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The Cost of Conservatism, in Trillions

guest checkLet’s engage in a back of the envelope exercise for a moment: the cost of conservatism to America. Right wingers want to de-emphasize the costs, and pump up the virtues. They want to account for every penny of liberal projects but declare that conservative projects have no price. Take Lawrence Lindsey for example. The Iraq War is a treasure beyond price. But he offers a standard: what’s the value over 15 years, with 300 trillion of total output? Well let’s break down the cost in a kind of rough and ready way.

The costs of conservatism, in a bi-partisan form, are those things that can’t be fixed by a Democratic President because they have become part of the political landscape: over-financialization of the American economy, the waste of privatized health care, over militarization of the American economy, and the externalization of global warming. Each one of these things has a cost in GDP, and we can take that total over Lindsey’s preferred time frame of 15 years. Then we can ask what that costs in the present.

The cost of not having comprehensive national health care is roughly 5% of GDP because America spends 15% of GDP on health care, and a comprehensive system generally saves 1/3 over privatized systems. The cost of over financialization is estimated by Krugman to be 3% of GDP. The difference between the Bush defense department, including the neo-colonial wars, is 2% of GDP, that’s defense plus .

The cost of global warming? Harder to say, in 2005, the mean of estimates surveyed by Tol was 93 dollars a ton. The news has gotten worse since then, with many of the low estimates that dragged down the median already being disproved. But let’s be cautious and take that number for the moment. That’s 4% of GDP, but we have to take the present value of that first, since it is over a long time horizon – from that we get roughly 2% of GDP. I could easily double this number by tossing out the large numbers of estimates which rely on scenarios which have already been trashed by the facts.

Added up, this is 12% of output, or using Lindsey’s 15 year time frame 36 trillion dollars. These problems reinforce each other, insurance companies shift output from other activities, to financial ones. Spending on wars means there is less productive manufacturing, and more war manufacturing, pushing effort into juggling money. Tax breaks drain investment from private enterprise, making it harder, seemingly to shift the economy. In other words, we are like the person who drinks too much because they smoke too much.

So what’s the value of that, right now? Well, taking a real interest rate of 2%, that’s the historical value roughly, and compounding monthly, that’s a present value of 27 trillion real 2008 dollars. Or about twice the value of everything Americans are going to do this year. Ross Perot and others like to talk about the cost of unfunded liabilities, like Social Security and Medicare, running to a present future value of 40 trillion. It’s the same kind of back of the envelope number as presented here – based on a present future value of estimates of a long term stream. This means that the cost, over 15 years, of conservatism to America, is two thirds of the supposed crisis in costs – out to an infinite time horizon.

So what does this exercise mean? It’s really very simple: we can afford a decent retirement and decent living standards, and decent medicine for ourselves and our children and grand children, or we can afford the casino games that we have played, and the massive parade ground military that we have built over the last generation. But not both. The costs of the war and bad economic policy flow all through the economy.

The reality is that liberalism isn’t broken. The reality, contra the film IOU-USA, is that the national debt is a symptom not a cause. The real cause is that Americans have voted for certain things – a huge military, a casino economy, and an anti-science bias – cost be damned. Well the cost is damning, it is damning us to this recession, and it is going to damn us to a very poor recovery on the other side of it.

Yes, these are back of the envelope numbers, but we’ve been living on pulled from flatulant air numbers on things like WMD in Iraq, the cost of the Bush tax package, the future of global warming, and the value of Mortgage Backed Securities.

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