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July 8, 2008 at 12:27:06
Paul Krugman and Blindness About the War and the Economy by Dave Lindorff Page 1 of 1 page(s) |
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By Dave Lindorff In a New York Times column on Monday (“Behind the Bush Bust”), economics columnist Paul Krugman mused on whether President George Bush could be blamed for the nation’s economic crisis. His conclusion was that, yes, to some extent the crisis was Bush’s fault, but he largely lets the current administration off the hook, instead blaming Republican policies dating back 10-15 years. Oddly, Krugman does say that a key cause of economic problems has been rising energy prices, but he then attributes these to “growing demand from China and other emerging economies,” and suggests that prices might have been at least a bit lower had the US, after 9/11, adopted “higher gas taxes and fuel efficiency standards,” a failing he attributes to Bush. The gaping hole in Krugman’s logic is the Iraq War, which the columnist, incredibly, doesn’t even mention. Yet clearly, the invasion and subsequent war and occupation of Iraq which was purely the result of Bush/Cheney machinations, has been a major, if not the major cause of oil price increases.
By destroying Iraq’s oil production, and by hindering much of Iran’s production (Iran, seen as an enemy by the US, has been frozen out of capital markets, blocking it from being able to modernize and even maintain its own huge oil infrastructure), and putting even Kuwait’s and Saudi Arabia’s production at risk, the US war in Iraq has jeopardized about one-third of the world’s oil capacity—a fact not lost on oil speculators. Every rumor of a longer occupation or a wider war in the Middle East—especially a possible attack by the US on Iran--has pushed up oil prices further, as has every attack on a pipeline.
It is no secret why crude oil, over the course of five years, has soared four or five times in price. Demand has certainly not gone up by that amount. It hasn’t even doubled. What has happened is that the Middle East has been thoroughly destabilized by American military action.
The rise in oil prices has been the major cause of the US dollar’s stunning collapse, which in turn has limited the hand of the Federal Reserve, which cannot risk lowering interest rates as much as it would like to stimulate economic growth, for fear of further undermining the dollar. This in turn has allowed the mortgage crisis to fester and grow worse.
At the same time, the massive amount of industrial production that has gone into the war effort—the building of planes, tanks, armored cars, etc.—while perhaps producing some jobs, has been wholly inflationary in its effect, since this is production that cannot add to available goods and services in the civilian economy. That means that there are more people with wages and salaries, chasing the same number of things to buy—a sure-fire recipe for higher prices. Add to that the huge war budget, all funded by debt (ultimately as much as $3 trillion in red ink, according to Nobel economist Joseph Stiglitz), and you have even more downward pressure on the dollar.
Bush’s and Cheney’s war in Iraq has been, it should be clear, a huge catastrophe for the US economy, and yet somehow Prof. Krugman managed to miss it completely. You could read his column and not even know that the country is and has been, for the past seven years, at war.
I’m not sure what to make of this oversight on Krugman’s part. Is he trying to downplay the war, figuring it’s soon to become a Democratic venture? Is he unfamiliar with the argument that war is bad for economies?
One thing is clear: You cannot look at a nation at war and analyze its economy without considering the impact of the war, which is what the usually astute Krugman has done here.
But let’s make the point crystal clear, even if Krugman doesn’t see it or doesn’t want to see it: The slumping US economy, and the crashing US dollar, which is heading towards Peso status as a trash currency, are clearly the direct result of Bush/Cheney policies, aided and abetted by both Democrats and Republicans in Congress, who have bought the story line that war is good.
We will all be paying for this imperialist misadventure for years to come.
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DAVE LINDORFF is a Philadelphia-based journalist and columnist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now in paperback). His work is available at www.thiscantbehappening.net
http://www.thiscantbehappening.net
The views expressed in this article are the sole responsibility of the author
and do not necessarily reflect those of this website or its editors.
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Re: Paul Krugman and Blindness About the War
by Munich (1 articles, 86 quicklinks, 14 diaries, 1125 comments [86 recommended, 1 rejected]) on Tuesday, Jul 8, 2008 at 1:53:59 PM  (0+)
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deliberate inhumanity
Krugman and others are demonstrating the same deliberate inhumanity described in the Ancient Greek comedy by Aristophanus. He tells that during the war with Sparta the weary Athenians once gathered and started to discuss peace but suddenly one of them shouted that since the war started the prices of herrings have never been so low. So they decided to continue the war. The rest we know... Boy, how history repeats itself bigtime. by Mark Sashine (72 articles, 19 quicklinks, 269 diaries, 4101 comments [131 recommended, 0 rejected]) on Tuesday, Jul 8, 2008 at 2:49:59 PM (0+)
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Right on most points, but wrong on one important point -
Dave writes "The rise in oil prices has been the major cause of the US dollar’s stunning collapse." - Actually, it's the other way round. The drop in the dollar is the main thing that's driven oil prices (& other commodity prices, including gold) higher. And the dollar's fall is mostly due to 1) the ever-widening current account deficit, & 2) Fed policy, which has held US interest rates inappropriately low. by Richard Mynick (2 articles, 4 quicklinks, 1 diaries, 1552 comments [255 recommended, 5 rejected]) on Wednesday, Jul 9, 2008 at 10:32:34 AM (0+)
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Reply: That's too simplistic
It's actually a circular relationship that feeds on itself. As the dollar falls in value, since oil is still priced in dollars, producer countries raise the price to recoup their losses. Then, because the US's single largest import is oil, this adds to the US trade and current account deficits, and further undermines the dollar against other currencies, leading oil producers to further raise the price of oil, etc., etc. by Dave Lindorff (438 articles, 0 quicklinks, 1 diaries, 193 comments [10 recommended, 0 rejected]) on Wednesday, Jul 9, 2008 at 11:12:15 AM (0+)
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Reply: That's more accurate -- but still leaves out important
parts of the story. All economic processes involve circular relationships & feedback mechanisms. The one you just described is valid, but presumes that the portion of the trade deficit resulting from "the largest single import" (oil) is the decisive factor in driving the dollar down. But there's more to it than that. The dollar has been dropping steadily for several years, while most of the sharp rise in oil has come only in the last year (much of it in only the last 6 months). An easy way to see this is to use a quick charting service like Big Charts. You can use the symbol FXE to track the dollar against the Euro, and the symbol USO as a stand-in for the price of oil. You can put the two graphs on the chart at the same time for a convincing demonstration that the 2 graphs are not at all the same. Nor do they move in tandem. (Use a 3 yr time period for the displays.) The trade deficit has been rising steadily for years. It's a broader-based phenomenon that involves the price of oil, but also encompasses manufacturing & all sorts of commercial exchange. Also, the inappropriately low US interest rates has helped to drive the dollar down. This is also distinct from oil price, in affecting the dollar. by Richard Mynick (2 articles, 4 quicklinks, 1 diaries, 1552 comments [255 recommended, 5 rejected]) on Wednesday, Jul 9, 2008 at 1:09:08 PM (0+)
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Damage to the brand
Most of what has been said is logical and there is also an another unacknowleged problem. Business relies on reputation. As a result of this government and its war there is a perception that US courts are manipulated, due process is discretionary, and ugly, beggar my neighbour capitalism, is part of the US way of doing business. This has damaged the US brand. In third world countries we often see legal and political systems which bend or break rules in favour of the locally well connected and rightly regard such systems as creating huge business risks which can amount to a deal breaker. The US system displays aspects of such behavior today and as a result the world has lost some of its faith in the reliability of brand US. As the worlds investors loose faith in brand US, investment monies are drying up and draining away. A failure to see that a selective approach to describing reality (not telling it like it is) undermines the ability to make good decisions and is part of the problem. by kwalsh (4 articles, 0 quicklinks, 7 diaries, 275 comments [10 recommended, 0 rejected]) on Sunday, Jul 13, 2008 at 6:31:06 PM (0+)
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