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The Iraq Recession: Debate Raging Over War's Economic Impact

First Posted: 03/28/08 03:45 AM ET Updated: 05/25/11 01:25 PM ET

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Within the halls of Congress and on editorial pages of the country's newspapers, questions are being raised as to whether the Iraq war bears responsibility for the looming economic recession. Among opponents of the war the answer seems evident: there are clear ties between America's military deployment in the Middle East and its economic struggles at home. Moveon.org has dubbed it the "Iraq Recession."

It is a notion the White House firmly rejects. "During those years that we've been at war, this economy has been very strong," said the President's spokesperson Dana Perino. "The president does not apologize for spending money on national security."

Between these two arguments, however, there seems to have emerged a rough consensus: the war has, in many ways, exacerbated an economic downturn that was instigated by other factors, primarily the bursting of the country's housing bubble. In interviews with the Huffington Post, several economists, politicians and commentators echoed this view on the Iraq war-economic recession ties.

Robert Shapiro is formerly the undersecretary of commerce in the Clinton administration and currently the head of Sonecon, LLC, an economic consulting firm.

I think there is a sound case that the war policy has produced conditions that contribute in a fairly modest way to the slow down. There are two main factors as I see it in regards to the slow down: the [crisis in the] housing sector, which has reduced people's sense of their wealth... and the subprime mess, which is reducing business investment and is doing so by screwing up the balance sheets of financial institutions.

Having said that, there is no doubt that the Iraq war is a significant factor in the current level of oil prices. Not the most important factor but a significant factor... For American consumers whose consumption is being squeezed, relatively more of their income has to go to energy, and that expense is just getting exported. It's not stimulating the U.S. economy. The war is [also] a part of America' current account deficit. It contributes to that and [that] is what's driving down the dollar.

Gary Hart is a former U.S. Senator from Colorado and currently a professor at the University of Colorado.

Media and politicians rarely distinguish between government spending and government investments. War costs are spending... When spent unnecessarily, that is without contributing to national security (i.e., Iraq), war costs are, in effect, money down a rat hole.

All spending over and above revenues creates deficits that must be financed with borrowing, either from foreigners or future generations. So money spent on an unnecessary war requires borrowing which drives down the value of the dollar and hurts our economy.

Robert Samuelson is a columnist for Newsweek and the Washington Post. Though not an economist, he frequently writes on the convergence of economics and politics.

My gut feeling is that [the war] really doesn't have much to do with the recession one way or another. The spending is large but it is not that large. It is possible you can relate what is going on in Iraq to the price of oil, but it is not clear if oil production would be more or less if we never invaded Iraq. We have a $14 trillion economy and the annual spending in Iraq is roughly $110 billion...

One of the paradoxes of this is and it may be a good or a bad thing, is that we are such an unbelievably rich society that we are basically running this war on pocket change. It is not that it doesn't cost a lot. But it is not like WWII when government spending went to 40 percent GDP. Those wars required us to divert substantial amount of resources, such as factories and people... The distinguishing economic characteristic of this war is that it is not a huge economic event.

Tara Sinclair is an economics professor at the University of George Washington.

My short answer is no [I don't think the war has contributed to the recession]. I don't think the high oil prices have so much to do with the war in Iraq, it has much more to do with the demand side for oil...I don't think we could have spent that money here at home because it would have come out as deficit spending. We have long run concerns about continuing to contribute to national debt but I'm not so concerned about the spending going to Iraq instead of here.

Elias Tuma is a professor emeritus of economics at University of California Davis.

From a generic standpoint, the expenditures on Iraq do not contribute to the health of the U.S. economy. Most of the expenditures are on destructive capital, not productive capital and loss of capital for investment. Both are potential causes of a slow down in the economy. When these become serious, and joined by other problems, like the housing problem and the high price of oil, they could definitely lead to a recession. The data on employment, capital investment, and consumer demand for commodities would be informative. So far I do not think we are in a recession, but the next few months will tell.

And yet, perhaps a more telling question -- beyond whether or not there are ties between the recession and the war -- is what the U.S. economy would look like had the country not invaded Iraq. To this, several respondents offered nostalgic takes.

"I think oil prices would be lower," said Shapiro. "Had we not gone into Iraq, politics would be different. We might very well have a Democratic president today..."

Added Hart, "The same money put into science and math education, infrastructure restoration, resource management, human health systems, and so forth are investments in the national commonwealth that [could have] guarantee[d] productive returns for decades to come."

And Ernest P. Goss an economics professor at Creighton University noted, "The [money we are spending yearly in Iraq] is roughly the size of the incentive stimulus package being moved through Congress right now. So it is hard to argue that it is insignificant if it is the size of our stimulus package. What it could have gone for in the U.S. is a tax cut which stimulates demand... One could also talk about the investment in cancer research, certainly federal programs like health and education would rise to the tops in terms of spending. And $120 billion in taxes per year, again, that's not small, it's not a whopping big one, but it would have positive impact."

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