Bitcoin: The opportunity costs of mining for money

Everything we do and every choice we make has an opportunity cost. In a world of scarce time and resources each choice necessarily means rejecting many other possible opportunities. One of the best illustrations of this concept was made by President Eisenhower in a 1953 speech. Eisenhower criticized the use of scarce resources for military purposes because of the opportunity cost:

The cost of one modern heavy bomber is this: A modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. It is two fine, fully equipped hospitals. It is some fifty miles of concrete pavement. We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. [The Chance For Peace]

These kinds of choices are just as difficult as they were for Eisenhower in 1953. How much time, resources, and effort should be dedicated to military activities? It’s still a contentious argument, and opinions greatly differ.

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Springtime for the Military-Industrial Complex

The FT erroneously concludes that the boom-times are over for the military contractors:

The wars in Afghanistan and Iraq have been a boon to US contractors. The US has used so many of them in the conflicts that at times they outnumbered the military they supported. But the boom times are coming to an end and military service companies in particular are being squeezed.

Moody’s, the rating agency, expects revenue and margin pressure on defence service companies to become visible soon as the US Department of Defence, the world’s biggest military spender, negotiates tougher terms for contractors, reduces spending on them and brings its troops home from Afghanistan in time to meet the end 2014 deadline set by President Barack Obama.

In Iraq and Afghanistan the top contractor was Kellog, Brown & Root, the engineering and construction services company. It earned $40.8bn during the past decade, while Agility, the logistics company, and DynCorp, which specialises in security, earned $9bn and $7.4bn respectively, according to a US government report.

After a decade of unrivalled prosperity thanks to war and a booming global economy the defence service sector will have to work harder through innovation, as well as lean and well-focused management, to prosper.

In a word, nope. What cuts? The Obama budget aims to increase military expenditures far-above their already-puffed-up status quo:

Offering a military budget designed to head off charges that he’s weak on defense, President Obama unveiled a Pentagon spending plan that fails to cut any major procurement programs and calls for spending $36 billion more on the military in 2017 than it will spend this year.

Here’s what Obama intends to increase (and what Romney, of course, intends to increase more):

Yeah, America is spending more today drone-striking American citizens in Yemen, drone-surveilling Mexican drug lords and “turning our attention to the vast potential of the Asia-Pacific region” than she was during the cold war when a hostile superpower had thousands of nukes pointing at her.

Military contractors have nothing to fear. Whether it is the Pacific buildup to contain Chinese ambition, or drone strikes in the horn of Africa or Pakistan, or the completely-failed drug war, or using the ghost of Kony to establish a toehold in Africa to compete with China for African minerals, or an attempted deposition of Bashar Assad or Egypt’s new Islamist regime, or bombing Iran’s uranium-enrichment facilities, or a conflict over mineral rights in the Arctic, or (as Paul Krugman desires — and what the heck, it’s 2012, why not?) an alien invasion, or a new global conflict arising out of a global economic reset, it’s springtime for the military contractors. It’s everyone else who should be worried.

One Simple Rule To Stop Unnecessary Wars

I’m sick of war.

Officially the cost of the war on terror has been $1.3 trillion. And military spending — especially the interest on debt to pay for past wars — keeps growing year on year:

As General Eisenhower noted:

Every gun that is made, every warship launched, every rocket fired, signifies in the final sense a theft from those who hunger and are not fed, those who are cold and are not clothed.

This world in arms is not spending money alone. It is spending the sweat of its labourers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.

The cost in life was been ever steeper; over a million Iraqis died.

But it’s more than cost; this a problem of responsibility. George W. Bush and Dick Cheney live a comfortable life of wealth and leisure, four years after leaving office having started two destructive, costly and ineffective wars of choice. They didn’t fight. None of their children fought. But lots of American and British soldiers and innocent Arabs got their limbs and heads blown off.

Of course, military deterrence — and sometimes military action — is necessary.

As Eisenhower noted:

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction.

The trouble is that war is a great excuse for weapons contractors to make lots of money, and weapons contractors happily fund war-mongering politicians into power. That’s the self-perpetuating military industrial complex.

So the problem then lies in differentiating the necessary actions from the unnecessary.

I propose a simple heuristic for this purpose, one that if introduced would also render the war-mongering politician — the Congressman who votes to authorise, or the President who signs the authorisation into law — personally responsible:

If you start a war, you have to fight. If you cannot fight, then your nearest fit relative has to fight.

This puts the skin back into the game. You want to risk blood and treasure to start a war? If it’s that important, you’ll put your body and blood on the line before you ask any soldier to fight, or any taxpayer to pay. If not, then it must not be necessary.

Would George W. Bush have started the Iraq war had he known his two daughters would be conscripted, and shipped off to Iraq to find Saddam’s weapons of mass destruction?

I doubt it.

Teabagging for the Military Industrial Complex


From Tea Party Nation leader Judson Phillips, via the Economist:

If we decided to build a couple of new carriers, thousands of workers would be hired for the shipyards. Thousands of employees would be hired for the steel mills that would provide the steel for the hull and various sub contractors would hire thousands. Do you know what that means?It means they would receive paychecks and go out and spend that money. That would help a recovery. That is a shovel ready project!Increasing spending for the military does a couple of things. It not only not only stimulates the economy, it protects our nation. That is a better investment than say spending money on teaching Chinese prostitutes how to drink responsibly.

I hold very strong views regarding the claim that military spending helps the economy. As I explained previously:

The most obvious example of the unproductive use of money is war. Time, labour, materials, ideas and spending go into warfare, and what comes out? Destruction — bombs are destroyed when they hit the ground, and they destroy the area around which they hit. They destroy infrastructure, they kill people, and they create hatred and resentment that very often triggers more and greater warfare.

Most bizarrely, the Tea Party has since its inception (supposedly) been committed to reducing government expenditures, to pay down debt. Military expenditures are still huge. And is America safer than ever? Is the additional military spending helping us pay down debt?

No.  America’s indebtedness allows China to boss America around. The level of taxation and debt necessary for high military spending is preventing America from investing in the poor, in youth, in alternative energy, and in infrastructure that would create wealth, opportunity and security for the nation, instead of short-termist gains for corporations, bureaucrats and the military industrial complex.

Phillips’ bizarre statement adds fuel to the fire of the view that the Tea Party is (largely) a manipulated group of poor and lower-middle class voters who are in fact manoeuvring for the interests of a tiny corporatist and industrialist elite. The “all government spending is bad” rhetoric has quickly been turned around to “spend less on welfare, spend more on bombing brown people to death”, the rallying cry of big government neo-Conservatives like George W. Bush and Dick Cheney. That administration increased the national debt by a higher proportion than any Presidency in history, creating deeper debt woes, and handing huge power and wealth to investors like the Communist Party of China. Those early anti-tax and anti-debt protests were long ago astroturfed by corporatists who want more and more government handouts to big business and to the military industrial complex.

Should you hate the Tea Party? No. The Tea Party protesting on the street is not your enemy: the poor and lower-middle class are “taxed enough already”, often paying a higher nominal income tax rate than hedge fund billionaires. Like many in America, they and their children are increasingly unemployed. Their house prices have fallen. Their businesses have stumbled. They are having difficulty getting loans to invest in new projects and businesses. So the Tea Party are right to get mad. They are right to get angry. But their targets — immigrants, welfare recipients, climate change scientists, foreigners and liberals — are way off the mark. The real enemy of freedom in America is corporatism, and billionaires who live off government handouts and military spending, who prevent tax hikes on the super-rich, and who prevent spending on jobs and infrastructure for the poor. The Tea Party movement has been deliberately misdirected, and now we see what its leaders are gunning for: more military spending, more government handouts to big business, more jobs for the boys. This is what has to end for America to get back on its feet. So once again, I give you Eisenhower’s 1961 speech:

If We are in a Depression What Can We Do About It?

Optimism & Pessimism

In my last post in this series, I ended by musing that in reality we are in a depression, that most of the government-led actions to “save the world” have not really helped very much, and that most benefits have gone to the rich and to corporations. Why am I so pessimistic? After all, as Franklin D. Roosevelt put it:

The only thing we have to fear is fear itself

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