Intractable Problems

Some problems are intractable; they simply must play themselves to the bitter end. In today’s New York Times, I see two:

The first lays out the problems for Iraqi partition; the second comments on the latest Fed move, cutting interest rates by 50 bps.

The Iraq disaster, which we own and must acknowledge, has no easy fix. Tens, perhaps hundreds, of thousands of Iraqi’s are displaced, impoverished, killed or wounded. The U.S. worries about its dead and wounded, or the financial burden of the war. Our losses pale before Iraqi losses. Total U.S. and UK casualties are under 5000.

As of March, 2005, “official” count of Iraqi civilian casualties is 37,551. Remember the war begin in March, 2003. Officially, we have no count for two years.

There are many places to go to make the comparison. Whatever numbers you choose, Iraqi’s have suffered enormously compared to coalition forces. And we have not begun to measure Iraqi refugees, which certainly exceed a million or more. Nor have we begun to begun to measure the financial cost to Iraq.

The immorality and stupidity of the invasion remain intractable no matter what we do now: Leave or surge. Perhaps an apology and jail time should be required of those who led us into the war. That alone might help.

The second problem is, of course, the sub prime carnage, which is indicative of a deeper issue: Living well beyond our means. After 2001, the Fed lowered interest rates. Meanwhile, industry after industry fled abroad to make easier bucks through labor, tax, and environmental arbitrage. Easy credit allowed not only the housing boom but allowed consumers to use MEW (mortgage equity withdrawal) and easy credit in general to spend at an accelerated pace, even as our trade balance fell and our debt, personal and public, rose. We primed the pump; we really primed the pump. Priming did not improve our investment at home; it had no bearing on our trade deficit—and it should have had.

Now, once again, the Fed is coming to the rescue with easier credit; “Prime it again,” Sam. Bills have to be paid; the piper will have his due, now or later. And he charges interest. One way or another, this problem will play itself through to the bitter end.

Behind these two problems, lies two more, far more intractable: Energy and Global Warming.

Oil is becoming more expensive in real terms even as the dollar weakens. The weakening dollar only exacerbates the cost of oil, which is inflationary, of course. (The Fed is between a rock and a hard place on this one. Ease up the credit to alleviate the credit crunch; meanwhile, the cost of energy will be inflationary.) Like it or not, we are approaching peak oil; use whatever definition you want for this one. It is a limited resource. I prefer thinking of it this way: Demand approaches the capacity of the spigot.

Global Warming and all its associated ills? You all have heard enough from me on this one. Global warming is not yet at our front door, nor will it be for a couple of years. But when it comes, we will rue the day we were so cavalier at its approach.