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Classic empire talk: marginal returns on investment

After most of the talk of major bank failures and bailouts had taken a hiatus since the last half of 2008 and early part of 2009, some writers are beginning to reflect back upon certain investments of the last decade or two. A couple of nice articles are listed here:

“How Dubai’s burst bubble has left behind the last days of Rome”

“An Empire at Risk” by Niall Ferguson

Additionally the highly notable writer and multidisciplinary scientist Vaclav Smil will soon have a new book on “Why America is Not a New Rome” that aims not to take the traditional view that the US is an analog to Rome, but rather a sufficiently different animal with less dominant characteristics.

Nonetheless, because humanity has effectively used fossil fuels to link the globe in trade, we have clearly seen how one country can facilitate unwarranted investments in another country. Sometimes these investments are intended for purely economic gain with foreign banks lending money to Dubai for creating some of the world’s most extravagant buildings and land forms in a country that is one of the least endowed with natural resources. In fact, the only reason that the Arabian Peninsula even has the relatively recent capability of fostering a large population is that fossil fuels power desalination plants to quench the thirst of the inhabitants. It is clearly not energetically-wise to air-condition a beach in the desert (as in one beach in Dubai). As noted in the articles above, because of the different rules about debt obligations, the lives of some expatriates from the EU that have invested in Dubai’s real estate bubble are being completely transformed. Pay debt on time, or go to jail. This is a little different than going through bankruptcy and simply raises the risk-reward ratio when investing in countries and societies not based upon the EU and US Anglo-Saxon model of politics and economics.

In speaking of investments in countries with a different political model, the US investment in Afghanistan and Iraq since 2001 is a case study in the type of marginal return on investment that can slowly characterize the collapse of a society. This topic of course could be debated until you run out of breath, but think about it from the following perspective. The US is investing money (as well as energy to fly around other countries!) to maintain the status quo of security. The events of September 11, 2001 started a chain of events in the US that have:

(1) spurred the creation of a new cabinet-level government agency – the Dept. of Homeland Security;
(2) induced a soon-to-be deployment of 100,000 troops in a country (Afghanistan) whose inhabitants the US already trained to fight insurgent/guerilla warfare;
(3) changed the US focus into that of nation-building a country that has never acted as a unified nation to begin with; and
(4) increased the amount of heroin flowing throughout the world as Afghanistan is now the major world supplier of poppy.

On the last point, we are now making investments and decisions for the “War on Terror” in Afghanistan that clearly, albeit indirectly, go against the US “War on Drugs” that has been on-going for almost four decades now. This is pretty much the definition of marginal return on investment when you attempt to solve one problem and it makes an equally ravenous problem become more untenable. All together, because of the minimal efforts by other countries of the world in Iraq and Afghanistan, the US is attempting to almost single-handedly maintain some order of world stability that is requisite for the continuation of globalization and international trade. All other countries have essentially been convinced that their investments can’t possibly make a difference, and they are likely correct.

Any investment in global stability has to start with the largest economic and military power. Of course, this is the same argument for the need of the US to lead in global climate treaty negotiations starting this week. So far, the US leadership chooses to act under uncertainty with the global military option more readily than under the uncertainty of the global climate/energy policy option.

Posted by Carey King on December 5, 2009 10:04 PM | Permalink