Joseph Stiglitz: The war has led directly to the U.S. economic slowdown. First, before the U.S. went to war with Iraq, the price of oil was $25 a barrel. It’s now $100 a barrel.
While there are other factors involved in this price rise, the Iraq war is clearly a major factor. Already factoring in growing demand for energy from India and China, the futures markets projected before the war that oil would remain around $23 a barrel for at least a decade. It is the war and volatility it has caused, along with the falling dollar due to low interest rates and the huge trade deficit, that accounts for much of the difference.
That higher price means that the billions that would have been in the pockets of Americans to spend at home have been flowing out to Saudi Arabia and other oil exporters.
Second, money spent on Iraq doesn’t stimulate the economy at home. If you hire a Filipino contractor to work in Iraq, you don’t get the multiplier effect of someone building a road or a bridge in Missouri.
Third, this war, unlike any other war in American history, has been entirely financed by deficits. Deficits are a worry because, in the end, they crowd out investment and pile up debt that has to be paid in the future. That hurts productivity because little is left over either for public-sector investment in research, education and infrastructure or private-sector investment in machines and factories.
[T]his war, unlike any other war in American history, has been entirely financed by deficits.
As I recall, the US deficit increased tremendously during the Vietnam War. (Whether that war was so financed “entirely”, however, I don’t know offhand.) In any case, the Vietnam War was closely followed by the era of stagflation, when both unemployment and inflation reached double digits.
If the Vietnam experience is any indication, the economic fallout from Iraq may be just beginning.
i agree with his assessment of the war but disagree with the low priced oil pre-war prediction. i have heard from experts that we are running out of easily obtained oil. getting it out of the ground is becoming more expensive and difficult. also, as a country we have been living on credit for a very long time. we want to pay next to nothing for cheap crap from china. housing in urban areas has been over-inflated for years. this war just accelerated the current crisis, in my view. i will never forget an interview at the beginning of the war on npr with some top official who stated that this war would not cost over 200 million taxpayer dollars-laughable! they sure didn’t anticipate this quagmire… i really think this recession would have happened eventually.
This is eye opening. Every American should read this and digest it before going to the polls in November.
People lose me right off the bat when they use the term “neocons.”
Kendall,
Just one comment on this article . . . The Huffington Post??????
It is interesting how quickly people will climb on the war in Iraq. The truth is that illegal immigration has cost the US MORE than the war in Iraq. In terms of schooling illegal immigrant children, crime, low wages, money exported the illegal immigrants are bleeding America.
And Stiglitz is such a genius he “knows” what the price of oil would be had Saddam been left in power. Perhaps Saddam would have developed nuclear weapons, or used WMD’s to blackmail the West (and while stockpiles of WMD’s were not found, it is clear that Saddam still had WMD program capabilities), and oil prices would be even higher.
Yes the war has been expensive, but so is a WMD or nuclear bomb in London or New York. It is easy to criticize the path taken and decisions that have been made, when the cost of not taking action is not known. Not taking action against Saddam could have been even more expensive. The things that we know for certain is that Iraq is not working on a nuclear bomb, the torture chambers and rape rooms are closed, Saddam is not poisoning hundreds of thousands of his countrymen, and there is the opportunity for a stable democratic Iraq in the Middle East.
Cutting taxes has stimulated the economy such that Federal Revenues are higher today than before the tax cuts. Raising taxes, or not cutting taxes, would result in less money for the Federal Government, regardless of what we choose to spend the money on.
BillS –
Then why are we in such a deficit? What is for sure is that we’ve mad Iran the most important power in the mideast. You say “could have” without offering any evidence. What is certainly true is that the Iraqis don’t want us there. Youre mentioning of a nuclear bomb is simply fear-mongering. It is fantasy.
You use “perhaps” as if you can assume Saddam didn’t have rational interests of his own. what is certainly true is that the money we spent would have eased the misery of lots of people in our own country.
Israel did the world a favor by destroying Saddam’s nuclear weapons program at Osirak in 1981. Yes, I know it was disguised as a nuclear power plant, but a major exporter of oil does not need nuclear power for energy. It is not fear mongering when concrete evidence shows that Saddam intended to procure nuclear weapons, and used chemical weapons of mass destruction on his own people. It is fantasy to pretend that Saddam could have been indefinitely contained with no further harm to the rest of the world.
Deficits occur because we spend more than we take in. Raising taxes does not increase revenues to the government, it decreases government revenues. The war in Iraq is only part of the deficit, increases in other areas of government spending all contribute to the problem. And yes, George Bush allowed it to happen under a Republican congress.
National defense is the primary responsibility of government. Despite the cost of the war in Iraq, the world is a safer place with Saddam gone. And while some in Iraq wish us gone, the elected representatives of the Iraq people do not want us to leave prematurely.
Bill,
You mention the bombing 1981, although that is when he was an ally of the US. But 1981 is also different than 2003. That’s 22 years difference. He did not have nuclear weapons in 2003, and it was successfully halted due to our embargo. Remember the embargo? It seemed to work. You idea that Saddam couldn’t be contained needs evidence. Eventually dictators die and get sick (say, Cuba, which we are containing). What seems to be the case is that Saddam thought he could bluff the US by acting tough when he had nothing. And we thought he was pretty tough. And then we invaded to show him a lesson. Unfortunately, we then learned he was bluffing.
“Raising taxes does not increase revenues to the government, it decreases government revenues.” Raising taxes brings in income immediately. In the very very long long run you may be right (but who knows?) But as Keynes said, “in the long run, we’re all dead.”
The war in Iraq is at least 2,000,000,000,000 dollars. That’s enough to shore up social security and medicare. We might be in theory safer from surprise attacks, but the everyday anxiety that people feel is ignored.
Is the world safer? I dont know how you would evaluate this claim. Iraq isn’t any safer – and comparing death rates now vs during Hussein is revealing. Since the invasion, the number of terrorist attacks worldwide has increased. Americans are open targets everywhere in the world. We can all agree that Saddam is a bad man and was a bad man. But now that we feel better, are we going to be able to look at the mess we’ve created and take responsibility for it? Probably not. But someone is going to pay. And it won’t be the military profiteers. It won’t be the wealthy. It will be on the backs of middle-class Americans who won’t have social security, or medicare, or roads, or much to show for spending that money. Except people who claim we’re now safer. Until election time, when the fear-mongering begins again.
[url=http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_shlaes&sid=a21xUaGoRzLk]An interesting rebuttal from Bloomberg[/url]
John, do you remember the oil for food program and how corrupt it got? How much money the UN staff recieved in bribes. It was all but a joke and we were accused of starving innocents etc. The embargo was a mess to say the least. It is easy to second guess with 20 20 hind sight.
I think Americans would be attacked any way. Do you remember the hostages in Lebanon, the Achille Lorou sp (Klinghoffer) and the airline highjackings and killing of Americans by terrorists? This all pre-dates the Iraq war.
Why do you say the wealthy won’t pay for the war. The top 1% of income tax payers (the wealthy) pay 40% of income tax.
Fear mongering goes on any way also. Remember the ad about Goldwater with the little girl and the atomic bomb? Clinton’s it is three Am and the phone rings!! Etc.
who knew that a nobel lauriat could be so wrong.
Joe Stiglitz has let his political bent overcome his econimic sense, though he is a Keynesian at heart. Currency swings and commodity prices (oil) only have an impact on output over only a short period of time, not the long term effect that he supposes. Capital flows have a bigger impact. High taxes reduce investment (inflation causes the tax rate to go up since the index brackets don’t keep up with inflation).
Long term impacts on the economy have been – the cheap revolution – cheap housing (declining house pricing), cheap labor, cheap technology, good news is that we get goods for less. the bad news is we don’t get paid for producing those goods and we have less to spend, and the quality is poor. This decline in pricing has been going on for 15 years now.
A traditional Keynesian would see that the government spending from the war efforts boosts the economy (joe forgot his roots). Unfortunately for the Keynes crowd, that investment and expense crowds out the capital markets and prevents private entities from borrowing and investing.
Causality is difficult to prove (even by me). The end result is that the economy is so diverse, no one issue can boost the result or make it tumble. Joe would have recognized this, had he reread his and other nobel prize winning works before writing this article.
John Wilkins wrote “Is the world safer” I thought about this last night and here is my answer. Libya (as a direct result of our going into Iraq) halted it’s nuclear program so have North Kotea and Iran. Yes we are safer. Clinton erected a wall that prevented law enforcement from sharing data with intellegence agencies and vise versa The memo for this was written by Janie Gorlick who sat on the 911 commisson. This has been removed. Yes we are safer. During Clinton”s administration the World Trade center was truck bombed, two embassies in africa were blown up, The USS Cole was attacked, and Kobar towers were blown up. Since the war on terror Terrorist orangizations in the Phillipians,Indonesia, Somalia, Yeman, Pakistan, Cambodia, Thialand and many other place have had leaders killed or captured. Yes we are safer and so is the World!
Also if thjis guy really cared about the US economy he would also care about the cost of illegal immigration but he can’t use that as a hit piece on Bush.