Will.Whim

A weblog by Will Fitzgerald

Cost of the Iraq War and the Economy

More stuff worth reading: Joseph Stiglitz’s testimony before Congress on the cost of the Iraqi War (pdf):

I have, so far, emphasized the direct economic costs as well as the opportunity costs—the diversion of funds that could have been used in so many other and better ways. I would be remiss, however, if I did not note that there are other costs: in the long run, the squandering of America’s leadership role in the international community, the diversion of attention from critical global issues, including issues like global warming and nuclear proliferation in North Korea—that simply won’t go away on their own, and that cannot simply wait to be addressed—may represent the largest and most longstanding legacy of this unfortunate war.

Some have characterized the Iraq War as a “war for oil.” If so, we lost this war, too: oil was $25 per barrel before the war, and over $100 per barrel now. Stiglitz conservatively reckons the war accounts for $5-$10 of the increase (though, confusingly, he actually thinks it is much higher).

And there is a direct connection between the war and the credit crisis (which goes unmentioned, by the way, in the New York Times front page article “Can’t Grasp Credit Crisis? Join the Club“):

It should have come as no surprise that, when America’s great financial institutions, Citibank and Merrill Lynch, needed money quickly, there were no pools of liquid cash available here. High oil prices and high national savings in China and elsewhere have created huge pools of wealth outside the United States, and it was to these that our financial institutions had to turn. It is, and should be, a cause of concern.

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One response to “Cost of the Iraq War and the Economy

  1. Daniel Lemire March 19, 2008 at 12:47 pm

    You have to take into account that Bush artificially boosted the US economy by letting the dollar slide:

    http://www.daniel-lemire.com/blog/archives/2007/09/20/canadian-dollar-reach-parity-with-american-dollar/

    This causes American products to gain in competitivity by lowering (relatively speaking) the American wages.

    The beauty of it all is that people do not feel like their wages went down because they do not see what is happening worldwide. Of course, next time the average American worker goes for a trip to Paris, if it ever happens, he will be half as rich as he were ten years ago. But he will think that prices in Paris simply went up twofold.

    The truth is that the rest of the world did not change that much. A Canadian dollar is still pretty worthless compared to a euro… but the big deal is that the American dollar, which used to be at parity with the euro, now buys you a meagre 0.6 euro.

    The effect is going to be very progressive. Markets adapt relatively slowly to currency changes, but eventually, Americans will find that their toys made in Asia are suddenly so much more expensive than they were (relatively speaking). It will take many years, but Americans will eventually realize that they got poorer, much poorer.

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