The Unbearable Costs of Empire
Bush's war could help the economy in the short run. The big harm comes later.
By
James K. Galbraith
Issue Date: 11.18.02
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Talk in Washington
these days is of Rome and its imperial responsibilities. But George W.
Bush is no Julius Caesar. France under Napoleon may be the better
precedent. Like Bush, Napoleon came to power in a coup. Like Bush, he
fought off a foreign threat, then took advantage to convert the
republic into an empire. Like Bush, he built up an army. Like Bush, he
could not resist the temptation to use it. But unlike Caesar's,
Napoleon's imperial pretensions did not last.
Analogy is cheap but the point remains. Empire is
not necessarily destined to endure, least of all in the undisturbed,
vapid decadence to which our emperors so evidently aspire. True, in
recent times the British Empire lasted for a century (or perhaps two,
depending on how you count). The Soviet Union held up for seven
decades. Napoleon was finished in just 15 years.
There is a reason for the vulnerability of
empires. To maintain one against opposition requires war -- steady,
unrelenting, unending war. And war is ruinous -- from a legal, moral
and economic point of view. It can ruin the losers, such as Napoleonic
France, or Imperial Germany in 1918. And it can ruin the victors, as it
did the British and the Soviets in the 20th century. Conversely,
Germany and Japan recovered well from World War II, in part because
they were spared reparations and did not have to waste national
treasure on defense in the aftermath of defeat.
The
United States today is rich and prosperous. But this does not mean that
we have the financial or material capacity to wage continuing war
around the world. Even without war, Bush is already pushing the
military budget up toward $400 billion per year. That's a bit more than
4 percent of the current gross domestic product. A little combat -- on,
say, the Iraqi scale -- could raise this figure by another $100 billion
to $200 billion. A large-scale war such as might break out in a general
uprising through the Middle East or South Asia, with the control of
nuclear arsenals at stake, would cost much more and could continue for
a long time.
One is tempted to analyze these sums,
particularly the immediate costs of war in Iraq, in terms of budget
deficits and interest rates -- in terms, that is, of the conventional
arithmetic of fiscal irresponsibility. But this misses the point. The
real economic cost of Bush's empire building is twofold: It diverts
attention from pressing economic problems at home and it sets the
United States on a long-term imperial path that is economically
ruinous.
Fiscal irresponsibility is an important issue,
mainly because of the Bush tax cut of 2001. If allowed to survive, that
long-term program of relief for the rich would, by itself, ruin the
federal fisc into the indefinite future. But the problem of toppling
Saddam Hussein next year is not fiscal. The United States would have no
difficulty selling bonds to pay for it. On the contrary, with our
domestic economy in the dumps, with private business disinterested in
investment, government bonds would sell easily. And even if they did
not, the Federal Reserve itself could buy them. So, too, could the
successor government in Iraq, which will have the oil with which to
purchase, after the fact, its own assumption of power. Either way,
interest rates need not rise, and Bush's Iraq war will be timed to
help, not hurt, the short-term performance of American growth and
employment.
Nor is Bush's strategy necessarily irrational
insofar as it affects oil -- in the short run. With a new Iraqi
government, the United States will gain a client state that is prepared
to help keep the oil price within the band that both U.S. consumers and
the remaining U.S. oil producers can tolerate -- low enough so as not
to fatally drain purchasing power from the former, high enough so as
not immediately to ruin the latter. Given the George W. Bush-Dick
Cheney commitment to unlimited oil consumption, this will prove useful
in putting off a day of reckoning. As total world oil production
declines -- credible scientific evidence suggests that this may start
happening quite soon -- the Middle East's share of the remaining
reserves will rise. So, too, would the potential for cartel control and
price manipulation. A robust U.S. military presence in the oil fields,
directly or by proxy, will naturally make higher oil prices less of a
danger. This is part of the appeal of war with Iraq.
In other words, the Iraqi war could prove both
stimulative and stabilizing in the short run. Unless the campaign goes
badly or the neighborhood blows up, it is unlikely, in and of itself,
to produce an immediate economic disaster. And so the political
opportunists -- we may safely suppose they exist -- who favor such a
war because it might help rescue Bush in 2004 may not be entirely wrong
in their calculations.
But
it would be wrong to conclude that all is therefore quiet on the
war-economy front. The disaster will, instead, play out in at least two
different ways over time. The immediate problem of the Bush-Cheney war
policy lies in the neglect and indifference, which it fosters, of all
our other economic problems.
First, private business investment in the United
States has now fallen virtually to the capital replacement level. There
is no early prospect of revival because the recession in consumer
spending still lies ahead. Until that storm comes and passes,
businesses will hold off on net new investment. As a result, there will
be little further application of new technologies to economic life.
Instead, new technologists will be pulled back into the military sector
from whence they emerged 30 years ago, and the advanced private sector
on which we have, until recently, based our hopes will wither.
Second, the recession in consumer spending cannot
be put off forever. American households are still being crushed by
debt. After September 11, their spending was held aloft by falling oil
prices, falling interest rates, the tax rebate, rising government
spending and the auto companies' willingness to unload their
inventories at a loss. Interest rates remain very low, alongside a
continuing bubble in the price of housing, which supports a continued
flow of equity loans. But this source of consumer spending is already
nearing its limits. The auto companies may give up their effort soon
enough (right after the November election?). After that, the second
loop of the "W." recession will soon be on us in force.
Third, state and local government budgets
continue to implode. Reasonable estimates now show $50 billion in
deficits at the state level, and the losses are surely almost as large
at the local level. As rainy-day funds are depleted, these will
translate into service cuts and sometimes into tax increases. Either
way, household budgets will take the full hit. The war fever in
Washington -- alongside political cynicism, willful ignorance of the
economics, defeatism and inertia -- has so far blocked an effective
campaign for revenue sharing with the states, the one way in which the
federal government might prevent this calamity this year.
Fourth, we have the economic effects of the
decline of our financial markets, which have already lost more than $8
trillion in nominal shareholder value since their peak in 2000. To some
extent, these losses are due to the corruption of certain major
corporations, including several (not least Halliburton) that are
closely tied to the military-petroleum complex. Failure to attend to
these issues is necessarily endemic in an administration built on
corporate fraud and committed to war for oil.
None of these problems will be cured so long as
war remains our dominant political theme. But serious though they are,
they pale in comparison with the larger problem of the international
trade-and-financial order under conditions of permanent war. It is a
straightforward fact that if global oil production starts to decline
but U.S. consumption does not, everyone else will be required to cut
purchases and uses of oil. But how can oil prices be held stable for
Americans yet be made to rise for everyone else? Only by a policy of
continuing depreciation in everyone else's currency. Such a policy of
dollar hegemony amid worldwide financial instability, of crushing debt
burdens and deflation throughout the developing world, is perverse. It
will make our trading partners' exports cheap, render their imports
dear and keep their real wages low. It will price American goods out of
world markets and lead to unsustainable dependence on foreign capital.
It will be a policy, in short, of beggar-all-of-our-neighbors while we
live alone, in increasing idleness and inside the dollar bubble.
This is the policy that Bush and Cheney are
actually imposing on the rest of the world. But they cannot make it
last. It will make lives miserable elsewhere, generating ever more
resistance, terrorism and military engagement. Meanwhile, we will not
experience even gradual exposure to the changing energy balance; we
will therefore never make the investments required to adjust, even
eventually, to a world of scarce and expensive oil. In the end,
therefore, that world will arrive much more abruptly than it otherwise
would, shaking the fragile edifice of our oil economy to its
foundations. And we will someday face a double explosion: of anger
against our arrogance and of actual shortage and collapsing living
standards, when the confidence of investors in the dollar finally gives
way.
Compared with this future, a new commitment to
collective security, to a new world financial structure, to a rational
energy and transportation policy, and to spending to meet our actual
domestic needs would be a bargain. At the end of the Constitutional
Convention, Benjamin Franklin was asked what type of government the
framers had given our new country. He famously replied, "A republic, if
you can keep it." The republicans in those days opposed empire. The
author of Poor Richard's Almanack understood the economics very well.
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