Guest Post: Washington Post Idiocy: Calls for War With Iran to Save America’s Economy

Washington’s Blog

As many writers have documented, the corporate media is usually pro-war. See this.

And so Washington Post hack David Broder’s op-ed arguing that war with Iran will save America’s economy is not all that surprising.

Of course, China and Russia might not sit idly by and let their ally, Iran, be attacked. So there’s the wee complication that bombing Iran could start WWIII.

And, of course, attacking Iran would increase the level of terrorism.

But forget politics and national security.

Broder is also plain wrong on the economics.

In a blog entry entitled “Has David Broder Lost His Mind?,” Foreign Policy managing editor Blake Hounshell writes that Broder’s proposal is “crazy for a number of reasons.”

One is that markets don’t like tensions, and certainly not the kind that jack up oil prices. Second, World War II brought the United States out of the Great Depression because it was a massive economic stimulus program that mobilized entire sectors of society. Today’s American military has all the tools it needs to fight Iran, and there isn’t going to be any sort of buildup. Hasn’t Broder been reading his own newspaper? The Pentagon is looking to find billions in cuts as it confronts the coming world of budget austerity.

And as I have repeatedly pointed out, “military Keynesianism” – that is, launching wars to stimulate the economy, doesn’t work.

For example, as I wrote in August:

Nobel-prize winning economist Joseph Stiglitz has said that war can be very bad for the economy. For example, in 2003, Stiglitz wrote:

War is widely thought to be linked to economic good times. The second world war is often said to have brought the world out of depression, and war has since enhanced its reputation as a spur to economic growth. Some even suggest that capitalism needs wars, that without them, recession would always lurk on the horizon.

Today, we know that this is nonsense. The 1990s boom showed that peace is economically far better than war. The Gulf war of 1991 demonstrated that wars can actually be bad for an economy.

Stiglitz has said that this decade’s Iraq war has been very bad for the economy. See this, this and this.
And as the New Republic noted last year:

Conservative Harvard economist Robert Barro has argued that increased military spending during WWII actually depressed other parts of the economy.

Also from the right, Robert Higgs has done good work showing that military spending wasn’t the primary source of the recovery and that GDP growth during WWII has been “greatly exaggerated.”

And from the left, Larry Summers and Brad Delong argued back in 1988 that “five-sixths of the decline in output relative to the trend that occurred during the Depression had been made up before 1942.”

As I noted in January:

All of the spending on unnecessary wars adds up.

The U.S. is adding trillions to its debt burden to finance its multiple wars in Iraq, Afghanistan, Yemen, etc.

Two top American economists – Carmen Reinhart and Kenneth Rogoff – show that the more indebted a country is, with a government debt/GDP ratio of 0.9, and external debt/GDP of 0.6 being critical thresholds, the more GDP growth drops materially.

Specifically, Reinhart and Rogoff write:

The relationship between government debt and real GDP growth is weak for debt/GDP ratios below a threshold of 90 percent of GDP. Above 90 percent, median growth rates fall by one percent, and average growth falls considerably more. We find that the threshold for public debt is similar in advanced and emerging economies…

Indeed, it should be obvious to anyone who looks at the issue that deficits do matter.

A PhD economist [Michel Chossudovsky] told me:

War always causes recession. Well, if it is a very short war, then it may stimulate the economy in the short-run. But if there is not a quick victory and it drags on, then wars always put the nation waging war into a recession and hurt its economy.

You know about America’s unemployment problem. You may have even heard that the U.S. may very well have suffered a permanent destruction of jobs.

But did you know that the defense employment sector is booming?

As I pointed out in August, public sector spending – and mainly defense spending – has accounted for virtually all of the new job creation in the past 10 years:

The U.S. has largely been financing job creation for ten years. Specifically, as the chief economist for BusinessWeek, Michael Mandel, points out, public spending has accounted for virtually all new job creation in the past 10 years:

Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:

longjobs1.gif

Between May 1999 and May 2009, employment in the private sector sector only rose by 1.1%, by far the lowest 10-year increase in the post-depression period.

It’s impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Take a look at this chart:

longjobs2.gif

Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

But even that gives the private sector too much credit. Remember that the private sector includes health care, social assistance, and education, all areas which receive a lot of government support.

***

Most of the industries which had positive job growth over the past ten years were in the HealthEdGov sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

Let me finish with a final chart.

longjobs4.gif

Without a decade of growing government support from rising health and education spending and soaring budget deficits, the labor market would have been flat on its back.

Indeed, Robert Reich lamented this month:

America’s biggest — and only major — jobs program is the U.S. military.

Back to my January essay:

Raw Story argues that the U.S. is building a largely military economy:

The use of the military-industrial complex as a quick, if dubious, way of jump-starting the economy is nothing new, but what is amazing is the divergence between the military economy and the civilian economy, as shown by this New York Times chart.

In the past nine years, non-industrial production in the US has declined by some 19 percent. It took about four years for manufacturing to return to levels seen before the 2001 recession — and all those gains were wiped out in the current recession.

By contrast, military manufacturing is now 123 percent greater than it was in 2000 — it has more than doubled while the rest of the manufacturing sector has been shrinking…

It’s important to note the trajectory — the military economy is nearly three times as large, proportionally to the rest of the economy, as it was at the beginning of the Bush administration. And it is the only manufacturing sector showing any growth. Extrapolate that trend, and what do you get?

The change in leadership in Washington does not appear to be abating that trend…[121]

So most of the job creation has been by the public sector. But because the job creation has been financed with loans from China and private banks, trillions in unnecessary interest charges have been incurred by the U.S.And this shows military versus non-military durable goods shipments:

[Click here to view full image.]

So we’re running up our debt (which will eventually decrease economic growth), but the only jobs we’re creating are military and other public sector jobs.

PhD economist Dean Baker points out that America’s massive military spending on unnecessary and unpopular wars lowers economic growth and increases unemployment:

Defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight [recognized as the most consistently accurate forecasting company in the world] to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low…

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.

The Political Economy Research Institute at the University of Massachusetts, Amherst has also shown that non-military spending creates more jobs than military spending.

So we’re running up our debt – which will eventually decrease economic growth – and creating many fewer jobs than if we spent the money on non-military purposes.

As I wrote last month:

It is ironic that America’s huge military spending is what made us an empire … but our huge military is what is bankrupting us … thus destroying our status as an empire.

Even Admiral Mullen seems to agree:

The Pentagon needs to cut back on spending.

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

Indeed, Mullen said:

For industry and adequate defense funding to survive … the two must work together. Otherwise, he added, “this wave of debt” will carry over from year to year, and eventually, the defense budget will be cut just to facilitate the debt.

Secretary of Defense Robert Gates agrees as well. As David Ignatius wrote in the Washington Post in May:

After a decade of war and financial crisis, America has run up debts that pose a national security problem, not just an economic one.

***

One of the strongest voices arguing for fiscal responsibility as a national security issue has been Defense Secretary Bob Gates. He gave a landmark speech in Kansas on May 8, invoking President Dwight Eisenhower’s warnings about the dangers of an imbalanced military-industrial state.

“Eisenhower was wary of seeing his beloved republic turn into a muscle-bound, garrison state — militarily strong, but economically stagnant and strategically insolvent,” Gates said. He warned that America was in a “parlous fiscal condition” and that the “gusher” of military spending that followed Sept. 11, 2001, must be capped. “We can’t have a strong military if we have a weak economy,” Gates told reporters who covered the Kansas speech.

On Thursday the defense secretary reiterated his pitch that Congress must stop shoveling money at the military, telling Pentagon reporters: “The defense budget process should no longer be characterized by ‘business as usual’ within this building — or outside of it.”

While morons like David Broder might want to start another war, America’s top military leaders and economists say that would be a very bad idea.

Print Friendly
Tweet about this on TwitterDigg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone
This entry was posted in Guest Post on by .

About George Washington

George Washington is the head writer at Washington’s Blog. A busy professional and former adjunct professor, George’s insatiable curiousity causes him to write on a wide variety of topics, including economics, finance, the environment and politics. For further details, ask Keith Alexander… http://www.washingtonsblog.com

23 comments

  1. Paul Repstock

    The rebutals to this genocidally insane suggestion overlook the small fact that national wealth might be a secondary (at best) consideration. I can think of quite a few people who profited handsomly from Iraq, and several were in decision making positions. As we have seen over the past years, national employment and economic welfare are not necessarily the decisive factors.

    This may be a ‘trial ballon’ to gauge how hungry the population is for jobs.

  2. Guido

    Broder is not alone in thinking what he does. The arithmetics behind debt based fiat money leads inherently to a situation of unserviceable debt, industrial overcapacity, low interest rates and high unemployment.

    Once the authorities are no longer capable of expanding credit markets, something has to give and I can guarantee it won’t be the politicians.

    Limited wars taking place during the credit expansion super cycle are purely inventory wars. That is; if you have an armament industry you cannot expect to devise and build weapons and store them for ever unused.

    However, at peak credit, that is, when the authorities are unable to expand the credit markets, a war of total devastation is perceived to catch several birds with one stone. Namely, the unemployed are enrolled and sent to the front thus avoiding social unrest at home, industrial capacity is converted to war industry and the production is promptly absorbed, deployed and consumed, foreign industrial capacity is destroyed, real estate and infrastructure is destroyed requiring rebuilding, and debt burdens are shifted and/or transformed.

    The trick is understanding where we are in the credit cycle.

    In 1940, the USA were still reeling from the effects of excess debt and high unemployment. Following the (late) declassification of WWII documents, there is ample evidence the US administration was aware of an attack on Pearl Harbor. But something was needed to galvanize the public and justify war.

    I think current circumstances are ripe for a world war anytime between now and 2015.

  3. KingBadger

    “China and Russia might not sit idly by and let their ally, Iran, be attacked”

    Russian and Chinese oil companies were happy to snap up contracts for Iraqi oil fields even though Russia and China didn’t support the war (same for France and Total). Russia and China could pretend to be against an attack on Iran, but in the end I would expect them to shrug their shoulders and take the resources along with BP and the rest. Having access to Iranian oil and natgas would be more important to energy-hungry China than concern for its “ally”.

    China and Russia probably figure that it doesn’t make sense to have their oil companies take on risky contracts inside Iran right now if Nato is just going to attack later on. If Nato governments want to spend trillions on wars of resource liberation for corporations, who are China and Russia to stand in Nato’s way? There are stacks of resources in Afghanistan waiting to be liberated by mining companies. The public pays for the wars while the oil/mining companies get the profits. An attck on Iran wouldn’t be good for most of the US economy of course, but that won’t stop it from happening and being passively accepted by Russia and China.

  4. Glen

    Broder’s always been an idiot, but he’s a pretty accurate barometer to the current reading of the DC elite stupidity meter. Bush promptly started two wars and then lost them. If Bush thought war would “revive” the economy he was (like most everything he did) sadly mistaken. Let’s see just how stupid Obama can be, more war is going to tank the real economy, and further weaken our geopolitical situation.

  5. sam

    Total war helps the economy for only one reason: it gets even the rich on board with economic measures to divert their wealth back into employing people. Any measure that got the rich to get over themselves and start giving workers money again would do as well, without the whole killing people, wasting effort, and destroying capital thing.

    Small wars don’t even have this positive effect. The rich party on right through those.

  6. attempter

    I suppose Broder himself might be stupid and senile enough to believe such idiocy, and many war supporters outside the elites are also that stupid. But the rest of us, including the elite jingoes, know that these wars, beyond their intrinsic horrors for the civilians they’re waged against, are nothing but an economic loss for us.

    They’re nothing but corporate welfare, as much of a drain on the real economy and destroyer of real jobs as the Bank Bailout. They’re just as much of a robbery from the real economy for the benefit of worthless, parasitic criminals.

    And then there’s how these trumped-up corporate wars are then used as pretexts for massive increases of government as such, of its police powers, to further gut civil liberties, and to further terrorize and intimidate the populace.

    Corporatist imperial war is therefore a pure bad in every way – rational, practical, economic, democratic.

    (For the sake of anyone who still cares about morality, I’ll add that even if it were true that “our economy” could be saved by aggressive war, and needed to be, wouldn’t that prove this economy had no right to exist in such a form? Wouldn’t the only moral conclusion be that we had to give up such a way of life and transform to a new one?

    But such moral conclusions are way beyond the capabilties or concerns of the cowardly jingoes who make such arguments, whether they be senile idiots like Broder or conscious, intentional war criminals like Yglesias.)

    1. Paul Repstock

      Ahh my good friends you are all such skeptics. The money always goes where it is supposed to in the end. If I remember the story correctly, after world war II, Krupp got paid for the use of their patent for the altitude fuses which were used in British anti aircraft shells expended in the defence against German bombers.

      1. attempter

        Of course. No corporations were put on trial at Nuremburg, just a few executives. (But various Nazi organizations like the SS were put on trial; so it’s not like they didn’t have the concept of trying corporate persons there. Just like with everything else at Nuremburg, we have the precedent.)

        Indeed, except for a handful of the most noxious Nazi individuals, everybody was quickly restored to good standing. Cold War exigencies, you know. So much for “denazification”, but back then as well it was “look forward, not backward.”

  7. fjf

    Historian Paul Kennedy has written on the decline of empires. See the precis of The Rise and Fall of The Great Powers at Wikipedia:
    http://en.wikipedia.org/wiki/The_Rise_and_Fall_of_the_Great_Powers

    His account details the manner in which the state reaches a peak of development. It then channels an ever larger portion of its resources toward military ends. This allocation serves to undermine the economic foundations upon which the original growth was based; the state transitions into inexorable decline. The process is reasonably exact template for the future “progress” of America.

  8. Avg John

    Imagine armies of engineers, construction workers, teachers, doctors, administrative personnel, “invading” a country to build roads, bridges, schools, hospitals and other infrastructure, instead of bombs, tanks, and missiles. It would still put our civilian force to work converting raw materials to a “war effort” and business men could still get rich, but when all was said and done, at least we would have something to show for it and it would create an abundance of goodwill besides. Imagine, countries across the globe competing with each other over who could export the most goodwill.

    Of course, that ain’t going to happen, although it’s what Jesus suggested we do. No, we are going to just keep on killing each other, like we always have. Let’s be honest, no one should be shocked or surprised by our war attitude, it’s who we are and how humans define themselves.

  9. sherparick

    Last week, on Balloon Juice last week I was linked to an article about how a company that runs privatized prisions in the States was behind the Arizona law criminalizing about 2% of the population based on their status (unauthorizced immigrant), and placing about 15% of the population of Arizona at risk of arrest based on the traits they share with the damned population. See arresting and holding tens of thousands of people is good for business. And like the Defense business it is modeled on, with the customer being the state, political connections and contributions are far more important than performance in winning business. This business model has become very common in the U.S., using political power to create monopolistic or oligopolistic situations for the elites financial profit, particularly in the following industries.

    1. Banking (of course)
    2. Defense (war)
    3. Health Insurance
    4. Pharmacies and Medical Device makers (Patent)
    5. Media (Copyright and Restricted Licensing)
    6. Energy (Exxon reported record profits last month. And people wonder why U.S. energy policy has not reduced its dependence on fossil fuels and foreign oil the last 30 years? This huge financial interest in maintaining the current system and subsidizing it is the explanation.)
    7. Finally I add “beer, wine, and alcohol distributorships” as what might seem a frivolous example, but where the workings of political clout to make fortunes is at the same time most nakedly visible, but hidden still hidden in plain sight. Cindy McCain’s distributorship enterprise in Arizona is only worth $100 million dollars because of it is the “exclusive distributor” of 80% of the beer drunk in Arizona.

    This is of course the kind of “corruption” that the old 18th Century whigs found that the “court” party would always fall into, (including the Whigs when they were in power in the 1720s and 30s). But then there was at least part of the elite who were a “country” party, who would combat and reduce this “corruption.” In America unfortunately, the rise of Randism and the decline of hte old line Protestant churches have created an elite without any feeling for the “country” other than what they can do with it to enrich themselves.

  10. Charlie

    Let me ask a simple question. If war with Iran will be a boon for our economy…Why haven’t Afghanistan and Iraq been a boon to our economy????

  11. Yearning to Learn

    there are two wars that I would support right now. a coordinated attack of Washington D.C. and Wall St by our enlisted State National Guard troops.

    we could “liberate” those assets that are just sitting there. that would boost our economy more than anything I can imagine.

    That’s Change that I can believe in.

  12. F. Beard

    My father used to say “If you’ll lie, you’ll also cheat and steal.” I guess murder should be added to that list in the case of a money system that depends on lying (“Your deposit is available on demand even though we lent it out”), cheating (savers of honest interest rates) and stealing (purchasing power from all money holders, including the poor).

    If what we have is genuine capitalism then bring on the socialism!

  13. LJR

    Yves,

    Could you please drop the “Nobel Prize winning” from the names of economists you reference? It makes me upchuck. Physicists? Yes. Biologists? OK. Chemists? Fine. But why glorify a bunch of clueless hacks just because a bunch of bored Swedes decided to decorate their titles?

    Considering your opinion of these clowns I’d think you would have stopped long ago.

    1. Eric L. Prentis

      LJR….additionally, the banks supplied the money to fund the Nobel prize in economics, NOT Mr. Nobel. The bankstas, for their own benefit, have glommed onto this prestigious scientific award and make sure their lackey-shills win, in order to support their political machinations. So now we have to contend with ivy-league twits, like Paul Krugman, who want a lot more government spending, thus massively running up the deficit, in order to keep the financial elite in power, for just a little longer.

  14. gigi

    I don’t care whether wars are good or bad for the economy. Are we now so morally bankrupt that we measure killing people in economic terms?

    And yes, I agree that war is bad for the economy. It destroys wealth, it kills people that produce wealth, it focuses a society’s energies away from creative ventures that improve people’s lives.

  15. Albert

    The obvious first: war is not justified on the basis of economic growth.

    Now the technical issue: World War II was indeed good for the U. S. economy because the process bombed and destroyed the rest of the industrialized world’s manufacturing capacity, and American manufacturing stepped in the gap unopposed to re-build the rest of the world. That’s good for business.

    Iran is not a major economic power, so destroying it isn’t going to do sh*t for us economically.

Comments are closed.