is neither to kill people...nor even to win. It is to transfer wealth from the real economy to the zombie industry, in this case, defense.

Of course, looking at the cost of killing people merely underlines the absurdity of the whole enterprise. You might just as well say that a good war is one where people don't die. If that is true, the War on Terror is almost perfect. Hardly anyone dies. Which is not surprising, since there are hardly any terrorists. It is a war on nobody...with the intention of not winning...over a long period of great expense. It is a zombie war, designed for the benefit of the industry behind it, not for the people who pay the bills.

Al Qaeda spent only about $500,000 in its attacks on the World Trade Center and the Pentagon. If its goal was to bring the US to its knees, this investment was probably the most rewarding in the history of military conflict. In reaction to this tiny investment and the trivial risk it represented, the US spent 10,000,000 times as much, the largest mis-investment of valuable resources the world has ever seen.

And these expenses do not begin to count the costs of delays, inconveniences and indignities suffered by the people the war is meant to protect. Airline travel takes longer and costs more. Banking regulations have been tightened, making it more difficult, and expensive, to make investments outside the zombie industries. Ordinary citizens in ordinary situations now live with the menace that their normal routines and pleasures will be interrupted by the demands of the war on terror project.

The only positive thing that can be said about a zombie war is that it provides entertainment for millions. The masses are awed by the latest military technology...and by the demonstrations of brute force. Their minds go numb from the pounding, exploding action...and their chests swell, as it is their boys kicking butt.

Zombie wars are a modern version of the old Circus Maximus in Rome...where the fans got to watch the gladiators in genuine combat...or better yet, a mass murder. They are like football games for mortal stakes, rigged from the beginning to make sure the home team wins. Was there ever any doubt about the outcome of the Iraq War? Would the US prevail against the armed forces of Saddam Hussein? Would the Taliban in Afghanistan turn the tables on the Americans, and land their turbaned troops on the banks of the Potomac?

It's all great fun...because there is no risk to the spectators. The crowds can pretend that there is some great principle at stake. They are 'nation building.' They are bringing democracy to the towel heads. They are protecting America from terrorists. They can cheer their heroes and boo the bad guys...and then go to sleep at night, happily rejoicing in the victory of good over evil.

While we don't dispute the value of a zombie war as a form of mass distraction - a reality show with live ammunition - it is a disaster to an economy and to the wealth of the people who undertake it.

We were shocked recently when an intelligent woman challenged us.

"Yes...but at least wars keep people off the unemployment lists. The military employs lots of people..."

"Besides"...she went on... "wasn't WWII largely responsible for ending the Great Depression? Maybe we need a WWIII."

Alas, she had missed the point. It would be easy to give people jobs. It is easy to start a war, too. But if it were that easy to create real wealth we would all be employed, full time, trying to kill each other.

Wealth creation is a tough business. First, you have to NOT consume everything you make. This extra...saved you something to work with. You can use it to create more wealth. Imagine that you were living on a small farm. You work all the time. You plant a field. You harvest. You consume. But you don't get wealthier that way. To get wealthier, you have to plant a little more. You have to have a little surplus, that you can invest... a little more clear a field...prepare the the seeds... so you can increase your harvest in the following year.

If, on the other hand, you goof off...if you waste your resources (mostly your time in this example) and plant less of the grow poorer.

This series of Daily Reckoning reflections has been focused on wasting resources. On heath care, on education, and on finance...and other big industries favored by government. In each case, trillions are invested - with no payback. The nation grows poorer and groans under the debt needed to pay for it all. But of all these wealth-destroying investments, none is more wasteful than war. By its nature, war consumes and annihilates wealth. It does not produce it.

Which is not to say that wealth cannot develop out of the ashes of warfare. It can and it does. War clears away the zombie industries that block progress. When a war ends, it releases huge amounts of pent-up demand...and supply. Factories that were producing tanks switch to making automobiles. Soldiers who had been focused on killing people, switch to selling insurance and tending bars. A new economy with new industries and new workers buds, blooms and flowers. That is what happened in Germany and Japan after WWII.

In America, too, the end of WWII brought unparalleled prosperity. But it was built on the ruins of an economy that had been de-leveraged by the Great Depression...and largely destroyed by the war. A new consumer-focused economy could be built.

Americans of a certain age remember the war years the way a tourist remembers a nasty vacation. He tends to forget the bad parts...recalling only the happy times. Old people now recall the solidarity of the war years...the sense of brotherhood and common mission...and the thrill of working on such a grand, and successful, project.

As New York mayoral candidate, Jimmy Breslin, once remarked. "The last successful government project was WWII."

Don't bother to ask German and Japanese oldsters. They recall too much suffering, too much misery, and too much defeat.

Even in America, the war years were hardly a time of prosperity. There were few private automobiles produced or sold. There were few new houses built. The big consumer innovations - invented in the '30s - such as television and air-conditioning, had to wait until after the war was over to be broadly implemented. There was little joblessness - everyone was put to work in the war effort. And savings rose; people had nothing to spend their money on.

Output soared too - but it was output without a market value. What was a tank worth, absent a real war? Why would anyone buy a machine gun, unless he expected to kill someone?

Outside of its use in a real war, wartime production was useless...and valueless. It consumed the savings of a generation....and the resources of a whole nation...but it produced little of value to a domestic economy. At the end of the war, Americans were poorer than they had been before it began.

A zombie war is worse. First, it has no utility at all - since it does not protect the nation for a real threat. Second, it never ends...and never releases the pent-up demand and productive capacity for other activities.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "The real goal of a zombie war"

Jigar Savla

Nov 5, 2011

This was really quite nice way to think about. But unfortunately, there are no triggers visible on how would these unproductive waste of resources be stopped and the new wave of productive growth without the pain of de-leveraging and no one wants to undergo that pain - neither Greece, nor US nor India and not even China.

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