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Mon

21

Jul

2008

Paul Krugman and Blindness About the War and the Economy
Monday, 21 July 2008 11:39
by Dave Lindorff

In a New York Times column on Monday (“Behind the Bush Bust”), economics columnist Paul Krugman mused on whether President George Bush could be blamed for the nation’s economic crisis. His conclusion was that, yes, to some extent the crisis was Bush’s fault, but he largely lets the current administration off the hook, instead blaming Republican policies dating back 10-15 years.

Oddly, Krugman does say that a key cause of economic problems has been rising energy prices, but he then attributes these to “growing demand from China and other emerging economies,” and suggests that prices might have been at least a bit lower had the US, after 9/11, adopted “higher gas taxes and fuel efficiency standards,” a failing he attributes to Bush.

The gaping hole in Krugman’s logic is the Iraq War, which the columnist, incredibly, doesn’t even mention. Yet clearly, the invasion and subsequent war and occupation of Iraq which was purely the result of Bush/Cheney machinations, has been a major, if not the major cause of oil price increases.

By destroying Iraq’s oil production, and by hindering much of Iran’s production (Iran, seen as an enemy by the US, has been frozen out of capital markets, blocking it from being able to modernize and even maintain its own huge oil infrastructure), and putting even Kuwait’s and Saudi Arabia’s production at risk, the US war in Iraq has jeopardized about one-third of the world’s oil capacity—a fact not lost on oil speculators. Every rumor of a longer occupation or a wider war in the Middle East—especially a possible attack by the US on Iran--has pushed up oil prices further, as has every attack on a pipeline.

It is no secret why crude oil, over the course of five years, has soared four or five times in price. Demand has certainly not gone up by that amount. It hasn’t even doubled. What has happened is that the Middle East has been thoroughly destabilized by American military action.

The rise in oil prices has been the major cause of the US dollar’s stunning collapse, which in turn has limited the hand of the Federal Reserve, which cannot risk lowering interest rates as much as it would like to stimulate economic growth, for fear of further undermining the dollar. This in turn has allowed the mortgage crisis to fester and grow worse.

At the same time, the massive amount of industrial production that has gone into the war effort—the building of planes, tanks, armored cars, etc.—while perhaps producing some jobs, has been wholly inflationary in its effect, since this is production that cannot add to available goods and services in the civilian economy. That means that there are more people with wages and salaries, chasing the same number of things to buy—a sure-fire recipe for higher prices. Add to that the huge war budget, all funded by debt (ultimately as much as $3 trillion in red ink, according to Nobel economist Joseph Stiglitz), and you have even more downward pressure on the dollar.

Bush’s and Cheney’s war in Iraq has been, it should be clear, a huge catastrophe for the US economy, and yet somehow Prof. Krugman managed to miss it completely. You could read his column and not even know that the country is and has been, for the past seven years, at war.

I’m not sure what to make of this oversight on Krugman’s part. Is he trying to downplay the war, figuring it’s soon to become a Democratic venture? Is he unfamiliar with the argument that war is bad for economies?

One thing is clear: You cannot look at a nation at war and analyze its economy without considering the impact of the war, which is what the usually astute Krugman has done here.

But let’s make the point crystal clear, even if Krugman doesn’t see it or doesn’t want to see it: The slumping US economy, and the crashing US dollar, which is heading towards Peso status as a trash currency, are clearly the direct result of Bush/Cheney policies, aided and abetted by both Democrats and Republicans in Congress, who have bought the story line that war is good.

We will all be paying for this imperialist misadventure for years to come.
 
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