Reflections On Counter-Value Macro

It may be a bit morbid, but consider the targeting of missiles for a moment. One broad strategy is called counter-value; the value, of course, is people rather than military force. This is the sanitized way that targeting urban centers is discussed.

The alternative is counter-force, the force being the enemy's missiles. Counter-force sounds like a more humane targeting strategy, but it requires a precision that is both knowledge and capital-intensive. Counter-value targeting does not have to be very exact. Close enough may suffice. It requires fewer technological advances and is cheaper. 

The significance of a counter-force strike is that it can prevent an adversary from making a retaliatory strike. The US' progress in developing counter-force targeting strategy, plus its increasingly sophisticated missile defense capability, is subtly shifting the nuclear equilibrium in its favor.

Up to now, the balance has been preserved by confidence in second-strike capability. Therein lies deterrence, the ability to launch a retaliatory strike. This is precisely why initial missile defenses were limited by treaty and why the US has been chipping away at it for more than 30 years.

Economists often pretend to procure counter-force capability, but they really deliver counter-value via their forecasts. Their quantitative forecasts give the impression of precision that is unjustifiable based on performance. Every so often, some economist or strategist lambasts officials' forecasts, like central bank inflation projections or a multilateral's GDP forecasts.

It is easy to scoff at such predictions, but the question is: compared to what? Many banks hire former central bank economists, who take or re-create their models. Moreover, private and public sector economists often go to the same schools, study from the same textbooks, and draw on the same news sources.

Nearly every business day, there are economic reports generated by the US government. It seems to publish more data than any other country. There are also non-government reports, such as the ADP private-sector employment estimate, the Institute for Supply Management (ISM), and Purchasing Managers Index (PMI). Some housing data comes from industry associations rather than the government. Many economists also look at Boeing's order data (4 in January, down from 90 in December) to help forecast durable goods orders, for example.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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