iraq and the us economy

War against Iraq no answer to U.S. economic woes

From The Globe and Mail

By BARRIE MCKENNA


Friday, January 31, 2003 – Page B5


It was a scant five minutes and a dozen ovations into George W. Bush's State of the Union address that it all became clear: The mighty United States doesn't have an economic plan.

Not a real one, anyway.

Oh sure, there's that business of the 10-year, $674-billion (U.S.) tax cut. But most of it -- the dividend tax holiday -- is dead on arrival in the U.S. Congress. Mr. Bush and everyone else knew it before he stepped to the podium.

Even if the U.S. President manages to push something more modest through in the next few months, it will be too little, too late to add much zip to the economy this year.

What the United States does have is a war plan, the rationale for which Mr. Bush outlined at length and with some passion.

And with masterful slight of hand, it's all become one plan -- the Big Plan.

After flailing about for weeks, anxiously watching support for war evaporate at home and abroad, Mr. Bush has quietly reframed the debate. Forget fixing the economy by averting war. Now, the only way to lift the uncertainty hanging over the economy is to wage war.

That view is now rapidly gaining adherents on Wall Street and among key policy makers. And if you can get them to like war, you're a long way to getting out of this economic mess, Bush officials now believe.

In recent months, Mr. Bush has spent so much time talking about Iraq that many economists say war fears are dragging down the economy (and the stock market). By some estimates, just the threat of war is erasing percentage points a year from already meagre economic growth.

U.S. Federal Reserve Board chairman Alan Greenspan expressed similar concerns last week in private meetings with members of Congress. Don't worry about economic stimulus; end the uncertainty, the Maestro reportedly told them.

The latest economic numbers highlight the challenges. Consumers are in a funk, jobs continue to vanish and forward economic momentum has stalled. The U.S. Commerce Department reported yesterday that the economy grew at an annual rate of just 0.7 per cent last quarter.

Going into Tuesday night's speech, it looked like Mr. Bush faced two daunting tasks: rallying support for a war against Iraq and reviving the sputtering economy.

Who would have guessed that the answer to problem No. 1 was to ignore it altogether and tackle problem No. 2 instead. Get the damn war over with, uncertainty becomes reality, and then hope that the reality isn't as bad as the uncertainty. Two huge problems solved, right? Well, not quite.

There isn't a sane economist who would argue that pouring enormous resources into a Middle East war is sound economic policy. Most would say that allocating those resources to more productive uses at home would provide a far greater economic lift. And the costs are not trivial. Lawrence Lindsey, Mr. Bush's former top economic adviser, has put the price tag of a war against Iraq at $100-billion to $200-billion.

A more profound question remains unanswered. There is no certainty that a war would miraculously make the worries gripping the United States disappear.

More than the scourge of Saddam Hussein, it is the threat of an escalating and never-ending global terrorism campaign against the United States that haunts economic decision-making.

To date, the Bush administration has laid out a case against Iraq that presumes Iraq is part of the terrorism campaign that produced the Sept. 11, 2001, attacks.

But that line of argument is hard to sustain when the 9/11 mastermind continues to spew venom, probably from a hideaway in Pakistan. More worryingly, the hatred that spawned Osama bin Laden continues to find fertile ground in countries throughout the Muslim world, and could escalate with a U.S. occupation of Iraq.

Maybe, just maybe, the economy is also sluggish because of the enormous overhang left behind by the collapse of the stock market bubble. Companies, households and individuals are painfully working off their balance sheet problems.

Wall Street's apparent hope that war with Iraq will somehow revive the fortunes of hapless bubble creations such as AOL Time Warner Inc. and their bloated banking partners is naive, even reckless.