Is the Iraq War to blame for America’s long-term economic decline and for the current economic crisis?
Martin Neil Baily, a chair of the Council of Economic Advisers under President Bill Clinton, and now director of the business initiative at the Brookings Institution, in an opinion piece that ran Sunday in the New York Times, says no. Claiming to be opposed to the Iraq War, he nonetheless suggests that the nearly $500 billion spent on Iraq to date—all of it borrowed money—cannot be blamed for the credit crisis, or for high oil prices.
But Baily is looking at things way too narrowly. First of all, As Joseph Stiglitz, a Nobel economist and chief economist at the World Bank, has noted, the real cost of the Iraq War is probably now closer to $3 trillion, in terms of future costs of veterans benefits, replacement of equipment, and payment on the debt that has been piling up because of the government’s unwillingness to make the public pay for the war in real time. That whopping bill is in the minds of the international investors who have been deserting the dollar in droves, causing it to approach Third World status as a currency.
But there are other links too, between the war and US economic crisis and decline.
One is the misdirection of much of the nation’s remaining industrial strength into war production. The late industrial engineer Seymour Melman long ago demonstrated how the military-industrial complex, by producing things not on a competitive but rather a cost-plus basis, destroys economic competitiveness, sucks up research and development talent and resources, and investment capital, and ends up producing nothing of use either for society or for the national trade account. Melman (who was a professor of mine when I studied at Columbia University), went further to argue that military production has a kind of viral impact across the economy, that sickens the whole system. One example: if investors see higher returns in military industries, they will shift their investments away from other industries, leaving them starved for capital.
We can see the results of this military-industrial virus in the failure of Boeing to produce its next generation jet, the Dreamliner, on schedule, in the pathetic performance of the nation’s dying domestic automotive industry, and in the failure of the country’s once vibrant entrepreneurial economy to do anything significant to tackle the challenge of global warming and the crying need for non-polluting, renewable energy sources.
The nation’s universities have no problem winning massive grants for defense projects, but academic researchers are hard-pressed to get grants for alternative energy research. There certainly is no federal money available for scholarships to students who want to go into environmental or energy majors, but there’s no lack of money for students who want to sign up for ROTC programs.
One could argue that at least the war is providing jobs for some of the nation’s growing army of the unemployed, but that would be to ignore the wastefulness of the work, and the enormous needs facing the nation. How much better to use federal funds to employ people at projects like reforestation, wetlands restoration, teaching, highway repair, school construction, slum renovation, etc., than at jobs involving killing overseas. It is ludicrous to assert that there is no connection between the hundreds of billions of dollars a year being spent on the military, and the fact that Philadelphia’s school district, the fifth largest in the nation, is bankrupt and run by the state, and that even so, many of its students, packed 40 to a classroom, have to sit on classmates’ desks and study from science and history textbooks printed in the 1980s, because of lack of funds. (With 43 cents of every federal tax dollar going to military spending, and at least a quarter to a third of that being related to the Iraq War, it's simply ludicrous to assert that there isn't a profound impact of the war on the US economy!)
I just went for a run in Philadelphia’s Fairmount Park yesterday, along Wissahickon Creek. The beautiful running path takes one past a covered bridge, a cabin, scenic stone bridges, and other visual delights, all constructed by workers funded by the Civilian Conservation Corps. a New Deal public works program that hired the unemployed during the depths of the Great Depression.
No such program exists today, because this government is in the killing business.
Nor can oil prices and commodities prices, which Baily suggests are soaring in price not because of the Iraq War, but because of increasing demand from places like India and China, be so casually separated from America’s warmongering.
Firstly, even oil traders will acknowledge that there is a premium on oil in part because of the threat to 20 percent of the world’s oil posed by the Bush/Cheney administration’s growing belligerence towards Iran, and its threats to attack the world’s number-two oil producer, a move which would effectively close off the Persian Gulf as an oil-producing venue indefinitely. The Iraq War hasn’t just reduced oil production in Iraq, the world’s third-biggest oil producing nation; it has led to fears of a much wider disruption in oil supplies from Iran, Kuwait and Saudi Arabia--and oil investors make their price decisions based on future prospects, not on current usage.
Second, the administration’s obsession with waging a vastly unpopular war has led it to avoid doing anything that might cause the American public to feel pain from that conflict. That would include trying to mandate any kind of reduction in oil demand in the US, by for instance increasing the tax on gasoline, or mandating improved mileage standards for automobiles and trucks.
Much of the rise in oil prices, of course, is only being felt by Americans, because it is an increase in the dollar price for oil. For Europeans and Asians, whose currencies are appreciating against the dollar, oil prices are not rising, and may even be falling. So to the extent that the massive US spending on a war funded on credit is contributing to the dollar’s collapse, so is that spending leading to the soaring oil prices that are dragging down the domestic economy.
There is another problem with Baily’s argument too, and it is one that many American economists, with their almost religious faith in markets and the identification of people as simply consumers, make. Specifically it is that people are worried by all this war and fear mongering, and people who are fearful do not invest and spend the way people who are confident about the future do.
Dave Lindorff, a columnist for Counterpunch, is author of several recent books ("This Can't Be Happening! Resisting the Disintegration of American Democracy" and "Killing Time: An Investigation into the Death Penalty Case of Mumia Abu-Jamal"). His latest book, coauthored with Barbara Olshanshky, is "The Case for Impeachment: The Legal Argument for Removing President George W. Bush from Office (St. Martin's Press, May 2006). His writing is available at http://www.thiscantbehappening.net
Thank you for writing such an insightful piece. I a member of MoveOn.Org and we are submitting findings from a poll done in my state (South Carolina) that shows voters in SC believe that the billions being spent for the war is damaging the economy here at home. We will be presenting this to one of Bushes "disciples" Lindsey Graham at his office here in Rock Hill on Thursday April 24th. I would love to sight your article and get it in as many hands as possible that day, as well as send this article to everyone I know. Again, thank you and keep pressing this most important issue!!
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enid dennis (1 articles, 0 quicklinks, 0 diaries, 4 comments)
on Monday, April 21, 2008 at 12:26:41 PM
If this were so, wouldn't our president act accordingly. No, he acts to protect and defend the citizens of this great and glorious country, this city on a hill. If he chopped down the cherry tree, he wouln't tell a lie!
Get on the band wagon and help the neo-cons save us from the hordes of the nefilim. Those nefarious conspiracy freaks, who shame the good, and loyal among the flock, They should be made to pay dearly for their distortions of the truth.
Do you remeber the tune that was on everyone's lips that caught the true patriotism and the family values of the late fifties, when Ike lead us out of the wilderness into the promised land!
Catch a falling pol and put him in your pocket, save him for a rainy day.
Catch a falling pol and line gold in his pockets, never let him get away.
Cause K Street will come and tap him on his shoulder, and he'll have a pocket full of dirty dollars.
So catch a falling politico and save him so he'll vote your way.
Wolfie wags his tail at you bad pups.
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Wolfie (8 articles, 0 quicklinks, 9 diaries, 972 comments)
on Monday, April 21, 2008 at 10:31:55 PM
It's not just the "cost of war"; it's the cost of MILITARISM
The real military budget, the one that includes all the hidden costs tucked away in the many nooks and crannies of our government, exceeds $1.1 trillion per year. Iraq spending is an important chunk of that to be sure. Our battle, however, should not be narrowly defined and focussed on the ravages to the economy that endless Iraq spending has caused. The "greater enemy" is militarism itself.
In this article, noted author Chalmers Johnson expounds on this theme:
There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.
Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures -- so-called "military Keynesianism," which I discuss in detail in my book Nemesis: The Last Days of the American Republic. By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.
Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs," things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs -- an infinitely more efficient use of scarce resources than arms manufacturing. Let me discuss each of these.
If we define our struggle too narrowly, i.e. our opposition to the continued costs associated with the occupation of Iraq, I fear we will never bring about the changes in the national mindset we really need. It's time to engage in a serious national dialog about what our spending priorities should be. What expertise exists that could argue against a 75% reduction in "defense" spending? Who can properly weigh the risks of global warming against foreign military threats and set national spending priorities accordingly? Who can justify the maintenance and associated costs of more than 730 US military bases on foreign soil all over the world?
Militarism, not just the war and occupation in Iraq, is bankrupting the nation. Until we are able to look beyond the "tough on defense" mantra and demand real changes in our national spending priorities, America and Americans will continue to circle the drain.
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welshTerrier2 (7 articles, 3 quicklinks, 4 diaries, 105 comments)
on Monday, April 21, 2008 at 3:29:33 PM
That was why I mentioned the $0.43 per dollar of taxes that goes to military spending. But in this article I was specifically responding to the article in the NY Times about Iraq War spending and the US economy and oil prices.
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Dave Lindorff (300 articles, 0 quicklinks, 1 diaries, 143 comments)
on Monday, April 21, 2008 at 3:59:22 PM
The US economy is so intertwined with the Military Industrial Complex - it's so intertwined.
Sad part is, as our economy is melting down, so much of it relies on the MIC that they have to keep using "fear, war and the threat of fear and war" to keep us allowing them to pump money into the war machine.
When are we going to have had enough?
Interested in finding out more about the total military budget, break down by Congressional district... they seem to have their hands in every Congress person's district, lobbying our government 24/7/365 - how do we turn the tied, when our collective taxpayer money is being used against us so effectively?
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August Adams (10 articles, 0 quicklinks, 1 diaries, 387 comments)
on Monday, April 21, 2008 at 7:03:50 PM
The pinch on people's pockets, turned into a squeeze, and is morphing into a death grip. More articles like this are needed to expose the Thief in Chief.
Unfortunately, a great many have lost their powers of discernment prior to losing everything. You're pointing in the Right Direction, Sir!
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boomerang (0 articles, 0 quicklinks, 0 diaries, 203 comments)
on Monday, April 21, 2008 at 8:35:16 PM
