A LESSON OF WAR: Iraq, Afghanistan and from a century past

The Battle of the Somme was a meat grinder. The centenary of this battle, fought mid-way through World War I, will be commemorated on July 1 in Great Britain, France and other countries that lost men in one of the largest and bloodiest battles in the history of human warfare.

Between July 1 and Nov. 18, 1916, the British suffered about 420,000 casualties, the French about 200,000 and the Germans about 465,000. All told, 300,000 soldiers died and little was achieved. Somme was like America’s recent conflicts in Iraq and Afghanistan writ large.

After two years of relative stalemate, allied forces decided to make a big push to break through the German lines and hopefully achieve a quick and decisive victory on the Western Front, much like politicians and generals assumed quick victories in Iraq and Afghanistan. The offensive was designed to relieve pressure on the French as a result of the German offensive against French forces at Verdun, and take control of a 20-mile stretch of the meandering River Somme.

The first day of that battle was the bloodiest in the history of the British army . Of the 120,000 troops who went into battle, the British suffered about 60,000 casualties, as many as 20,000 of whom died before the day was over.

The plan drawn up by generals in their chateau headquarters miles behind the battlefield was for an artillery barrage to pound the German defenses to an extent that the attacking British could just walk in and occupy the opposing trenches with minimal opposition. Cavalry units would then gloriously pour through the German lines, pursue the fleeing Germans and turn the tide of a war that had been in a deadly stalemate for the better part of two years.

Before the battle started, the British fired over a million and a half shells at the German soldiers, many of which either did not explode or completely missed their targets.

During seven days and nights of bombardment that removed the element of surprise, German troops simply moved into their deep underground concrete bunkers and waited. When the artillery pounding stopped, scores of British soldiers walked in a row uphill in successive waves across no-man’s-land and were mowed down, easy targets for swarms of German machine gun nests. By nightfall, few of the objectives had been taken despite massive loss of life.

The offensive would continue for another 4 1/2 months in a similar vein. After July 1, a long stalemate settled in as the British employed the same hopeless method of attack conforming to a prefabricated interpretation of events on the ground, despite assault after assault turning into a killing ground. Somme became a bloody battle of attrition.

By the end of the battle, a massive loss of human life had netted the allies roughly six miles of GermanĀ­ held territory.

The battle helped cement the reputation of World War I as a war of terrible slaughter caused by poor decisions on the part of high commanders. The troubled British offensive resulted in the epithet “lions led by donkeys.”

Today, revisionist historians contend that the battle, while costly and flawed, put an end to German hopes at Verdun, badly weakened the German army and helped the British learn new tactics for successfully prosecuting future offensives.

Traditionalists believe this interpretation airbrushes reality. They say the battle achieved nothing but untold misery and loss. It was an unjustified bloodbath and evidence of the British high command’s incompetence. They argue that British military leaders failed in the fashion of Pyrrhus, who lamented after the battle at Asculum: “another such victory over the Romans and we are undone.”

Having just lived through two conflicts, Americans can relate to this quote. Iraq and Afghanistan, which is ongoing, both created more problems than they solved. Optimistic miscalculations led to unintended consequences and bloody inconclusiveness. And so it goes.

Originally Published: Jun 25, 2016

The Fed got it wrong

The job market received a jolt last week when the Labor Department reported that just 38,000 jobs were added in May, the fewest for any month in more than five years. The experts expected a gain of 150,000 jobs and had included an estimated decrease of about 35,000 striking Verizon workers.

Equally disturbing, the job numbers for the two previous months were revised downward. In total, there were 59,000 fewer jobs in March and April than had previously been reported. This suggests the May numbers will be revised downward next month.

But it gets worse. Of the 38,000 new jobs, only 25,000 were in the private sector. Yet even as job growth stalled, the headline unemployment rate fell to 4.7 percent from 5 percent, in large part due to a drop in the labor force participation rate as many frustrated Americans stopped looking for jobs, meaning they are not counted in the unemployment rate. It’s an ominous sign that suggests the economy may be slowing.

Since the end of the recession, economic growth has been lackluster despite the Federal Reserve putting the pedal to the metal by pursuing zero interest rates and engaging in bond purchases known as quantitative easing. The rationale for this policy is that artificially suppressed interest rates and easy money are required for the Fed to fulfill its full-employment mandate. They assume that low rates stimulate business investment and make it easier for consumers to finance big-ticket purchases such as housing and automobiles.

The May employment numbers are just the latest evidence that it isn’t working. This should come as no surprise, since the Fed high priests’ failure to prophesize the 2008 crisis has been well documented.

President Truman once famously asked for a one-armed economist because his economic advisers kept telling him “on the one hand this, and on the other hand that.” For sure, there are pros and cons to the Fed’s monetary policy. Low interest rates have contributed to a partial recovery and growth may be stronger than it would otherwise have been. The rationale was to lower interest rates to encourage movement into riskier assets with higher yields, including stocks, junk bonds, real estate and commodities. The Fed has privileged Wall Street over Main Street in the belief that the wealth effect will trickle down to the ordinary American worker.

Lower rates would encourage greater leverage, i.e., borrowing to invest and boost asset prices. This pseudo “wealth effect” would then stimulate consumption, economic growth, and job creation. Such monetary policy raises the question of whether the Fed should be promoting risk and inflated asset prices that outpace real economic growth.

On the other hand, zero interest rates have created problems for savers, retirees and those on the other side of the velvet rope. Savers get virtually no return on their money market funds and saving accounts. Indeed, after inflation and taxes, real rates on these instruments are negative, promoting inequality and resulting in declining purchasing power. With so many Americans living paycheck to paycheck, is it any wonder that payday lenders are doing record business?

Lost interest is a permanent loss of wealth. Very low interest rates force retirees, who rely on interest income, to reduce their spending. Workers contemplating retirement will stay in the labor force longer to save more, blocking access for younger workers.

More importantly, low interest rates play havoc with retirement planning for both individuals and pension plans. Pension funds face increasing unfunded liabilities. Without adequate future income streams, retirement as Americans have known it is off the table.

Fed policy can’t overcome structural weakness in the job market that results from the twin challenges of globalization and rapid technological change. Continuing the policy of cheap credit is reminiscent of the old lesson about looking for a lost item under a lamppost at night because that’s where the light is. It’s time to look elsewhere for answers.

Originally Published: Jun 11, 2016