We get many good questions from readers using the FM website comment form. Here are some of them, with answers. Today we have questions about the Middle East and economics.
(1) Question: You write about our wars, our invasions. What about the war waged against us by military Islam, jihadists? Look up dar el Harb in Wikipedia.
Answer: Not every threat is war. We’re at war with jihadist, crime, drugs, poverty, cancer. At some point calling so many different phenomena “war” just confuses our thinking.
Western nations managed to contain and extinguish the anarchists, although they ran up an impressive total of killed government leaders (they went for the head, not body count). For details see Are islamic extremists like the anarchists?
(2) Question: If Jihadists pose no danger, why is Mein Kampf still a top 10 best seller in the Middle East?
One word: Israel. Esp it’s decades-long land grab in the East West Bank.
(3) Question: And why is Saudi Arabia in a semi-covert alliance with Israel?
Answer: One word: Iran The big winner from our adventure in Iraq. We destroyed Iran’s primary regional rival, both in power and stature within the Shiite community. That’s diminished our strength in the region, and threaten the smaller nations.
(4) Question: Doesn’t the crisis in Greece disprove Keynesian economics, and refute Krugman’s advice? Their government ran deficits for years, generations — and now pay the price.
Answer: How true. But this has little to do with Keynes. He said that deficits should be run during recessions, offset by surpluses during booms. So that the budget was balanced over the full cycle. Everybody knows that running continual deficits is a bad thing. Yet cutting taxes and increasing spending gets votes. When we vote out representatives who do such things, then they will not do such things.
Democracy, even representative democracy, requires that citizens assume responsibility for their votes and their government’s actions. That’s the mainspring that makes the constitutional machinery run.
(5) Does the government’s actions risk inflation if they run the presses too long?
Answer: Probably not. The cost of a government deficit during a recession, when there are underused resources (e.g., labor, industrial capacity), is effectively near zero. This is the heart of Keynes theory.
Also, Inflation is almost impossible to generate during a recession, and doubly so during debt deflation (Fisher debt deflation) — like the developed nations are near today. For an explanation see Debt – the core problem of this financial crisis, which also explains how we got in this mess.
The exception, generating inflation during a downturn, is a currency collapse. That is with open flows of trade and capital, the currency is the weak spot. But with a global slowdown, like we might have later this year or in 2011, that’s unlikely. When most or all of the major nations simulate at the same time, we rise and fall together. It’s another consequence of globalization.
Also note that the US, with imports a small fraction of th economy, is relatively immune to this form of inflation. The EU and Japan are far more vulnerable.
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