Ilana Mercer, April 30, 2003

It is often sadly remarked,” wrote Henry Hazlitt, the distinguished free market writer, “that the bad economists present their errors to the public better than the good economists present their truths.” This, ventured Hazlitt, comes about because the bad economists are presenting half-truths. A consummate gentleman, Hazlitt did not explicitly spell out that propagating half-truths still makes someone a wholesale liar. Or that these economists owe their perpetual popularity to the intellectual legitimacy they provide to the plundering class, the politicians.


For what politician would not warmly welcome an economist who, with the aid of indecipherable econometrics, legitimizes immoral power and property grabs? This is why the anti-free market central planning advocated by the late John Maynard Keynes has been embraced with renewed verve by George Bush. Like any good Keynesian, Bush sees big government—huge public works—and big deficits (especially during depressions), not as a bane but as a blessing, to be embraced as the key to economic boom.


Hazlitt (drawing on Frederic Bastiat, the 19th century French economist and statesman) further hammered home that “the art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”


When the Hazlitt prescription is followed, it becomes abundantly clear why a war, especially a gratuitous one, always destroys individually owned real assets and capital. And why, in the short term, the war against Iraq will benefit some at the expense of others; in the long run, it will benefit none.


Keynesians, however, stand by the absurdity that war is good for the economy. And while you won’t find these economists suggesting that, in order to create jobs in their own communities, people should set fire to their homes, and so help spur economic activity among local builders, landscapers, plumbers, and electricians, the very same “experts” have no qualms touting the economic benefits that accrue from taking a wrecking ball to an entire country.


According to figures provided by Yale professor William Nordhaus and the Council of Foreign Relations, the eventual costs of the war on Iraq will be roughly $1.2 trillion. Mr. Bush, however, proudly presides over a budget deficit, the official upbeat estimate of which is $455 billion. Since this figure doesn’t include off-budget spending, and since estimates of the preliminary costs of the war run to $200 billion, the deficit is more likely to be upward of $600 billion.


And since there’s no free lunch, who is going to pay for the debauchery?


The finances for the war, of course, will come from the private economy. For every dollar the government spends, a dollar is suctioned from you and me. For every new smiling military recruit sitting pretty with a home, a porch, and a pension, some poor sod will join the army of (nine million) unemployed.


Given its debt, the U.S. government is fast becoming a bad risk as a borrower. To finance the war, then, it’ll have to steal over and above the usual call of duty. Unlike “The Shrub” currently in power, Ronald Reagan understood a thing or two. He said this: “The truth is that inflation is caused by government. It’s caused by government spending more than it takes in, and it will go away just as soon as government stops doing that.”


More precisely, inflation is an increase in the money supply by the government. Having adopted deficit spending as an article of faith, Bush will call on the Federal Reserve and the printing press to print money to pay the costs of the war. The endemic price hikes and economic distortions that’ll follow are but a by-product of this legalized counterfeiting.


Reports of freshly minted dollars making their way from the Federal Reserve Bank to millions of Iraqis, now on the U.S. payroll, suggest that the money market is already being flooded. The first counterfeit down payment on the war will soon be wending its way into the coffers of the selected war contractors and their employees.


So why is this so bad? Doesn’t more paper money make us all richer?


No, it doesn’t. Real wealth is created only by the production and consumption not of paper money, but of products. An abundance of goods, not money income, is what makes for an increase in wealth. When the initial $1 billion worth of new money is given to corporate cronies like Kellogg Brown & Root, the construction arm of Cheney’s Halliburton, and the Bechtel Corporation, it will immediately spur an artificially created demand, causing their suppliers to raise their prices. It’ll take time, but the new money will generate price hikes throughout the economy.


Rest assured though that Bechtel’s George Schultz, the former Secretary of State, who is also the chairman of the Committee for the Liberation of Iraq, will get his honey well before you taste any, unless, of course, you work for said company or for the Parsons Corp, or the Louis Berger Group, or any other of the corporations involved in war profiteering.


Rest assured too that another Bechtel senior vice president by the name of Jack Sheehan, who, according to the British Observer, is also “a retired general who sits on the Defense Policy Board which advises the Pentagon,” will enjoy a fat cheque well before the general price increases caused by all the new money affect his purchasing power. Jack will get to spend the new wads before counterfeit coinage spreads across the economy, causing prices to rise.


By the time you and I, politically unconnected suckers that we are, experience a meager rise in money income (but not in tangible wealth), rising prices will have obliterated the tiny gain.


If civil society is the sphere in which people accomplish things by engaging in productive, peaceful, and voluntary exchanges, the state is the sphere where domination is achieved legally by force and destruction. And of late, the state has been encroaching on ever-larger portions of civil society. Under Bush, the shift of resources from the productive, private sector to the inherently unproductive bureaucracy and military-industrial complex hasn’t been equaled in decades.


At the same time, the wasteful, wealth-destroying political and military might involved in exporting democracy is nudging Americans into cultivating a comparative—even an absolute—advantage in violence and force, at the risk of losing their edge in productive innovation.


Last but not least, the process of forcibly creating a demand for certain wartime products and shifting production away from others also skews a consumer-driven production pattern. Since there are no freebies, those working for this centrally planned command economy will benefit while others foot the bill.



April 30, 2003

* Image courtesy of the Mises Institute.

CATEGORIES: Democracy, Economy, Federal Reserve Bank, Inflation, Iraq, Socialism, War