With the Iraqi war expected to flare from a chronic phase into acute, considerable ink has been spilled discussing the possible economic ramifications of this war and war in general.
Could the US President and his advisors believe that a good war is just the tonic needed to end the economic downturn and cement the administration's success in the next election?
One hopes not, but published statements suggest otherwise.
The relationship of war with the end economic downturns has provided difficulties for those who follow a logical line of reasoning. How can destruction on a massive scale be good for the business of society? Adherents of this absurd view often point to World War II as the poster child for their theory, at least in the modern age, and they could note, were they so bold, that the largest rally of the current bear market occurred in the months following last year's September 11th attacks.
As usual, they've got their theory wrong. Hans Herman Hoppe has observed in Democracy, The God That Failed that history can be compatible with mutually contradictory theories. The "war is good for economics" camp has their causality backward and they are about to break a whole lot of Bastiat's windows (not to mention kill a lot of people and turbo-charge anti-American sentiment across the globe) yet reap none of the benefits they expect.
Support for this view comes from an unusual quarter, one that serious students of history and policy should consider. Robert R. Prechter, Jr. is best known as a financial forecaster and foremost living promoter of Elliott Wave Theory through the company he founded, Elliott Wave International. Less known is his 1999 book (now in its second printing) The Wave Principle of Human Social Behavior and the New Science of Socionomics, (New Classics Library, 1999, 2002) a book that among other things credibly turns the "war is good" idea on its post hoc ergo propter hoc ear.
This article focuses on but a tiny fraction of the implications propounded in Prechter's book. That fraction, however, is a supreme challenge to the concept of causality when it comes to war, peace, and economic prosperity. Prechter literally inverts the foundation of causality that has confounded mainstream pundits and historians and has contributed to horrific policy missteps in the past and present.
The thesis of HSB is radical: Instead of exogenous events like assassinations of archdukes, famines, or surprise attacks on naval fleets being the cause of war, it is an underlying endogenous mass social mood that governs such events and drives all social manifestations of euphoria (peace and prosperity) and despair (war and economic malaise). Even more radical, yet exhaustively supported, is Prechter's illustration of how this endogenous alternation between optimism and pessimism demonstrates a repeating pattern, thus allowing for accurate forecasting of the character of social events in useful ways.
The Wave Principle, first discovered by R.N. Elliott in the 1930's through careful observation of the stock market, is described by Prechter as a combination of two kinds of fractals. Fractals, of course, are patterned objects that show similarly complex forms at all degrees of observation. This means that if you examine them from up close or afar, they look the same. Indefinite fractals are typified by seacoasts, jagged at all levels of observation. Self-identical fractals are represented by the beautifully complex form of the Mandelbrodt plot where all components have the same exact form as the whole. The waves produced by the stock market were found to be a combination of these two kinds of fractal. Prechter has termed such combinations "robust" fractals.
Those familiar with the Elliott Wave Principle relate it almost exclusively to the investment markets, where it forms its own branch of the arcane science of technical analysis. HSB touches on the market utility of the Wave Principle, but mostly in the context of validating the principle itself before delving into the social forecasting implications in later chapters.
The Wave Principle rests on a foundation of both modern science and centuries of observation. Commentators too numerous to quote have written of humanity's predilection for bouts of mass insanity, with perhaps the most descriptive being Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds published in 1841. More recently numerous scientific publications have described the brain structures we share with our herding mammal relatives and behavioral experiments that document their operation in humans. Prechter examines this literature and finds it consistent with structures and functions needed to explain why, in the aggregate, human behavior would follow the patterned progression described by Elliott.
Briefly, the pattern has a period of progress followed by a period of regress. Each progress, or impulse, is made up of five waves — first up, second down, third up, fourth down, and fifth up. The regression is typically three waves, denoted with letters for clarity — wave a down, wave b up, wave c down. Each wave has subwaves, depending upon whether it itself is part of an impulse or corrective regression, and each larger wave is part of yet a larger wave structure. This is the fractal nature of the pattern.
The excitement of the book soars when Prechter begins to relate social dynamics to the operation of the Wave Principle. By using the stock market as a direct measure of the state of social mood, he shows example after example of social manifestations of the underlying mass psychology, from the old standby of hemline heights to a more subtle chronicle of successful movie genre. He shows how these cultural phenomena are predictable, well in advance of the fact.
The gravity of the investigation grows, however, when he discusses the cycles of peace and war and relates them directly to the labels placed on the historical stock charts using the Wave Principle.
When it comes to war, HSB graphs show that they usually occur during or after the "c" wave in a larger degree structure. Prechter's book denotes the degree as "cycle," which in practice tends to be a part of the pattern that plays out across a span of years, often decades.
The thesis of HSB is then that, far from ending the economic malaise that preceded it, war is simply a manifestation of the social mood that delivered the decline in the first place. War, then, is incidental to the economic upturn that follows. With war or without, the upturn in social mood was due to occur at that point. Libertarians would note that in this context, the war actually saps some of the vitality of the next upturn by having destroyed capital (human and material) which otherwise could've contributed to a greater prosperity.
What does this have to tell us about war with Iraq?
The value of the Wave Principle and the science of socionomics which Prechter promotes, is that if we know where we are in the progression we can make forecasts about the future path and its social manifestations with sometimes a high level of probability. Prechter is on record as perhaps the only person ever to have accurately forecasted a mania in the investment markets a decade before it occurred, when manias are so rare as to occur perhaps once a century. His forecasts for an historic bust to follow it are still playing at a mutual fund near you.
The war on Iraq, however, is not slated to occur in the "same place," Elliott Wave-wise, as FDR's supposed savior, World War II. In fact, Prechter's forecast attaches the highest probability for a stock market bottom still a year or more off, with profoundly difficult economic times to immediately follow. This is the pattern of market cause and economic effect that can be seen time and again through history. A student of this view would see that war with Iraq will not help George W. Bush's re-election in 2004. His political fate was sealed, according to the socionomic view, when he became president during the greatest bust in modern history. All a war will accomplish now is disruption and destruction.
There are many reasons a cynic could cite for the Bush administration's hell-bent pursuit of a large scale war now with Iraq. Installation of puppet governments across the Middle East to give the US de facto control of its oil and gas reserves, the settling of a family score with Saddam, or hubristic visions of perpetual empire might occur to any reasonable observer. The one that should not be considered is to war for economic benefit. In no case does war help, and in this case war's coincidence with a deepening economic bust could be political suicide — generating intensified anger against the Bush administration among citizens who suffer from an increasingly negative social mood.