War And The Economy: Constructive Collateral Damage


George Bush’s war on Iraq will provide very little stimulus for the U.S. economy. Direct outlays will fall somewhere between $60 and $80 billion for a “quick” war, possibly as much as $125 billion for one lasting three to four months. This means that, at most, war expenses could amount to about 1.1 percent of U.S. gross domestic product, and it now looks as though they will turn out to be less.

This is not enough to generate anything like the stimulative jolt that military conflicts once did. Most of the spending is going to transport troops abroad and support them there, and to replace munitions and materiel used up in the assault on Iraq. The Pentagon ordered no aircraft, ships, and tanks to fight the depleted Iraqi military and will meet its needs from inventory and order replacements and parts when needed. There is no prospect of any industrial mobilization to ramp up production and create jobs. Even $125 billion would make little difference for America’s $11 trillion economy.

Since the last quarter of 2002, when gross domestic product grew at the meager rate of 1.4 percent per year, increases in military spending have accounted for a third of the economy’s growth. But military dollars have been helping the economy mainly because it sank into recession in March 2001 and is barely growing. Unemployment continues to rise, and fewer people are now employed than at any time since late 1999; industrial production is stagnant, foreign demand for U.S. goods is weak. Consumer spending fell during January and February 2003; the University of Michigan’s index of consumer confidence has dropped to its lowest level in ten years. And the favorable effects of military spending have been offset by war jitters–an increase in oil prices, a plunge in airline traffic, a shaky stock market, a sharp fall in the value of the dollar versus the euro and the Japanese yen.

Postwar costs–occupation, repair and reconstruction, humanitarian aid–could be far greater than those for the war itself, and might range from $100 billion to $1 trillion, according to estimates by Yale economist William Nordhaus, for time spans of two to ten years. But such expenses would be spread out over longer periods of time and do little to spur the economy. More importantly, they may never materialize, for they represent the kinds of costs and responsibilities that the United States has never assumed since the Second World War.

Latest example: Afghanistan. In the year ending September 2002, the United States spent $13 billion bombing that country and occupying parts of it. At that time, President Bush stated that the United States was “currently implementing more than $300 million” in recovery and rehabilitation programs in Afghanistan–little more than 2 percent of the sum spent on the war in that country. In fact most of the $300 million proves hard to trace, and it is now clear that the total–if valid–includes funds already committed to the United Nations (Commission for Refugees, World Food Program, UNICEF). In February 2003 the U.S. Congress recommended $300 million for humanitarian and reconstruction for Afghanistan, after the Bush administration failed to request any money at all in its 2003 budget.

The preferred scenario for postwar aid to Iraq is one in which the United States will pay U.S. companies to repair and rebuild the country–and cover the costs by seizing Iraqi oil fields and selling the product on the world market. This might be easier said than done: Iraq’s oil sales and revenues are currently under United Nations control, due to sanctions that the United States helped put in place after the 1991 war. But a head start was made on April 2, when President Bush, using the USA-Patriot Act, confiscated $1.7 billion in U.S. bank accounts belonging to the Iraqi government, state-owned banks, and oil-marketing enterprises “to assist in the reconstruction of Iraq.” In other words, the Iraqi people should pay their destroyers to rebuild their country.

The United States has sent clear signals that it intends to keep the United Nations and non-U.S. contractors on the sidelines. Five U.S. corporations have been selected by the U.S. Agency for International Development to put in secret and noncompetitive bids for the work to be done–Halliburton (vice-president Dick Cheney’s former company), Bechtel, Fluor, Parsons, and the Louis Berger Group: together, these companies made political contributions of $2.8 million between 1999 and 2002, more than two-thirds to the Republican party. The reconstruction projects include at least half of the “economically important roads and bridges” and 1,500 miles of roadway, according to the Wall Street Journal, all scheduled to be reopened within 18 months, as well as 15 percent of the high-voltage electricity grid. The primary goal is obviously to jump start Iraq’s petroleum sector following the war.

The second Bush war against Iraq is producing its greatest benefits as an integral part of a radical, and increasingly savage, political conservatism that began to coalesce around a number of causes in the 1970s–resentment and rage over military defeat in Vietnam, the civil rights and womens’ movements, and renewed government intervention in the economy (medical insurance for the elderly, workplace safety regulations, environmental protection, among others). The new-right agenda was activated, and massively empowered, by the events of September 11, 2001–a godsend for George Bush & Company. The “war on terrorism” abroad and war on the welfare state at home are unified and moving forward in lockstep.

The war against America’s pathetically small social welfare system is waged through fiscal policy, by destroying the balance between government spending and taxes. The idea is to starve the federal government of resources by enacting huge tax cuts for the rich and for corporate business, thereby creating huge deficits in the federal budget–which can then be brought under control, of course, only by sharper cuts in “nonessential” spending.

For the purpose of enlarging the budget deficit to reduce spending on social programs, military spending is the perfect tool. If no expenses can be spared for “national defense,” how can they even be questioned if necessary for stopping the likes of Osama bin Laden? Thus we have the Bush method of combating terrorism–reliance on military force, which those “old Europeans,” who have considerable experience with terrorism themselves, are apparently not smart enough to have thought of. Higher levels of military spending duly increase budget deficits, crowd out all kinds of spending for nonmilitary purposes, and generate profits for the arms contractors–the “merchants of death” as they used to be called in more innocent times.

For months the White House refused to put a price tag on the anticipated war in Iraq, claiming that too many variables were at play, so that the military budget for 2003 contained not a single dollar for the war. Democrats in Congress, as well as several Republicans like Senator Chuck Grassley (Iowa), soon understood that Bush was stalling for another reason, namely, that putting a high price on the war–$60 to $100 billion–would complicate if not doom his efforts to have the Congress pass a budget making room for his latest round of tax cuts. It is a tactic used successfully in 2001, when Bush delayed telling Congress how much money he wanted for the Pentagon in coming years, allowing his first tax cuts to be accepted by Congress before the spending increases for the Pentagon were put on the table. Three days after the bombs and missiles were unleashed on Baghdad, the President finally asked for an additional $63 billion for the “initial costs” of his war.

The result is that military outlays, counting (possibly underestimating) the costs of the war, will have increased by $154 billion from 2001 through 2003, during which time the federal government’s budget position will have deteriorated by $497 billion (a surplus of $127 billion in 2001, a projected deficit of $370 billion in 2003).

The return of deficit finance on this scale is sweet music for the Bush administration: it can trumpet the need for deeper cuts in social spending. Of the $497 billion swing toward deficit during 2001-2003, increases in military spending will have provided more than 30 percent of it–an enormous proportion given the fact that the budget was already headed toward deficit because of the recession (when the economy contracts, the government’s tax collections fall off and some expenditures, particularly unemployment compensation, rise). It might be noted that increases in military spending tend to expand the economy, and narrow the deficit, to some degree–but an exceedingly small one in this instance. Spending on the war will not increase employment in many industries, and some of it is taking place abroad (Kuwait, Qatar, Turkey, elsewhere).

As for the real costs of the war, they could hardly be clearer. Targeted for cutbacks in federal money are virtually all social programs–Medicare and Medicaid, food stamps, housing, job training and child care, education and student loans, environmental protection, public transportation, science research, even veterans’ benefits and school funding for children of military personnel.

Jeffrey Garten, dean of the Yale School of Management and former economic and foreign policy official in the Nixon, Ford, Carter, and Clinton administrations, warns that the increases in spending on war and homeland security are “aggravating an already acute fiscal problem, eroding economic vitality” and creating “the kind of politically paralyzing guns-or-butter debate that characterized the Vietnam era.”

Maybe so for Garten and everyone to his left, but not for Bush and his constituency. The direct impact of the war on the economy gives us more guns and less social butter, a constructive outcome for the right wing oligarchy now ruling this country.

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