Finally, we're starting to see quite a few more realistic appraisals of the disaster that the Iraq War has become in the mainstream press. And the bare beginnings of a public discussion of what it implies for the United States: politically, economically, for military strategy, for the fight against terrorism.
A news analysis in the current Business Week notes that one option in the few of an unidentied some - they call it "the vision that's starting to emerge," though from whom is not clear - would have a major drawdown of American troops begin around the end of 2005. That's 2005, not 2004. This sounds like the most optimistic scenario that people on all sides of the war issue could agree upon. It's also an optistic phrasing of the reports in the news recently, that the Bush Administration expects to have the current levels of troops in Iraq through the entire year of 2005. (It's a point worth emphasizing.)
How Long to "Stay the Course" in Iraq? Business Week Online 05/24/04 edition (published 05/14/04)
But they observe that even that optimistic scenario would represent a huge defeat for the neoconservative grand strategy behind the Bush Doctrine of preventive war, though they phrase it more generously:
That scenario would scuttle the Bush team's grand design of remaking the Middle East: Washington would settle for stability and security instead. Clearly, a new President John F. Kerry would be more likely to accept that trade-off. Kerry "won't feel the obligation to defend any of the decisions of the Bush Administration," says Jon B. Alterman, a Middle East specialist at the Center for Strategic & International Studies. But even for a reelected President Bush, the benefits of a strategic shift would be substantial. The soaring cost of the mission, already approaching $200 billion, would be capped. So would U.S. casualties. And a withdrawal would remove a major irritant in the Islamic world, help repair strained ties with our allies, and mute charges of imperialism.
Of course, this is the optimistic scenario for the political and military situation. Without a new draft and a drastic expansion of the US military forces in Iraq, it's hard to see how the UScan stay in Iraq for another year and a half, given how badly the situation is deteriorating.
Juan Cole notes in a blog post of 05/16/04 that Iran's chief clerical leader (and therefore most politically powerful official at the current time) Ali Khamenei has explicitly denounced the current US military operations against the sacred cities of Najaf and Karbala. "Iran can easily destabilize Iraq," Cole notes, "and although this speech may be posturing, if it signals a policy shift it could be fateful." Things can get a lot worse in Iraq.
The BW article cited above also notes a grim reality that the Adminstration, the Congress, the lazy and timid mainstream press and the Republican war fans should have taken into account before the invasion of Iraq:
By any measure, this progress is fragile. And the risks of pulling U.S. forces out too soon are enormous. Even at the end of 2005, the Iraqi security forces and the new government will still be in their infancy. They may need a strong sheriff to prevent civil war or dominance by the military. Unless democratic institutions -- the rule of law, political parties, and civil society -- have time to develop, "the security instrument ends up running the whole country," says Francis Fukuyama, a professor at Johns Hopkins University's Nitze School of Advanced International Studies.
Typically, this process takes at least five years. Shorter interventions don't get the job done: Haiti and Somalia plunged back into chaos after brief U.S. stays. Longer missions in Japan, Germany, and Bosnia proved more effective. So an early exit runs the risk of becoming a round trip, with U.S. troops forced to return to Iraq to sort out the mess left behind. That's not the only danger a quick pullout poses. Terrorists may be emboldened if they can portray Uncle Sam as a helpless giant in retreat.
What they don't mention is that a five-year occupation would pretty much blow away the draw-down-troop-levels-at-the-end-of-2005 scenario. Maybe that's why they mentioned Bosnia but omitted Kosovo from their historical references. Achieving an occupation-troops-to-population ration in Iraq equal to that in Kosovo would mean putting up to 600,000 troops there.
There is also no mention here - like in most reports - of the status of Iraq's $120 billion or so in foreign debt. This is what Bush family fixer James Baker is supposed to be renegotiating. The fact that we're hearing nothing about substantial successes on that front is a pretty good indication that there aren't any - or that the terms are so odious the Bush team doesn't want the public to know about them. But if the US can't get a sovereign Iraqi government established recognized as legitimate by the United Nations, the US could be on the hook for Iraq's foreign debts.
Economist James Galbraith has been following the effects of Iraq War spending on the US economy. In a prewar look, he predicted some short-term benefits.
James K. Galbraith, "The Unbearable Costs of Empire", The American Prospect, The Great Latino Hope, November 2002
But he argued that the short-term economic boosts from war spending, which we've now seen realized, actually would divert attention to some serious domestic economic problems: lagging private capital investment; a consumer spending crunch that will eventually result from the current unusually high personal debt levels; the hammering that state and local governments have been taking (which has scarcely abated in the last year and a half); and, lingering major problems due to the effect of fraud and corruption in the financial markets.
His larger point is that the implementation of the neoconservative imperial dream of the United States dominating the world and spreading democracy in the Middle East through Iraq-style wars of liberation has devastating implications for the American and world economies in the long run:
None of these problems will be cured so long as war remains our dominant political theme. But serious though they are, they pale in comparison with the larger problem of the international trade-and-financial order under conditions of permanent war. It is a straightforward fact that if global oil production starts to decline but U.S. consumption does not, everyone else will be required to cut purchases and uses of oil. But how can oil prices be held stable for Americans yetbe made to rise for everyone else? Only by a policy of continuing depreciation in everyone else's currency. Such a policy of dollar hegemony amid worldwide financial instability, of crushing debt burdens and deflation throughout the developing world, is perverse. It will make our trading partners' exports cheap, render their imports dear and keep their real wages low. It will price American goods out of world markets and lead to unsustainable dependence on foreign capital. It will be a policy, in short, of beggar-all-of-our-neighbors while we live alone, in increasing idleness and inside the dollar bubble.
This is the policy that Bush and Cheney are actually imposing on the rest of the world. But they cannot make it last. It will make lives miserable elsewhere, generating ever more resistance, terrorism and military engagement. Meanwhile, we will not experience even gradual exposure to the changing energy balance; we will therefore never make the investments required to adjust, even eventually, to a world of scarce and expensive oil. In the end, therefore, that world will arrive much more abruptly than it otherwise would, shaking the fragile edifice of our oil economy to its foundations. And we will someday face a double explosion: of anger against our arrogance and of actual shortage and collapsing living standards, when the confidence of investors in the dollar finally gives way.
That article of Galbraith's was published while the war fever that the Bush Administration promoted to get their Iraq War has still on the upswing. Now that the war fever has long since broken for most Americans, and the realities of the disaster that the Bush Doctrine has produced in Iraq become more and more clear, maybe the public discussion of some of these problems can become more active.
In the print edition of Business Week for 09/22/03 looked at the economic effects of the Iraq War in an article by Bruce Nussbaum: Iraq: Hard Lessons and How to Use Them (subscription only).
Pentagon officials assumed that a quick victory by "decapitating" the army and the Baathist bureaucracy would leave a functioning society in place. They planned for refugees, but not for looting. And they said Iraq's huge oil reserves would pay for nearly everything.
Facing a different reality, President Bush has called for $87 billion in emergency spending for Iraq and Afghanistan next year, a sum more than twice what Washington spends on K-12 education. And this is on top of $79 billion previously approved by Congress. It appears that it is far cheaper to fight a multilateral war than a unilateral one. America's unilateral foreign policy means the U.S. must foot the entire bill in Iraq unless it can belatedly persuade Europe and Asia to share the burden. In the first Gulf War, U.S. taxpayers shouldered only 7.6% of the total cost. Continued expenditures on Iraq will contribute to huge budget deficits for years to come, threatening future tax cuts and domestic programs such as the Medicare drug entitlement and perhaps fueling higher interest rates. Already, the federal deficit is approaching 5% of gross domestic product.
Nussbaum's commentary on the economic effects of the war are pretty much confined to what Galbraith calls "the conventional arithmetic of fiscal irresponsibility." But even in that more limited range of view, the importance of the war is substantial.
Galbraith has taken a look at the economic implications of the war's current status, too: Iraq war is a dagger at heart of U.S. economy by James Galbraith Newsday 04/29/04
A year ago, the push to Baghdad doubled the economic growth rate and got a recovery started. Now, the literally untold billions in military payrolls and equipment purchases that keep the war going also help to propel our economy along.
This is normal. All wars bring cheerful economic news at first.
He then discusses ways in which the complications of hightened military spending start to set in: production bottlenecks, inflation, aggravation of the trade balance problems, which was severe before the invasion of Iraq.
He also gives us the useful reminder that the Second World War was unusual for the US in that the particular conditions under which it occurred made it economically a very good experience for the US, and deeply ingrained in American thinking the notion that war spending was good for the economy.
And unlike many economists, Galbraith has not lost sight of the importance of energy policy:
By going into Iraq with few allies, we've assumed the entire economic cost. The home-front damage is small now, but it will build over time. And it will take time and effort to repair. The future American economy will especially need a new energy direction, emphasizing conservation and renewable energy, and concerted investment in the world's next generation of technologies - both to reduce our oil dependence and to help balance our trade deficits.
These provides some staggering challenges for either a Bush or Kerry Presidency in 2005-9. Bush seems so firmly committed to a policy of military confrontation abroad, and so unable to admit even obvious failures, that it's not encouraging to think how he would approach the economic repercussions of the failed war policies the next few years. His only energy policy would be further relief for energy firms from environmental laws. I'm sure more tax breaks for corporations and the upper individual brackets.
In recent look at the options for economic policy, Galbraith notes that Kerry's curent plans seem to call for something like Clinton's economic approach, emphasizing restoration of balanced budgets, which did a lot in the 1990s to produce low interest rates which helped greatly with economic growth.
James K. Galbraith, "Bankers Versus Base", The American Prospect, The Wreckage Beyond Iraq, May 2004
Kerry is touting Clinton Tresury Secretary Robert Rubin as the replacement for Federal Reserve Chairman Alan Greenspan. He's also signed on such prominent business names as Steve Jobs, the legendary (if eccentric) Warren Buggett, Lee Iacocca, and Henry Schacht, former CEO of Lucent Technologies. (See Kerrynomics: Any Friend Of Bill's... Business Week 05/24/04 edition).
Galbraith identifies six factors that make the current situation decisively different from the early 1990s, which neither a deficit-reduction emphasis nor the war-related boomlet will fix. These include the problems that he warned a year and a half ago from which attention would be diverted by the short-term fix of war spending: the still-restrained pace of business investment, meaning no new dot.com bubble type phenomenon is likely to come along soon; the high level of personal debt; interest rates have essentially no where to go but up; the unresolved trade deficit problem; and, the effect of the uncertainties of the Bush foreign policy on business investment.
Galbraith wants to see national economic policy focused on several key elements: "sustainable energy security"; protect Social Security benefits by rolling back some of the most egregious Bush tax giveaways to the wealthiest and use the funds to boster Social Security finances; use tax and fiscal policy to provide a more equitable distribution of the gains for international trade; and, create a more stable international financial system.
He emphasizes the latter point:
Perhaps most important, we are going to need a stabilizing reform of the international financial system in the years ahead -- a new system that will promote our advanced exports, and the global development process, and therefore help us to better balance our trade. It is not a change that financiers enjoy contemplating, as it will greatly erode their power. But the dollar-credit system is now more than 30 years old; it is unlikely to last another 30 years whatever we do. Our goal ought to be to manage a tolerable transition -- better for us, and better for the world, than the alternative of a crack-up. We should start thinking about how to do it, and fairly soon.
He also suggests something that may excite only finance geeks, but which is really a good idea. That's to change federal accounting so that there is a separate capital and operating budget. This is the way that states and local governments budget. Without getting into the geekery of a more detailed explanation, it would make the federal deficit calculation more comprehensible and more manageable.
Galbraith not only thinks that deficit reduction is an inadequate strategy, but that even the application short-term stimulus is likely to be limited in its effectiveness. But he has a good brief description of how today's situation differs from that when Bill Clinton took office in 1993:
Back in 1992, the bigbarrier to growth was financial. Banks were recovering from the fiascoes of the 1980s and were unwilling to lend. Businesses and households, on the other hand, were very anxious to borrow. We had a "credit crunch," which Clinton's 1993 budget and Greenspan's monetary policies helped to unstick. After that, the economy grew largely on its own, powered by business optimism and household debt. Today, there is no credit crunch. Our problem is not a shortage of lenders but fear for the future. It is the classic symptom of a creeping depression.
These are the main reasons why job forecasts have been frustrated in the past three years. Economists purport to be surprised about them; we read in the press, repeatedly, that "no one" predicted it. That's not true. Economists who applied a systematic Keynesian framework to current conditions -- notably, Wynne Godley of Cambridge University and the Levy Institute, and this author -- have been issuing warnings on these issues since the 1990s.
And so, a strategy of fixing the deficits first-and-only won't work in 2005. Declining deficit forecasts will not ensure stable, low interest rates. And easy money will not suffice to bring us back to full-employment prosperity. More -- much more -- is going to be needed.
The latter article doesn't specifically address the effects of war spending. It looks instead at the longer-term problems that the war has helped hide, both in short-term stimulus and in distracting political attention from them. To use another finance-geek term, this distraction is part of the "opportunity costs" of the war, the things that could have been done but weren't.
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