Here’s an excellent photo essay showing the human costs of war (h/t The Strategist)

AND…

Here’s how much Iraq and Afghanistan have cost us according to a few different sources:

The Congressional Research Service estimates the total cost of both wars to be just over $1trillion.

CostofWar.com estimates Iraq at over $700billion and Afghanistan at $255billion for a total of just under $1trillion dollars.

To give you better perspective that’s $1,000,000,000,000.00

Nobel prize winning economist Joseph Stiglitz and Linda Bilmes say the official costs are actually quite deceiving and estimate that the total costs of Iraq alone are closer to $3trillion dollars. He talks about it here at Big Think.

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Economist Jeff Rubin discusses the future of oil (peak oil) in an entertaining way that doesn’t take a PhD to understand. If you are a regular reader of Schaefer’s Blog this is a must-watch, even if you just watch the first 10 minutes.  Basically, Rubin lays out a convincing argument why triple digit oil, translating to $6-$7 per gallon at the pump is all, but inevitable and will probably come sooner than we think.  HT to Paul Kedrosky for this find.

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In a recent Washington Independent article, Spencer Ackerman asked the all-important, but seldom asked question, “Why Should Defense Spending Be Sacrosanct?”

It’s not popular to ask this question, especially if you’re a congressman because in doing so you’re bound to be labeled as not supportive of the troops.  However, the present course of the DOD is completely unsustainable. And in our current economic state ($12 trillion in debt and counting) I, like Ackerman and others, find it odd that there has been no serious talk of freezing the gargantuan DoD budget. In 2008, the US military spent more than the next 46 highest spending countries in the world combined (see here).

The spending problems come from personnel costs on one side — full retirement benefits for members who serve 20 years of active duty (most retire in their 40’s and now live well into their 80’s and beyond, a.k.a. 40 years of retirement pay), rising healthcare costs, salaries, housing pay, etc.  Equipment costs on the other — planes, bullets, tanks, UAV’s and an aging fleet of …well, almost every weapon system you can think of.  Just to send one combat troop to Afghanistan costs the taxpayer $1 million a year.

Almost everyone close to the organization knows we’re plowing ahead like a drunk driver headed for the cliff, but no one seems up to the task of fixing it.  Worse yet, much of the leadership seems bent on simply increasing spending rather than fixing a broken system.

Defense Secretary Robert Gates is making a noble effort, but the military-industrial complex is a three-headed monster, devouring every plan formed against it through strategic lobbying, creative bookkeeping and a view of the world based more on fantasy than reality.

Ackerman cites an October assessment from the CSBA’s Todd Harrison who compares the DoD to GM, explaining (emphasis mine),

Another similarity between the two is that both organizations are in a period of disruptive change in the competitive environment. In GM’s case, its market share rapidly eroded as gas prices climbed higher, the economy slowed, and consumers turned to smaller, more fuel-efficient vehicles. GM found itself building a fleet of SUVs and trucks that consumers did not want and could not afford. Similarly, DoD now finds itself saddled with a number of weapon programs whose capabilities are ill-suited for the types of conflict the military currently faces and whose costs have risen beyond what the Department can afford. Many of the new weapons being funded today are optimized for middle-of-the- spectrum conflicts—that is, conventional, military-on-military conflicts such as Operation Desert Storm in 1991. But adversaries are well aware of the United States’ overwhelming advantage in the middle and are instead moving to either end of the spectrum: irregular warfare on one end and high-end, asymmetric warfare on the other. The challenge for DoD, as it was for GM, is that the competition is adapting faster than it can keep up.

The last sentence is key, “…the competition is adapting faster than it can keep up.” Much of it has to do with the huge, inflexible, bureaucratic organizational structure of the DoD as compared the nimble, decentralized, open-source structure embodied by al-Qaeda and affiliate organizations. One bans twitter, facebook and gmail while the other uses the internet train to organize its cells all over the world.

Changing the DOD’s organizational structure is one thing, putting a freeze on the defense budget is another and one that may be a bit more realistic. However, none of this is bound to change anytime soon if we insist on keeping our country in a state of perpetual war.

Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare. – James Madison, Political Observations, 1795

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Economist Paul Krugman presents an alternative view on the falling US dollar in his piece, “Misguided Monetary Mentalities,” (hat tip Fabius Maximus) saying,

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

I agree that shrinking our trade deficit is a definite plus, but there have to be better ways to get rid of it than a falling dollar.  Right?

**What say you readers?  Is Krugman right or is he off his rocker?**

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Last week Susie Gharib of PBS interviewed Warren Buffett, the following was an answer of his I found interesting.  Not necessarily because I agree that the government should intervene, but more because it shows a candor and the admission that we don’t know what’s going to happen when we start tweaking a free, or semi-free market.  Hat tip to Marginal Revolution.

SG: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?

WB: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective in the short run we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.

SG: But are we creating new problems?

WB: Always

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“Life’s about choices,” said a college professor of mine.  He taught finance and would impart to my classmates and me the importance of the decisions we all have as to how we use our money, time and resources.  It was his mantra and something that he passed on, not only to his students, but his children as well.

For instance, he recalled an experience when his 8-year-old daughter and him were going on a walk around the neighborhood.  He had told her to take her jacket because it was cold outside. “No, I don’t need it,” she proclaimed.  He explained to her that she would get cold if she didn’t have her jacket, yet she still insisted she didn’t need it.  “O.K.,” he said and they went on the walk.

A few blocks in she began grumbling about how cold it was and rubbing her arms.  What did my professor do?  Did he cut the walk off short?  Did he take off his jacket and lovingly place it around his daughter?  No, he made her walk the rest of the way home freezing her butt off.  “Life’s about choices,” he explained to his daughter.

60 years ago people reading this article would say of this example, “Well done, he taught his daughter a valuable lesson.”  But today, many reading this would cry, “Child Abuse!”  “It was the father’s fault for not making her take her jacket!”  “You can’t blame the daughter, she didn’t know, she can’t be held responsible!”

This is what’s wrong with our society.  We’ve become a people that hold everyone responsible, but ourselves.

Never before have I seen so much blame being placed on everyone, but the person in the mirror.  People waving angry fingers at big oil companies for high gas prices rather than blaming themselves for owning two S.U.V.’s and a boat.  They completely ignore the law of supply and demand expecting that somehow prices will remain stagnant as consumption drastically increases.

This is like writing an angry letter to Hostess snack foods complaining about your recent weight gain while shoving 30 Twinkies in your gullet.  Life’s about choices.

Or how about the debt-ridden homeowner’s shouting about the foul play of mortgage lenders who “deceived them” (code for I didn’t do my homework) and gave them their houses much too easily then DEMANDING government bail out for a house they had no business purchasing in the first place.  Since when is your poor financial planning and decision making the government’s problem.

As Justice Casey Percell said, “It is not the responsibility of the government or the legal system to protect a citizen from himself.“  You made a poor choice, take your lumps and move on.

Is the economy in a slump, yes.  But, who is really to blame?  “Most of our economic wounds are self-inflicted, stemming from our inability to live within our means,” says Knight Kiplinger, Editor in Chief of Kiplinger’s Personal Finance magazine.

Many Americans live in a house — and drive a car — that eats up too much of their monthly budget. They dine out when they could be eating at home, and they indulge their children with trendy clothes. They mistake wants for needs.

Now don’t get me wrong, I love America.  I believe in America and what it stands for.  This is why something needs to change – and instead of demanding it from everyone else it has to start with us.  Government bailout is not the answer, it will only prolong and maybe even exacerbate the problem.

As Herbert Spencer aptly spoke, “The ultimate result of shielding men from the effects of folly is to fill the world with fools.”

Punishing corporations for their profits is not the answer, this will only send the message that in America you can try to be successful, but if you are too successful we’ll start taking your money.  The answer lies in doing our homework and making the right choices.  After all, at the end of the day it’s about taking a coat when it looks like it’s chilly outside.  You can choose not to, it’s true, but don’t whine when you get cold.  Life’s about choices.

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Warren Buffett is to investing what Michael Jordan is to basketball with one twist, Buffett hasn’t retired. For those of you finding yourself confused and humming “Margaritaville,” here’s Buffett’s bio. I could write for hours on this blog about why I prefer certain investment strategies over others or why I’m a huge “Random Walk” fan, but at the end of the day it is much better to hear from someone who has mastered their craft.

Last month Buffett talked to a group of students from UT Austin and Emory about investing, life, leadership and other topics. What can I say, the man is incredible. I remember first being introduced to him in my Personal Finance class by my professor Lt Col Steve Fraser and his partner in crime Lt Col Jim Parco (at the time just lowly Majors). They would annually take the class to the Berkshire Hathaway shareholder’s meeting in Omaha, NE…or as they liked to refer to it, “Woodstock for Investors.”

Since that class I have always kept an eye and ear open to anything coming from Buffett so today I share some of my favorite pieces from his recent Q&A session, the full transcript is here:

On diversification:

I have 2 views on diversification. If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. The economy will do fine over time. Make sure you don’t buy at the wrong price or the wrong time. That’s what most people should do, buy a cheap index fund and slowly dollar cost average into it. If you try to be just a little bit smart, spending an hour a week investing, you’re liable to be really dumb.

On happiness and love:

I won the ovarian lottery the day I was born and so did all of you. We’re all successful, intelligent, educated. To focus on what you don’t have is a terrible mistake. With the gifts all of us have, if you are unhappy, it’s your own fault.

I know a woman in her 80’s, a Polish Jew woman forced into a concentration camp with her family but not all of them came out. She says, “I am slow to make friends because when I look at people, I have one question in mind; would they hide me?”

The most powerful force in the world is unconditional love. To horde it is a terrible mistake in life. The more you try to give it away, the more you get it back. At an individual level, it’s important to make sure that for the people that count to you, you count to them.

On humility and personal influences:

I was lucky to have the right heroes. Tell me who your heroes are and I’ll tell you how you’ll turn out to be. One of your most important jobs in life will be raising your children. They will learn more from you than they will in graduate school. My father was a huge influence, and later on Graham came along. I was also never let down by my heroes.

On the current credit crisis and economy:

What we are seeing is a huge repricing and evaluation of risk, correcting for problems of the past. I don’t know of good credit propositions that are going unfulfilled. There’s lots of cheap credit for sensible deals, which I don’t define as anything that happened over the last 12, 18 months. A lot of things that didn’t make sense are being washed out of the system. It is painful for bad decisions. Comparatively, this is not a credit crunch. In 1982 the prime rate was 22% and money was very expensive. In the late 60’s, we made a sound deal there wasn’t any money to be had. That’s not the case now. The Fed has opened the window, and rates are down. It doesn’t mean there won’t be a major recession.

On individual investors finding opportunities in a market dominated by institutions and hedge funds:

Markets are efficient most of the time about most things. But for these opportunities, nobody will tell you about them. They won’t be on CNBC and they won’t be in brokerage reports. You have to go find them yourself. In 1951, after I graduated from school, I used Moody’s and S&P manuals as my sources of information. I went through them page by page. I was like a basketball coach looking for 7-footers. I still have to find out if he’s coordinated, and can stay in school. But if someone comes up to me that’s 5’6” and says, “Wait ‘til you see me handle the ball”, I say “No thanks”. On page 1443 of Moody’s, I found Western Insurance Securities. It had earned $21.66 per share 2 years ago, and earned $29.09 last year. Over the past year the stock was selling for between $3 and $13 per share. I still had to do the work to make sure the earnings were valid. The markets will get it right eventually. But they are there. You don’t have to find too many. Finding 10 of these opportunities in your lifetime will make you so rich. But you can’t be wrong. You can’t have any zeroes. A list of big numbers multiplied by zero will equal zero. You can’t go back to “Go”.

On picking the top contemporary investors:

I know guys who can make 50% a year with $5 million, but not with $1 billion. The problem with guys that do well is they attract so much money that it neutralizes their advantage. It’s hard to identify them, and even harder to make a deal to keep them from attracting other capital. It’s like betting on a 12 year old horse that won at 3 years old. It’s also important to avoid managers who use leverage. It’s the reason that investors with 160 IQs flame out.

On positioning yourself to deserve success:

Keeping score is terrible in marriage and terrible in business. I put myself in the seller’s shoes. With most humans there is a great desire to reciprocate. If you do something for them, they will do 2X for you. How rare is it to work during lunch hours and be the first one there in the morning. You’ll get noticed if you do something extra. It’s good to have a willingness to pitch in when you aren’t going to get credit for it.

On corporate tax rates and national debt:

Relative to GDP, government taxation is 18.5% and spending is 20%, so we borrow the balance. The national debt should not be a scary topic and the fact that it’s gone up is fine as long as it’s proportional to GDP. Where do we get that 18.5%? There’s 2.7 trillion in government revenues. 2.2 trillion comes from individuals, and less than 1% of that comes from the estate tax. 1.1 trillion comes from income taxes, with payroll taxes consisting of 900 billion, but it’s capped at the first $100,000 of salary. We want a tax system that encourages greater prosperity, but it needs to take care of the family.

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Here are the links to my latest guest posts: Why You Need Community to Reach Your Goals on Alex Blackwell’s blog, the Next 45 Years. AND “What an All-You-Can-Eat Buffet Can Teach You About Investing” on The Dividend Guy. Just happened to come out on the same day. Enjoy!

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