Deficits, Dollar, Game Theory, Live and Learn, Taxes, Treasury

Did Osama Bin Laden Win?

The Dow Jones just fell to 7,789, the lowest it has been since the early ’90’s, after dropping another 186 points today. The Dow has already dropped over 45%, from its all time high of 14,164 on October 9th of 2007, and will probably continue to fall. Huge banks, such as Bear Stearns and Lehman Brothers, have failed, along with insurance giants like AIG. Mortgage foreclosures are up, credit is tight, unemployment is creeping toward 10%, and Americans are still saving approximately 0% of their income. That brilliant $700 billion dollar bailout and $787 billion dollar stimulus package don’t seem to be having their desired effect.

Unfortunately, all of this was predictable. The key to our current crisis was the housing bubble, which few saw coming, but the signs were there. And economists from across the political spectrum saw the housing bubble and financial crisis well before banks started failing. Peter Schiff, an Austrian, Dean Baker, a Keynesian, and Niall Fergusuon, a monetarist, all saw the crisis coming in one form or another, along with many others. And furthermore, our country being more or less bankrupt, which just about everybody recognized then and recognizes now, has done nothing but add fuel to the fire.

IRAQ WAR TOPIX

Economics can be a complicated discipline, but the basics are pretty simple. You cannot dramatically lower taxes, dramatically increase spending (Medicare expansion, No Child Left Behind, Department of Homeland Security, etc.), and start two wars without bankrupting your country. Most of this was George Bush’s fault, but Barack Obama has apparently decided “change” means simply spending even more money we don’t have.

What makes this even worse is not only did we do this to ourselves but we fell right into our enemy’s plan. We executed it to a “T”. Osama Bin Laden knew very well he couldn’t defeat the United States militarily. What he did know was that he could get us stuck in the Middle East, throwing money away fighting endless insurgencies. 9-11 was just a pretext to get us bogged down in an endless war (or two). He bled us. And that was his strategy the whole time! He even stated it publicly, “So we are continuing this policy in bleeding America to the point of bankruptcy.” He went further and cited Russia, who in the 1980’s went bankrupt fighting Bin Laden’s insurgents in, of all places, Afghanistan. His strategy, all along, was to do the exact same thing to us. Al Qaeda’s second-in-command, Ayman al-Zawahiri, echoed the same sentiment, saying in 2003, “We thank God for appeasing us with the [Americans] dilemma in Iraq and Afghanistan.” He continued:

osama-bin-laden1

“The Americans are facing a delicate situation in both countries. If they withdraw they will lose everything and if they stay, they will continue to bleed to death.” (1)

Yet, we were still too stupid to listen, or at least our politicians were. It could very well be said that Osama Bin Laden won the moment we invaded Iraq.

So where do we go from here? Well, ironically, losing the battle is probably the best way to win the war. So first things first: end both wars, as soon as possible. Obama has decided to withdraw (albeit very slowly), from Iraq. Unfortunately, Obama is planning his own surge in Afghanistan, which may very well be a bad military strategy, as well as a waste of money. We should also strongly consider bringing our military home from the rest of the world. We still have tens of thousands of troops in Germany protecting Europe from the Soviet Union! Many of these bases accomplish nothing of value and some build resentment from local populations. If the U.S. does withdrawal, Osama Bin Laden will probably simultaneously claim victory and lose most of his support. Radical Islamists will likely turn on their own governments, instead of worrying about a bunch of infidels on the other side of the planet. Osama Bin Laden and other terrorists have repeatedly said they are fighting what they see as an occupation. Despite the political rhetoric, they actually hate us for more than just our freedom. Shocking, I know. If we get rid of their incentive to hate us, Osama Bin Laden and the Al Qaeda’s top officials will still despise us, but most other Muslims will likely just forget about us. We will win their hearts and minds by making their hearts and minds focus on other things. Yes, maybe it’s giving up to just leave, but is it really a bad idea to give up on a huge mistake? (2)

We should then use the saved money to, preferably, cut taxes but at a minimum, spend the money here at home. As of now, we’ve spent several trillion dollars on bailouts and stimulus packages, but we still have no money and our credit line with China is basically maxed out. So almost assuredly, we will just print much of the money. This crisis could very well get much worse if we keep this up. The dollar may just collapse; we’ll have runaway inflation during a recession. In my humble opinion, we need to keep taxes as low as possible for the time being, and simply be patient, while the market liquidates the bad debt. It will take time and it will hurt but there is no such thing as a free lunch. You have to pay for your mistakes. And the United States, unfortunately, has many mistakes to pay for.

___________________________________________________________________________________________

(1) Quoted in Michael Scheuer, Imperial Hubris, Pg. xxi, Potomac Books, Inc., Copyright 2004, Recorded Audio Message by Ayman Zawahiri, Al-Jazirah Satellite Channel Television, September 10th, 2003

(2) For a more thorough discussion on the motives of terrorists, see Dying to Win by Robert Pape. It’s the best, empirical study I’ve read on the reasons for suicide terrorism.

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6 thoughts on “Did Osama Bin Laden Win?

  1. Lacuna says:

    I don’t see your proposal for lowering taxes really supported in any way by the facts in this article. In fact, you contradict yourself in that you cite GWB’s removal of the top tax bracket. So why lower taxes? Why not support progressive taxation, and more taxes and regulation for the finacial institutions that have robbed this country. This crises was caused by poor and nonexistant regulation and oversight, greed, stupidity, and irresponsibility of much of the American people. We bought things we couldn’t afford, things we didn’t need, all on borrowed money that cannot be payed back.

    We may very well have lost the war on terror. We certainly have caused irrepairable damage to our image because of OIF. Led by false information, fear, uncertainty, doubt, the American people were swindled into a costly war that did not protect us from harm – but rather fueled terrorism. The first few years in Iraq, we used tactics that supported an insurgency, and caused harm to our relationship to the Iraqi people. Progress has been made, but Iraq is largely controlled by tribal warlords. There are cultural divides, and the population has been alienated because of the US military’s lack of knowledge on fighting an insurgency. When we withdraw our forces, it’s likely Iraq will fall into a civil war. It’s just the price the Iraqi people must pay because of our intervention. Osama bin laden has accomplished his goal, but we were on the road to bankruptcy before he established it. He did not bankrupt our country by drawing us into these wars, we did this to ourselves. Bin laden should be held responsible, but there are those in our country that should also shoulder some of the blame. The Bush administration led us into a war we could not win. They violated our freedoms, our rights, all in the name of this “war in terror”.

    Is there a solution? Maybe. I dont believe it us as simple as lowering taxes.

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    • I agree that the U.S.’ troubles, from the preemptive war waged in Iraq to overall deficit spending, are the responsibility of the U.S. first and foremost. Bin Laden didn’t force us to go to a fiat currency in 1971 or to run up unprecedented public debts for decades. Bin Laden recognized the U.S.’ pattern of behavior (a propensity to spend and showcase arrogant hubris) and used it against us. This was the only way he could significantly weaken the empire. Bush undoubtedly put a few more chinks into the Constitution and for some, violated the code of ethics they want their country to embody.

      The Bush spending spree at home and abroad is not the only spending hurting the dollar. The Obama administration is spending at an unprecedented clip. All of this spending will be financed by borrowing money from other nations, printing new money based on nothing, and taxing somebody more. Making the tax code more progressive is an option to collect some revenue but the borrowing and printing causes inflation, which is an invisible tax to everyone. Invisible and silent.

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  2. Andrew says:

    What I was saying is that you can’t simultaneously lower taxes, massively increase spending and start two wars. Not necessarily that lowering taxes was a bad idea in first place. Overall, I think lower taxes are a good thing, but they can’t be implemented by debt or inflation. That’s just a waste. However, if we increased taxes right now, we’d be adding even more burdens to people who are already stretched thin in a very bad economy.

    I agree with you for the most part about Iraq, but I don’t think the crisis’ root cause was poor regulation, I think had more to do with a loose monetary policy. I’ll write an article about that in the near future. Thanks for the comment.

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  3. jerb says:

    I have yet to be convinced how spending this “money” that we don’t have is inevitably a bad thing. With the tremendous fall of oil prices in the last year we have experienced modest deflation (I believe within the CPI). By most accounts deflation at the macro level is a bad thing and results in a deflationary spiral. Thus, we the government (and even the fed) have some room to play with as far as deficit spending and money printing goes. Investing in education is never a bad idea, investing in infrastructure can greatly increase efficiency, and investing in new “green” industries is the most pragmatic of all, not necessarily bc of climate change, but because of the unavoidability of peak oil, so we better get a head start! Furthermore, the purchase of US notes is about the safest investment anyone can make, bc as fucked up as we are, Europe is in even worst shape which make Asian industries less viable too. Don’t forget, as the world falls, so too will the US, and visa-versa. This ‘crisis’ needs a global response, and the sooner we get people working to prepare our civilization for the future, the better… i don’t care who’s money it is, I’m convinced our children (or us) will thank us for not delaying in getting people moving and shaking, rather than bitching and moaning about how we don’t have any ‘money’. Money is a made up concept. People doing things is what drives the economy. Viva la Keynes!

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  4. Andrew says:

    deflation in my opinion, is a boogyman. We had deflation from 1870-1900 and while there were periodic recessions (1871, 1883, etc.) the period saw enormous economic growth. I even heard of a study in the American Economic Review that concluded that 90% of deflationary episodes over the past 100 years in 17 different countries did not result in a depression.

    Massive deflation, like the 30% or so we saw in the Great Depression is certainly bad, however, it wouldn’t have been nearly as bad if the government hadn’t done everything it could to prop up wages and prices (both Hoover and Roosevelt). This is what lead to the massive unemployment because wages were kept artificially high.

    Spending money we don’t have is usually bad because it means we’re either going to have to be taxed in the future or it will just be printed, which is a tax now. And a regressive tax to boot. If it’s to stimulate the economy, fine, but I don’t buy that we need to stimulate a debt riddled private sector. Savings desperately need to increase and the government just wants to force us to spend. And given the charts I’ve seen lately of the amount of money being pumped into the system (see http://www.swifteconomics.com/2009/01/29/so-many-dollars/) I don’t know if we have as much room to play with as you think. I think after company’s finish deleveraging their bad assets we’re going straight into a pretty vicious period of stagflation.

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  5. Omar Bahar says:

    The economic debacle of USA is mainly due to the Bush regime for their weakness in analytical abilities and far sightedness. Their ulitmate goal was revenge due hatredness and make hell out of Iraq. The US army invaded Iraq subsequently when the senior Bush ordered the Junior Bush (defying UN orders) to invade due to vengeance nothing else. And today, it is a pity that there are not much Iraqis living. Maybe. there wont be any Iraqis living over there in Iraq in the near future at the amount innocent people are being killed daily. The Bush Senior & Junior should be held responsible for war crimes mainly in Iraq and elsewhere in the world. Thousands and millions have be maimed or dead and there is no end to this.

    Osama Bin Laden was born to suppressed the aggressors. This is what Almighty God thought was good to teach the aggessors some lessons to learn whilst the whole world is alive and in existence to witness. Nowadays, Almighty God punishes the wrong doers whilst the world is alive and not in the hereafter life.

    It is also disgusting to note that the UN human rights council is keeping a blind eye towards nations that they favour such as Israel’s for instance. The Israel’s are rampaging the Palestine lands and killing innocent civilians which includes women and children. The Israel’s can walk into Palestine lands at will and bomb bard the houses at their will whenever they wanted to. What is the UN Human Rights Commission doing in this regard?

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