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.