So what could the Europeans do to be useful? Well, they could contribute a whole lot of money to a sort of Marshall Plan for Iraq. But they won't do that because there is a huge difference between the Marshall Plan that assisted Europe after World War II and any plan to assist Iraq now.I was all ready for a dry discussion of how Iraq's economy in 2003 is different from Germany's in 1946. And that is a good topic too, if not as funny. Both country's have lots of investment opportunities at the relevant date, with lots of skilled labor in proportion to the amount of existing capital. And both have enough political risk that maybe private capital would be reluctant to go in. In the case of Iraq, however, unlike Germany, the political risk seems to me to be diversifiable. The risk in Germany was of Communist takeover or invasion, which would be associated with signficant price drops for U.S. assets (World War III, for example, would increase taxes on dividends and rents). Failure in Iraq is more likely to be isolated, with little effect on the U.S. stock market. Thus, even if the risk is high, it should not deter a corporation with diversified shareholders from going in. The problem is perhaps not the riskiness of the investment (the variance of its expected return), but the mean of the expected return. A good topic for further thought.That difference is complicated to explain but it boils down to this: In the former case, Europeans received money. In the latter case, Europeans would have to spend money.
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