Isolationism 101

It is attractive to think that we can save money on a national level by withdrawing our military from other countries or cutting off foreign aid or ending offshoring of jobs. What we see reflects national priorities, and the country doesn’t matter too much.  If one goes to a British or German grocery store, tea, bread, and cheese are relatively cheap relative to U.S. prices in a British store and grains, vegetables and chocolate are relatively cheap in a German grocery. Walk into a U.S. grocery store, and chances are that you will be met with a display of soda and snack foods as the specials of the week.

The main thing that “free trade” does at the consumer level is to roll back or eliminate tariffs on imported goods.  The government misses out on the revenues that they would raise from the tariffs, but people will get somewhat cheaper goods. Another way to get cheaper goods is to reduce the cost of production.  This can take the form of reducing wages or using cheaper ingedients and even reducing the size of the package while keeping the cost of the package constant. This is not an exhaustive list.

One reason that countries or regions of the same country trade goods is because certain areas make certain goods better or more cheaply.  The prospective buyer sees value in the other region’s goods. At different times, foreign-made goods can be seen as either a superior or inferior good.  People are willing to pay more for a BMW than for a Kia. As long as we insist on cheap goods, it will be diffficult for jobs to return to the U.S. because goods of acceptable quality can be made elsewhere.

One can argue that the U.S. provides a huge subsidy to the rest of the world because we have such a large military and that we maintain a military presence in most countries. I don’t know how often the status of forces agreements that the U.S. has with other countries are renegotiated.  These are what allows us to maintain a military presence in the country. We were heading for the end of a status of forces agreement in the Phililppines some years ago when Mount Pinotubo erupted.  The Philippines wanted us out anyway, but the fact that the base was destroyed in the eruption probably allowed us to avoid any termination costs under an “Act of God” clause.

We used to have many more military bases in Germany than we do now.  The Army base at Heidelberg is scheduled to be turned back to the Germans, which is why US Army Europe headquarters was relocated to Wiesbaden. Maintaining bases in Europe isn’t cheap. There is no end to the litany of damages that the Germans seek to charge.  It’s a lot like what happens to you in England if you run over a sheep that is crossing the road:  you have to pay not just for the sheep, but for all of its offspring, so killing one sheep can cost you twenty times the value of the sheep in damages.

I expect the military to offer certain incentives to its personnel to leave or retire early within five years.  The last time around (1992-94), someone who volunteered to separate received a pro-rated pension for twice their length of service provided that they had more than 10 years of service , so someone wth 15 years of service got a pension for 30 years that was worth about 30% of their base pay. The separation incentive for a civilian is much less generous:  $25,000 and a five-year ban on federal employment. However, this matters less if you are immediately eligible for retirement.

People who want us to take a more isolationist stance often don’t look at the unintended consequences. We are going to abandon a lot of military bases in Iraq and Afghanistan, but it doesn’t deal with what to do with the people.  I’m happy to let the contractors take it on the chin, because they made at least 3-4 times what the soldiers did, plus got much of their income tax-free, as any cmtractor who works overseas does.  If you are a contractor who works overseas under a status of forces agreement, you get an exemption from U.S. income taxes of about $100K plus don’t have to pay taxes to the host country. If they didn’t have the sense to save their money, too bad for them. For every military slot that you cut, there is somewhere around 5 support billets that go along with it.

Unfortunately, it looks like federal employees will take the hit of budget reduction, at least this year. In part, this is a function of contracts having been signed, but in the case of Department of the Army, iis also a result of being “overstrength”.  Military personnel can’t be furloughed by order of the President, so civilians have to make up the budget cut. Other agencies expect far fewer days of furlough than the 22 days that Department of the Army employees have been told to expect.  22 days is the maximum amount of days that a federal employee can be furloughed without it being considered an adverse personnel action. 

Want to bring the troops back home?  Look for a spike in unemployment, both at home and abroad, because we employ foreign nationals overseas.  This is not an argument not to do it, but understand that the jobs that will go away will be good-paying jobs with benefits, not McJobs. It’s a macroeconomic problem that I can’t address adequately in a blog post, given the effect on the economy of military spending. When Congress wanted to get the B-1 bomber funded, they made sure to put a piece of the work in every congressional distrcit.

5 thoughts on “Isolationism 101”

  1. People of various political stripes rail against the cost of war and, similarly, the cost of government regulation. While one might say that these efforts do nothing productive (not like building a bridge, hauling freight, making cars, or even hairdressing), the fact is that we’ve built vast enterprises around the doing of nothing that provide decent jobs to millions of people. Cutting back on these ‘useless’ efforts will, indeed, throw many more people into unemployment.

    Alas, I don’t have a good answer for this, either.

  2. One of the hard things about selling an intangible is that you might not feel like you got a benefit from it (but you’re paying for it anyway), and might feel like it costs too much.. For instance, I believe that welfare discriminates unfairly against the childless. The argument might be that someone without children who is unemployed gets unemployment, and so should not be eligible for welfare. However, they still need access to health care, and so should be covered under Medicaid as long as they qualify under the poverty guideline, not the sub-poverty level ($150 in income per month) that Colorado sets as a limit to qualify for Medicaid if you’re single. Even then, there has to be a space available of the 10,000 limit set AND you have to win the lottery for that space.

    Most of the money for foreign construction goes to foreign firms. Kellogg, Brown, and Root didn’t get all of it. In England and Germany, we employed at least three foreign nationals for every civil servant just to do project management. It’s a substantial jobs program, though not at large as it once was.

  3. I too feel welfare discriminates and what is even worse is in some states (Illinois is one)illegals can get welfare including Medicaid if they have kids but I can not. Yet my teeth are rotting because I can’t afford care (and I was ALWAYS a 6 months a checkup person)but some illegal is getting it free. Sick and then people wonder why I want illegals to be deported.

    As for trade that has always happened and when trade is with countries not much different I am not bothered. That doesn’t usually cost us jobs. However the problem is with some of these countries we have unequal trade, like China.

    Honestly I feel for those in the military but couldn’t care less about the people in the countries having jobs. After all, I don’t have a job so I don’t care about other countries.

  4. Are you relying on hearsay or have you looked up the regulations for welfare? One way to get medical care is under EMTALA (Emergency Medical Treatment and Active Labor Act), which requires hospitals to treat the injured, critically ill, or women in labor regardless of their ability to pay. The hospital or doctor does have the option to pursue collection action against the patient for the treatment, but some people, like my former handyman, are judgement-proof. They have no property that you can attach or wages that you can garnish, even if the doctor or hospital does win their lawsuit agsinst them. I’ve read the welfare regularions in a number of states, and Medicaid is supposed to be barred to illegal aliens. Whether the law is enforced, I can’t know, and tend to doubt.

    An announcement that we are giving $50 million to Syria or a claim that foreign aid is only 2% of the budget are the sorts of things that get attention. The 2% is direct foreign aid, and doesn’t count the value of jobs created from the U.S. building and maintaining military bases in foreign countries.

    The policy that I am about to describe applies in Germany, but it wouldn’t surprise me if it also applied in other countries where we have a status of forces agreement. Suppose that a U.S. military base in Germany is closed and turned back to the Germans, and people get fired. The Germans who lose their jobs have first claim on equivalent jobs at other military bases in the commuting area. This is what happens when U.S. bases close as well. The benefit that Germans get that we don’t get is that their workday is shortened to offset the longer commute if the commute is longer, and they get to go to the old base and pick up a government vehicle to use to drive back and forth to work. So, if one has a 30 minute longer one-way commute, their workday at the new jobsite is shortened by an hour. There are commuting subsidies available to federal employees, but you have to join a carpool or use mass transit to get them.

    I don’t know enough about Obamacare to have a strong opinion about it other than its early provisions reduced my maximum contribution to a health savings account from $5000 to $2500. This let me pay for my medical care with untaxed dollars, reducing the effective cost of health care by about a third and that I expect at least a portion of the employer contribution to my health care premiums to be taxed when Obamacare is fully implememtned. Under Obamacare, the unemployed would be eligible for Medicaid in a lot of cases.

  5. Yes I did check into it many years ago because I needed knee surgery and they told me because it was non essential (as in I wasn’t going to die)they couldn’t do much.

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