# Q for Joseph Stiglitz: What does the mortgage meltdown have to do with the Iraq War? **URL:** \ **Category:** Great Debates\ **Created:** [March 2, 2008, 11:51pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891 "2008-03-02T23:51:43Z")\ **Posts on this page:** 13\ **Page:** 1
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 2, 2008, 11:51pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/1 "2008-03-02T23:51:43Z")
The Iraq War has cost the US $3 trillion dollars according to Nobel Laureate Joseph Stiglitz. [Reuters Cite](http://www.reuters.com/article/domesticNews/idUSN2921527420080302?feedType=RSS&feedName=domesticNews&rpc=69&sp=true), [Guardian Interview](http://www.guardian.co.uk/world/2008/feb/28/iraq.afghanistan), [The Times of London](http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article3419840.ece). [Their book, “The Three Trillion Dollar War”](http://www.amazon.com/Three-Trillion-Dollar-War-Conflict/dp/0393067017/ref=pd_bbs_sr_4?ie=UTF8&s=books&qid=1204500479&sr=8-4) tallies the numbers. Soberingly, 2003 estimates of the War’s costs by the Bush administration were in the $50-200 billion range, about 2-7% of the latest figures. George Bush fired Lindsey for offering the $200 billion figure. Stiglitz [objects to the way the war was financed](http://www.guardian.co.uk/world/2008/feb/28/iraq.afghanistan): > [@](#): > > This is not, then, pure neocon ideology at work, says Stiglitz: “Ideology of convenience is a better description.” It is an ideology illustrated even more clearly in another fact that Stiglitz can’t believe - that Bush put through tax cuts while going to war. In Stiglitz and Bilmes’s reading, this was downright underhand. Raising taxes, and resorting to the rhetoric of shared sacrifice used in the world wars, for example, would have made Americans more aware of exactly what the war was costing them, and would have provoked opposition sooner. The solution was to borrow the money, at interest of couple of hundred billion dollars a year, which, by 2017, will add up to another trillion dollars or so. This government will be gone in nine months; subsequent administrations, and generations, will have to pay it off. Ok, fair enough. But then he seems to argue that the Iraq war is related to our current downturn: > [@](#): > > At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it “kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more.” Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel wealthy… …and the pricking housing bubble led to our currently weak economy. As I see it, absent the additional stimulus provided by W’s war and tax cuts, the Fed would have dropped rates lower --or delayed the rate increase for longer-- thereby inflating housing prices further. And though Greenspan’s lax regulatory stance towards out-of-control mortgage lenders certainly reflected modern conservative ideology, it had little to do with Bush’s adventure in Mesopotamia. Stiglitz is a very smart man. But I don’t see what he’s getting at here. The Iraqi War weakened America. But I can’t see its connection to the policy errors associated with the current recessionary environment. ---
**Author:** ![Paper\_Pusher](https://avatars.discourse-cdn.com/v4/letter/p/a9adbd/32.png) [@Paper\_Pusher](https://boards.straightdope.com/u/Paper_Pusher)\ **Post date:** [March 3, 2008, 5:50am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/2 "2008-03-03T05:50:37Z")
I think he is accusing Greenspan of colluding with Bush to create the real estate bubble so that the war could remain popular (or less unpopular). I think he is picking up on the theme that Bush did all he could to make this idiotic war as painless to Americans as possible (at least in the short term). When in fact the stock market was stagnant (DJIA has risen about 4%/year during Bush’s term, the S&P 500 has risen about 2%/year, the Nasdq composite is lower than it was in 2001). The median family income has risen at 1%/year during Bush’s term (but the average hourly wage has actually gone down so the increase in incomes may represent more hours worked). But we had a housing boom the likes of which we had never seen before. This along with huge national debt (this president has added almost over 3 trillion in national debt (some of which pays for the war and some of which pays for his tax cuts) has left the economy very vulnerable. Regulators knew that the mortgage market was overheated but there was ineffective regulatory oversight but economic pain would only make the billions of dollars spent in Iraq every week seem even stupider (if that is possible). ---
**Author:** ![hawthorne](https://avatars.discourse-cdn.com/v4/letter/h/c89c15/32.png) [@hawthorne](https://boards.straightdope.com/u/hawthorne)\ **Post date:** [March 3, 2008, 12:29pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/3 "2008-03-03T12:29:30Z")
This is how it could make sense to me: > [@](#): > > At the same time, Stiglitz and Bilmes argue, the Federal Reserve colluded in this obfuscation, because it “kept interest rates lower than they otherwise might have been, and looked the other way as lending standards were lowered, thereby encouraging households to borrow more - and spend more.” Alan Greenspan, by this account, encouraged people to take on variable-rate mortgages, even as household savings rates went negative for the first time since the Depression. Individuals were taking on unprecedented debt at the same time as a long housing bubble made them feel wealthy… 1.“the Fed colluded in this obfuscation” is outside the quotes in the article. _Maybe_ Stiglitz means “the Fed’s actions obscured the problem” and has been misinterpreted. 1. “[K]ept interest rates lower than they otherwise might have been” _might_ simply mean that the Fed kept interest rates too low too long (which with the wisdom of hindsight is a very commonly-held position) and that Greenspan was over-eager to reinflate the economy to help Bush, rather than “lower than they might have been in the absence of the Iraq invasion”. It’s not obvious that he is arguing this. And if he’s not it’s not clear that he has an argument. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 4, 2008, 5:19am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/4 "2008-03-04T05:19:30Z")
Thanks for the comments, gang. [Here’s a direct quote from Reuter’s](http://www.reuters.com/article/domesticNews/idUSN2921527420080302?feedType=RSS&feedName=domesticNews&rpc=69&sp=true) > [@](#): > > Asked if the war has contributed to the U.S. slowdown, Stiglitz said, “Very much so.” > > “To offset that depressing effect, the Fed has flooded the economy with liquidity and the regulators looked the other way when very imprudent lending was going up,” Stiglitz said. “We were living on borrowed money and borrowed time and eventually a day of reckoning had to come, and it has now come.” Q1: _What_ depressing effect? From war spending? Huh? Answer from Reuters: “It used to be thought that wars are good for the economy. No economist really believes that anymore,” Stiglitz said in an interview. Er, don’t most economists believe that military spending stimulates the economy, which adds to aggregate demand? (Which could be inflationary or anti-recessionary, depending upon circumstances?) Of course there are other ways of spending money that are less destructive, as Stiglitz and Blimes note. I guess Stiglitz is saying that the war made Greenspan reluctant to rock the boat with tightened policy or new regulatory initiatives. That’s a political argument (which I guess is what **Paper Pusher** worked out). Which frankly I don’t believe: I see Fed continuity in the pre- and post- 2003 Greenspan eras, in terms of interest rate setting, public commentary and regulatory stances. [As Paul Krugman noted](http://www.nytimes.com/2007/10/26/opinion/26krugman.html) in his October 2007 column, “A Catastrophe Foretold”, > [@](#): > > These days a lot of people are saying things like that about subprime loans — mortgages issued to buyers who don’t meet the normal financial criteria for a home loan. But here’s the thing: Mr. Gramlich said those words in May 2004. > > And it wasn’t his first warning. In his last book, Mr. Gramlich, who recently died of cancer, revealed that he tried to get Alan Greenspan to increase oversight of subprime lending as early as 2000, but got nowhere. So Gramlich’s concerns were brushed aside even before 9/11. > [@Ned Gramlich](#): > > “Why are the most risky loan products sold to the least sophisticated borrowers?.. The question answers itself — the least sophisticated borrowers are probably duped into taking these products. …the predictable result was carnage.” ---
**Author:** ![Paper\_Pusher](https://avatars.discourse-cdn.com/v4/letter/p/a9adbd/32.png) [@Paper\_Pusher](https://boards.straightdope.com/u/Paper_Pusher)\ **Post date:** [March 6, 2008, 5:38am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/5 "2008-03-06T05:38:06Z")
[QUOTE=Measure for Measure] Er, don’t most economists believe that military spending stimulates the economy, which adds to aggregate demand? (Which could be inflationary or anti-recessionary, depending upon circumstances?) Of course there are other ways of spending money that are less destructive, as Stiglitz and Blimes note. [/quote] Military spending is no more stimulitive than most other forms of deficit spending (and indeed probably not as stimulitive and infrastructure spending). You can’t keep that deficit spending going forever. Wars in OTHER countries fought by OTHER countries is good for our economy because we are the largest arms manufacturer in the world. But when we have to spend our own money to fight wars in other countries, its not as good for our economy. ---
**Author:** ![Mr.Moto](https://avatars.discourse-cdn.com/v4/letter/m/9de0a6/32.png) [@Mr.Moto](https://boards.straightdope.com/u/Mr.Moto)\ **Post date:** [March 6, 2008, 5:22pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/6 "2008-03-06T17:22:03Z")
I don’t buy it. The cost of the war pales in comparison to the costs imposed by new entitlements during the Bush administration. These worsen the deficit considerably more than the shooting does. Democrats, left to their devices, would have expanded these entitlements far more than they were - especially for the Medicare drug benefit. So not all of this can be pinned on Republicans. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 6, 2008, 6:17pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/7 "2008-03-06T18:17:39Z")
Pretty nifty, **Moto**. You compare what the Pubbies actually did do with what you surmise the Dems _would have_ done! Cool! ---
**Author:** ![Dumbguy](https://avatars.discourse-cdn.com/v4/letter/d/2bfe46/32.png) [@Dumbguy](https://boards.straightdope.com/u/Dumbguy)\ **Post date:** [March 6, 2008, 6:32pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/8 "2008-03-06T18:32:58Z")
[QUOTE=Mr. Moto] The cost of the war pales in comparison to the costs imposed by new entitlements during the Bush administration. [/QUOTE] [It does](http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/tables.pdf)? ---
**Author:** ![Mr.Moto](https://avatars.discourse-cdn.com/v4/letter/m/9de0a6/32.png) [@Mr.Moto](https://boards.straightdope.com/u/Mr.Moto)\ **Post date:** [March 6, 2008, 6:55pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/9 "2008-03-06T18:55:09Z")
[QUOTE=Dumbguy] [It does](http://www.gpoaccess.gov/usbudget/fy09/pdf/budget/tables.pdf)? [/QUOTE] By your own link it does. Table S-8 clearly shows that the growth of entitlement spending far exceeds the growth in both security and non-security related discretionary spending. And you will note from recent years that proposals to reform entitlement spending have primarily been opposed by the Democratic Party, which generally favors more funding in these programs without much structural change. It isn’t the war that will bankrupt us - it is old people like our friend **elucidator**. 😉 I’m sure for the good of the country he’ll be first in line when we spin up the Soylent factories. ---
**Author:** ![elucidator](https://avatars.discourse-cdn.com/v4/letter/e/8edcca/32.png) [@elucidator](https://boards.straightdope.com/u/elucidator)\ **Post date:** [March 6, 2008, 7:14pm UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/10 "2008-03-06T19:14:09Z")
Be first at the door with a bomb in my hand. You bring extra matches, in case I forget. ---
**Author:** ![Paper\_Pusher](https://avatars.discourse-cdn.com/v4/letter/p/a9adbd/32.png) [@Paper\_Pusher](https://boards.straightdope.com/u/Paper_Pusher)\ **Post date:** [March 7, 2008, 4:18am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/11 "2008-03-07T04:18:44Z")
[QUOTE=Mr. Moto] I don’t buy it. The cost of the war pales in comparison to the costs imposed by new entitlements during the Bush administration. These worsen the deficit considerably more than the shooting does. Democrats, left to their devices, would have expanded these entitlements far more than they were - especially for the Medicare drug benefit. So not all of this can be pinned on Republicans. [/QUOTE] So the costs of expanding entitlements (done by a Republican congress and white house) is actually the Democrats fault? Its not just the war, its the tax cuts for the rich, medicare drug programs that are designed to make lots of money for pharmaceutical companies, an energy bill that helps out those poor deserving oil companies, etc. History has shown that Democrats are more fiscally responsible than Republicans (which is pretty depressing). Republicans are good at doing one thing, replacing taxes with borrowing. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 7, 2008, 6:15am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/12 "2008-03-07T06:15:16Z")
I’ll note the Mr. Moto’s posts here are pretty much devoid of numeric analysis. Where there are no facts or logic, there are only emotions and feelings. Nobody said that $3 trillion of costs was going to bankrupt the US. It just made us poorer, weaker and, for some in uniform, less healthy. $3 trillion / US population ~= $10,000 per person, though some of that will be paid by their kids and most will be paid in the future. [This is a hijack, right?] As for the medicare drug benefit, I think it would have been better if the Republicans didn’t have such a cosy relationship with Big Pharma. Medicare should be permited to negotiate with the drug companies on pricing. This isn’t price controls, I’m advocating. Merely prudent fiscal spending. [/This is a hijack right?] ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 7, 2008, 6:26am UTC](https://boards.straightdope.com/t/q-for-joseph-stiglitz-what-does-the-mortgage-meltdown-have-to-do-with-the-iraq-war/439891/13 "2008-03-07T06:26:14Z")
[QUOTE=Mr. Moto] Table S-8 clearly shows that the growth of entitlement spending far exceeds the growth in both security and non-security related discretionary spending. [/QUOTE] I’ll note that Table S-8 compares Bushes budget projections for 2008-2012 with 2007 spending. [But remember the budget is a George Bush creation](http://capitalgainsandgames.com/blog/133/bush-fiscal-2009-budget-blogging-part-2). “Money for Iraq and Afghanistan that everyone knows will be spent wasn’t included for fiscal 2010 - 2013. Even the president’s preferred plan to have a permanent U.S. presence in Iraq at a cost of $30 billion or so a year wasn’t included…and that’s the least-cost alternative.” What a sad document. Those interested in broad patterns of federal spending during the GWBush regime can look [here](http://www.cbpp.org/3-5-08bud.htm). Discretionary non-security spending was fairly flat - as a share of spending though it dropped by 3.7 percentage points (from 18.4 to 14.7). The share of spending devoted to security and defense rose by 7.5 percentage points. Medicare and social security shares dropped by 2.4 points. Hat tip to [Paul Krugman](http://krugman.blogs.nytimes.com/2008/03/05/drunken-sailor-watch/).