FACT 2: 0% of suicide terrorist attacks have been directed at countries not militarily involved in geopolitical disputes.

Robert Pape at the University of Chicago, with funding from the Department of Defense, has created the first comprehensive database of every suicide terrorist attack in the world from 1980 until today.  The data reveal important truths that must be realized before there can be any hope of minimizing this threat.

Every suicide terrorist campaign has had a clear goal that is secular and political: to compel a modern democracy to withdraw military forces from the territory that the terrorists view as their homeland.

From the The Strategic Logic of Suicide Terrorism by Robert Pape:

As Table 1 indicates, there have been 188 separate suicide terrorist attacks between 1980 and 2001. Of these, 179, or 95%, were parts of organized, coherent campaigns, while only nine were isolated or random events. Seven separate disputes have led to suicide terrorist campaigns: the presence of American and French forces in Lebanon, Israeli occupation of West Bank and Gaza, the independence of the Tamil regions of Sri Lanka, the independence of the Kurdish region of Turkey, Russian occupation of Chechnya, Indian occupation of Kashmir, and the presence of American forces on the Saudi Arabian Peninsula. Overall, however, there have been 16 distinct campaigns, because in certain disputes the terrorists elected to suspend operations one or more times either in response to concessions or for other reasons.

Every suicide campaign from 1980 to 2001 has had as a major objective—or as its central objective—coercing a foreign government that has military forces in what they see as their homeland to take those forces out. Table 2 summarizes the disputes that have engendered suicide terrorist campaigns. Since 1980, there has not been a suicide terrorist campaign directed mainly against domestic opponents or against foreign opponents who did not have military forces in the terrorists homeland. Although attacks against civilians are often the most salient to Western observers, actually every suicide terrorist campaign in the past two decades has included attacks directly against the foreign military forces in the country, and most have been waged by guerrilla organizations that also use more conventional methods of attack against those forces.

Even Al Qaeda fits this pattern. Although Saudi Arabia is not under American military occupation per se and the terrorists have

political objectives against the Saudi regime and others, one major objective of Al Qaeda is the expulsion of U.S. troops from the Saudi Peninsula and there have been a tacks by terrorists loyal to Osama Bin Laden against American troops in Saudi Arabia. To be sure, there is a major debate among Islamists over the morality of suicide attacks, but within Saudi Arabia there is little debate over Al Qaeda’s objection to American forces in the region and over 95% of Saudi society reportedly agrees with Bin Laden on this matter (Sciolino 2002).

The popularity of suicide terrorism is growing as a result of ground operations in Iraq and Afghanistan. 89 percent of all suicide terrorism around the world since the Iraq war is the direct result of troops on the ground.

The Public Believes that the Government Has Effectively Reduced Terrorist Capabilities But It Doesn’t Believe that Terrorist Capabilities Have Been Reduced

According to Pew polling, a majority of the public (61%) believes that the ability of terrorists to launch a major attack is about the same (44%) or greater than (17%) it was at the time of the 9/11 attacks. So the public doesn’t think the hundreds of billions spent on the War on Terror are producing any reduction in capabilities.  Yet, somehow the  the majority of the public (71%) continues to say the government has done very (22%) or fairly well (49%) in reducing the threat of terrorism.  It’s hard to understand how one can think the government is doing a good job at reducing the threat of terrorism when one believes that it hasn’t been reduced.

How to Reduce the Terrorist Threat

The data clearly indicate that increasing the degree of US military occupation in majority-Islamic countries, will only serve to increase the threat of terrorism.  I’d never accuse the American public of being quick, but they do seem to learn over time.  Half of Americans (50%) now believe that decreasing the U.S. military presence overseas would be the more effective policy, while just 31% say an increased presence would be more effective.

Share your thoughts in the comments section below!

Why Do the Candidates’ Budget Plans Matter?

The only way that a president can noticeably affect the everyday lives of all Americans is by raising or lowing their standard of living.  This is accomplished through their influence over the real tax rate.  The real tax rate encompasses all normal forms of taxation, but it also includes a hidden tax known as inflation.

All of the Republican candidates have detailed plans for modifying the tax code.  But saying you’re going to cut taxes without cutting spending correspondingly is sneaky. If you cut taxes, but maintain the same level of spending, then you have to either borrow or print the resulting budget shortfall.  Borrowing the money is worse than paying with taxes immediately, not only because we’ll have to pay it back in a future when the government’s fiscal situation is predicted to be far worse than is today, but we’ll also have to pay a bunch of interest on top of that.

The alternative to borrowing is to have the Federal Reserve fire up the printing press.  The FED creates trillions of new dollars out of thin air and give it to the government through the purchase of treasury bonds.  The effect of this is identical to the effect of criminal counterfeiting.  If one doubles the money supply without a corresponding increase in GDP, the long-term result is that everyone’s paycheck can only buy half as much.

So using the magical money machine to pay the bills just shifts the tax burden to an inflation tax.  According to the Consumer Price Index, inflation is only about 3.5%. However, the real rate of inflation is currently almost 10%. The inflation tax, while largely ignored, hurts middle-class and low-income Americans the most.  This is because inflation is flat tax which doesn’t tax the poor at a lower rate the way our progressive income tax system does. In fact, it’s somewhat regressive because the loss in value is delayed.  When the new money is initially created, price inflation hasn’t set in yet.  The first people who get to spend the new money are generally giant financial institutions.  By the time it filters down the average Joe, it’s already lost a lot of it’s value.

So the only way a president can change the real tax rate is by increasing or decreasing government spending.  Therefor, the only thing about a candidate that’s guaranteed to significantly impact your life is not whether they think gay people should have the right to suffer through the institution of marriage. It’s not whether or not their religion’s doctrine includes magic underwear.  It’s not even their tax plan. It is only the candidates’ positions on spending that is guaranteed to directly affect your everyday life by increasing or decreasing your standard of living.

But does a president really have any control over spending?

After all, isn’t the level of spending set by the congress?  This is generally true, but the president does have a number of very powerful means of controlling the budget:

1. The Power to Appoint the Chairman of the Federal Reserve - This power enables the president to choose a chairman who would refuse to monetize the debt.  In this case, the government wouldn’t be able to print new money out of thin air. Then congress couldn’t spend any more than tax revenues or borrowing permits.

2. The Power to Veto – The president has the power to veto bills containing spending which he opposes.  Congress would then have to override this veto with a two-thirds majority both houses.

The Candidates Compared

We know that President Obama stands shoulder to shoulder with our nation’s drunken sailors on spending, but what about the potential Republican nominees?

Mitt Romney

(a.k.a. Mormobot 5000)

Specific Cuts = $20 Billion

Romney wants to repeal Obamacare (which is very similar to Romneycare aside from the fact that Romneycare covered abortions).  As stated before, this would save $20 billion a year.

Other than that, this is the maximum level of specificity from his programmers:

“Mitt Romney will bring fiscal restraint to Washington by placing a hard cap on federal spending to force our government to live within its means and put an end to deficit spending.

Mitt will also curb federal spending by repealing Obamacare, the federal takeover of health care that is scheduled to cost taxpayers one trillion dollars over the next ten years. He will also focus on eliminating wasteful government spending and right-sizing the federal government to save taxpayer dollars. 00010101.”

The Romney Record on Spending

If we’ve learned anything from the vast disparity between George W. Bush’s fiscal rhetoric and fiscal record, it’s that Romney’s gubernatorial record might be a better indicator of what we could expect from a Romney federal budget. Under Mr. Romney, state spending went from $22.3 billion to $28.1 billion, an annual increase of 6.5 percent.  This is twice as much as the average 2.9% average statewide budget increase.

So, if his record is any indication, we shouldn’t expect too much from a Romney presidency in the way of cutting the federal budget.

Ron Paul

(a.k.a. Dr. No)

Specific Cuts = $1 Trillion

From his complete detailed and itemized budget:

“The Plan to Restore America cuts $1 trillion in spending during the first year of Ron Paul’s presidency, eliminating five cabinet departments (Energy, HUD, Commerce, Interior, and Education). It abolishes the Transportation Security Administration and returns responsibility for security to private property owners.  It also abolishes corporate subsidies, stops foreign aid, ends foreign wars, and returns most other spending to 2006 levels.

CUTTING GOVERNMENT WASTE:

Makes a 10% reduction in the federal workforce, slashes Congressional pay and perks, and curbs excessive federal travel. To stand with the American People, President Paul will take a salary of $39,336, approximately equal to the median personal income of the American worker.”

The Paul Record on Spending

Paul’s congressional record consists of a long list of votes against federal spending.

• Voted against the Medicare Prescription Drug Act
• Voted nine out of nine times against raising his own pay
• Voted against No Child Left Behind
• Voted against the subsidy-laden 2002 Farm Bill
• Voted against the 1998 and 2005 Highway bill, only 1 of 9 to vote against the pork-filled 2005 bill
• Voted against the Stimulus, TARP, auto bailout, and Cash for Clunkers
• Voted against the Iraq War

Let’s look at how Ron Paul’s plan would affect the individual taxpayer.  He wants to cut $4,000,000,000,000 over his 4-year term. Divide this number by 142,449,000 federal income tax filers and that comes out to an average of $28,080.23 in savings for each taxpayer.  Alternatively, the $4 trillion should be divided by 307,006,550, the total US population. This would produce a 4-year savings of $13,029.04 per person.

Newt Gingrich

(a.k.a. Sorry, There’s Nothing Funny About Newt Gingrich)

Specific Cuts = $20 Billion

Like Cain and Romney, all his cuts would come from the repeal of Obamacare.

Other than that, he’s not too specific.  From his website:

“Balance the budget by growing the economy, controlling spending, implementing money saving reforms, and replacing destructive policies and regulatory agencies with new approaches.”

The Gingrich Record on Spending

Gingrich’s fiscal record is mixed. During his time in Congress, he had an exemplary voting record on a lot of the top spending proposals:

• Voted NO on the Chrysler bailout in 1979
• Voted YES on the Gramm-Rudman balanced budget bill in 1985
• Voted YES on a balanced budget amendment (as part of the “Contract for America” effort that he led) in 1995
• Led the effort and voted YES to cut $16.4 billion from the budget in 1995.
• Voted YES on welfare reform in 1996

Gingrich has also been a vocal opponent of most of the big spending habits pushed by the White House and Congress over the past few years.  He opposed the $787 billion stimulus proposal,  the auto bailout,  and Cash for Clunkers.

On the other hand, in 2003, when he urged “every conservative member of Congress” to support the Medicare drug benefit bill.  He called it the “most important reorganization of our nation’s healthcare system since the original Medicare Bill of 1965.”  The drug benefit now costs taxpayers over $60 billion a year and has almost $16 trillion in unfunded liabilities.

Notably in 2008, he also backed the $700 billion Wall Street bailout.

He’s also attacked those who oppose omnibus spending bills.  These bills roll thousands of programs which may not pass on their own into massive one massive all or nothing bill that is more likely pass. In 1998, he derided a group of House conservatives by calling them the “the perfectionist caucus” for opposing a 4,000-page omnibus spending bill, adding that “those of us who have grown up and matured in this process understand after the last four years that we have to work together on big issues.”

Herman Cain

(a.k.a. Pizza Dude)

Specific Cuts = $20 Billion

Like all the other candidates, Cain wants to repeal Obamacare which would save $20 billion a year.  But other than that, this is about as detailed as it gets:

“Nothing should be off the table. Every federal agency, every government program and expenditure must be reviewed and revised with a keen eye and a red pen.”

The Cain Record on Spending

It doesn’t exist.  With no political record, Cain needs to be way more specific for voters to make anything close to an educated decision.

What is known is that Cain supported TARP, the government bailout of the financial industry. He even chastised those who opposed it.

On the other hand, Cain opposed the Democrats’ stimulus, saying, “The Obama-Reid-Pelosi cure for more national economic pain – more spending, more taxes and more socialism! That’s just more pavement for the road to perpetual debt.”

This sounds nice, but without significant specific spending cuts, Cain’s 9-9-9 tax plan will actually be a 9-9-9-9 plan.  A 9% corporate tax, a 9% sales tax, a 9% income tax, and a hidden 9% inflation tax.

Rick Perry

(a.k.a. The Executioner)

Specific Cuts = $50 Billion

From his rock:

“Consolidating Department of Education funding for all elementary and secondary programs, reducing it by 50 percent, and returning the rest of the money to the states would save $25 billion in the first year. Reducing the portfolio of investments by government-sponsored enterprises like Fannie Mae and Freddie Mac would save $26.5 billion over ten years.”

The Perry Record on Spending

Like Romney, Perry’s real record is not one of fiscal restraint. Rick Perry came into office in December 2000. Texas general spending has risen from $29 billion that first Perry year to $41 billion by fiscal year 2011, which works out to an average annual increase of 3.5 percent. (Data from NASBO).

For some perspective, let’s look at Perry versus the average spending increases of governors in all 50 states over the last decade.

Here is NASBO data showing increases in state general fund spending between fiscal 2001 and fiscal 2011:

• Texas, Perry: $29 billion to $41 billion, a 41 percent increase.
• Total of 50 states: $506 billion to $651 billion, a 29 percent increase.

However, the Texas population has grown faster than the U.S. population, so let’s put these figures on a per-capita basis.

• Texas, Perry: $1,360 per capita to $1,598 per capita, an 18 percent increase.
• Total of 50 states: $1,774 per capita to $2,091 per capita, an 18 percent increase.

Perry is touting the “Texas Miracle” as a template for the rest of America, which is stuck in a rut of high unemployment and could certainly use some fresh ideas for how to create jobs. Texas has clearly fared better than most other states since the recession began at the end of 2007. Its unemployment rate is 8.2%, a full point lower than the national average. The housing bust in Texas was far milder than it was in other places. A strong energy sector kept state tax revenues from plunging the way they did in other states, which forestalled layoffs in state and local government.  Additionally, the majority of the jobs created in Texas were government jobs.  From the beginning of 2008 to the end of 2010, government employment in Texas increased by 7 percent, whereas it only increased 2 percent over the rest of the country.  Private sector jobs in Texas only grew by 0.6% during this period.

So Perry’s record is perfectly mediocre. Like with Romney, we shouldn’t expect too much in the way of cuts if past is prologue.

The Verdict

So after examining the records and proposals of all the candidates, it appears that Ron Paul is the only candidate who intends to make balancing the federal budget a real priority.   Based on the others’ records and proposals, it appears pretty likely that, under their administrations, we’re going to continue the status quo Washington spending spree.

The ancient debate over free will cen­ters on whether it’s an il­lu­sion to be­lieve our thoughts and de­ci­sions are in­de­pend­ent, since our brains really con­sist of atoms bouncing around ac­cord­ing to their own rules. The new study suggests the questioning many be justified.

April 15, 2008
Courtesy Nature Journals
and World Science staff

Please share your thoughts in the comments section!

WASHINGTON, Oct. 20 – Hundreds of defense contractors that defrauded the U.S. military received more than $1.1 trillion in Pentagon contracts during the past decade, according to a Department of Defense report prepared for Sen. Bernie Sanders.

Sanders (I-Vt.) called the report “shocking.” He said aggressive steps must be taken to ensure taxpayer dollars aren’t wasted.

“The ugly truth is that virtually all of the major defense contractors in this country for years have been engaged in systemic fraudulent behavior, while receiving hundreds of billions of dollars of taxpayer money,” said Sanders. “With the country running a nearly $15 trillion national debt, my goal is to provide as much transparency as possible about what is happening with taxpayer money.”

The report detailed how the Pentagon paid $573.7 billion during the past 10 years to more than 300 contractors involved in civil fraud cases that resulted in judgments of more than $1 million, $398 billion of which was awarded after settlement or judgment for fraud.  When awards to “parent” companies are counted, the Pentagon paid more than $1.1 trillion during the past 10 years just to the 37 top companies engaged in fraud.

Another $255 million went to 54 contractors convicted of hard-core criminal fraud in the same period. Of that total, $33 million was paid to companies after they were convicted of crimes.

Some of the nation’s biggest defense contractors were involved.

For example, Lockheed Martin in 2008 paid $10.5 million to settle charges that it defrauded the government by submitting false invoices on a multi-billion dollar contract connected to the Titan IV space launch vehicle program.  That didn’t seem to sour the relationship between Lockheed and the Defense Department, which gave Lockheed $30.2 billion in contracts in fiscal year 2009, more than ever before.

In another case, Northrop Grumman paid $62 million in 2005 to settle charges that it “engaged in a fraud scheme by routinely submitting false contract proposals,” and “concealed basic problems in its handling of inventory, scrap and attrition.”  Despite the serious charges of pervasive and repeated fraud, Northrop Grumman received $12.9 billion in contracts the next year, 16 percent more than the year before.

A Sanders provision in a defense spending bill required the report and directed the Department of Defense to recommend ways to punish fraudulent contractors. The Pentagon said sanctions already are in place. “It is not clear, however, that these remedies are sufficient … to deter and punish fraud when it is detected.” That tone was different than what the Pentagon said in a preliminary report last January, which declared that ‘the department believes that existing remedies with respect to contractor wrongdoing are sufficient.”

Said Sanders: “It is clear that DOD’s current approach is not working and we need far more vigorous enforcement to protect taxpayers from massive fraud.”

Under another Sanders provision in a separate law, a government-wide federal contractor fraud database was opened to the public earlier this year.  Access to the Federal Awardee Performance and Integrity Information System had been limited to federal acquisition officials and certain members of Congress.  The DOD promises to ramp up monitoring of this database to ensure its contractors’ fraudulent actions are accurately and fully disclosed.

To read the Pentagon report and the tables, click here and here.

via Fraudulent Defense Contractors Paid $1 Trillion – Newsroom: Bernie Sanders – U.S. Senator for Vermont.

Please share your thoughts in the comments section!

The massive increase in the level of consumer debt prior to the recent financial crisis bears a striking resemblance to another period in economic history.  That other period of unprecedented borrowing occurred just before 1929.  Twin Peaks didn’t make it very clear who killed Laura Palmer, but they make it pretty obvious who killed the US economy. The murderer is debt.

The Household Debt to GDP Ratio reached 100% in 2007.  That means the average family owed as much on their mortgages, auto loans, and credit cards as they earn in a year. For a most of the 20th century, this ratio’s been under 50%. The last time it reached 100% was 1929. Note the twin peaks in the graph.

In both crashes, the primary reason for the increase in debt is the Federal Reserve’s artificial lower of interest rates.  Initially, the lower rates cause people to borrow more to buy more.  This behavior serves as a signal to business that they should hire more people and expand their production capacity by building more factories and stuff.  This leads to short-term economic growth known as the “Boom”.

This Boom period is analogous to the first few weeks of a heroin addiction.  We’ve all been there.  Ben Bernanke hooks you up with some killer junk for the first time.  You slide in the needle an pretty soon you’re a quivering mound of oozing pleasure.

Those were some crazy times.  Anyway, the Fed’s artificially low interest rates lead to over-borrowing.   Eventually, people borrow so much that they can’t take on any more debt so all this buying suddenly stops. Additionally, many people declare bankruptcy when they find they can’t make their payments.  According to the graph, this “Bust” period typically initiates when the average household debt to GDP ratio reaches 100%.

When the buying slows down, businesses don’t need so many employees anymore.  This leads to layoffs and more bankruptcies.  All this new unemployment leads to even lower consumer spending. Lower consumer spending leads to even more layoffs and bankruptcies.  Hence, the cycle just feeds on itself.

This suggests that our current crisis is about something much simpler than credit default swaps, derivatives, or toxic assets. It’s all about borrowing more than we can pay back.   This is the view of the Austrian economists who accurately predicted the impending disaster.  If the government would just let the market set the interest rate you wouldn’t have this unsustainable accumulation of debt and the inevitable resulting crash.

The only problem with that solution it that it makes sense.  Hence, it’s not really a feasible public policy option.  Naturally, the government’s solution was to do even more of what caused the problem in the first place.

President Obama reappointed Ben Bernanke, the person who’s policies helped created the initial bubble. The Federal Reserve created trillions of more dollars in new loans in order to stimulate even more borrowing and debt.

Why would the government behave so irrationally? The reason is that the majority of people with enough expertise and money to influence the system profit from the status quo. Financial institutions like Goldman-Sachs make trillions of dollars in interest by loaning the money the Fed creates.

It works like this:

During the financial crisis, the Fed routinely made billions of dollars in “emergency” loans to big banks at near-zero interest. Many of the banks then turned around and used the money to buy Treasury bonds at higher interest rates — essentially loaning the money back to the government at an inflated rate.“People talk about how these were loans that were paid back,” says a congressional aide who has studied the transactions. “But when the state is lending money at zero percent and the banks are turning around and lending that money back to the state at three percent, how is that different from just handing rich people money?”

To make even more money they loan it to consumers at an even higher rate in the form of mortgages, credit card loans or other forms of lending.

That is why the country’s wealth is continuously being transferred to the relatively non-productive financial sector.  The purpose of the banks is basically to facilitate the loaning of money from savers to borrowers and collect interest from the borrower.  Most of this amounts to a financial executive sitting at the top of a skyscraper moving numbers from one account to another with a computer.  Yet for this simple task many of these financial executives are paid hundreds of times more than the construction worker who built the skyscraper gets paid.

Here’s a link to an excellent easy-to-understand radio program on the causes of the collapse:
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1285

Please share your thoughts in the comments section!

Ranked by the number of victims, heart disease comes in as the number one threat. It’s responsible for 700,000 deaths a year. This coronary malady keeps food on the tables of funeral directors nationwide. And, like a perpetual motion machine, this very food fills their arteries with cholesterol leading to even more heart attacks.

On to number two. Cancer kills 550,000 people a year. But ironically, some futurists see it as a potential key to immortality. It removes the limit on the number of times that a cell can replicate itself. Thus, if properly harnessed, this disease could be used to defy aging by allowing eternal tissue regeneration. This would enable Joan Rivers to continue enchanting Americans with her iconic brand of celebrity commentary for generations to come.

Runners up for the best solution to overpopulation include strokes with 160,000 casualties a year, respiratory disease with 120,000 casualties annually, diabetes at 70,000 , pneumonia at 60,000 , Alzheimer’s disease at 50,000 , and vehicular accidents at 40,000.

As previously stated, averaged over the last decade which contained the worst terrorist attack in our nation’s history, terrorism still only killed about 300 people a year. Compare this to the 1000 people who are struck by lightning every year. Hopefully, by putting storm clouds on the federal no-fly list we’ll be able to reduce this number in the future. But until then, based on current trends you’re three times more likely to be struck by lightning than to be killed in a terrorist attack.

Screwed Up Spending Priorities

Now that we’ve compared the risks, let’s examine how the government chooses to allocate our limited resources to combat these threats. To the least likely means of death I’ve mentioned, terrorism, the federal government devotes about $150 billion annually. On the other hand, to combat the most likely cause of death, heart disease, the government contributes only $2 billion. And just $300 million is devoted to research on the third most likely cause of death, strokes.

So looking at it another way, we spend $500 million for every death from terrorism and only $2,000 for every death resulting from strokes. That means we spend 250,000 times more per death on terrorism. I’m sure all of this is very flattering to Osama bin Laden, but this disparity might leave some stroke victims scratching their heads, assuming they’ve retained full motor control of their arms.

Why is the government response so disproportionate to the threat?

EVOLUTION

Evolutionary psychology may be able to explain this phenomenon. The human brain has been around for 200,000 years.   More than 99% of that evolution has been characterized by starvation and general scarcity of resources typified the environment in which humans evolved.  In this situation, violent acquisition of resources from other groups was often a necessary survival technique. Hence, human brains most hyper-vigilant and aggressive toward human threats (i.e. terrorists) were most likely to survive and propagate these characteristics.

On the other hand, throughout evolutionary history medical science was almost non-existent.  Hence, there would be no survival value added by a tendency to focus on more likely health-related causes of death. We just weren’t designed for these times.

Anxiety Fatigue

One possible reason is anxiety fatigue. When an individual is subjected to a stimulus for an extended period of time, such as the aroma of a hospital room, the sound of a fan, or the endless nagging of the mother-in-law, their mind eventually just filters it out. Mortality risks such as heart disease and cancer extend farther back in time than even the existence of our current civilization. Our society now more or less accepts these unfortunate facts of life as another cost of doing business.Thus, they’re filtered out of our collective consciousness to some extent. On the other hand, consider the SARS virus scare a few years ago. Despite the absence of a single American fatality, the newness of this airborne illness allowed it to occupy headlines for weeks. Similarly, the Islamic terrorist menace is also a relatively new phenomenon to the US. Maybe threat fatigue for terrorism just hasn’t set in yet.

Economic Consequences

The economic consequences of terrorism would, at first thought, seem like a justification for the level of concern. There was a huge financial cost associated with the 9/11 attacks. Total related insurance claim payments are estimated at $32.5 billion. However, there’s been no definitive proof that the attacks lead to a significant decline in GDP. In fact, a GDP which had been falling due to recession in the quarter prior to 9/11 actually started growing again in the quarter following 9/11.

It’s conventional wisdom that military spending is good for the economy. However, most macroeconomic models show that, in the long term, military spending diverts resources from productive uses, such as consumption and investment. This ultimately slows economic growth and reduces employment. So if one thinks they’re protecting our economy by taking trillions of dollars away from other productive uses to fight the so-called global war on terror, they should consider upgrading their abycuss to a calculator.

Nuclear Bombs

Another seemingly more justifiable reason for a magnified response to terrorism is the potential for a nuclear attack that could result in a far greater number of casualties than the typical terrorist attacks have to date. According to many experts on nuclear proliferation, the possibly insurmountable technical challenges of building or acquiring a thermo-nuclear weapon are enormous. Including the requirement that the weapon be portable, makes the likelihood of acquisition dramatically more remote. However, there is a real threat that highly enriched uranium could be aquired from a former Soviet state and used to make a crude bomb. This is a serious risk and needs to be addressed by either securing or downgrading the 1000 tons of yellowcake remaining within Russia and her neighbors. The government currently spends about a billion dollars on this effort annually. Compare this to the two billion we spend in Iraq every week and one might assume we have a bonobo setting our national security priorities in exchange for bananas.

Human Psychology

Finally, the psychological makeup of our species could also be a contributing factor to this risk amplification. Just look at the plot structure of a work of fiction. The vast majority of conflicts are between a human protagonist and a human antagonist.We seem to maintain an inherent attraction to interpersonal or, on a larger scale, inter-societal conflict. It’s only natural that this affinity translates to our media diet as well. Many studies have shown that the media sets the public policy agenda.So, the point is that interpersonal and societal conflicts like that between Western civilization and Muslim extremists are simply better able to maintain our attention than conflicts between man and complex, abstract medical threats.

In addition, sociologists and psychologists have determined that society amplifies the danger of risks imposed upon them, such as terrorism. Conversely, society finds risks resulting from voluntary behavior, such as car accidents, more acceptable.

Empty houses in the US = 14 million.

Median Home Price = $160,000.

Money Wasted on Building Unneeded Homes = $2 trillion.

Why would Americans be so dumb as to build 14 million houses they didn’t need?  The two primary reasons we built too many houses are:

1. The United States spends more than $100 billion annually to subsidize homeownership.  The mortgage market is expanded through the government-sponsored enterprises Fannie Mae and Freddie Mac. Homeowners get a big deduction on federal income taxes for mortgage interest payments and for state and local property taxes and they even get favored treatment on capital gains from the sales of primary residences.

2. The Fed kept interest rates artificially too low for too long instead of using the natural market interest rate.  The government was keeping interest rates low because it was stimulating a short-term economic boom (excessive housing construction).  Politicians care primarily about short-term economic performance because the crash that happens in 5 years isn’t going to keep them from getting re-elected.

If the government did not engage in these acts of market manipulation, the boom would not have occurred and the crash would not have occurred.

Following 9/11 the Federal Reserve reacted to keep the stock market from continuing its decent and the economy from slipping into a recession. They began to lower interest rates to increase borrowing, producing short-term economic growth.

These artificially low-interest rates made it much cheaper to get a mortgage. The cheaper something is, the more people buy of it. Hence, lots of people stopped renting and got mortgages. The heightened demand for mortgages intrinsically meant a higher demand for houses. Since the demand for houses had increased the sellers were able to increase the price correspondingly. When investors saw house prices going up and up, they speculated that they could rely on that trend to continue. So, many investors bought houses with the plan of selling them at a later date when they were worth more money. The new demand for housing from speculators drove prices up even further which drew in more speculators. Rinse and repeat.

Is free market capitalism the culprit? That would be a reasonable theory if we’d had anything close to a free market within 100 years.  In a free market, prices are determined solely by supply and demand.  Prices act as signals telling an economy how to allocate its limited resources to most efficiently satisfy the desires of the people. When population increases, demand for houses increases. This results in the cost of a house to increase. This is a signal to investors that they should direct their capital at housing production and a signal to workers to go into the construction field. Hence, the function of prices in coordinating societal behaviour is pretty damn important.

However, in America, the Federal Reserve has the ability to alter the price of borrowing money so that the wrong signals get sent to workers and investors. Our current economic situation is the merely the consequence of this malinvestment.