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<font color="#002864" size="1" face="Verdana">http://www.mises.org/fullstory.asp?control=1178</font>
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<font face="Verdana" size="2"><font color="#002864" size="5"><strong>War and the Economy</strong></font>
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<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2"><font size="4">by
Llewellyn H. Rockwell, Jr.</font>
[Posted March 10, 2003]</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">[img][/img] The
National Bureau of Economic Research dates the peak of the last business cycle
at March 2001, and has yet to call a trough, which is to say it hasn't yet
observed an end to the contraction or the beginnings of an economic recovery.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">The number of
months we have traveled from the end of the last peak to the current day is
24. The </font><font size="2">NBER</font><font size="2">
has used its method for dating business cycle pronouncements on peaks and
troughs since the 1850s. The average period of contraction runs 8 months.
The current downturn is the longest on record since the Great Depression, and next
month it will become the second longest since 1882. </font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><o:p>
<font size="2"> </font></o:p>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">This is
another way of saying: folks, this is getting serious. Yet what is Washington
talking about? Not the decline in employment, savings, the dollar, nor the
increase in debt, deficits, government spending, and prices. No, Washington
wants war with Iraq. It plans to spend at least $100 billion to bring it about,
in a year in which the deficit will balloon to $400 billion plus and
American incomes and payrolls are under serious strain.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><o:p>
<font size="2"> </font></o:p>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">The Mises
Institute has worked relentlessly to call attention to the dangers of the
recessionary environment (and the dangers of the bubble that preceded it), as
well as the distraction and destruction of war. </font><font size="2">Bill
Moyers</font><font size="2">, who has a show on PBS, found himself
intrigued by this combination of being against the war but for a free and
globally engaged commercial republic. I went on his show to talk about this [TRANSCRIPT],
but his curiosity tells me that a primer on war and economy is needed.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">Behind the current confusion of ideological categories is the
longstanding canard that war is good for the economy. If what you care about
is a prosperous economy, why wouldn't it make sense to spend hundreds of
billions of dollars on huge industrial products like military planes and tanks?
Why not employ hundreds of thousands in a great public-works program like war?
Why not destroy a country so that money can funnel to American companies in
charge of rebuilding it? Doesn't all of this help us out of the recession?</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">All these questions somehow come back to Bastiat's"Broken
Window" fallacy. In the story, a boy throws a rock through a window.
Regrets for this act of destruction are all around. But then a confused
intellectual pops up to explain that this is a good thing after all. The
window will have to be fixed, which gives business to the glazier, who will
use it to buy a suit, helping the tailor, and so on. Where's the fallacy? It
comes down to focusing on the seen (the new spending) as versus the unseen (what
might have been done with the resources had they not had to be diverted to
window repair).</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">Let us never forget that the military is the largest single
government bureaucracy. It produces nothing. It only consumes resources which
it takes from taxpayers by force of law. Making matters worse, all these
resources are directed toward the building and maintenance of weapons of mass
destruction and those who will operate them. The military machine is the boy
with the rock writ large. It does not create wealth. It diverts it from more
productive uses.</font>
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<font size="2">How
big is the US military</font><font size="2">? It is by far the largest and
most potentially destructive in the history of the world. The US this year
will spend in excess of $400 billion (not including much spy spending). The
next largest spender is Russia, which spends only 14% of the US total. To
equal US spending, the military budgets of the next 27 highest spenders have
to be added together. If you consider this, and also consider the disparity of
the US nuclear stockpile and the 120 countries in which the US keeps its
troops, you begin to see why the US is so widely regarded as an imperialist
power and a threat to world peace.</font>
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<font size="2">This is very hard for Americans to understand. We tend to think
of the American nation as a mere extension of our own lives. We all work hard.
We mind our own business. We tend to our families and involve ourselves in
local civic activities. We love our history and are proud of our founding. We
are pleased by our prosperity (even if we don't know why it exists). We think
most other Americans live the way we do. We tend to think our government (if
we think about it at all) is nothing but an extension of this way of life.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">A deadly military empire? Don't be ridiculous. The military is
just defending the country. Bush is a potential tyrant? Get real! He's a good
man. Those crazy foreigners who resent the US are really no better than those
people who attacked us on September 11, 2001: they envy our wealth and hate us
for our goodness. We are a godly people, which makes our enemies ungodly, even
demonic. This is a short summary of a widely held view, one that those who
seek a government-dominated society use to build their public-sector empire.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">What most Americans refuse to face is that what the government
does day to day, and in particular its military arm, is not an extension of
the way the rest of us live. Government knows only one mode of operation:
coercion. It does not cooperate; it coerces. Because it is constantly
overriding human choices, it makes unrelenting error, most often producing
consequences opposite of the stated intention. This is no less true in its
foreign operations than it is in its domestic ones.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">Consider the most recent military action in Afghanistan. The
Taliban was nothing but a reincarnation of the opposition tribes the US
supported when the country was being run by the Soviets in the 1980s. Back
then we called them freedom fighters. When the Taliban fled the capital city
last year, the US knew where to look for them because the US assisted in
building their hideouts during the last war.</font>
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<font size="2">What did the war do to the country? All hoopla aside, it is no
freer, no more democratic, and no more prosperous. The warlords are running
the country and women are still subject to fundamentalist Islamic dictate. How
many civilians did the US kill? Thousands, perhaps many thousands. During the
war, every day brought news of a few dozen innocent dead, all verified by
humanitarian organizations monitoring the situation. We don't have a
definitive final tabulation because the US bombed radio and TV stations and
worked to keep news of the dead from leaking.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">The <i style="mso-bidi-font-style: normal">New York Times[/i]
reports concerning the newest proposed war:"General [Richard] Myers gave
a stark warning that the American attack would result in Iraqi civilian
casualties despite the military's best efforts to prevent them."
Americans don't like to think about this, but it is a reality nonetheless. As
for best efforts, one would have to turn a blind eye to the history of US
warfare to believe it.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">With regard to Iraq in particular, let us remember that the US
has waged unrelenting war on that country for twelve years, with bombings and
sanctions that the UN says have killed millions. The entire fiasco began with
the Iraqi invasion of its former province, Kuwait, which the US ambassador was
warned about in advance and responded that the US took no position on the
border-oil dispute then brewing.</font>
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<font size="2">But let's return to the economic costs associated with war. It
does not stimulate productivity. It destroys capital, in the same sense that
all government spending destroys capital. It removes resources from where they
are productive—within the market economy—and places them in the hands of
bureaucrats, who assign these resources to uses that have nothing to do with
consumer or producer demand. All decisions made by government bureaucrats are
economically arbitrary because the decision makers have no access to market
signaling.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">What's interesting this time around is how the markets seem to
have caught on. The prospect of war is inhibiting recovery. The stock market
is now at 1998 levels, with five years of increased valuations wiped out. The
recession itself, the longest in postwar history, may have been the inevitable
response to the economic bubble that preceded it, but the drive to war is
prolonging it. It could get worse and likely will. Consumer confidence is
falling, as is consumer spending. Unemployment is rising. The dollar is
falling. Commodity prices are rising. All signs point to a man-made economic
calamity.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">The deficit is completely out of control. The idea of tax cuts
is fine, but let's not pretend as if the bill for government spending doesn't
need to be paid by someone at some point. It will be paid either through
inflation or higher taxes later. In the meantime, deficits crowd out private
production because they need to be financed through bond holdings. War will
only make the problem worse. >From time immemorial, war has gone along with
fiscal irresponsibility.</font>
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<font size="2">War also goes hand in hand with government control of the
economy. Bush has increased spending upwards of 30 percent since he took the
oath of office. He has imposed punishing tariffs on steel, hardwood, and wheat.
He has created the largest new civilian bureaucracy erected since World War
II. He has unleashed the federal police power against the American people in
violation of the constitution. All of this amounts to a war on freedom, of
which commercial freedom is an essential part. This is why no true partisan of
free enterprise can support war.</font>
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<font size="2">But what about September 11? Doesn't that event justify just
about anything? Let us not forget that this was a multiple hijacking, of which
there have been hundreds over the decades since commercial flight became
popular. The difference this time was that the hijackers gave up their lives
rather than surrender. It was a low-budget operation, and needed no
international conspiracy to bring it about. It was easily prevented by
permitting pilots to protect their planes and passengers by force of arms, but
federal bureaucrats had a policy against this.</font>
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<font size="2">In any case, there is no evidence that Iraq had anything to do
with 9-11. The Iraqi regime is liberal by Muslim standards and for that
reason hated by Islamic fundamentalists. Unlike Saudi Arabia, it tolerates
religious diversity, permits gun ownership, and allows drinking. It has a
secular culture, complete with rock stars and symphony halls, that few other
Muslim states have.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><o:p>
<font size="2"> </font></o:p>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">Yes it is a
dictatorship, but there are a lot of these in the world. Many of them are US
allies. The focus of the Bush administration on Iraq has more to do with
personal vendettas and Iraqi oil. In waging war, the Bush administration
proposes to spend twice the annual GDP of the entire Iraqi economy! The US
will spend $2 for every $1 it will destroy—the very definition of economic
perversity. What's more, an attack will only further destabilize the region
and recruit more terrorists intent on harming us.</font>
<p class="MsoNormal" style="MARGIN: 0in 0in 0pt">
<font size="2">Meanwhile, the prospect of war has markets completely spooked.
Is this a narrow economic concern? Not in any way. Prosperity is an essential
partner in civilization itself. It is the basis of leisure, charity, and a
hopeful outlook on life. It is the means for conquering poverty at the lowest
rung of society, the basis on which children and the elderly are cared for,
the foundation for the cultivation of arts and learning. Crush an economy and
you crush civilization.</font>
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<font size="2">It is natural that liberty and peace go together. Liberty makes
it possible for people from different religious traditions and cultural
backgrounds to find common ground. Commerce is the great mechanism that
permits cooperation amidst radical diversity. It is also the basis for the
working out of the brotherhood of man. Trade is the key to peace. It allows us
to think and act both locally and globally.</font>
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<font size="2">What makes no sense is the belief that big government can be
cultivated at home without the same government becoming belligerent abroad.
What also makes no sense is the belief that big-government wars and
belligerent foreign policies can be supported without creating the conditions
that allow for the thriving of big government at home. The libertarian view
that peace and freedom go together may be the outlier in current public
opinion. But it is a consistent view, the only one compatible with a true
concern for human rights, and for social and global well-being.</font>
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<p class="MsoNormal" style="MARGIN: 0in 0in 0pt"><font size="2">Llewellyn H.
Rockwell, Jr. is president of the Mises Institute in Auburn, Alabama, and
editor of </font><font size="2">LewRockwell.com</font><font size="2">.</font>
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