WASHINGTON, 15 November 2003 — On both jobs and Iraq, the good news President Bush tells us is contradicted by the bad news that we feel in our bones.
In Iraq, things seem fine in the far north and stable enough in the south. But the Sunni Triangle is trouble. Occupation is expensive and resistance is cheap. Soft targets emerge quickly in any reconstruction effort. “Improvised explosive devices’’ work against hotels, police stations, pipelines and jeeps on patrol. Soldiers are not police. Civil order can be maintained only through the cooperation of civilians or by terror. For us, the entire game depends on whether the population wants us to succeed more than it fears our opponents.
Will the Iraqi people rally, in time? They need reasons. To me, the Paul Bremer economic plan looks disastrous: A “Morgenthau Plan’’ to deindustrialize Iraq masquerading as a Marshall Plan to rebuild it. Accounts of corruption and inefficiency are not reassuring. Another reported problem is that Republican Party policy hacks have been dumped on Iraq, unsupervised. And so, the occupation has been making economic decisions with reckless disregard for local sentiment. This will alienate the very public on which any hope for security relies.
It is too early to call it quits. But we should set some clear targets. By next summer, either there will be security or not. The electricity and water will be fixed, or not. Oil will be flowing, or it won’t be. And Iraqis will be down the road toward their own government — with the right to determine how their own economy works — or they won’t be. If there is sharp improvement, the soldiers will be on their way home anyway, and Bush will then be able to say, “Mission accomplished after all.’’ Otherwise, it will be fair to judge. Absent real progress this winter and next spring, there will be no reason to give Bush or Bremer more time.
The other turnaround issue is our economy. Here the “invasion force’’ is the power of war spending and the “improvised explosive device’’ is the consumer debt bomb. War spending doubled the growth rate earlier this year. In the third quarter, consumers jumped on board, business investment finally picked up and the growth rate doubled again.
If this continues, real recovery, with growth rapid enough to add jobs, might just come next year. The possibility can’t be ruled out. Cars and computers are getting old. Prolonged low interest rates must have brought down total debt service, creating some breathing room for new loans. And the Federal Reserve will keep rates low next year, giving Bush as much help as it can.
I still think it won’t work. The economic growth rate needs to stay high for the year in order to bring unemployment down. Much of the spending we just saw came directly from the tax rebates, and they’re gone now. Consumers may have been jumping on low interest rates for fear they would not last. If from now on they are even just a wee bit sensitive to their financial condition, or a little bit nervous about their jobs, or just a bit anxious about their retirements, or a tiny bit worried about medical costs, or about rising tuition for their kids — they’ll keep their money in the bank, for now.
In that case, growth will slow in the coming quarters, before picking up for one more false dawn before the 2004 election. That should come next spring, when tax refunds and the echo effect of the Iraq war — due to restocking of military equipment — have their impact. There may be some job creation, but Bush and company will still end up with the worst record on jobs since Hoover. Whether this will matter to the voters in the face of feel-good headlines is something we will just have to see.
For a moment, though, let’s talk about the economy, and not just as an election issue. What will happen after the election if Bush wins? Answer: He won’t lead us back to full employment, even then. For two reasons.
First, full employment prosperity would require much, much more business investment. We got that in 1998-2000 in a wave of focused euphoria over technology. Some of it was real and some imagined, but we were all caught up in it, every day, and for this reason the money flowed. Who can imagine anything similar happening with a war on? I can’t. Those daily pictures of burning Hummers can have a bad effect on the mood of the investor. Indeed this could be, in the end, the largest economic cost of Bush’s war. The second reason is that the Bush administration is full of oil men, military contractors, mining and timber interests, giant pharmaceuticals, big media and the like.
Their interest is in market power, patents, government contracts. They aren’t bothered by weak sales. And so, full employment doesn’t matter as much to them as it does to small business, retailers and working people. Even Republicans can run a boomlet for a while. But if Americans really want sustained prosperity that lasts longer than yesterday’s headlines, they will have to vote for it, one year from now.
— Galbraith is a professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin and a senior scholar at the Levy Economics Institute, which is based in New York.
