Saturday, April 19, 2008

Was the recession caused by the war in Iraq?

I am sure that the ongoing war in Iraq does drag the domestic U.S. economy to some extent, but MoveOn.org is now peddling the theory that the war in Iraq is the primary cause of our current economic weakness, the so-called "recession." I am not convinced. Their "evidence" is a poll that shows that a majority of Americans believe that Iraq and recession are "linked." Granted, there may be some correlation, but correlation is not the same as causality. An email from MoveOn today informs us that:

I'm looking at an amazing new poll.

We commissioned it earlier this year. It shows that voters in all 50 states see a link between the war and our sinking economy. Folks across the country think getting out of Iraq is one of the best ways to help fix our deepening economic crisis.

This message is political dynamite. If the link between Iraq war spending and the recession was in the headlines, John McCain and other pro-war politicians wouldn't get away with their endless war strategy.

We've got to spread the word -- so we're ramping up a massive "Iraq/Recession" campaign to get the message out that the war is standing in the way of economic recovery. We'll use ads, bird-dogging, local press conferences from coast to coast, and a host of other methods to make the point. Will you become an "Iraq/Recession" monthly donor so we can run this critical campaign? Click here to chip in:

https://pol.moveon.org/donate/od0408m.html?id=12472-3947155-_N2qrl&t=3

Our first step will be to release this new poll next week in hundreds of communities around the country, with the local media looking on. We'll follow that up with a media campaign on the tradeoffs between war and economic progress -- and then a bird-dogging campaign aimed at both Senator McCain and Republican Senate candidates. Everywhere these candidates go, we'll make sure it's clear that their most important economic policy is to keep dumping billions every year into Iraq's unwinnable war.

The ironic thing is that in a normal economy such deficit spending on an expensive war would crowd out other demands for capital, but right now as a result of a loss of confidence in commercial debt, there is incredible, almost insatiable demand for U.S. government debt. Very low yields on government debt are not a sign of the government crowding out competing demand for credit. The most recent 3-month T-bill auction came in at a very skimpy yield of only 1.08%. What this really says is that even the high rate of expenses on the war in Iraq are easily being met by the excess of cash sloshing around in our financial system. Of course this cannot go on forever, but right now it is not at all clear that the expenditures on Iraq are dragging down the U.S. economy, regardless of what opinion polls seem to say.

I am sure that in the coming weeks and months we will hear a lot more of this MoveOn Iraq/Recession campaign, but it is mostly about politics rather than economics.

I am all in favor of getting out of Iraq, but it will not result in some miracle cure for the economy. Besides, it probably won't be until late 2009 or early 2010 when we seel war expenditures begin to fall back to earth. Even then, there will be significant follow-on expenditures simply to repair and replace so much of the equipment that has been worn down in Iraq.

-- Jack Krupansky

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