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September 13, 2002
Paul Krugman on the "Economic Rationale" for War Against Iraq
Perhaps the stupidest things written about what action should be taken in response to Iraq's flouting of U.N. resolutions on its armaments are Larry Kudlow's cry to invade Iraq to raise the Dow and John Podhoretz's cry to invade Iraq to elect more Republicans to Congress in November. Here Paul Krugman takes on the mostly-whispered claim that a war against Iraq would be "a good thing" for the American economy.
Needless to say, policy should rest on whether Saddam Hussein is the successful object of containment policies--a cautious tyrannical madman--or is likely to develop and use weapons that will turn New York or Tel Aviv into abattoirs, not on its effect on the year-over-year growth rate of real GDP.
Stocks and Bombs: ...World War II is a very poor model for the economic effects of a new war in the Persian Gulf. On balance, such a war is much more likely to depress than to stimulate our struggling economy. There is nothing magical about military spending — it provides no more economic stimulus than the same amount spent on, say, cleaning up toxic waste sites. The reason World War II accomplished what the New Deal could not was simply that war removed the usual inhibitions. Until Pearl Harbor Franklin Roosevelt didn't have the determination or the legislative clout to enact really large programs to stimulate the economy. But war made it not just possible but necessary for the government to spend on a previously inconceivable scale, restoring full employment for the first time since 1929.
By contrast, this time around Congress is eager to spend on domestic projects; if the administration wants to pump money into the economy, all it needs to do is drop its objections to things like drought aid for farmers and new communication gear for firefighters. In other words, if the economy needs a burst of federal spending, neither economics nor politics requires that this burst take the form of a war. And in any case it's not clear how much stimulus war would provide. One assumes that the necessary munitions are already in stock, so there will be no surge in factory orders. There will be spending on peacekeeping — won't there? — but it will be spread over many years.
Meanwhile there is the potential economic downside, which may be summed up in one word: oil. Iraq itself currently supplies so little oil to the world market that wartime disruption of its production would pose little problem. But neither the Arab-Israeli war of 1973 nor the Iranian revolution of 1979 directly affected oil production. Instead, the indirect political repercussions of conflict were what caused oil prices to surge. This time around, Arab leaders have warned that an invasion of Iraq would open the "gates of hell." That doesn't sound good for the oil market.
It's worth remembering that each of the oil crises of the 1970's was followed by a severe recession — and that the milder oil price spike before the gulf war was also followed by a recession. Could rising crude prices undermine our weak economic recovery, creating a double-dip recession? Yes. None of this should deter us from invading Iraq if the administration makes a convincing case that we should do so for security reasons. But it's foolish and dangerous to minimize the potential economic consequences of war, let alone claim that it will be good for the economy.
September 13, 2002
Stocks and Bombs
By PAUL KRUGMAN
his stock-market situation — what are the military options?" That was the caption of a New Yorker cartoon last month. But these days reality has a way of outrunning satire; way back in June the CNBC pundit Larry Kudlow published a column in The Washington Times with the headline "Taking Back the Market — by Force." In it he argued for an invasion of Iraq to boost the Dow.
Pretty amazing stuff, though not as amazing as a July column in The New York Post by John Podhoretz, whose headline read "October Surprise, Please," followed by the injunction "Go On, Mr. President: Wag the Dog."
In general it's a bad omen when advocates of a policy claim that it will solve problems unrelated to its original purpose. The shifting rationale for the Bush tax cut — it's about giving back the surplus; no, it's a demand stimulus; no, it's a supply-side policy — should have warned us that this was an obsession in search of a justification.
The shifting rationale for war with Iraq — Saddam Hussein was behind Sept. 11 and the anthrax attacks; no, but he's on the verge of developing nuclear weapons; no, but he's a really evil man (which he is) — has a similar feel.
The idea that war would actually be good for the economy seems like just one more step in this progression. But one must admit that there are times when war has had positive economic effects. In particular, there's no question that World War II pulled the United States out of the Great Depression. And today's U.S. economy, while not in a depression, could certainly use some help; the latest evidence suggests a recovery so slow and uneven that it feels like a continuing recession. So is war the answer?
No: World War II is a very poor model for the economic effects of a new war in the Persian Gulf. On balance, such a war is much more likely to depress than to stimulate our struggling economy.
There is nothing magical about military spending — it provides no more economic stimulus than the same amount spent on, say, cleaning up toxic waste sites.
The reason World War II accomplished what the New Deal could not was simply that war removed the usual inhibitions. Until Pearl Harbor Franklin Roosevelt didn't have the determination or the legislative clout to enact really large programs to stimulate the economy. But war made it not just possible but necessary for the government to spend on a previously inconceivable scale, restoring full employment for the first time since 1929.
By contrast, this time around Congress is eager to spend on domestic projects; if the administration wants to pump money into the economy, all it needs to do is drop its objections to things like drought aid for farmers and new communication gear for firefighters. In other words, if the economy needs a burst of federal spending, neither economics nor politics requires that this burst take the form of a war.
And in any case it's not clear how much stimulus war would provide. One assumes that the necessary munitions are already in stock, so there will be no surge in factory orders. There will be spending on peacekeeping — won't there? — but it will be spread over many years.
Meanwhile there is the potential economic downside, which may be summed up in one word: oil.
Iraq itself currently supplies so little oil to the world market that wartime disruption of its production would pose little problem. But neither the Arab-Israeli war of 1973 nor the Iranian revolution of 1979 directly affected oil production.
Instead, the indirect political repercussions of conflict were what caused oil prices to surge. This time around, Arab leaders have warned that an invasion of Iraq would open the "gates of hell." That doesn't sound good for the oil market.
It's worth remembering that each of the oil crises of the 1970's was followed by a severe recession — and that the milder oil price spike before the gulf war was also followed by a recession. Could rising crude prices undermine our weak economic recovery, creating a double-dip recession? Yes.
None of this should deter us from invading Iraq if the administration makes a convincing case that we should do so for security reasons. But it's foolish and dangerous to minimize the potential economic consequences of war, let alone claim that it will be good for the economy.
Posted by DeLong at September 13, 2002 11:00 AM
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What is astonishing is how prominent a commentator can become offering such asurd commentary. Back to the future, I guess....
And so I am forced to resort once again to pointing out the question of "and then what"?
Let's suppose Bush gets his war. Let's even suppose that it's successful, and that the Dow rises in response. And then what? What has been shown to the world is that not only does America feel that it can attack any country it wants, any time it wants, but that it will do so for such ridiculous reasons as to enrich a few, or to get a few politicians elected.
So what's the sensible response of any country in the world that is NOT the US? To climb under a nuclear umbrella---either Russia's or China's. As I've said before, if I were Saudi Arabia or Iran or Sudan or Nigeria, right now I'd have foreign ministers flying to Beijing arranging an accord whereby the Chinese get preferred access to the oil when they need it, ten or fifteen years from now, in return for a nuclear shield.
Not to mention, of course, the Fano'esque justification (and it IS a justification, not just a rationalization) for beating the snot out of anything or any person American, at home or around the globe, by anyone pissed off at the world.
Don't worry, Sir. You'll your cable news war. It's not like Bush was trying to decide whether bombing and invading Irak is a good idea....
John Maynard Keynes: "It is our duty to prolong peace, hour by hour, day by day, for as long as we can [...] If we are at peace in the short run, that is something. The best we can do is put off disaster."
Or that other brilliant Englishman Chamberlain "peace with honour. I believe it is peace in our time."
To bad the military dictators, then or now, don't agree with the "peace at any price" crowd.
I meant "Don't worry, Sir. You're going to get your cable news war."
P.S. It's really too bad Movable Type does not seem to allow people either to spellcheck or to change their comments after posting. Something for their soapbox, I guess...
Brian: Thanks for the greate Keynes quote. What about a "war at any price" theory instead? ;-)
And some people still get surprised when there are terrorists attacks in NY and not in Madrid, Roma or Kopenhavn.
Just to even talk about attacking Iraq because it would possibly raise the Dow is so damn awful I don't know what to say. Someone with that philosophy need to get in touch with reality, maybe to move his big rear end outside Washington or New York for a short while. I like most americans and USA, but I have to agree with the comment above: Just the fact that an argument like this one is "allowed" to a serious debate is why the terrorists are attacking Washington and New York, and not Berlin, Paris, Brussels, Milan or Zürich or any other city in western Europe.
//Mikael S, Student, Milan, Italy.
Hello, gents. As usual, my Dead Tree edition did a miserable job of providing links, in this case to Kudlow and Podhoretz. So, the Kudlow column is here, reprinted at the always engaging Town Hall. The Podhoretz piece is now in a premium archive, but here is a Podhoretz Archive abstract, and here is a lefty blogger (but a great guy) with another excerpt - DailyKos on Podhoretz.
Fascinating. Kudlow says:
"Could it be that a lack of decisive follow-through in the global war on terrorism is the single biggest problem facing the stock market and the nation today? I believe it is.
There has been a big drop in the American spirit.... Osama bin Laden and his evil followers have survived and regrouped, and are getting ready to hit us again. Sept. 11 may not be the seminal event. A new calamity may befall us, one that will surely close our businesses, shut our financial markets, block basic family security and inflict unimagined pain on the nation. The down market is a manifestation of the pained expressions on our faces."
And so on. A nation in fear, not a nation needing to put people back to work. Might want to rethink the perp walk for Larry.
Notice that P Krug didn't, strictly speaking, mis-state Kudlow's reasoning - folks just jumped to a poor conclusion.
With Podhoretz there are fewer clues as to what he might have said, unless some big hitter here wants to spring for the premium piece and violate copyright by posting it. Although I suppose generous excerpting is OK. However, from what I saw, he ought to be smacked upside the head.
Great weekend, all.
Regards,
PS: Odds on my lame HTML working?
I hope Max Sawicky reads:
" And some people still get surprised when there are terrorists attacks in NY and not in Madrid, Roma or Kopenhavn.
"Posted by bordon at September 13, 2002 07:55 PM"
But Max was not all wrong.
Far left characters in the US/UK have not been saying that the US had it coming.
The ones saying that are mainstream, right or left characters outside the Anglosphere, in places as different as Spain, Scandinavian countries and Latin America and those are the only ones I know (I do not know what the reaction was in Asia or Africa).
War, obviously, has economic impacts and consequences. But war is not essentially an economic question. If there were a genuinely arguable reason for war--true self-defense--it could have negative economic consequences and still be the lesser of evils. But it is far past time to broaden our vision of humanity and not relate everything to national interests or the particular nation that we were born in or live in. Wars that kill and mutilate people, destroy economies, make many homeless, and destroy eco-systems are not in the interests of humanity no matter who gains the "spoils".
It's clear that previous views of that which is in "our" best interests being a matter of which country we live in are being superceded by a far larger identification of interests. If I am a middle class person, a working class person, or a person living in poverty, I have more in common with similar people in our countries than I do with isolated, powerful elites in my own country who will do and can do whatever they attempt in order to further their own financial, commercial, or corporate interests. I have more in common with people I know and have as friends in India, Brazil, Argentina, France, and other countries who share similar values, hopes, family interests, and professional development than I have with the leadership of the U.S. in corporate and governmental structures that don't care about me or what is best for me and mine.
This is true for almost any country. The elite leadership who have the power to make decisions seem most of the time not to act in the best interests of all their fellow countrymen. In fact, they tend to create their own constituencies that are not bound by national boundaries. Blair unites with Bush who unites with the Saudi royal family, who links to... Well, you get the idea. Unquestionably each resorts to "nationalistic" rhetoric to justify what they are doing, saying that they are working in behalf of their own nation or people, but it is clear that this is not the case. They take care of themselves and, in fact, create a virtual nation made up of powerful interests from any and all nations. The interests of the "average" person or the "common" man or woman are lost in this new high-tech scheme of "nation" building.
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
NON A LA GUERRE EN IRAK!
To those opposed to the war... don't worry you will get your smoking gun this very week when Collin Powell gives his presentation to the UN. You must realize that up until now showing that information that is a smoking gun has been impossible. Why is that you ask? We have operatives that are undercover fighting for the very rights that we here exercise freely on this page. Freedom is that right and ideal for which those undercover operatives fight for.
War is never a good thing, but there are people that need to be stopped. How can anyone defend Saddam in there right mind? Killing his own family members, setting fire to Kuwait oil wells, gassing his own people, Saddam is more than an evil man. I could go on, just take a look at his life; he is power hungry he will do anything to rule. Rule he does, by fear and intimidation. God allowing when those people are set free, democracy will have a voice, the people will be free. Free the way that the world just witnessed how the people of Afghanistan were set free from the oppression of the Taliban!
To those opposed to the war... don't worry you will get your smoking gun this very week when Collin Powell gives his presentation to the UN. You must realize that up until now showing that information that is a smoking gun has been impossible. Why is that you ask? We have operatives that are undercover fighting for the very rights that we here exercise freely on this page. Freedom is that right and ideal for which those undercover operatives fight for.
War is never a good thing, but there are people that need to be stopped. How can anyone defend Saddam in there right mind? Killing his own family members, setting fire to Kuwait oil wells, gassing his own people, Saddam is more than an evil man. I could go on, just take a look at his life; he is power hungry he will do anything to rule. Rule he does, by fear and intimidation. God allowing when those people are set free, democracy will have a voice, the people will be free. Free the way that the world just witnessed how the people of Afghanistan were set free from the oppression of the Taliban!
To those opposed to the war... don't worry you will get your smoking gun this very week when Collin Powell gives his presentation to the UN. You must realize that up until now showing that information that is a smoking gun has been impossible. Why is that you ask? We have operatives that are undercover fighting for the very rights that we here exercise freely on this page. Freedom is that right and ideal for which those undercover operatives fight for.
War is never a good thing, but there are people that need to be stopped. How can anyone defend Saddam in there right mind? Killing his own family members, setting fire to Kuwait oil wells, gassing his own people, Saddam is more than an evil man. I could go on, just take a look at his life; he is power hungry he will do anything to rule. Rule he does, by fear and intimidation. God allowing when those people are set free, democracy will have a voice, the people will be free. Free the way that the world just witnessed how the people of Afghanistan were set free from the oppression of the Taliban!