The Iraq War Is Killing Our Economy
- From: Dave Hazelwood <the_big_kahuna@xxxxxxxxxxxx>
- Date: Wed, 19 Mar 2008 13:03:49 GMT
The Iraq War Is Killing Our Economy
By Robert Pollin and Heidi Garrett-Peltier, The Nation
Posted on March 18, 2008, Printed on March 19, 2008
http://www.alternet.org/story/79988/
There is no longer any doubt that the Iraq War is a moral and
strategic disaster for the United States. But what has not yet been
fully recognized is that it has also been an economic disaster. To
date, the government has spent more than $522 billion on the war, with
another $70 billion already allocated for 2008.
With just the amount of the Iraq budget of 2007, $138 billion, the
government could instead have provided Medicaid-level health insurance
for all 45 million Americans who are uninsured. What's more, we could
have added 30,000 elementary and secondary schoolteachers and built
400 schools in which they could teach. And we could have provided
basic home weatherization for about 1.6 million existing homes,
reducing energy consumption in these homes by 30 percent.
But the economic consequences of Iraq run even deeper than the
squandered opportunities for vital public investments. Spending on
Iraq is also a job killer. Every $1 billion spent on a combination of
education, healthcare, energy conservation and infrastructure
investments creates between 50 and 100 percent more jobs than the same
money going to Iraq. Taking the 2007 Iraq budget of $138 billion, this
means that upward of 1 million jobs were lost because the Bush
Administration chose the Iraq sinkhole over public investment.
Recognizing these costs of the Iraq War is even more crucial now that
the economy is facing recession. While a recession is probably
unavoidable, its length and severity will depend on the effectiveness
of the government's stimulus initiatives. By a wide margin, the most
effective stimulus is to expand public investment projects, especially
at the state and local levels. The least effective fiscal stimulus is
the one crafted by the Bush Administration and Congress--mostly to
just send out rebate checks to all taxpayers. This is because a high
proportion of the new spending encouraged by the rebates will purchase
imports rather than financing new jobs in the United States, whereas
public investment would concentrate job expansion within the country.
Combining this Bush stimulus initiative with the ongoing spending on
Iraq will only deepen the severity of the recession.
Is Militarism Necessary for Prosperity?
The government spent an estimated $572 billion on the military in
2007. This amounts to about $1,800 for every resident of the country.
That's more than the combined GDPs of Sweden and Thailand, and eight
times federal spending on education.
The level of military spending has risen dramatically since 2001, with
the increases beginning even before 9/11. As a share of GDP, the
military budget rose from 3 percent to 4.4 percent during the first
seven years of the Bush presidency. At the current size of the
economy, a difference between a military budget at 4.4 rather than 3
percent of GDP amounts to $134 billion.
The largest increases in the military budget during the Bush
presidency have been associated with the Iraq War. Indeed, the $138
billion spent on Iraq in 2007 was basically equal to the total
increase in military spending that caused the military budget to rise
to 4.4 percent of GDP. It is often argued that the military budget is
a cornerstone of the economy--that the Pentagon is a major underwriter
of important technical innovations as well as a source of millions of
decent jobs. At one level these claims are true. When the government
spends upward of $600 billion per year of taxpayers' money on
anything, it cannot help but generate millions of jobs. Similarly,
when it spends a large share of that budget on maintaining and
strengthening the most powerful military force in the history of the
world, this cannot fail to encourage technical innovations that are
somehow connected to the instruments of warfare.
Yet it is also true that channeling hundreds of billions of dollars
into areas such as renewable energy and mass transportation would
create a hothouse environment supporting new technologies. For
example, utilities in Arizona and Nevada are developing plans to build
"concentrated" solar power plants, which use the sun to heat a liquid
that can drive a turbine. It is estimated that this technology,
operating on a large scale, could drive down the costs of solar
electricity dramatically, from its current level of about $4 per watt
to between $2.50 and $3 per watt in the sunniest regions of the
country. At these prices, solar electricity becomes much cheaper than
oil-driven power and within range of coal. These and related
technologies could advance much more rapidly toward cost
competitiveness with coal, oil and nuclear power if they were to
receive even a fraction of the subsidies that now support weapons
development (as well as the oil industry).
Swords, Plowshares and Jobs
How does it happen that government spending devoted to healthcare,
education, environmental sustainability and infrastructure can
generate up to twice as many jobs per dollar as spending on
militarism?
Three factors play a role in determining the overall job effects of
any target of government spending. Let's compare the construction of
Camp Victory, the main US military base on the western outskirts of
Baghdad, with weatherizing existing homes in New England to increase
their energy efficiency. The first factor to consider is the jobs that
get created directly by each project. The second is the job creation
in the industries that supply products for building the camp or
weatherizing the homes. These would include the steel, concrete,
weapons and telecommunications industries for building Camp Victory;
and lumber, insulation and trucking industries for home
weatherization. Finally, new jobs will result when people who are paid
to build Camp Victory or weatherize a house spend the money they have
earned--a weapons engineer at Camp Victory buying a lawnmower during
his vacation leave at home or a construction worker in New England
buying a new car.
How does one spending target create more jobs for a given amount of
dollars spent? Still considering Camp Victory construction versus New
England home weatherization, there are, again, three factors:
1. More jobs but lower-paying jobs. Average pay is lower in the
construction industry working on home weatherization in New England
than in mounting weapons installations at Camp Victory. So a given
pool of money is divided among more employed people.
2. More spending on people, less on machines and supplies. In
weatherizing a home, the machinery and supplies costs are relatively
low, while the need for construction workers is high. Building a
high-tech military base in Baghdad entails enormous investments in
steel and sophisticated electronic equipment and relatively less
spending for people on the job.
3. More money stays within the US economy. We roughly estimate that US
military personnel spend only 43 percent of their income on domestic
goods and services, while the overall population spends an average of
83 percent of their income on domestic products and 17 percent on
imports.
It is important to know which of these three factors is relatively
more important in generating the overall increase in jobs. In
particular, it would not necessarily be a favorable development if the
overall increase in employment opportunities is mainly just a
byproduct of creating lots of low-paying jobs.
In fact, if we were simply to send a rebate to taxpayers for the full
amount of the Iraq War budget--i.e., a measure similar to Bush's
current stimulus plan--the increased spending on personal consumption
would produce lots of what are now bad jobs, in areas such as retail,
hotels, restaurants and personal services. Because of this, a transfer
of funds from the military to tax rebates and personal consumption
increases would produce a 25 percent increase in employment but an 11
percent decline in overall wages and benefits paid to working people.
The opposite is true with education as the spending target. Here, both
the total number of jobs created and the average pay are higher than
with the military. It's less clear-cut when it comes to healthcare,
energy conservation and infrastructure investments. More jobs will be
created than with military spending, and the total amount of wages and
benefits going to workers will also be significantly higher than with
military spending. But the average pay for a healthcare worker or
those engaged in mass transit or construction is lower than in the
military.
Is it better for overall economic welfare to generate more jobs, even
if average wages and benefits are lower? There isn't a single correct
answer to this question. It depends on the size of these differences:
how many low-paying jobs are being generated, and how bad are these
jobs? How many high-quality jobs would be sacrificed through a
transition out of the military, where the average pay is relatively
high? Indeed, by completely shutting off Iraq War-related spending and
transferring the money in equal shares to education, healthcare,
energy conservation and infrastructure, average salaries would
decline. However, the majority of new jobs created by these peaceful
alternatives would command salaries above a reasonable living-wage
standard of $16 an hour.
Pushing Unemployment Down
As of January there were 7.6 million people unemployed in a labor
force of 154 million, producing an official unemployment rate of 4.9
percent. This was a significant increase over the 4.5 percent
unemployment rate in mid-2007, and thus one important sign of a
weakening economy. Unemployment is likely to keep rising as the
economic slowdown continues.
In our current context, what would be the overall job effects of
transferring the entire 2007 Iraq War budget of $138 billion into
healthcare, education, energy conservation and infrastructure
investments? If we assume that all else would remain equal in the
labor market, a net increase (i.e., the total expansion of jobs in
public investments minus the reduction in military jobs) in the range
of 1 million jobs would therefore reduce the total number of
unemployed people to around 6.6 million. The unemployment rate would
fall to about 4.3 percent.
This is still an unacceptably high unemployment rate. But if the
public-investment-directed spending shift out of Iraq were combined
with a stimulus package of roughly the same size as the Iraq War
budget--i.e., in the range of the Bush Administration's $150 billion
stimulus--the overall impact would be a strong program to fight
recession and create decent jobs.
In particular, through this combination of a spending shift out of
Iraq and a stimulus program focused on public investment, there is a
good chance that unemployment would fall below 4 percent. When
unemployment fell below 4 percent in the late 1960s and late 1990s,
the high demand for workers led to rising wages and benefits, in
particular at the low end of the job market. Poverty fell as a result.
Near full employment in the late '60s also brought better working
conditions and less job discrimination against minorities.
Of course, we cannot assume that everything about the labor market
would stay unchanged after a huge job expansion in healthcare,
education, energy conservation and infrastructure investments, while
jobs connected with the military contracted. There would no doubt be
skill shortages in some areas and labor gluts in others. There would
also probably be an increase in inflation that would have to be
managed carefully.
These concerns are real. But it is still true that large-scale job
creation within the United States is possible as an outgrowth of
ending the Iraq War, reallocating the entire Iraq budget to important
domestic public investment projects and fighting the recession with
further increases in public investments.
What if the Iraq War budget is transferred only partially to domestic
public investments? Let's assume, optimistically, that a new
Administration takes serious initiatives to end the Iraq War
immediately after coming into office next January. This new
Administration would almost certainly not have the wherewithal to shut
down operations within one year. And even if it could completely end
the war within a year, the government should still commit significant
funds to war reparations for the Iraqi people.
The job expansion within the United States will decline to the extent
that spending of any sort continues in Iraq rather than being
transferred into domestic public investments. But even if the net
transfer of funds is, say, $100 billion rather than $138 billion,
several hundred thousand new domestic jobs would still be created.
There is also no reason that the domestic public investment expansion
has to mirror the decrease in the Iraq War budget. Any stimulus
program initiated over the next few months--either a Bush-style
program or one focused on public investment--would entail spending
beyond the current Iraq budget levels.
Public Investment and Recession
There's also a strong argument for a stimulus program that emphasizes
public investment at the state and local level. State and local
government revenues--which primarily finance education, healthcare,
public safety and infrastructure--are always badly hit by economic
downturns and will be especially strapped as a result of the current
recession. State and local government revenues decline when the
incomes and property values of their residents fall. Property tax
revenues will fall especially sharply as a result of the collapse of
housing prices. Moreover, state and local governments, unlike the
federal government, cannot run deficits and are forced to maintain
balanced budgets, even in a recession. This means that unless the
federal government injects new revenue into the state and local
budgets, spending on public investments will decline.
Deficit Reduction: The Responsible Alternative?
The federal fiscal deficit in 2007 was $244 billion. Shutting down the
Iraq War and using the fiscal savings to cut the deficit would mean a
57 percent deficit reduction.
Is this the best use of the funds released by the Iraq War? Of course,
the government cannot run a reckless fiscal policy, no matter how
pressing the country's social and environmental needs. But a $244
billion deficit in today's economy is not reckless. It amounts to
about 1.8 percent of GDP. This is slightly below the average-sized
deficit between 1960 and 2006 of 1.9 percent of GDP. The largest
deviation from this long-term average occurred under Ronald Reagan's
presidency, when the deficit averaged 4.2 percent of GDP--i.e., more
than twice as large as the current deficit as a share of the economy.
The recession and stimulus program will of course produce a large
increase in the deficit. Recessions are not the time to focus on
deficit reduction. But even if we allowed the deficit to double from
its 2007 level--to about $500 billion--its size, as a share of GDP,
would still be below the average figure for the entire Reagan
presidency, including both the boom and recession years.
We would certainly need to worry about the deficit today, and even
more after the recession ends, if it were persistently running at
Reagan-era levels. This is because the government would soon be
consuming upward of 20 percent of the total federal budget in interest
payments, as it did at the end of the Reagan era. This is opposed to
the 10 percent of total government spending we now pay to the Japanese
and Chinese bondholders, US banks and wealthy private citizens who own
the bulk of US government debt. But because the deficit has been at a
reasonable level coming into the recession, the primary problem with
the Treasury's fiscal stance is not the size of the deficit per se but
how the money is being spent--that we are using the money for Iraq and
a private consumption-led stimulus rather than public investment.
There are many good reasons government policy should now initiate
major commitments to investment in the areas of healthcare, education,
environmental sustainability and infrastructure. All these spending
areas stand on their own merits. But moving the $138 billion spent on
the Iraq War in 2007 into public investments will also increase
employment, adding up to 1 million jobs. On top of this, expanding
public investment spending is the single most effective tool for
fighting the recession.
A great deal is at stake here. The Iraq War has been about death and
destruction. Ending the war could be a first serious step toward
advancing a viable program for jobs, healthcare, education and a
clean-energy economy.
Robert Pollin is professor of economics and co-director of the
Political Economy Research Institute (PERI) at the University of
Massachusetts. Heidi Garrett-Peltier is a PhD candidate in economics
at the University of Massachusetts and a research assistant at PERI.
.
- Follow-Ups:
- Re: The Iraq War Is Killing Our Economy
- From: wkhedr
- Re: The Iraq War Is Killing Our Economy
- Prev by Date: Defending Champion Hantuchova will beat Sharapova
- Next by Date: Re: anyone have Gasquet vs Soderling Lyon 2006 highlights?
- Previous by thread: Defending Champion Hantuchova will beat Sharapova
- Next by thread: Re: The Iraq War Is Killing Our Economy
- Index(es):
Relevant Pages
|
