Topping the Cost of World War I

In the midst of the Abu Ghraib torture scandal, the White House had the audacity to ask for "an additional $25 billion for the wars in Iraq and Afghanistan for the fiscal year that begins in October" -- merely the first installment of war spending estimated to climb to $65-75 billion for FY 2005 (Jonathan Weisman, "$25 Billion More Sought to Fund Wars," Washington Post, May 6, 2004). Congress had already approved "two wartime emergency spending laws totaling $166 billion -- including $149 billion for Iraq" (May 6, 2004), with little to show for in the way of reconstruction (see, for instance, the widening gaps between the June 2004 goals of "peak deliverable generation capacity" and "power production" on one hand and actual capacity and production trends on the other hand in the Department of Defense’s April 2004 "Iraq Status Report"). Historical comparisons made by William D. Nordhaus. highlight the enormity of the cost of the invasion and occupation of Iraq:

With an additional $25 billion, the war's cost exceeds the inflation-adjusted expenditures of the Revolutionary War, the War of 1812, the Mexican-American War, the Spanish-American War and the Persian Gulf War combined, according to a study by Yale University economist William D. Nordhaus.

At $174 billion, the Iraq conflict would be approaching the inflation-adjusted, $199 billion cost of World War I, a level it will almost certainly pass next year. (May 6, 2004)

That’s bad news for US taxpayers, who are shouldering the burden of empire (unlike during the Gulf War, more than 80% of whose "$61 billion" cost were borne by "Saudi Arabia, Kuwait, the United Arab Emirates, Germany, Japan, and South Korea chipping in some $53 billion," according to Chalmers Johnson), but it's good news for the multinational ruling class, whose bacon was saved from the potential crisis of deflation by the borrow-and-spend Republican’s departure from fiscal austerity, waging big wars and inflicting bigger class-war tax cuts. Listen to Federal Reserve Chairman Alan Greenspan:

The chairman underscored one shift in Fed thinking over the last year by saying that the central bank is no longer worried about the possibility of deflation, a broad self-reinforcing decline in the overall level of prices. One of the primary reasons Fed officials lowered their target for overnight rates to 1 percent last June, the lowest level since 1958, was their concern about deflation -- which can be severely damaging to the economy and difficult for a central bank to reverse.

"It is apparent that pricing power is gradually being restored," Greenspan said yesterday, referring to the ability of businesses to raise prices. "Threats of deflation are no longer, by all indications, an issue before us." (Nell Henderson, "Greenspan Gives Upbeat Report To Congress ," Washington Post, April 21, 2004)

Now, the problem for the multinational ruling class may be the opposite -- a shadow of stagflation ("David A. Wyss, chief economist at Standard & Poor's (MHP ), estimates that each $10-a-barrel increase in the price of oil subtracts 0.25% from the economy's growth rate"), cast by sharply rising oil prices in particular and commodity prices in general:

Central bankers around the world raised concerns about the inflationary impact of higher oil prices yesterday as crude rose to nearly $40 a barrel in New York - its highest level since October 1990.

Oil prices have risen by 22 per cent this year. Traders fear tight supplies will be further stretched by rising tension and attacks in the Middle East. ("Oil Price Rises Spark Global Fears on Inflation," Financial Times, May 7, 2004)

If there is any bright spot for the stagnant John Kerry campaign, it must be investor worries about inflation: "The people who run the economy met today and let on that they will be ready to raise interest rates in the near future. This year, in other words. Before the election. I told a correspondent for the Atlanta Journal-Constitution that if Greenspan and the Fed had to choose between inflation and George Bush, I wouldn't want to be Bush" (Max B. Sawicky, "Patience Is a Virtue," May 4, 2004). Accordingly, at the risk of alienating rank-and-file Democrats, "The Kerry camp, to the consternation of liberals, has now embraced deficit reduction as its economic centerpiece," sending a message to those on whose behalf the White House, whoever occupies it, manages the nation (Robert Kuttner, "Dear John," April 14, 2004).