Introduction to accounting
Asset: Anything owned that has value.
Liability: An obligation to pay money to another party.
Accounting is one of the greatest inventions of the human race. It involves writing, counting, and tallying what one person owes to another. The balance sheet lists assets on one side (the left) and liabilities on the other (the right.) The difference between them is net worth. This is listed on the right side too. It’s the excess of assets over liabilities.
If your only asset is a comic book worth $200 and you owe $150 to pay for it, then your net worth on this venture is $50. There are those who have bought condos for $700,000 who owe $700,000. Net worth is zero. If the value of that condo (the asset) declines to $500,000, the net worth of this venture is negative or minus $200,000. Balance sheets balance. The minus number shows the loss.
Washington’s so-called assets are either (1) liabilities, (2) stolen, (3) overstated, or (4) depreciating in value. It’s more than likely that a government asset worth $100 is offset by a liability that costs $200. In other words, the people’s balance sheet actually has negative net worth. The venture is technically bankrupt. Actual bankruptcy occurs when the debt payments can’t be made.
When Washington claims it has an asset, think liability. Think indebtedness. Think what is owed. Think negative net worth.
What Washington labels as assets are sometimes liabilities, yours and mine. In these cases, the accounting is fraudulent.
An example: Israel
Washington by and large considers Israel an asset, a military asset. Why an asset? Such reasons as location in the Middle East, a deep-water port, airports, location on sea lanes, a large and capable military, support of American operations, etc. From our point of view, the taxpayers’ point of view, Israel is a liability.
Consider. An asset is supposed to have positive value. Its value arises because it’s expected to provide a stream of returns or services in the future. A liability has negative value because one must pay out on it over time. In the case of Israel, we pay and pay. Every year we pay several billion dollars in foreign aid.
These are only the visible out-of-pocket costs. These payments buy us endless possibilities of being engaged in Middle Eastern politics and conflicts. These possibilities can open up into negative return projects. They are liabilities. If we did the accounting on the Israel venture, we’d end up with negative net worth.
The so-called Israel asset begets a string of liabilities that must be accounted for. Washington, being a master of fraudulent accounting, conveniently ignores them or spins them as assets. We the people are the auditors. We should sharpen our pencils.
We are engaged in the Israeli-Palestinian conflict and have been for decades. This has brought us nothing but trouble. We have had to buy off some of Israel’s antagonists. We have aroused ancient sectarian enmities and spurred on terrorist opponents. We constantly face new wars. These are liabilities. Israel encouraged our entry into the Iraq War, and having Israel as a military asset facilitated getting into that morass. These are liabilities. Israel urges us on to conflict with Iran, as if Congress needed more urging. This is a liability. Iran consolidates Israel and the U.S. as one antagonist because of our engagement with Israel. Iran’s strategic posture depends on the U.S. presence in the Middle East, just as ours depends on Israel being a U.S. asset. These are liabilities. They are options for war, turmoil, high oil prices, chaos, and high war expenditures. Options for future outlays of cash have negative value.
On the other side of the balance sheet are supposed to be the assets that make Israel a venture with a positive net worth. There are no tangible returns to the American people as a whole. There are returns to some narrow interests such as military contractors and American religious sects, but these do not benefit all of us. In fact, there is a net loss because we are forced to pay for the military costs. Some Washingtonians want us to count as positive a fuzzy glow over the notion that Israel is some sort of democracy. We are supposed to ignore Israel’s transgressions and statist policies. We are supposed to ignore Palestinian misery.
Israel may be many things, but it is not an American asset.
An example: A unified country
There is nothing like making the illegitimate sound legitimate. That is why we read and hear of various government assets. Assets are good, no? They produce returns.
On 10/11/01 the President asserted that "for al Qaeda and the Taliban, there is no shelter. (Applause.) …We can be certain of the outcome, because we have a number of decisive assets. We have a unified country. We have the patience to fight and win on many fronts: Blocking terrorist plans, seizing their funds, arresting their networks, disrupting their communications, opposing their sponsors. And we have one more great asset in this cause: The brave men and women of the United States military. (Applause.) "
I shudder every time I hear about unity or a unified country. Uniting the individual states into the United States is not an experiment I wish to see repeated. Corporations have learned to create value by selling and spinning off pieces, by de-conglomerating, disaggregating, and by selling off unrelated assets. Conglomerate companies sell at a discount to their realizable values. Uniting political units is far more likely to end in higher costs and lower returns than in dreamed of economies that never pan out.
When I hear of unity, I picture battalions of Germans marching up and down in Nuremberg. I picture throngs waving, saluting, smiling, and cheering. This unity lasts about as long as it takes for the body bags to start arriving. Unity is not an asset bought without many offsetting liabilities. In the final accounting, the liabilities outweigh the assets. Net worth is reduced. We are made poorer.
Whenever the American people or the Congress vote one-sidedly for something, I shudder. What will it be this time? Another embargo? Another tariff? Another Patriot Act? Another Gulf of Tonkin resolution? Americans stood foursquare for war in Iraq. There is no better signal of folly and debacle than unity of opinion.
I like disunity. I like opposition. I like contrary opinion. I like the cases argued and argued fully. When I hear of unity, I think of steamrollers, emotional consent, wildness. It’s normal to disagree. When there’s too much unity, I suspect something’s wrong. Since the State harms, it’s better to see it tied up in knots unable to act. Unity scares me. I know that no good will come out of it.
The pledge of allegiance idolizes "one nation" that is "indivisible." This bothers me. If we are to be one, what are the things that make us one? Is the nation-state the predominant factor in making us one? I should hope not. It benefits us to identify those things that unite us as a society and that we regard as our most important assets.
Aren’t we most united when facing an enemy in time of war? Isn’t that when we hear most about unity? Isn’t that when Presidents wish to quell and squelch dissent? Unity is a code-word for mobilization and death, physical and mental, death of the body and death of spirit and thought.
I do not count a unified country as an asset. I count it as a liability.
An example: The United States military
If the United States military were a force called into being and used for purposes of defense, it would have a fighting chance of being an asset. As matters now stand, the U.S. military is a liability for us the people because it is being used in futile wars.
An asset’s value depends on the returns it produces. If our military fights wars that do not benefit the American people, then the returns are nil. Meanwhile, these assets are associated with gigantic liabilities, outflows of cash, blood, and spirit. There are huge taxes to be paid during a war and for long afterwards to service the debts, the veterans’ pensions, and the costs of rebuilding destroyed areas. The liabilities always outweigh the assets when useless wars are fought. These wars are negative net worth projects. They reduce wealth and well-being.
Reasonable men may differ in counting the benefits of America’s wars. It is in Washington’s interest to present a one-sided accounting for these benefits and costs. We are likely to hear much talk from Washington about the benefits and little or no talk about the costs. Washington’s words cannot be trusted.
One of the inherent defects of even having a Washington is that we cannot alter it or even affect it at all easily. We can’t just sell our stock in it. Being stuck with it, we have relatively little incentive to learn what it is doing. We have little incentive to persist in trying to change it. This inattention, which is well-known to those in Washington, gives them plenty of latitude to persist in ventures with dubious merit, ventures with negative net worth to us the people. A shrewd speculator can perhaps figure out how to benefit from Washington’s negative actions, but such a course is not open to the masses.
Evaluating Uncle Sam’s projects
Think of Enron. It footnoted and downplayed a large set of liabilities. It spoke glowingly of its high-return projects. Enough stock market players knew how to read reports, however. They began selling Enron’s stock. It began to decline. This reflected the opinions backed by sellers that the net worth of Enron was overstated and declining.
Uncle Sam does the same. It tries to hide and downplay the liabilities while emphasizing the assets and their returns. But Uncle Sam does it on a far larger scale. Uncle Sam gives us perpetual fraud on a massive scale. When it commits to a war, it commits the entire nation.
In a democracy, eventually votes are taken. The war may or may not be endorsed, depending on how successfully the fraud is proceeding. With enough propaganda and enough nationalistic goodwill and pride, a war can be kept going for a considerable period of time. Any given vote is rarely on a single issue, however. It’s on candidates. It’s on parties. It’s on a complex package with highly uncertain costs and benefits. The vote of the day sets in motion decisions that will occupy a number of years. Votes are not exactly meaningless, but they come close.
If the majority counts the war as worthwhile or even if it does not, it continues. The accounting lies inside the heads of voters. The voting booth is far, far from being a stock market that relentlessly at every instant of the trading day evaluates the net worth of a company. The stock market, beset by noise, is far from being a perfect evaluator. Periodic voting is a much worse accountant.
The next time that you hear a politician or a pundit speak of American assets, think liabilities. The Pentagon talks about its assets. The CIA talks about its assets. Social Security is supposed to have assets, but it doesn’t. The Federal lands are supposed to be assets, but as long as they’re locked up and can’t be homesteaded, we get minimal returns from them and we incur costs to hold them. They are closer to liabilities. Even Gary North has an article called "The CIA’s Assets in the Middle East"!
To each unit, such as the Pentagon or the CIA, something may look like an asset. It has value to them. They see a venture as a positive net worth idea because they don’t see the liabilities. Their accounting is incomplete. It is in their interest to emphasize their assets and downplay their liabilities.
We the people have to pay the price. We make the sacrifices. We bear the burdens. We pay for the liabilities. They are tangible and long-lasting. They are very large. We should not constantly be gambling our life and blood on wild sprees that promise us security or freedom or some other hot catchword that rings emotional bells. Like a drinker who can’t pass up a sip, we keep getting roused into the same state of war-fever. We keep buying the same old nostrum that promises to remedy our every ache and pain, and we keep coming up short, whether it be the Philippines, Lebanon, Iran, Cuba, Korea, Vietnam, Haiti, Somalia, or Iraq. This year maybe Iran’s subscription is up for renewal. Next year maybe it will be Taiwan, Venezuela or again the Philippines.
It’s a new century, and we’ve begun it wrong. War in Iraq was the first project for a new century. But it was an old project. It was the same old poisonous snake oil. It was a fraud, a supposed asset that in fact was a liability. We’ve put old wine into new bottles.
There are 94 years left. How about a new project or two for the new century? How about some new wine? How about peace, civilized behavior, or restraint? How about untangling ourselves from foreign alliances? How about liberating ourselves from foreign interferences, wars, and meddling? How about ending our endless pressuring and browbeating? How about freeing our own people from their snares? How about freedom and property rights? These are all ventures with large asset returns and reductions in liabilities. They all would greatly increase our net worth.
Michael S. Rozeff [send him mail] is the Louis M. Jacobs Professor of Finance at University at Buffalo.