I was having a discussion about Fahrenheit 9/11 on another message board, and I was sort of whining and I asked, “Why would our president simultaneously cut taxes and go into an unneccesary war?” I know I completely oversimplified the issue. Someone responded and talked about how cutting taxes and increasing spending are good ways to stimulate an economy during a recession.
I suppose I learned about that kind of stuff talking about fiscal policy in government class in high school. Does that really apply in this case? I guess I’m under the impression that had we not gone to war we would be in better shape economically right now. I’m not qualified to debate this, really, but I’d love to hear both sides of the argument. Was there a good economic argument to go to war in Iraq?
I think Bush is the first president in American history – perhaps the first national leader in the history of any country – to cut taxes at the start of a war.
As for whether that benefited the economy – “the economy” is not just one thing. Some well-connected corporations got fat defense contracts, and lucrative contracts for rebuilding postwar Iraq, which will produce profits they might reinvest in the U.S. – or elsewhere. But the rest of us get stuck with financing Bush’s record budget deficits, for decades to come. And I don’t think the war really created many jobs in the U.S., outside the military sector. No cites, but if any job creation were directly attributable to the war, the Administration would be shouting it from the rooftops, and they’re not.
The economic argument was that the war wouldn’t be terribly expensive ($50-60 billion) and the reconstruction would be funded largely by frozen assets and oil revenues.
Have those oil revenues materialized yet? On the news recently there were reports of gas lines in Iraq. Gas lines! In one of the world’s major oil-producing countries! And terms of prices at the pump, we’re not faring much better in the U.S.! What’s Halliburton doing with those oilfields, anyway?
Whadaya worried about! The price of oil is going through the roof! The Iraqi economy is going to be just fine, all they got to do is figure out how to divvy up the money, Sunni, Shia, Kurds, and really…when has that ever been a problem?
To answer your first (unquoted) question, no, there was no sound economic argument for going to war in Iraq. Warnings have been sounding since before the invasion on that particular subject, in spite of the greedy “cheap oil” arguments from the hawks.
But to answer the above quote, yes, to my understanding when there is a recession you want to inject some stimulus in the economy to try and give it more buoyancy and hope for a more rapid recovery, but it’s not as simple as throwing money around, you must have a viable strategy and the ability to predict certain consequences. The problem is how the administration went about implementing this principle, rather than the principle itself.
When the first tax cut was passed, the administration came out with the hopelessly optimistic prediction that by now there would be 139 million jobs thatnks to the recovery the tax cuts were supposedly stimulating; in fact, there are barely 132 mil. In spite of the sizeable tax cuts, ordinary consumers haven’t drawn that much benefit from the recovery, with corporate profits increased by more than 50% while wage increases amounted to a piddly 0.8% – and wage pressure is still very low (according to the Economic Policy Institute and Commerce Dept data from last month). So in this case the economy on a corporate level has shown substantial recovery, whereas consumers have not drawn any kind of similar benefit. Assuming this was unintended, it was poor economic planning; assuming this was the intention all along, it gives ammo to critics who claim Bush is a friend of big business rather than the people.
Also consider that the Fed has had to start raising interest rates since June 30 not because of inflation, but to help offset the deficits resulting from the three irresponsible tax cuts, increases in government spending, as well as poorly conceived and unjustified adventurism in Iraq. Core inflation is actually very low, and does not warrant an interest rate hike, but since the administration acted like it could create magic money by cutting taxes while at the same time drastically increasing spending, and since the Fed agreed with this utterly baked thinking, they now have to correct the problem and find a substitute for the magic money that has predictably failed to materialize. Since raising taxes is right out, interest rate hikes must serve the purpose.
This is probably basic macroeconomics, but I don’t get it. How does raising interest rates offset the federal budget deficit? I can’t see how it affects federal revenue – and in terms of interest payments, the federal government is a debtor, not a creditor (but then, aren’t federal bonds fixed-rate anyway?).
Well, it must be recalled Iraq’s oil was going to pay for the whole thing. And the way the price/barrel is climbing that just might be true - someday. (If they can ever stop people from blowing up their production and distribution facilities.)
BrainGlutton, the link is still subject to debate, but here is the simplest answer I found in a time-limited search:
For what it’s worth, Reagan once stated that the cause of inflation is the government spending more than it takes in; Greenspan himself warned that rising federal deficits will ultimately contribute to higher interest rates (on the subject of the long-term health of the economy).
There has indeed been major problems with oil refinery.
First, the oil production system was captured largely intact, despite periodic acts of terrorism that shut down pipelines and such. Oil production (overwhelmingly used for export) has been fairly constant at around 2 million barrels per day, with a few hicups now and then. So far this year, Iraq has earned $8 billion through oil sales, which is mostly used for the day-to-day operations of the government (although the CPA, before its dissolution, had been dipping into oil sales in order to fund reconstruction projects because they claim they’ve had bureaucratic hurdles in spending the $18 billion in reconstruction funds appropriated by Congress last year.)
But back to refining capacity, in contrast to oil wells, Iraq’s is crap. Despite being flush with oil, Iraqi domestic production accounts for roughly 40% of its gasoline usage. The rest is imported. About 55% of the diesel production is domestic.
From 1991 through 2003, Iraq was under heavy international sanctions, which presumably would have prevented them from importing refined gasoline. How did they get through that without their own refineries? I don’t recall any reports of gas lines in Iraq during the sanctions period.
Disclaimer: I do not know what the refining situation was pre-war; only the statistic that actual gas refining capacity had dropped from 700,000 BPD to around 400-500,000 during the sanctions.
There are a few major problems now: Looting caused shutdown of refineries; Electricity failures; Inefficient deliveries of crude oil (bombed pipelines, etc); Refineries taken offline for maintenence/upgrades; Petroleum products diverted to black market sales.
Reports I hear also state that gas lines have shortened considerably since last fall/winter.
Hmm, might they have been referring to natural gas lines and just not specify it? I see news articles do that a lot. If so then it would have nothing to do with crude oil or gasoline.
From 1991 through 2003, Iraq was under heavy international sanctions, which presumably would have prevented them from importing refined gasoline. How did they get through that without their own refineries? I don’t recall any reports of gas lines in Iraq during the sanctions period.