MyDD :: Paul Krugman and the WAR STIMULUS

Paul Krugman and the WAR STIMULUS

by cgvcu, Tue Mar 25, 2008 at 05:34:01 PM EST

"The war is indeed a grotesque waste of resources, which will place huge long-run burdens on the American public. But it's just wrong to blame the war for our current economic mess: in the short run, wartime spending actually stimulates the economy. Remember, the lowest unemployment rate America has experienced over the last half-century came at the height of the Vietnam War."

-Paul Krugman

The war is likely not the sole source of all our economic ills ... but if it's effect is so stimulative, why the hell are we in such a fix?

We've paid for the war with debt and cut taxes to be stimulative. The taxes were supposed to stimulate the economy to a degree that tax revenues actually increase. But no credible economist believes this to be true and it hasn't happened. So, the deficit is fueled by both a shortfall in tax revenues to pay for traditional spending and borrowing to finance the war. A double stimulus -- and we are still slipping into a recession?

Oil prices go up with uncertainty. It's higher cost goes into about every good produced and delivered. Some postulate that interest rates are pressured up by increased deficit spending although historical data fails to produce clear support. But, uncertainty demands higher returns on investment -- i.e. higher interest rates. Higher interest rates triggered the rate resets that started the mortgage collapse. The mortgage market itself exploded in growth due to efforts to satisfy demand for high yield, quality debt (debt with less uncertainty) by "creatively" creating more of it. A lot is explained by an uncertain world and the war that helped make it more so.

Tags: Krugman, Iraq, Economy, Iraq Recession (all tags)

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Krugman is wrong (none / 0)

Spending money in Iraq doesn't stimulate our economy. It stimulates the Iraqi economy.

Paying mercinary contractors billions doesn't stimulate our economy.

Sure - we're buying a few more tanks and airplanes....but that's a limited sector of spending. Outside of the defense industry and the military contractor industry (see: Northern Virginia), no one is really benefiting.

Plus - the healthcare/mental health costs incurred by the war on soldiers are significant. As are the costs put upon families whose breadwinners are overseas.

Krugman is really stretching here while trying to carry water for Hillary.

by Sinbad Sinbad on Tue Mar 25, 2008 at 05:51:01 PM EST

You are taking Krugman OUT OF CONTEXT (2.00 / 1)

Obviously, that is not the point that he was trying to make in his article. In fact, didn't he explain that right after the section you quoted out of context? I think he did..

Is his statement about Obama's economic naiviete what really got you angry? Krugman wasn't saying that Iraq isn't a black hole we are pouring money into. It is. He was saying that Obama (and Hillary Clinton and John McCain, especially,) are not looking deeper into the reasons and that really bothers him as an economist.

I don't think that any politicians have the courage to say what needs to be said. That the good jobs of the 60s and 70s, and the mediocre but livable jobs of the 80s an 90s, are being replaced nationally by the non-jobs and the intermittant work of the 21st century, and that WE NEED TO ADAPT TO THAT AND DO WHAT IT TAKES TO PRESERVE OUR MIDDLE CLASS OR IT WILL DISSAPEAR..

We need to rebuild a financial safety net that works.. Krugman said that the finacial safety net that was built after the Great Depression has been dissassembled and that people are now at the mercy of corporate snakes that have set up incredibly complex shell games that are going to be a huge challenge to reign in..

All three candidates have received a lot of money from Wall Street.

I'm summarizing what he said here:

"Over time, however, many of the roles traditionally filled by regulated banks were taken over by unregulated institutions -- the "shadow banking system," which relied on complex financial arrangements to bypass those safety regulations.

Now, the shadow banking system is facing the 21st-century equivalent of the wave of bank runs that swept America in the early 1930s. And the government is rushing in to help, with hundreds of billions from the Federal Reserve, and hundreds of billions more from government-sponsored institutions like Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

...But you don't have to be an economic radical, or even a vocal reformer like Representative Barney Frank, the chairman of the House Financial Services Committee, to see that what's happening now is the quid without the quo.

...Mr. Rubin put it clearly: If Wall Street companies can count on being rescued like banks, then they need to be regulated like banks.

...But at least so far, neither Democrat has made a clear commitment to financial reform.

...Last year, there was no question at all about the way Wall Street's financial contributions to the new Democratic majority in Congress helped preserve, at least for now, the tax loophole that lets hedge fund managers pay a lower tax rate than their secretaries."

The current situation is really dangerous...

Yes, wars may stimulate economies in a very short term, but its a very unequal stimulus.. very top heavy..

Wars DON'T help economies in the long term. They waste huge amounts of money. Lots of research has been done on war spending and it is often one of the worst investments for a country, if you look at its potential or nonpotential for causing economic stimulus relative to other kinds of spending. The US is now put itself in the position of defending half of the entire world.. countries that don't need our help, like Japan and Korea.. countries THAT CAN AFFORD TO DEFEND THEMSELVES..

Meanwhile, money which we could be putting into infrastructures, education and our future.. goes to obscenely expensive military technologies that often is not even functional. Its juts an excuse to rob the Treasury blind.

And many families, poor ones in particular, also pay an ultimate sacrifice in that they lose family members. In the latter half of the 20th century, there is also the little matter of wars having the potential to escalate into nuclear conflict that would destroy all of humanity.

http://www.thisamericanlife.org/Radio_Ep isode.aspx?sched=1242
Confused by the 'Bailout' Lies?
Listen to NPR's The Giant Pool of Money

by architek on Tue Mar 25, 2008 at 07:14:14 PM EST
[ Parent ]

Re: You are taking Krugman OUT OF CONTEXT (none / 0)

Is his statement about Obama's economic naiviete what really got you angry?

Simply enough, sure. I remain filled with RAGE!

Tying the war to the economy, "Iraq Recession", is a winning formula for democrats. When Obama announced he would finally address this in a speech I wondered, finally? I hope either democrat would be willing to make this case, and if you believe Obama has done so poorly, I can accept that. The case has to be made that whether we want to fight this war or not, we cannot afford it.

by cgvcu on Tue Mar 25, 2008 at 08:53:33 PM EST
[ Parent ]

Re: Paul Krugman and the WAR STIMULUS (none / 0)

Let me add:

The cost of war in Iraq is really the opportunity cost of the money we're spending there. We could use that money for a really generous bailout to lower income homeowners...Or to prop up sectors of the mortgage industry...or to give back more money to working class poeople...or do to a number of other things that would provide IMMEDIATE ease to the pain.

Unfortunately, Bush/McCain/Clinton's war is limiting our ability to do that.

by Sinbad Sinbad on Tue Mar 25, 2008 at 05:52:57 PM EST

You are talking like people have some kind (none / 0)

of BIRTHRIGHT..

Americans are not born with any kind of birthright. These days it is more of a birth-debt.

All money is is a promise by the government to pay the holder of the note. In a sense, its also a liability to the holder in that it makes them a target that could profitably be done away with, to discharge the obligation.

Thats the most scary thing about wars. They allow governments to squeeze out of all debts.. such as money that has already been issued..

They dont call 'real estate' REAL for nothing!

http://www.thisamericanlife.org/Radio_Ep isode.aspx?sched=1242
Confused by the 'Bailout' Lies?
Listen to NPR's The Giant Pool of Money

by architek on Tue Mar 25, 2008 at 07:23:11 PM EST
[ Parent ]

Re: Paul Krugman and the WAR STIMULUS (none / 0)

The Bush administration mixed two things that may INDEPENDENTLY stimulate the economy but, in combination, are disastrous. You cannot wage a war and simultaneously go into completely unchecked debt. Sure, the war is large component, but simply ending it is not going to fix the economy.

by ejintx on Tue Mar 25, 2008 at 06:57:44 PM EST

Jobs are disappearing all over the world.. (none / 0)

The Europeans are taking the right approach and trying to shield people from the worst of it..

Technology is replacing more people than offshoring is..

China is losing (far) more jobs than the US is. Ultimately, almost all wealth will be inherited, or income from investments.

But where will Americans be when that income they are going to be depending on is stolen from them in the big shell game?

http://www.thisamericanlife.org/Radio_Ep isode.aspx?sched=1242
Confused by the 'Bailout' Lies?
Listen to NPR's The Giant Pool of Money

by architek on Tue Mar 25, 2008 at 07:19:30 PM EST
[ Parent ]

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