A new CBS/New York Times poll asked:
“From what you know, how much do you think the cost of the war in Iraq has contributed to the U.S. economic problems: a lot, some, not much or not at all?”
Harvard economist Greg Mankiw responds:
I have never taken a public position on the Iraq war: The issue is a hard one, and foreign policy and military matters are well beyond my area of expertise. But I am confident that it would be a mistake to view the war primarily through the lens of economics. My guess is that if this poll question were asked of professional economists, most would answer “Not Much.”
Paul Krugman agrees, he writes: “I’d say that the sources of the economy’s expansion from 2003 to 2007 were, in order, the housing bubble, the war, and — very much in third place — tax cuts.”
One can make a strong argument that the costs of the Iraq war harm the economy in the long term - the deficit, and the opportunity cost, for example. But its very difficult to make the case that the Iraq war has harmed todays economy.
According to Ron Paul almost every war that has ever been fought by a government of some sort was paid for with inflation. Oil was $27 per barrel when we went in to Iraq. Today it’s around $110. Wheat prices advancing rapidly, as are corn prices, metals, other commodities. You don’t think that impacts the economy?
I agree with Jon. It is not difficult to pinpoint how the Iraq War has impact today’s economy. For starters, consider the death benefits the Armed Forces must pay to the families of all those dead soldiers who were deployed to Iraq. Even the financing of our debt to Chinese banks is affecting the current value of our dollar. It is so low Europeans are coming here on shopping sprees the way Americans drive to Mexico or the South to buy cheap clothing. Our dollar can buy less than it did before, yet our paychecks are not being adjusted to reflect that inflation. In fact, I do not even consider President Bush’s “stimulus package” to be anything more than his attempt to refund our tax money in numbers adjusted for inflation.
But prices are still going up, including the $4 for a gallon of gasoline. We used to make fun of the Europeans for having to pay $4 a gallon of gasoline.
There is no argument that our national debt (to which the Iraq invasion contributes greatly) will eventually hurt us in the long run. I joke that the U.S. shouldn’t spend money building a wall across the U.S.-Mexico border, since in 10 years our economy will be so bad Americans will be sneaking into Mexico for jobs, and the Mexican government will then use our own wall against us.
A more serious threat of our rising national debt is that billions of it is financed by Chinese banks, which are partially owned by the Chinese government. If you dive into European history you will find many French territories that used to be Italian, and parts of Germany that have French names, and so on. Many times in history, national governments have ceded land to other countries as a way to pay off old debts to other countries.
What would happen if 10 years from now, China started calling in their debts, and the U.S. would be in no condition to pay their outstanding debts? Obviously we would begin by ceding to China U.S. territories in Asia like Guam and American Samoa and the Northern Mariana Islands, but what if that debt wasn’t enough? Could we possibly part with Hawaii? What if the Chinese offered a large scale debt settlement deal in exchange for the U.S. territory of their choice? These are questions the next generation of Americans may very well face. Long-term national by itself is not necessarily a bad thing, but when the debt is large than your annual income and you continue to spend, spend, spend and simultaneously offer corporate and personal welfare and cut taxes, it’s a real problem. The only alternative to selling off U.S. property would be to triple federal taxes or, God forbid, curtailing our spending habits, neither of which I feel the U.S. government wishes to do.
Another nightmare scenario in my mind (maybe I smoke too much pot) could serve as a third alternative to selling U.S. territory to the Chinese is that if China calls in their debt say, 10 years from now, the United States may go into a type of national bankruptcy and the 50 states break away into sovereign nations so that a particular region of the U.S. will only be responsible for their share of the national debt. Perhaps groups of states will band together to form a new nation while some states will decide to be their own country. While this may sound like a practical solution to our debt problem, it will do irrevocable historical, social and political damage to this land and the people who consider themselves Americans. The experiment set forth by the framer of the Constitution will have failed.
My question to you, HP and Jon, is when exactly will this economic and political nightmare we’re creating with all the accumulated outstanding debt come to fruition? Will it be 10 years for now? 20 years? 100 years?
My grandfather had a saying. “When it come to finances, you have to plan for the future as if you actually plan to be around in the future.” And I think the federal government is spending money as if the U.S. is not going to be in existence 100 years from now.
Jon,
Wheat prices advancing rapidly, as are corn prices, metals, other commodities. You don’t think that impacts the economy?
I do…but that has more to do with ethanol subsidies than the iraq war, see here.
INTOO,
Yes, imports are more expensive but exports are cheaper. Also, while this may have inflationary costs in the long run, in the short run that has not been the case - atleast not significantly.
Remember, I specifically distinguished between long term economic problems (which, one can make a case for) vs. short term economic problems. My only point here is that the iraq war has not caused any…atleast not anything significant…problems for our current economy. On the contrary, as the Krugman quote states, the argument is stronger that the iraq war has helped our short term modern economy.
INTOO, I can’t say how much longer we have, but I do think we can’t sustain this idefinitely. And since politicians do not have the will to slow the spending down, nor do they have the will to tax Americans and make us actually pay for all the government expenditures, I can only see this ending badly. They will print more and more money to pay for this war and other things. Foreigners are wising up and realizing the dollar is not what it used to be. Iran is now trading in non-U.S. currency. I just read that Russia will switch away from the dollar in May for their oil sales. People don’t want to do exchanges with our currency any more because they recognize how inflation has destroyed it.
Our standard of living has been great, because foreigners are willing to accept our paper currency because they trusted that it had real value. As that trust erodes look for the trade deficit to change and our standard of living to drop. Basically we’ll have to work like the rest of the world does.
HP, rice is up radically. Platinum, gold, silver, wheat. We’re seeing across the board inflation. I don’t think ethanol explains the whole story. Also, the demand for ethanol is spurred by the increase in the price of oil as your article indicates. Oil is flat as compared to a gold standard of money over the last 10 years. In 2002 it cost 80 cents to buy one euro. Today it’s something like $1.60. Ethanol demand is not explaining that.
I think we’re all talking past each other here. In the short term it’s generally true that government spending (including military spending) is not detrimental, and can even be beneficial (especially during recessionary periods).
However, in the long term, government spending (including military spending), especially when it is borrowed money, is a bad, bad thing. That will be the case with the Iraq War spending, just as it is the case with Medicare spending.
HP,
Thanks for putting me back on track. I was ranting about long-term damages from the Iraq War whereas you specifically asked for examples of short-term outcomes.
Again, I feel the current devaluation of our currency, even if not significant, is directly related to our nation’s tremendous national debt. While the Iraq War cannot be blamed for all of the debt incurred since 2003, it is certainly a contributor. We were originally told by the Bush Administration that Iraq’s oil reserves would pay for the war, but if that were true this war wouldn’t be financed on credit.
I also think a good chunk of the money the feds had to spend in New Orleans following the destruction of Hurricane Katrina could’ve been avoided if the New Orleans or Texas branches of the Army National Guard had not been deployed to Iraq. Even the Coast Guard has some of its resources in Iraq. It is not hard to see that the Coast Guard and National Guard were understaffed in Louisiana. According to the Boston Globe, (http://www.boston.com/news/weather/articles/2005/09/11/chronology_of_errors_how_a_disaster_spread/?page=6)
40 percent of Louisiana’s National Guard was serving in Iraq in September 2005. While 60 percent is still a lot, we’re talking several thousand troops being stationed in Iraq instead of Louisiana.
Of course, many other factors played a role in the lack of preparedness for that natural disaster, but the lack of National Guardsmen is definitely noticeable. In fact, I believe National Guard troops showed up in New Orleans a day or two after the city was hit, and Bush had to authorize a $10 billion aid package, which probably would’ve been lower if a sufficient number of National Guard troops had been there to begin with. Then again, part of the reason they took so long to show up in the first place was because Bush took so long to declare the Gulf Coast a disaster area.
The Bush Administration and Congress were going to increase our national debt whether or not we had invaded Iraq. It’s what we were going to buy on credit anyway that was instead spent on the invasion of Iraq. Federal welfare programs such as subsidized housing had to tighten their budgets. Consider other federal programs such as job training and veterans’ benefits which have also been cut. I’m surprised federal funding for higher education grants haven’t been touched, of maybe Bush is saving that for FY 2009. Say what you want about entitlement programs, but these cuts have made life a lot harder for the poorest Americans, and given the fiscal irresponsibility of the federal government prior 2003, funds borrow to fuel the Iraq invasion most likely would’ve gone to fund federal entitlement programs such as these.
I know the Katrina example is about three years too late, but it’s a good example of how the Iraq War has affected us economically so far. As I and Jon and others here have shown, the current economical impact we endure now as a result of the Iraq War is absolutely minute compared to what lies for us ahead.
I’m Not The Only One; The better question that you should be asking is? What is the long term impact of the democrats trying to make this administration look bad with in the international community?
A nuclear middle east. It seems that the democrats’ quest for power back no matter what the cost has made the ENTIRE world way more dangerous. Power no matter what the price is just too high.
Fernando,
Sorry I took so long to reply.
This is why I’ve lost my faith in the Democratic Party. As W.E.D. DuBois once said, “There will always be more money to be made from the problem than from the solution.” I think the Democrats have feigned opposition to the war in Iraq so that they can continue to make the Bush Administration and the GOP look bad. I think the Democrats have allowed the GOP and the Bush Administration to do whatever the hell they want and pretended to oppose them while making themselves look better in the process.
Perhaps this is some sort of tactic to ensure a Democrat victory in the 2008 Presidential election, but the means do not justify the end. And if this really is the case, then it means the Democrats are no better than the Republicans. Just like George W. Bush, the Dems’ allegiance to their political party is far stronger than their allegiance to their country.
This is why so many people, including libertarians like myself, believe the Democratic Party is in cahoots with the Republican Party. Even Osama bin Laden famously pondered in one of his last videos why have the Democrats failed to stop the war despite regaining a majority in Congress. The Democrats have effectively portrayed themselves as opponents of the Iraq War, but when they actually have the power to end it, they sit back and do nothing.
As for the long-term impact with the international community, I believe many non-Americans see the Democratic Party as either a lame duck organization or someone who is being bribed by the Republicans with either money, power or both to sit back and do nothing.
I should also mention that there have been several instances in history of dictatorships (like where the head of state declares himself “President for Life”) in which the country’s citizens call for open elections and the ruling party creates a dummy opposition party that makes a lot of noise and assembles large rallies of people but in the end tend to disappear. People in the international community, especially those who have lived in totalitarian regimes may very well see the Democratic Party as a dummy opposition party created by the Republicans.
Not to change the subject, but I do wish to bring up another war being waged by Republicans and Democrats sit back do nothing to end.
This war which gets almost no press is the War on Drugs, another misguided war our government has been fighting for 30 years and very much affects the international community. Most people think the WOD only concerns our domestic policy and only harms Americans. This is incorrect.
One of the initiatives of the WOD is that the DEA identifies source countries (countries where the illicit drugs we consume are manufactured) such as Colombia and Afghanistan and pays those countries’ governments to arrest those who are making those illegal drugs. The situation in Afghanistan, where the poppy plant is grown and mashed into a fine paste to later make into heroin, is interesting to say the least.
The Afghani government, paid off by the DEA, cracks down on those poppy farmers, who basically do this work because there is no other means of employment in this war-torn country. The Afghani soldiers destroy the entire harvest. The poppy farmers who haven’t been arrested flee to the part of Afghanistan that is controlled by the Taliban, not the government. In exchange for protection, the poppy farmers pay tribute to the Taliban, so both parties benefit from the exchange. In this sense, because of the buying off of the Afghani government, heroin does indirectly fund terrorism.
The situation in Colombia is interesting as well because that country is in a civil war which has gone on for at least 20 years. The situation is very much the same as in Afghanistan, where the Colombian government is given US tax dollars to crack down on the cocaine makers in that country. The cocaine makers seek refuge from the rebels, who have been fighting the Colombian government for many years and have turned much of the country into a battlefield. The drug makers flee to the parts of Colombia that are controlled by the rebels and pay tribute to the rebel forces in exchange for protection from the government. The rebels use the tribute from the drug makers to hire troops and buy weapons to keep fighting the Colombian government. Everyone in Colombia, and much of Latin America as well, understand the USA is funding the Colombian government and our consumption of drugs are in fact funding the rebels and as a result keeping that country’s civil war alive and well with both sides well armed and well funded.
As a result, in the last decade or so, more Latin American countries have elected politicians who are either socialist, communist or fiercely anti-American. Because of the cold relationship between Cuba and the US, I feel many Latin Americans interpret being communist, marxist, socialist, whatever you want to call it, as being anti-American, and people sign on to this shit. This is why you have people like Hugo Chavez in power, and he will not be the last left-leaning head of state to be elected to power in Latin America.
Just like the War on Terror, the War on Drugs (which was launched by Republican President Richard Nixon in the 1970s) is another Republic-driven initiative that the Democrats have done absolutely nothing to stop, probably for the same reasons.
The immediate impact of anything done with borrowed money isn’t going to be significant. But the opportunity costs are immense. The war will eventually have 3 trillion direct costs for the U.S. and about the same for Britain. Three trillion pays for a tremendous amount of infrastructure improvements (not to mention U.S.-based jobs). Let’s see if the U.S. tax-payers manage to come up with even 1 trillion (about what’s needed) to fix the U.S. infrastructure in the coming years.