Is It An Iraq Recession?
Russ Feingold says yes:
Q: Do you think the war is eviscerating the economy?
FEINGOLD: Oh, I think it has a huge impact. You talk about the resources, the ability to do things, programs that are actually stimulative to the economy. Everything is on the ropes. … You never want it to be the only argument, but it is accurate, I think. And I think, you know, it’s where the priorities are. Clearly it’s not. Twelve billion a month would be helpful to do some kind of stimulus.
Paul Krugman, an economist, says no.
Just to be clear: I yield to nobody in my outrage over the way we were lied into a disastrous, unnecessary war. But economics isn’t a morality play, in which evil deeds are always punished and good deeds rewarded.
The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression. The $10 billion or so we’re spending each month in Iraq mainly goes to US-produced goods and services, which means that the war is actually supporting demand. Yes, there would be infinitely better ways to spend the money. But at a time when a shortfall of demand is the problem, the Iraq war nonetheless acts as a sort of WPA, supporting employment directly and indirectly.
I would have to side with Krugman here. I don't see any desire on the part of Congress to actually reduce the defense budget, figuring that defense spending is this magical bottomless pit that doesn't affect the deficit. But it certainly does impact American jobs in a positive way. The money unspent on the Iraq war would perhaps be run back into social spending (though Republicans would fight that tooth and nail), and that sounds good in the interim, but there is a job-loss component. To be clear, this is a housing bubble recession goosed by the total lack of regulation in the banking industry, as well as the fact that there's a scant manufacturing base to fall back on.
UPDATE: On a somewhat related note, the Senate proposal on a stimulus package is clearly superior, particularly the measures to extend unemployment insurance and add low-income seniors into the rebates.
... to be clear, I think there are far better WPAs that you could create than the Iraq war. In fact, Chris Dodd and Chuck Hagel have an excellent bill which would improve American infrastructure, creating jobs and using that "Iraq surplus" in a far more wise way.