INCREDIBLY, even at this late date, your WHITE HOUSE WAR CRIMINAL has
yet to utter the word "RECESSION" except in the context of discussions
about his IQ.
But some genuinely smart people are blaming the costly war for
everything that ails the flagging "American" economy.
And only the neo-cons are saying, "SO?"
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"Economists Debate Link Between War, Credit Crisis"
By Jonathan Weisman
Wa****ngton Post Staff Writer
Tuesday, April 15, 2008; A03
For House Speaker Nancy Pelosi, the connection between the Iraq
conflict and the U.S. economic downturn is simple: "The president has
taken us into a failed war," the California Democrat said recently.
"He's taken us deeply into debt, and that debt is taking us into
recession."
This *****sment was put to powerful political effect in the latest
congressional hearings on the war, when Democrats and Republicans
alike told Army Gen. David H. Petraeus that the oil-rich Iraqi
government should relieve the United States of the conflict's
financial burdens. And Sen. Barack Obama (Ill.) echoed the theme
yesterday at a manufacturing forum in Pittsburgh.
"If we can spend $10 billion a month rebuilding Iraq," the Democratic
presidential contender declared, "we can spend $15 billion a year in
our own country to put Americans back to work and strengthen the long-
term competitiveness of our economy."
But this logic may have more political salience than economic
validity, according to many economists, who say that the assertions
linking the five-year-old conflict in Iraq to the domestic economic
slide have been oversimplified.
"You should sup****t the war or oppose the war, which I do and have
done from the start, on the merits of the war itself," said Martin N.
Baily, a former chairman of President Bill Clinton's Council of
Economic Advisers. But, he added, "the current problems the United
States is facing have very little to do with the war in Iraq."
Even so, the theme resonated in Congress last week. "We're kind of
bankrupting this country," Sen. George V. Voinovich (R-Ohio) told
Petraeus, the top U.S. military commander in Iraq, and Ambassador Ryan
C. Crocker. "We're eating our seed corn. We're in a recession, and God
only knows how long we're going to be in it."
The link between Iraq and the downturn reflects a growing public
perception that individual economic anxieties must stem somehow from
the unpopular war -- a unified theory of political misery, said Peter
D. Hart, a Democratic pollster.
"It's a sour economy, it's a sour mood and it's a sour situation in
Iraq," he said. "The public has for the last two years been told about
the cost of Iraq in terms of human life. But then there was a direct
and im****tant switch, when we went into what I call the surge period,
where the budget costs became front and center. While the
administration was touting military successes, what the American
public saw directly were the costs."
Joseph E. Stiglitz, a Nobel Prize-winning economist who wrote the new
book "The Three Trillion Dollar War," contends that the connection is
real. Even with a growing energy demand from China, the United States
and elsewhere, oil traders anticipated before the war that the price
of oil would remain about $25 a barrel. Instead, it has soared to more
than $100 a barrel. Iraqi oil production has not risen with demand, in
part because investment in the Middle East has been stunted by war-
related unrest.
Those price increases are self-perpetuating, Stiglitz argues. Oil-rich
Persian Gulf states are so awash in money that they are not sure what
to do with it all. By holding back oil production, they make more off
what they do produce and keep their greatest asset -- oil -- in the
ground as they search for ways to spend their cash.
That cash, through state-owned sovereign wealth funds, has flowed into
stocks, bonds and other investments, creating incentives for lenders
to offer low-interest loans, many of which have now gone sour.
But that is only one factor, by Stiglitz's accounting. The federal
government has sunk deeply into debt, first with tax cuts, then with
accelerating war expenditures that have easily topped half a trillion
dollars. That limited the government's ability to keep the economy on
track through tax cuts or domestic investments, so the Federal Reserve
Board used low interest rates and the free flow of money to keep the
economy growing. Cheap credit sparked rash loans, a housing bubble and
the current crisis.
"The war played a very im****tant role," Stiglitz said.
To economists on the left and the right, his analysis strains
credulity. Traditional economics hold that large budget deficits
"crowd out" private lending, raising interest rates and making lending
scarce, not profligate.
"The credit crisis we got into is because of the housing boom, the
relaxation of lending standards and certainly a lack of adequate
supervision," Baily said. "I don't see a connection with government
borrowing."
And most economists still think that oil prices are soaring because of
rising demand, not constrained supply.
"I guess you can argue there's been a contagion of foolishness"
sparked by a spendthrift federal government, "but that seems like a
stretch," said Kevin A. Hassett, an American Enterprise Institute
economist and an adviser to Sen. John McCain (Ariz.), the presumptive
Republican presidential nominee.
Republicans have tried their best to beat back the argument before it
takes hold, even citing one of their ideological nemeses, Princeton
University economist and liberal New York Times columnist Paul
Krugman, who has raised doubts about any link between the war and the
credit crunch.
"While both parties agree that middle-class families and small
businesses are struggling with skyrocketing costs of living, this
latest argument from Democratic leaders smacks of political
op****tunism at its very worst," House Minority Leader John A. Boehner
(R-Ohio) said last week.
The analysis is politically powerful because people believe it. A CNN
poll last month found that 71 percent of Americans say government
spending in Iraq is a factor in the economic downturn.
"When you're spending over $50 to fill up your car because the price
of oil is four times what it was before Iraq, you're paying a price
for this war," Obama told an audience last month at the University of
Charleston in West Virginia. "When Iraq is costing each household
about $100 a month, you're paying a price for this war."
The analysis will drive the debate on the $108 billion in additional
war spending that President Bush is now requesting. Congress is set to
begin debate on war funding before the end of the month.
"I think there is a connection between the state of our economy and
Iraq, and what we're spending over there," said Rep. Baron P. Hill
(Ind.), a leading Democratic budget hawk. "We're limited as to what we
can do to stimulate the economy. We're limited as to what we can do on
health care or any other program. We need to spend more money on
infrastructure, on roads and bridges that would have a stimulative
effect on the economy, and we're not doing those things because of all
the money we're spending in Iraq."
http://www.wa****ngtonpost.com/wp-dyn/content/article/2008/04/14/AR2008041402639.html
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