The Power and the Money

Lessons from day care for President Trump

Bloomberg reports that President Trump is moving towards making good on at least one of his campaign promises: making a profit off American overseas deployments. 

The story is that he plans to introduce “Cost plus 50” as the standard: i.e., basing costs plus 50%. Now, this won’t earn the United States a whole lot of money. Basing costs just aren’t very high. The U.S. could conceivably gross about $15 billion from our allies, including a $5 billion markup. We would net less than $15 billion, however, considering that Japan currently kicks in about $1.8 billion and South Korea and Germany add another $800 million each. (South Korea just agreed to up that last to $1 billion.) But hey, $11.4 billion is still $11.4 billion. 

The thing is, the administration also plans to reduce the charge for countries that align their foreign policies with the United States. In other words, the plan would give governments concrete incentives to follow American foreign policy.

Before you get too excised about that, note that the United States already does exactly this. In 1983, the U.S. passed a law requiring the State Department to report how closely countries voted with the U.S. in the U.N. General Assembly. Since then, study after study has turned up the same pattern: countries that vote with the U.S. get either more U.S. financial support or more support from U.S.-supported institutions, like the IMF. 

Wait, the IMF is a tool of American foreign policy? Who would have imagined? Besides everybody, that is. (Specifically: Barro and Lee (2005) found that IMF loans are associated with similarity to U.S. voting patterns in the UN and economic ties with the United States. Stone (2008) and Eichengreen et al. (2006) found that countries that receive substantial amounts of U.S. foreign aid are more likely to be eligible for IMF financing.)

And of course the U.S. trades favors in even subtler ways. Germany and France support the U.S. at times when they otherwise wouldn’t because they know that the U.S. will support them even especially if the Russians invade. 

So who cares if the Trump administration turns subtext into text? Or even supertext, a sort of neon-green megawatt Bat Signal of our intentions, with a specific price tag attached? Heck, economists always say that certainty is good and prices are good. Trump will certainly bring more of both. Maybe we will get a big bang for our $11.4 billion bucks. 

Or maybe not. Sometimes, you see, it is better for quos and quids to remain implicit.

Consider what happened when an Israeli day-care chain introduced late charges. The number of late parents went up. By a factor of two. And if you are wondering, this was a controlled study, in which only some centers introduced the charges. 

The lesson? Before the centers introduced fines parents tried hard to arrive on time because it was the right thing to do. After the fine was introduced, arriving late became simply another commodity that you could buy, even if that price was called a “fine.” Be late, pay the fine, cleanse your conscience, free of any worries that other parents will disapprove. 

In other words, right not countries cooperate with the U.S. in part because they consider it the right thing to do. The U.S. might reward them, but only as part of an unspoken system of mutual favors between friends.

But in a Trumpian world, well, now U.S. support becomes just another commodity with a price tag on it. If the cost is too high, then a foreign government may as well just pay the price. Keep U.S. bases on your soil but follow whatever bloody foreign policy suits you, plus a small check to Washington.

In short, for an additional $11.4 billion per year (or less) the Trump administration will likely get a whole lot less cooperation while preserving most of our overseas commitments. Nice job, I suppose.

Of course, we would bet that this will not ultimately happen, the same way we predicted that NAFTA would not be abolished.

Reposted without comment from March 2016: How much could President Trump win from our s̶a̶t̶r̶a̶p̶i̶e̶s̶ allies?

 So, Donald Trump wants to turn America’s hegemony into a protection racket. Okay, then. How would those negotiations go?

First thing to do is estimate how much the U.S. could save by pulling out of Germany, Japan, and South Korea.

First take: billions and billions! The link goes to a 2009 study by the Commonwealth Institute. They get a cost of $127.1 billion for fiscal 2010: $132.1 billion in cost minus tribute host payments of $5 billion. (Page 9.) But that estimate is dumb. It simply pro-rates the defense budget by the number of personnel stationed overseas. Now, maybe some president might save all that money by simply downsizing the military. (Well, the Army would be “downsized” in that scenario; the Navy would be gutted.) 

Since Trump has made it clear that he has no intention of shrinking the military, then those personnel will simply be redeployed back to the United States. 

Second take: In 2013, the U.S. Senate took a look at basing costs. It estimated costs around $10 billion, 70% in Germany, Japan, and South Korea. (Page 1.) These costs do not include personnel costs or overhead: rather, they are the direct costs of keeping up the bases in those countries. German bases cost $4 billion. South Korean bases cost $1.9 billion. (Page 18.) Japanese bases cost $2.5 billion. (Page 40.)

But South Korea and Japan, unlike Germany, pay pretty large portions of the U.S. cost! (Hold that thought on Germany; this is based entirely on the Senate report.) In South Korea, U.S. taxpayers foot only $1.1 billion of the cost; South Koreans make up for $800 million. (Page 21.) Japan, meanwhile, covers more than 70% of U.S. costs, to the tune of $1.8 billion per year. Until 2010, in fact, Japan covered all U.S. basing costs. (Page 41.) So President Trump might wrap up the American empire-by-invitation in Asia for savings of ... $1.8 billion. Get out of Germany at the same time and you save $5.8 billion per year. 

Only you don’t! Consider the cost of transferring 7,000 Marines from Okinawa to Guam: $19.3 billion. (Page 49.) Scale that up by the other 43,000 American forces in Japan and you get $119 billion to withdraw without demobilization. Add in the 29,000 forces in South Korea and you get $197 billion. Throw in the 36,000 troops planned to still be in Germany in 2017 and you get $296 billion. 

Now, that is a one-time cost, not an annual flow. And it is likely exaggerated, since most of the Naval and Air Force personnel overseas will not be as expensive to relocate as the Marines. So lets arbitrarily cut the cost by 60%. 30-year treasury bonds are currently yielding around 2.5%. Call it an annual expense of $5.8 billion between 2017 and 2047. 

$5.8 billion ≈ $5.8 billion. No savings. With interest rates at a near all-time low and shaving 60% off the topline estimate. Huh!

And now lets return to the German issue. Germany pays a share of American construction costs for our bases, but those costs are lumpy. In  2009, Rand estimated total German support to total $831 million. (Page 154.) If that number is accurate for other years, then the U.S. pays only $5.0 billion for our three main overseas presences. And $5.8 billion > $5.0 billion.

Third take: This big Rand report. It is long and complicated and does not cover the complete withdrawal option. But their minimum posture saves around $2.9 billion per year ... assuming that foreign contributions remained unchanged.

In other words, the American defense perimeter does not cost all that much. 

Now we need to figure out what these cost estimates imply for the negotiations.

President Trump, in this world, cannot simply threaten to walk away, because that would cost him. He needs to make one of two additional threats:

1. He is willing to incur costs to the United States if negotiations break down. That is, he tells his counterparts in Berlin, Tokyo and Seoul that he is willing to pay money to bug out unless our satraps allies fork over even more money. Good luck with that one.

2. He is willing to bug out and downsize the American military budget. Now those cuts do not have to be large for us to come out ahead — we are talking maybe 1% of the total defense budget — but they would need to be made. 

So, yeah, I suppose a cost-cutting President Trump could threaten to cut American military spending unless those foreigners pay us more. But unless he is willing to resort to an outright protection racket, he would net us 1% of the military budget on the threat of making a 1% cut in the military budget. 

Yeah, that makes sense. Totally worth it. After all, it isn’t like you could just, you know, cut the military budget without threatening our allies ... 

The hawks make their case to fight North Korea

 Steve Bannon made waves when he pointed out the conventional wisdom on a Second Korean War: a pyrrhic victory that would result in hundreds of thousands or millions of civilian deaths. Less noticed were some counter-comments by Trump administration officials, including Secretary Mattis and General McMaster. 

An old Army friend of mine has now suggested to me what they might be referring to. He heard the analysis in an unclassified setting, but one which reminded him a little bit of the run-up to the Second Gulf War. So here goes the scenario, stripped of any incriminating details. 

Seoul is within range of North Korean artillery. The North Koreans, however, have to defend their entire border. The DPRK has about 21,000 artillery pieces. The claim now circulating, however, is that only around 1,000 of those have the range to hit Seoul. Moreover, the bigger pieces have a relatively low rate of fire, and thus would be rapidly taken out of commission by U.S. forces. (This is true even of self-propelled artillery, which does not move that quickly and can be easily tracked from the air.) Multiple rocket launchers could fire much more rapidly, but their rounds are susceptible to anti-rocket defenses like the Israeli Iron Dome system.

In addition, goes the argument, the DPRK would want to target military installations and civilian infrastructure more than random apartment buildings. They know the literature on the inefficacy of terror bombing — no country has ever withdrawn from a war because the enemy was killing too many civilians — and are not about to repeat the same error the U.S. made against North Vietnam. 

Add that all up, and the civilian casualties drop to 30,000 if the North Koreans fire all their artillery at civilians and less than 3,000 if they target more intelligently. 

The report that birthed this analysis appears to be on-line here. The source is the Nautilus Institute, a reputable operation based in Berkeley. 

Of course, the analysis should not make me breathe any easier. First, who knows if the planners in Pyongyang have read the literature on the inefficacy of terror bombing? Maybe they would target civilians regardless. Second, the DPRK has lots of chemical weapons. Maybe they would use them only for operational purposes ... or maybe they would try to attack civilians. And finally there are those nuclear weapons. 

What worries me is not the analysis itself, it is that such analysis seems to be surfacing again right now as our current President continues to amp up his war of words with the DPRK. I do not think we are going to be at war with North Korea anytime soon, but the probability keeps rising ... and this information has caused me to ratchet my estimate up another few notches. 

Thoughts? 

“Frankly, I’d like to see the government get out of war altogether and leave the whole feud to private industry.”

Thus spoke Major Milo Minderbinder in 1943.

Was he right? Does contracting out combat support functions save money? I mean, that is not quite the whole feud, but it is some of it.

The best answer comes from study published by John McGrath, at Fort Leavenworth. Below are the figures from Table B-2 for various American wars. The figures apply only to the Army but rightfully include staging areas in Korea and both Gulf Wars: Japan and Kuwait, respectively.

So what do we got? At first glance, success! A higher tooth-to-tail ratio, awesome sauce!

We are back to the levels of World War 2! (AEF = American Expeditionary Force of WW1; ETO = European Theater of Operations in WW2.) Hooah!

Only, well, that does not include the contractors. We really should put them back into the mix, since they did jobs that soldiers did in Gulf 1 and before.

Ah. Well. Not so good.

Now, to be fair, these figures do not include the extensive host-country support the U.S. received in Korea, which would make that war look pretty bad. (Korea would fall to 28% combat troops on a BOTE calculation.)

They also do not include potential cost savings. After all, if private contractors are cheaper, then you would expect that the military would use more of them. Calculating that, however, is incredibly complex, because American operations have become far more capital and resource-intense over time. The simple calculations show ever-rising real deployment costs, but that could be a reflection of the fact that the American soldier in Gulf 2 was rather more lethal (and well protected) than the American soldier of Gulf 1, who was both more lethal and better protected (and better fed) than the American soldier in Vietnam, who was more lethal than the American soldiers who beat Hitler.

It is hard to figure.

But the headline figures should induce skepticism.

This, note, is just for outsourcing support functions; we have not gotten into questions of outsourcing actual genuine combat. You know, what Major Minderbinder really wanted to see. That is an even less-satisfying topic for another post.

Economic growth is not weakening the North Korean dictatorship

The New York Times recently published an interesting article with a weird headline: “As Markets Spring Up, Leader’s Grip on North Korea Slackens.”

Apparently somebody noticed that the substance of the article showed no such slackening of the leader’s grip on the DPRK, since the on-line headline has been changed to “As Economy Grows, North Korea’s Grip on Society Is Tested.” 

The article shows an increase in market activity and corruption, but shows zero sign of less state power. In fact, most of its evidence comes from one person who had to flee, which undercuts the message in the print headline. 

It is (probably) true that high Stalinist totalitarianism cannot survive economic growth and the introduction of private markets.

But Italian fascist totalitarianism did just fine in a wealthy market society ... and one made up of Italians, not exactly a culture wedded to obediance to authority. Saudi totalitarianism does just fine today. And if we step back from totalitarianism to simple authoritarianism, it becomes even clearer that dictatorial societies have no problem surviving market forces, even in the age of the internet. There is the People’s Republic of China, but also the Russian Federation, its little Belarussian brother, the regime in Gabon. I do not know whether the Islamic Republic of Iran should be considered authoritarian or totalitarian, but either way it does not seem to be losing its grip on power. 

Here is a picture of modern totalitarianism, Jeddah circa 2007:

Looks pretty nice, no? Jeddah circa 2007 had markets, a large middle class, and a great deal of immigration. It also had the Internet. At the time, wireless service was better than in the United States. But it was thoroughly totalitarian, as the badge around my neck might indicate. The grip of the Saudi state was not to be challenged.

A prosperous but dictatorial DPRK will not look like Saudi Arabia. It might not even be totalitarian; something more like China or Russia is likely. But there is no reason to think that economic growth or modern communications will by themselves make it any more free. In fact, the modern panopticon, manned by artificial intelligences in addition to human surveillors and wedded to an elite enriched by its control over old-fashioned real estate could create a dictatorship of a power unimagined in the 20th century. 

So, please, cut it out with the Whiggian optimism. Especially an American newspaper in the age of President Trump. 

Victory conditions in a Korean war

Over on the Twitter, Noah Smith wrote: 

"We're going to lose to North Korea??", people who have obviously never read the history of the Korean War are asking me

— Noah Smith (@Noahpinion) April 5, 2017

The context is a discussion of whether the Trump administration might use a war with the DPRK to prop up its sagging fortunes. I tend to think not. That said, it is possible that we might strike the North, setting off a war. Which would be horrible. But a defeat?

Since I do know a few things about the Korean War, I had to admit that I had no idea what he was talking about. It seemed like one of those annoying slatepitchy provocations.

North Korea can, at best, sustain an offensive for eight weeks. During that time, it would be trying to punch through the most-heavily defended line on Earth with outdated equipment and no air support. North Korea could and would devastate South Korea, not least through massive artillery barrages against occupied areas, but the country could not defeat the South. (See Robert Farley.)

So maybe he is averring that a counteroffensive into the North would be a slow and terrible thing? Maybe he was. And it would be. A good friend of mine from Fort Benning, Curtis Marmolejo, spent a long chunk of time patrolling the DMV. What kept him awake at night, more than the fear of a North Korean army barreling over the border, was the possibility that North Korea might collapse forcing him to go North. And if that scenario is bad, a contested invasion would be worse.

But it still would not be a defeat. It is hard to see how an all-out counteroffensive could end in anything other than regime change.

And while some people may find it fun to concoct scenarios of Chinese intervention, the PRC is not going to try to rescue a collapsing regime that just started a war with the ROK and USA. 

But there is a way in which an attack on the North could amount to defeat. The North could respond to an American airstrike ... judiciously. Artillery barrages that avoid populated areas. SOF operations. A confrontation over the Yellow Sea blue crab fishery. Something else. And then after just enough time to establish that a war is indeed on, the North declares victory and sues for peace with Chinese support. The ROK government agrees, not wanting to see Seoul wrecked. 

This would not be easy. It might not work, tactically or operationally. It certainly might not work strategically. (Worst case.) But it is a scenario that could be portrayed as a defeat for the United States.

Thing is, the above is not what Noah seemed to have in mind. It certainly has nothing to do with anything that actually happened in 1950-53. So again, Noah, please, what the hell did you have in mind??