I usually find old newsreel movies to be interesting and/or entertaining. They offer a unique insight into how people at the time viewed the world, or at least how the powers-that-be wanted them to view the world. Often, they’re also corny, whether unintentionally or by design.
(via Zero Hedge) Here’s a 1933 film on how inflation can help lift the nation out of the Great Depression. At the time (as you can see in the nifty graphs) deflation was a millstone around the economy’s neck. With prices falling, people had less of an incentive to make purchases immediately, so they hoarded instead of spent. And so the vicious cycle continued. Inflation was viewed as a means of getting money flowing again.
Watch:


Today we see some economic parallels to 1930s deflation. Since the housing bubble burst, we’ve had significant monetary and credit contraction. Core CPI growth has remained below the Fed’s target rate for price stability. People are saving rather than making the discretionary purchases that they used to make. It’s a tough funk to get out of when you have a lot of extra productive capacity.
So we could use more inflation, and the federal government and the Fed have certainly adopted spending and monetary policies to promote it. The problem is–black and white propaganda film not withstanding–it’s not something that policy makers can easily switch on or off whenever they desire. If it was, we won’t have gotten in this mess to begin with. It’s more like trying to turn around an aircraft carrier in a pond. They may or may not be able to turn the ship in the right direction. And, even if they do, they might not be able to keep it from running aground.
If only solutions were as easy as the newsreels made them out to be.

I’ve long been skeptical that our military efforts in Afghanistan will conclude with a happy ending. History has shown that occupying forces face strong headwinds when combating entrenched, highly-motivated insurgencies. This is particularly true in the treacherous landscape of Afghanistan–just ask the ancient Greeks, the British, or the Soviets.
For years it’s been apparent that we have no clear exit strategy, or even a clear definition of victory, for that matter. Who and what are we fighting? Ostensibly we’re there to combat the threat of al Qaeda terrorism. Yet CIA Director Leon Panetta recently stated that there may be fewer than 50 al Qaeda in Afghanistan. A majority of the fighters fled to Pakistan. So, as Fareed Zakaria asks, why are we continuing a major offensive in Afghanistan?

Now, last month alone there were more than 100 NATO troops killed in Afghanistan. That’s more than one allied death for each living al Qaeda member in the country in just one month. The latest estimates are that the war in Afghanistan will cost the U.S. more than $100 billion in 2010 alone. That’s a billion dollars for every member of al Qaeda thought to be living in Afghanistan in one year.

Look, I understand that al Qaeda is weak and small because we have been fighting them, chasing them, bombing their leaders. We should continue to do that. But why are we fighting this major war against the Taliban? Well, we fight the Taliban because they are allied with al Qaeda, so say people.
But if al Qaeda itself is so weak, why are we fighting against its allies so ferociously? This would be like fighting Italy in World War II after Hitler’s regime had collapsed and Berlin was in flames just because Italy had been allied with Germany.
The whole enterprise in Afghanistan feels disproportionate, a very expensive solution to what is turning out to be a small but real problem. Beyond the military money, by the way, there’s tens of billions of dollars that flow annually into Afghanistan in aid and logistical support. And how is that money being spent? Well, much of it is literally flying out of Afghanistan.
The “Wall Street Journal” says around $1 billion in cash is flown out of Kabul International Airport every year. As with most countries, private individuals may take money out as long as they declare it. The sums, however, that are leaving Afghanistan are staggering. $2,700,000 in cash is leaving the country every day, and that’s only what’s been declared. So more money is legally flying out of Afghanistan every year than that nation collects in taxes. The “Journal” reports that the exodus is so large U.S. investigators believe top officials in Afghanistan must be funneling billions of dollars to safe havens abroad. Now, some of this is inevitable. You have a very poor country in chaos and then tons of money pouring in from the outside, from the United States, Japan, Europe.
So my concern really remains the core one I started with. Why? Why are we investing so much time, energy, and effort when al Qaeda is so weak? Is there a more cost-effective way to keep al Qaeda on the ropes than fight a major land and air war in Afghanistan?

I would think there is a more cost-effective way: maintain a small network of military bases housing troops that can be deployed for firefights with any known strongholds al Qaeda may establish.
Instead, we’ve opted to go heavy, with nearly 100,000 troops and billions in long-term nation-building projects. In theory, it sounds like a good means of “winning hearts and minds” and establishing a western-friendly government. But in “Why West Lost Afghan War,” Michael Scheuer contends that this approach is doing more damage than good. He asserts that even if we do succeed with such costly nation building projects (e.g., infrastructure improvements), the good will those material things generate still won’t be enough to offset the resentment our occupation creates:

There are 3 million-plus more Afghan children in school today than in 2001; more electricity and potable water are available; many roads and irrigation systems have been rebuilt; and more primary health care is being delivered. Kilcullen, Nagl and their colleagues argued that such success would prompt the Afghans to turn away from the Taliban’s religiosity and nationalism and isolate that purportedly small force from a population swelling with delight and loyalty to Karzai because of material improvements. In short, a social science-powered, mini-New Deal in Afghanistan would win with minimal use of US-NATO military power because Afghans would joyfully jettison God and country for better teeth and smoother roads.

Well, no such thing occurred. As the trend line for these accomplishments rose, the positive trend line for the Taliban-led insurgency rose faster. The once southern-Afghanistan-based insurgency spread across the nation; the Taliban and its allies struck in Kabul at their pleasure; and the large military/social-work operation to clear insurgents from Marjah District in Helmand Province–framed as the test case to validate US-NATO strategy–became, in McChrystal’s words, an endless, ‘bleeding ulcer’ as the Taliban has gradually reasserted control there.
The enraging and unifying impact on Afghans of the US-NATO occupation of the country; Western support for the unrepresentative and corrupt Kabul regime; and the secularizing campaign by Western governmental agencies and NGOs has not and will never be negated by purer water and more refrigeration. The Afghans will appreciate and pocket the material improvements even as more of them take up arms to drive out occupiers they perceive as the enemies of God and Afghanistan. Western leaders should have recalled they’re not fighting Westerners, for whom more ice cubes and tetanus shots might have been enough to give up their faith.

If Scheuer is correct about the mindset of Afghans–I trust he knows more about their culture than I do–this bodes poorly for our prospects of ever having our military fix the failed Afghan state. We’ll never make them happy. We’ll just keep spinning our high-tech wheels in that tribal morass–staying the course!–for X more years and ultimately arrive at a destination not much different from where we are today.

It’s depressing.

After I last updated my Movable Type installation (why I continue to use the platform is a mystery even to me) I noticed that–for whatever reason–it changed my web syndication location to:
http://www.brianarner.com/weblog/atom.xml
Because some subscribers might not have been aware of the switch, I’m changing it back to the old address:
http://www.brianarner.com/weblog/index.xml
So if your reader is set to the “atom.xml” location, please adjust your subscription to “index.xml” accordingly.

Wednesday morning Chicago Federal Reserve president Charles Evans appeared on CNBC’s “Squawk Box.” We don’t often see a person in his position giving such an open interview on TV, and his observations are an interesting insight into what the powers-that-be are seeing.
I’ve summarized his comments below the video link.

–Predicts 3.5% economic growth for 2010, including the second half.
–Is cautious about reading too much into one or two sluggish monthly economic reports.
–Has gotten feedback from many companies suggesting that they currently have the right-sized workforce to meet demand, thus he thinks jobs growth will continue to be weak for months, as employers have no reason to do much hiring. Corporate managers have told him that they can meet future demand growth largely through increases in productivity, but he thinks it will eventually lead to more hiring.
–European financial woes do pose a risk for the U.S. recovery. It’s creating a “headwind” against our moderate recovery.
–Much of the business demand we’re currently seeing is replacement demand rather than expansionary demand.
–Uncertainty regarding future government policy is not a significant brake on business growth plans.
–The Fed will not be tightening monetary policy anytime soon because we are not seeing normal price stability (deflation risk) and we are under performing the Fed’s goal of promoting maximum employment growth.
–Inflation will remain under 2% (a target range) for the next three years or more.
–Thinks the Fed has taken extraordinary steps to fight deflation and doesn’t think it will do much more on that front unless conditions deteriorate.
–Doesn’t foresee jobs growth in the next year exceeding 100,000-200,000/month. Unemployment will remain historically high for years.
–Commercial real estate loans continue to pose a risk for financial institutions.
–Is wary of the government’s ability to effectively promote growth through additional fiscal stimulus at this point in the economic cycle. However, he believes last year’s large stimulus bill was useful and necessary in helping the economy bottom out. Among other effects, it provided a psychological reassurance when it looked like we might fall into the abyss. It’s difficult to quantify the benefit of the stimulus bill because it’s hard to prove what didn’t happen in the alternative.
–Says there’s nothing “average” about the recent recession and ongoing recovery, thus comparisons to the time frames of previous recoveries are not very illuminating on what we should expect today. Thinks we will have a prolonged period of sluggish growth compared to our previous V-shaped recoveries.
–Is cautious about implementing any additional short-term stimulus programs that essentially just push demand forward (e.g., first-time home buyer tax credit).
–State budget woes pose a clear “headwind” to national economic growth.