|[This isn't one of PK's best columns, but it's interesting at times. I've
been thinking: we should thank PK, or at least give him one or two cheers.
With the left and other non-establishmentarian forces so weak, there's
little opposition to the Bush administration, including its war drive. Any
little doubt shed, even from ultra-establishmentarian sources such as the
New York TIMES, helps a little. Of course, it pushes to tilt the political
balance not toward workers and other dominated groups but toward the
non-Bush side of the ruling class, but absent a serious mass movement for
change, that's about all we're going to get.]
September 13, 2002/New York TIMES
Stocks and Bombs
By PAUL KRUGMAN
[T] his stock-market situation -- what are the military options?" That was
the caption of a New Yorker cartoon last month. But these days reality has a
way of outrunning satire; way back in June the CNBC pundit Larry Kudlow
published a column in The Washington Times with the headline "Taking Back
the Market -- by Force." In it he argued for an invasion of Iraq to boost
Pretty amazing stuff, though not as amazing as a July column in The New York
Post by John Podhoretz, whose headline read "October Surprise, Please,"
followed by the injunction "Go On, Mr. President: Wag the Dog."
In general it's a bad omen when advocates of a policy claim that it will
solve problems unrelated to its original purpose. The shifting rationale for
the Bush tax cut -- it's about giving back the surplus; no, it's a demand
stimulus; no, it's a supply-side policy -- should have warned us that this
was an obsession in search of a justification.
The shifting rationale for war with Iraq -- Saddam Hussein was behind Sept.
11 and the anthrax attacks; no, but he's on the verge of developing nuclear
weapons; no, but he's a really evil man (which he is) -- has a similar feel.
The idea that war would actually be good for the economy seems like just one
more step in this progression. But one must admit that there are times when
war has had positive economic effects. In particular, there's no question
that World War II pulled the United States out of the Great Depression. And
today's U.S. economy, while not in a depression, could certainly use some
help; the latest evidence suggests a recovery so slow and uneven that it
feels like a continuing recession. So is war the answer?
No: World War II is a very poor model for the economic effects of a new war
in the Persian Gulf. On balance, such a war is much more likely to depress
than to stimulate our struggling economy.
There is nothing magical about military spending -- it provides no more
economic stimulus than the same amount spent on, say, cleaning up toxic
[what's magical about military spending is that, given the current balance
of political power (the weakness of labor and other non-capitalist groups)
-- is that military spending is "politically correct." It's something that
both Democrats and Republicans can get behind.]
The reason World War II accomplished what the New Deal could not was simply
that war removed the usual inhibitions. Until Pearl Harbor Franklin
Roosevelt didn't have the determination or the legislative clout to enact
really large programs to stimulate the economy. But war made it not just
possible but necessary for the government to spend on a previously
inconceivable scale, restoring full employment for the first time since
By contrast, this time around Congress is eager to spend on domestic
projects; if the administration wants to pump money into the economy, all it
needs to do is drop its objections to things like drought aid for farmers
and new communication gear for firefighters. In other words, if the economy
needs a burst of federal spending, neither economics nor politics requires
that this burst take the form of a war.
And in any case it's not clear how much stimulus war would provide. One
assumes that the necessary munitions are already in stock, so there will be
no surge in factory orders. There will be spending on peacekeeping -- won't
there? -- but it will be spread over many years.
Meanwhile there is the potential economic downside, which may be summed up
in one word: oil.
Iraq itself currently supplies so little oil to the world market that
wartime disruption of its production would pose little problem. But neither
the Arab-Israeli war of 1973 nor the Iranian revolution of 1979 directly
affected oil production.
Instead, the indirect political repercussions of conflict were what caused
oil prices to surge. This time around, Arab leaders have warned that an
invasion of Iraq would open the "gates of hell." That doesn't sound good for
the oil market.
It's worth remembering that each of the oil crises of the 1970's was
followed by a severe recession -- and that the milder oil price spike before
the gulf war was also followed by a recession. Could rising crude prices
undermine our weak economic recovery, creating a double-dip recession? Yes.
None of this should deter us from invading Iraq if the administration makes
a convincing case that we should do so for security reasons. But it's
foolish and dangerous to minimize the potential economic consequences of
war, let alone claim that it will be good for the economy.