Thursday, May 21, 2009


Austrian Economics in Iraq

Editor's Note: A few weeks ago Edward Gonzalez contacted me and explained that he had come to believe that only Austrian economics could explain his experiences as a Marine in Iraq. I encouraged him to write short essays explaining what he had witnessed and the lessons he drew. For lack of a better outlet, I offered to run Edward's first essay here on Free Advice. I encourage readers to leave comments directing Edward on how his subsequent essays could be useful. --RPM


The Effects of Government Spending in a Village
By Edward Gonzalez

I spent seven months as an advisor to the Iraqi Army in the Al Anbar Province of Iraq from July of 2007 to January of 2008. The nature of my particular mission placed me inside Iraqi farming and fishing villages along the Euphrates River. Within the villages there were the farmers, fisherman and their families, the local sheiks and village elders, an Iraqi Army Company, and an Iraqi Police Station.

Each village had different amounts of insurgent activity and attacks. The two villages that I spent the majority of my time in were not in good shape. As a result of the war and attacks by insurgent groups, the market places had minimal business and farmers and fisherman had very few people to trade with.

My first month in one of these villages was a wake up call. Americans and Iraqis were attacked by insurgent cells operating in the area. Most villagers were scared to speak with us for fear of reprisal. The insurgents that we did capture resembled nothing like I was told to expect in a religious zealot willing to die for a cause. While I knew the religious extremists were the ones organizing the insurgency, the insurgents I captured were all young men, angry, out of work, and uneducated. When questioned they certainly spouted a lot of jihad jargon, but when questioned further, most were recruited with promises of pay and better quality of life once the Americans were thrown out. I came to the realization that I could go on fighting insurgent cells forever and never accomplish anything as long as they were able to recruit. It was not until the economy was functioning that insurgent groups would no longer be able to attract young men as their foot soldiers.

I also found that the majority of Iraqis did not care about American or Al Quaeda ideals. They wanted a functioning society where they could have a job and their children would be safe and have a better life than they themselves have had. The most telling quote was from an Iraqi farmer. When asked what he needed he replied, “I want a safe place for my children to go to school, a good price for my crops, and for the government to leave me alone.”

Other Marines had noticed the same and had already begun to experiment with economic plans. Luckily, the Marine advisors that had gone before me had warned of mistakes they had made so I did not fall into the same trap.

Spending programs to stimulate local economies had been attempted by Marine advisors and not gone according to plan. The Marines hired locals to do work that the Marines could have done themselves, but gave them an excuse to pay the Iraqis in an attempt to jump start the economy. The short term results seemed very good. Young Iraqi men had jobs and attacks against coalition forces went down. However, it created a problem that was much greater. The young Iraqi men and the village economy began to depend on this source of American work and money. They would take the American dollars and travel to the cities to spend them, but no real production of goods was increasing at the village level. In fact, because the Americans were paying well, the men who were fishing and farming before were quitting that work and going to work for the Americans. As a result the village’s actual production of goods dropped dramatically. When the Marines stopped spending the young men were out of work again and the productivity of the village was less than before the spending. The village’s economy was worse off than before and attacks resumed. The results of spending to stimulate the economy was a short term gain but lead to long term problems more serious than the original.

The solution for me, and most other Marines learning from our own mistakes, was to concentrate on our primary mission, security. What this means is that Marines and Iraqi soldiers ensured people had the liberty to move freely and conduct their business. This involved constant patrols in the villages ensuring people were not being attacked in their houses, conducting constant patrols and over watch of the market place ensuring that the natural businesses of the town could flourish, and patrolling the roads to ensure they were free of IEDs. When farmers and fisherman realized they could work hard with minimal fear that they would be murdered or all their hard work be destroyed, the economy of the village really started to recover. Farmers were out harvesting their crops, more fishing boats were on the river, people that had left the villages when the war began were returning to their homes because they had gotten word it was safe. The market was open for business and trade was occurring. People from other villages were coming to the markets to trade their goods.

With the outsiders came insurgents and attacks. With a flourishing market place however, the villagers were more adamant about rooting out insurgents than the Marines. On one occasion, at 3am we heard shouting and saw flashing lights about one kilometer from our post. When we investigated the townspeople told us they saw three men attempting to emplace an IED along a path we regularly patrolled. The villagers chased them away. On another occasion, an IED was emplaced along a path that we travelled, and as we were walking a village elder ran in front of the patrol refusing to let us pass. When the interpreter was brought up he told us of the IED and who emplaced it.

The lesson I learned over and over again was that the Iraqis care very little for our American ideal of democracy, but a flourishing market place and the hope of a peaceful society gave the individual villagers every incentive to assist us in rooting out the violent insurgents. In addition, if we were willing to risk our lives protecting their lives and their village, they would do the same for us. Every IED planted within the villages I worked was made know to us by the locals, even though the insurgents openly threatened death to anyone giving information to the Americans.

At the time I left that area of Iraq, the village markets were open for trade and attacks within the two villages I had worked had dropped to almost zero. Attacks overall were down, but there were still reported cases of highway theft and murder on the stretches of highway between the villages and cities. However, the Iraqi military and police were beginning to expand their security operations to the highways when I left. Most of the checkpoints and combat outposts in the villages that were required when I arrived were being closed. The villagers, with a small local police force were able to protect themselves from insurgent attack. The bustling market places were a source of trade and intelligence reporting informed us that the insurgent groups were having more and more trouble recruiting young men as foot soldiers.

The economic lesson that I and many other Marines learned was that spending in order to stimulate an economy gives a false impression of success while the spending is occurring. When the spending stops, it is revealed that actual production has dropped and people are worse off than before. The solution is to protect the lives and property of the village and allow the natural businesses of the village to flourish free of tampering.

Edward M. Gonzalez is a graduate of New York University and served on active duty in the United States Marines Corps from January 2004 to August of 2008. He is currently a Captain in the reserves and works for a private school in San Jose, CA. The views expressed in this article are not necessarily endorsed by the United States Marine Corps.

Fascinating article. I learned more about Iraq in 5 mins that I've learned in 5 yrs watching CNN. Your analysis seems to echo that of Thomas Barnett (of he Pentagon's New Map fame) focussing on the importance of security.

It might be interesting to contrast towns/villages where opposite approaches were taken.
Great post, Edward.

Now you have the basis for understanding what is wrong with the US economy, and how the government, by taxing us to "stimulate" the economy, is only helping themselves (making it look like they`re "doing something" while directing money to friends and pet projects), while making true economic recovery and wealth-creation more difficult.
I really enjoyed this article Edward!

Thank you for taking the time to relay your unique experiences. Not only did it help me to better understand the military situation in Iraq (and probably Afghanasitan), but, also, as TT pointed out the parallels with the ridiculous U.S. make-work policies.

In particular, as Bob has engaged d*long, it was interesting to read how the Marines make-work jobs did not draw labor from the unemployed (idle resources) but took from the farming and fishing ranks.

Bob made this point over and over and was ignored. But, hey, that is what d*long does - ignore simple, proper economis.
To those who may want some better 'authority' before believing the basic logic of this article, Edward Luttwak talked about very similar observations in his famous "Give War a Chance" article.
One other thought: strangely enough, the article does seem to support the Hobbesian theory of the state....
Great Article!!!
Thanks for all the kind words you guys are bestowing on Edward. He is willing to write more articles, but isn't sure what direction to take.

I told him tales of explosions and firefights were always welcome, but any other questions? Unlike Jonah Goldberg, Glenn Greenwald, Tom Friedman, or me, Edward has actually been in fights with insurgents. So he can actually answer practical day to day questions.
Thank you for the encourgement and I am glad many of you found the artlice intersting.
I have had several requests for stories of expolsions and firefights, but counterinsurgency is not the movies and certainly not what they portray on the news. For my next article I will try to give a more accurate description of what "fighting" an insurgency is really like and why I believe sound economics is so vitally important in the analysis. Please keep the questions and comments coming as the more you ask the more accurate I can be.
Chris Coyne wrote a book applying Austrian economics to nation building in Iraq and elsewhere. I haven't checked it out yet though.
Edward - I have Generation Kill on my 'to watch' list and, as it's by the same guys who wrote The Wire, hoped it may give me a realistic insight into war. Have you seen it? (and if so, what did you think?)
I have not seen "Generation Kill," but I have not heard great things about it. I have read the book and I highly recommend it in conjuction with another book, "One Bullet Away." The first is a story of the Iraq war as seen through the eyes of a reporter, the second is the same story through the eyes of the Lieutenant he was with. Together I think they give a very accurate picture of the march to Baghdad. Both are easy reads.
So proud of this young Marine. I am writing from Peru, and I see the same thing he saw in Iraq--people don't care about the Shining Path or that guerrilla group. All they care about is progress. As simple as that. Sure, the security forces do play a big role, but only insofar as they protect markets. Markets are the real heroes. The rest is leftist BS
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