Will War Bring Prosperity?
By Adam Young
[Posted October 09, 2002]
Mainstream economists like to attribute recessions to external events, rather than to domestic affairs. For instance, David Wyss, an economist with Standard & Poor's in New York, said, "If you include the most recent downturn, then we have had four out of the past four recessions caused by the Middle East."
But that's a myth. While events that cast uncertainty over the supply of oil were undoubtedly a contributing factor, they were not "the trigger." The actual origins of 20th-century recessions can be traced closer to home, such as price and regulatory controls and, namely, decisions made inside the vast marble palace that serves as the headquarters of the Federal Reserve.
Another myth that has held steady about the 20th century is that war--and its evils of taxation, inflation, slavery, destruction, and mass murder--cured the Great Depression in economic activity of the 1930s, not only in America, but in Europe as well. This warped view concedes the legitimacy of the New Deal's interventions to artificially raise prices and wages by restricting supply, which is the sole reason why the effects of the crash of 1929 lasted for over a decade and became known as the Great Depression.
However, many Keynesian-trained mainstream economists and intellectuals believe that war is good for many things. In fact, it appears as a magic elixir that solves so many political problems: voter and patriotic apathy; the alleged threat posed to civilization from low taxes, high savings, and decreased state spending; and the dangers unleashed should the public lose the desire to carry the military-industrial complex on their backs.
Commentators from Robert Bartley, the Wall Street Journal editorial page, and Larry Kudlow (who wrote, "The shock therapy of decisive war will elevate the stock market by a couple-thousand points"), to Paul Krugman and John Kenneth Galbraith, are only a few examples among legions who believe war has economic benefits to society.
This can be traced to the miseducation they received from mainstream economics training. These mainstream commentators on the ups and downs of the economy interpret these events through their training that the business cycle is a natural unavoidable phenomenon of the free-market system of savings, investment, production, and consumption. In response to consumer failure to maintain sustainable levels of spending, which they cite as the cause of recessions and the Great Depression, their prescriptions to prevent another Great Depression require welfare- or warfare-state spending, preferably both.
Unfortunately, this is the mainstream view of the history of the 20th century, taught by professors and repeated by columnists and pundits far and wide, and the unfortunate effect of this interpretation of history is that the same mistakes are repeated again and again.
And it now seems that the Bush administration might be making that mistake again. It seems possible that the coming invasion and occupation of Iraq will happen because the Bush administration believes in the Keynesian/Great Depression myth of perpetual war for perpetual prosperity. As then-Secretary of State James Baker said at the beginning of the first Gulf War, the war was all about "jobs, jobs, jobs."
The president's chief economic adviser, Larry Lindsey, was recently interviewed by the London Telegraph, whom he told, "The successful prosecution of the war would be good for the economy." This is a little strange coming from an economist. His claim is based on the benefits from a post-Saddam puppet regime: "When there is a regime change in Iraq, you could add three million to five million barrels [per day] of production to world supply," he said. But what if Saddam does in Iraq what he did in Kuwait, and orders the destruction of Iraq's oil wells? After all, his track record as a menace is the alleged reason for needing "regime change" in the first place. And as "Nightline" recently reported, Iraq is currently only able to produce 1.7 million barrels per day, and would require billions of dollars and several years of work in order to improve the decrepit condition of Iraqi equipment.
In another interview, this time in the Wall Street Journal, Larry Lindsey said that the enormous and largely unknown costs of this war would not, in his opinion, be enough to spark inflation or push the country into recession. Which only begs the question: what does he think has been going on for the past few years? Mr. Lindsey believes that regime change would remove a "huge drag on global economic growth for a foreseeable time."
And continuing, he said: "It's hard for me to see how we have sustained economic growth in a world where terrorists are running around." If Saddam Hussein was such a drag on global economic growth, how did the global technology and speculation boom occur? And weren't al Qaida and other terrorists "running around" during the boom of the '90s? Perhaps Mr. Lindsay is suggesting that terrorism arose as a response to the global slowdown, and the only way to end terrorism is to have a nice big war to achieve prosperity.
In the same Telegraph story, Secretary of the Treasury Paul O'Neill seconded Lindsey's claims. "Whatever it is that's finally decided to be done, we will succeed and we can afford it," he said in a speech that dismissed criticism that a war could sink the U.S. economy.
This is a little worrisome. Estimates of the cost to conquer Iraq range from $100 billion to $200 billion--which are your tax dollars at work! As usual when it comes to the cost projections of politicians, this figure is practically guaranteed to be billions--perhaps even hundreds of billions--of dollars off. This would be on top of the cost to taxpayers of the "War on Terror," estimated by the government's Office of Management and Budget to already total more than $100 billion. The Bush administration has spent an estimated $30 billion on the miscellaneous military campaigns in Afghanistan and elsewhere, $35 billion on "homeland security," $21 billion in bailouts and subsidies to New York City, $8 billion bailing out the airlines, $5 billion for victim compensation, and around $3 billion on "other."
The Pentagon estimates that it will cost $13 billion alone just to transport the 370,000-man U.S. army of conquest and occupation from its garrisons around the world to the Arabian peninsula, and $9 billion a month to conquer Iraq. Now suppose that the Iraqi army decides to resist--perhaps not to save Saddam, but to defend their homeland against a foreign imperial invader. It will likely retreat into the cities. As a New York Times article reported, "[senior administration] officials said that any attack would begin with a lengthy air campaign led by B-2 bombers armed with 2,000-pound satellite-guided bombs to knock out Iraqi command and control headquarters and air defenses."
Remember, these "Iraqi command and control headquarters and air defenses" are in urban areas, where the people and the government apparatus are, since Iraq is mostly empty land anyway. The U.S. military is planning to drop hundreds or thousands of 2,000-pound bombs on densely populated cities around the clock for "3 to 4 weeks."
the rest of the story-
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