The Impact of the Iraqi War on the U.S. Economy

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This talk
was delivered to the Retired Professionals and Executives at the
Jewish Community Center, Tenafly New Jersey, June 27, 2006.

Before I begin
I would like to remind you that my remarks today are solely my own
and do not reflect in any way the views of Ramapo College, the Anisfield
School of Business, the Center for Business and Public Policy, or
for that matter the State of New Jersey. I think I covered all the
entities I am affiliated with. In addition, I certainly do not speak
for the Bush administration.

Nearly two
years ago you were kind enough to invite me to make a presentation
entitled, "The Coming Collapse of the Welfare State."
In March I spoke at Bergen Community College and my topic was "The
Coming Collapse of the Welfare Warfare State (WWS)." Needless
to say, no one knows when American's experiment in big government
at home and abroad will end, or how it will end. What we can state
unequivocally is that the welfare warfare state is financially unsustainable,
socially untenable and morally indefensible — and doomed to the
dustbin of history. In the short time we have today, I will focus
on the warfare component of the WWS as exemplified by the American
invasion of Iraq and the substantial harm the Bush administration's
policies are doing to our economy.

As an academic
and private citizen my role is simple: To explain why the welfare-warfare
state was created and to inform as many people as possible that
there is a better road for America to travel on — a road that would
give us sustainable prosperity at home and peaceful relations abroad.
However, if we believe that partisan politics will solve our problems,
we must remember the insight of Albert Einstein who said something
to the effect that when you do the same thing over and over again
and expect a different result, that is insanity. Electing Democrats
or Republicans will not change the road to financial ruin we are
currently traveling. Both political parties are part of the problem,
not part of the solution.

The $64,000
questions we will address today are why does America fight wars?
Were the wars that the Americans have fought just? And what are
the short-term and long-term economic consequences of the Iraqi

War and
Just War

Economist and
historian Murray Rothbard wrote that America has had only two just
wars in its history. They occurred in 1776 and 1861. He wrote, "A
just war exits when a people tries to ward off the threat of coercive
domination by another people, or to overthrow an already existing
domination. A war is unjust, on the other hand, when a people try
to impose domination on another people, or try to retain an already
existing coercive rule over them."

Thus, the American
Revolution and the South's desire to secede from the Union, according
to Professor Rothbard, were just acts because in both cases the
goal was to become independent from an overbearing and dominating
central government. In other words, the right of political secession
is one of the highest political "rights" human beings

I could spend
at least an hour explaining the rationale for endorsing the actions
of the American colonists and the southerners who wanted to leave
the union voluntarily just as they had joined the union voluntarily
several decades earlier. In no way does my support of the South's
actions endorse slavery or government sanctioned discrimination
and bigotry. On the contrary, slavery and government-sanctioned
bigotry are polar opposites of everything I believe in.

If you're interested
in reading about the rationale for secession, I refer you to the
works of Thomas DiLorenzo (The
Real Lincoln
), Charles Adams (When
in the Course of Human Events
) and others who have explored
the events leading up to the Civil War, or as it is known in the
South, the War for Southern Independence, or the War Between the
States. Both authors show how America's high tariff policy protected
the economic interests of the North at the expense of southerner
consumers. Slavery was the rallying cry, not the cause of
the Civil War. Even President Lincoln acknowledged that could not
abolish slavery. Moreover, in a letter to Horace Greeley, the editor
of the New York Tribune, dated August 22, 1862, Lincoln said:

My paramount
object in this struggle is to save the Union, and is not either
to save or to destroy slavery. If I could save the Union without
freeing any slave I would do it, and if I could save it by freeing
all the slaves I would do it; and if I could save it by freeing
some and leaving others alone I would also do that. What I do about
slavery, and the colored race, I do because I believe it helps to
save the Union; and what I forbear, I forbear because I do not believe
it would help to save the Union.

President Lincoln
wanted to maintain the status quo — northern domination of the South
and refused to allow the south to secede. His actions caused to
the death of 620,000 Americans, the destruction of the South's economy
and the beginning of the journey that has led to the creation of
the welfare-warfare state in the 20th century. Despite
the iconic place Lincoln has enjoyed in American history, his record
belies his lofty status as an American martyr and hero.

The Cause
of War

As far as other
American wars since the 1860s are concerned, the collection of essays
in The Costs of War published by the Ludwig
Von Mises Institute
reveal how several American administrations
"maneuvered" America into conflicts which were unjustified
based upon just war principles. The authors also argue that war
is never, ever in the best interests of the common man. On the contrary,
"war is the health of the state," as Randolph Bourne asserted
in his trenchant critique of U.S. entry in World War I. (His essay
is posted on
In addition, Professor Rothbard makes the following observation
about the Progressive Era and World War I:

I regard
progressivism as basically a movement on behalf of Big Government
in all walks of the economy and society, in a fusion or coalition
between various groups of big businessmen, led by the House of Morgan,
and rising groups of technocratic and statist intellectuals. In
this fusion, the values and interests of both groups would be pursued
through government. Big business would be able to use the government
to cartelize the economy, restrict competition, and regulate production
and prices, and also to be able to wield a militaristic and imperialist
foreign policy to force open markets abroad and apply the sword
of the State to protect foreign investments. Intellectuals would
be able to use the government to restrict entry into their professions
and to assume jobs in Big Government to apologize for, and to help
plan and staff, government operations. Both groups also believed
that, in this fusion, the Big State could be used to harmonize and
interpret the “national interest” and thereby provide a “middle
way” between the extremes of “dog eat dog” laissez faire and the
bitter conflicts of proletarian Marxism.

In other words,
a coalition of interests wanted to use government to transform America
from a limited government Republic to a powerful centralized state
where the federal government would control virtually every walk
of life, in its pursuit of creating a "Kingdom of God"
on earth. In their zeal to stamp out sin, the prohibition of alcohol
was embraced by Progressive politicians who eventually pushed through
the 18th Amendment to the U.S. Constitution banning the
manufacture and sale of alcohol. The "Nobel Experiment"
cemented organized crime in our country and increased political
corruption to unprecedented levels. As far as America's entry into
World War I in1917, Secretary of the Treasury William Gibbs McAdoo
(Wilson's son-in-law) wrote to the president after Wilson asked
the Congress for a declaration of war against Germany, “You have
done a great thing nobly! I firmly believe that it is God’s will
that America should do this transcendent service for humanity throughout
the world and that you are His chosen instrument.”

In his 2002
of the Union address
, President Bush implied he wants to fulfill
Woodrow Wilson’s vision to make the world safe for democracy.

Bush stated:
“All fathers and mothers, in all societies, want their children
to be educated, and live free from poverty and violence. No people
on Earth yearn to be oppressed, or aspire to servitude, or eagerly
await the midnight knock of the secret police…America will lead
by defending liberty and justice because they are right and
true and unchanging for all people everywhere." (Emphasis added)

He continued
with the following: “No nation owns these aspirations, and no nation
is exempt from them. We have no intention of imposing our culture.
But America will always stand firm for the non-negotiable demands
of human dignity: the rule of law; limits on the power of the
state; respect for women; private property; free speech; equal justice;
and religious tolerance." (Emphasis added)

In addition,
President Bush warned, “America will take the side of brave
men and women who advocate these values around the world, including
the Islamic world, because we have a greater objective than eliminating
threats and containing resentment. We seek a just and peaceful world
beyond the war on terror” (Emphasis added).

President Bush
has invoked the rhetoric of freedom, justice, peace and other values
the American people identify with to launch an invasion of a nation
that did not attack us nor was capable of attacking us. According
to several printed reports, whether they are true or not history
will have to judge, Bush purportedly told Arab leaders that God
told him to attack Al-Qaeda and invade Iraq.

Lies and Blunders

In the 1916 presidential campaign, President Wilson promised to
keep us out of Europe's war. In 1940 President Roosevelt campaigned
on the promise that American boys would not fight in another European
war. And in 1964 President Johnson stated unequivocally that American
boys will not be sent to die in the jungles of Southeast Asia. Soon
after all three presidents were reelected, American troops were
fighting overseas in spite of the campaign promises made by Wilson,
Roosevelt and Johnson.

Jim Powell
author of Wilson's
War: How Woodrow Wilson's Great Blunder Led to Hitler, Lenin, Stalin
& World War II
, recently wrote an
essay posted on the Internet
, "What We Can Learn From Woodrow
Wilson's Great Blunder: The Case for Staying Out of Other People's
War." Powell states:

Wilson's decision to enter World War I had serious consequences
in Iraq, too. Because the British and French were on the winning
side of the war, the League of Nations awarded “mandates” to Britain
and France in the region. If the United States had stayed out of
World War I, there probably would have been a negotiated settlement,
and the Ottoman Empire would have survived for a while. The Middle
East wouldn't have been carved up by Britain and France. But as
things turned out, authorized by League of Nations “mandates,” British
Colonial Secretary Winston Churchill was determined to secure the
British Navy's access to Persian oil at the least possible cost
by installing puppet regimes in the region.

In Mesopotamia,
Churchill bolted together the territories of Mosul, Baghdad and
Basra to make Iraq. Although Kurds wanted an independent homeland,
their territory was to be part of Iraq. Churchill decided that the
best bet for Britain would be a Hashemite ruler. For king, Churchill
picked Feisal, eldest son of Sherif Hussein of Mecca. Feisal was
an Arabian prince who lived for years in Ottoman Constantinople,
then established himself as king of Syria but was expelled by the
French government that had the League of Nations “mandate” there.
The British arranged a plebiscite purporting to show Iraqi support
for Faisal. A majority of people in Iraq were Shiite Muslims, but
Feisal was a Sunni Muslim, and this conflict was to become a huge
problem. The Ottomans were Sunni, too, which meant British policy
prolonged the era of Sunni dominance over Shiites as they became
more resentful. During the 37 years of the Iraqi monarchy, there
were 58 changes of parliamentary governments, indicating chronic
political instability. All Iraqi rulers since Feisal, including
Saddam Hussein, were Sunnis. That Iraq was ruled for three decades
by a sadistic murderer like Saddam made clear how the map-drawing
game was vastly more complicated than Wilson had imagined.

In other words,
the "peace" after World War I, according to Jim Powell,
has led to horrific consequences in the Middle East. Also, American
entry into World War I helped precipitate the Soviet Revolution
and the installation of the most brutal regime in the history of
the world in Russia. Powell argues the humiliation of Germany after
World War I eventually elevated Adolf Hitler to power and paved
the way for the Holocaust. With the rise of the Soviet Union after
World War II the foundation of the Cold War was laid. The Cold War
saw the United Sates intervene in Korea and Vietnam with disastrous
consequences — tens of thousand of American dead, hundreds of thousands
of Americans wounded, millions of dead in Korea and Southeast Asia,
enormous military expenditures to counter the Soviet Union, debasement
of the dollar, skyrocketing debt and substantial growth of the federal
government. And, the people's civil liberties have been under constant
attack by administration after administration since the end of World
War II.

One of the
reasons the Bush administration intervened in Iraq may have been
to prevent the “Russian Bear” from having more influence in that
part of the world.

This has been
the long-standing policy of the United States, since geographer
Harold Mackinder posited the following geo-political view of the

“Who rules
East Europe commands the Heartland;
Who rules the Heartland commands the World-Island;
Who rules the World Island commands the world.”

Get out your
atlas and you will see where our massive military interventions,
including Bosnia, have occurred. U.S. foreign policy has had one
primary goal — to prevent the Russians from gaining a foothold and
influence outside their country. No less an insider than former
national security advisor under President Carter, Zbigniew Brzezinski,
articulated this position in his 1997 book The
Grand Chessboard: American Primacy and its Geostrategic Imperatives
Brzezinski's book reveals how totally obsessed U.S. policymakers
have been with the Russian nation-state.

The Military
Industrial Congressional Consultancy Complex

More recently,
John Perkins in his New York Times bestseller, Confessions
of an Economic Hit Man
, exposes the relationship between
the United States government, economic consulting agencies, and
the military-industrial complex.

This is what
Perkins writes in his prologue: " …we build a global empire.
We are an elite group of men and women who utilize international
financial organizations to foment conditions that make other nations
subservient to the corporatocracy running our biggest corporations,
our government, and our banks. Like our counterparts in the Mafia
EHM's provide favors. These take the form of loans to develop infrastructure
— electric generating plants, highways, ports, airports, or industrial
parks. A condition of such loans is that engineering and construction
companies from our own country must build all these projects. In
essence most of the money never leaves the United States; it is
simply transferred from banking offices in Washington to engineering
offices in New York, Houston, or San Francisco.

the fact that the money is returned almost immediately to corporations
that are members of the corporatocracy (the creditor), the recipient
country is required to pay it all back, principal plus interest.
If an EHM is completely successful, the loans are so large that
the debtor is forced to default on its payment after a few years.
When this happens, then like the Mafia we demand our pound of flesh.
This often includes one or more of the following: control over United
Nations votes, the installation of military bases, or access to
precious resources such as oil or the Panama Canal. Of course, the
debtor still owes us the money –and another country is added to
our global empire."

At the conclusion
of his prologue, John Perkins writes, "we seldom resort
to anything illegal because the system itself is built on subterfuge,
and the system is by definition legitimate. However –and this is
a very large caveat — if we fail, and even more sinister breed steps
in, one's we EHMs refer to as they jackals… when they emerge, heads
of state are overthrown or die in violent "accidents."
And if by chance the jackals fail, as they failed in Afghanistan
and Iraq, then the old models resurface. When the jackals fail,
Americans are sent in to kill and to die."

Perkins concludes
his expose of the MICC complex by stating:

global empire depends to a large extent on the fact that the dollar
acts as the standard world currency, and that the United States
may and has the right to print those dollars… The United States
prints currency that is not backed by gold. Indeed, it is not backed
by anything other than a general worldwide confidence in our economy
and our ability to marshal the forces and resources of the empire
we have created to support us.

ability to print currency gives us immense power. It means, among
other things that we can continue to make loans that will never
be repaid — and that we ourselves can accumulate huge debts…Much
of this debt is owed to Asian countries, particularly to Japan and
China, who purchase U.S. treasury securities (essentially, IOUs)
with funds accumulated through sales of consumer goods — including
electronics, computers, automobiles, finances, and clothing goods
to the United States and the world market.

long as the world excepts the dollar at its standard currency, this
excessive debt does not pose a serious obstacle to the corporatocracy.
However, if another currency should come along to replace the dollar,
and if some of the United State' creditors (Japan or China, for
example) should decide to call in their debts, the situation would
change drastically."

Was Saddam
Hussein's attempt to price his nation's oil in euros one of many
reasons the United States invaded Iraq? And is the Iranian proposal
to price their oil in euros or other monetary units the real reason
the Bush administration is saber rattling against Iran?

If the U.S.
dollar loses its preeminent role in the world economy, then we will
have to put our financial house in order, instead of flooding the
world with our debt and U.S. dollars.

As congressman
Ron Paul of Texas said on the floor of the House of Representatives,
"All great republics throughout history cherished sound
money. This meant that the monetary unit was a commodity of honest
weight and purity. When money was sound, civilizations were found
to be more prosperous and freedom thrived. The less free a society
becomes, the greater the likelihood its money is being debased and
the economic well-being of its citizens diminished…

economic conditions reflect a fiat monetary system held together
by many tricks and luck over the past 30 years. The world has been
awash in paper money since removal of the last vestige of the gold
standard by Richard Nixon when he buried the Bretton Woods agreement
— the gold exchange standard — on August 15, 1971. Since then we've
been on a worldwide paper dollar standard. Quite possibly we are
seeing the beginning of the end of that system. If so, tough times
are ahead for the United States and the world economy."

The costs of
the Iraqi war are wide and deep. From civil liberties to the national
debt to the soundness of the U.S. dollar, the so-called war on terror
undermines the economy's strength, shreds our liberties, and lays
the foundation for perpetual war.

Costs of
War: Threats to Civil Liberties

The greatest
threats to our liberties have not been Saddam Hussein, is not now
Osama Bin Laden (if he is still alive) or even the Chinese and North
Korean Communists. The threat to our liberties is much closer to
home, and all have easily pronounceable names. Their names are George
W. Bush, Dick Cheney, Donald Rumsfeld, Condoleezza Rice, Bill Frist,
Dennis Hastert, Nancy Pelosi, John McCain, and Hillary Clinton;
in short, America’s ruling political elite. To be more accurate,
we all have to fear members of the Bush administration, a majority
of the members of Congress, the nine justices of the Supreme Court
and the dozens of federal judges sitting on the bench. For they,
and they alone, can deny the American people their rights guaranteed
under the United States Constitution.

The few hundred
people who make the ruling class as well as the non-elected political
establishment who occupy places in D.C. think tanks, the media,
the military-industrial complex and corporate America, have one
agenda in mind for the foreseeable future: to wage war to eradicate
“terrorism." If Bush pursues aggressively this worldview America
will be unrecognizable — physically and constitutionally — in a
few years, because the federal government would impose marital law
after another major — possibly nuclear — attack.

In his zeal
to spread liberty, justice and the rule of law throughout the world,
even if it takes military action to right the wrongs everywhere,
President Bush has been leading us down a path that will continue
to transform America — into a police state.

We are destined
to become a full-blown authoritarian state in a few years, if we
do not reverse the course we are on.

Judge Andrew
Napolitano Senior Judicial Analyst of Fox News and author of Constitutional
Chaos: What Happens When the Government Breaks Its Own Laws
Constitution in Exile: How the Federal Government Has
Seized Power by Rewriting the Supreme Law of the Land
argues that the Patriot Act may be transforming the United States
into a version of East Germany, the communist dictatorship that
brutalized its people for several decades after World War II. He
said several years ago, "There is no basis in law or history
for the president of the United States taking away all the person’s
constitutional rights. . . . National defense implies not just defense
of real estate, but defense of our values and our most basic value
is the rule of law.”

Butler Shaffer,
a law professor and columnist on
recently wrote (June 15): "We live in a country ruled by
dangerous and foolish people; by sociopaths who are prepared to
engage in the planned killing of hundreds of thousands of innocent
men, women, and children, for no other purpose than to satisfy their
insatiable appetites for power. But what is far worse than this
is the fact that we live in a country whose residents either value
such traits or, at the very least, are unable — or unwilling — to
recognize and condemn them. The ruling class — and its coterie —
offers the most specious rationalizations for their practices to
a public largely reduced to flag-waving.

is a dreadful mistake to blame political leaders, the media, or
corporate-state structuring for our problems. By default — if not
enthusiasm — we have been the authors of our own madness. Our contradictory
thinking — unchecked by our inner standards of conduct — allows
us to internalize institutionalized insanity as acceptable behavior,
turning us into a society of the "normally neurotic."
This madness is destroying our sense of what it means to be a human
being, including our relationships with other people."

of War: The Financial and Economic Costs

According to
a paper prepared by Noble Laureate economist Joseph Stiglitz of
Columbia University and Linda Blimes of Harvard University, the
costs of the Iraq War could reach $1 trillion by 2010 and $2.2 trillion
by 2015.

Even if American
troops do not stay in Iraq until 2010 or 2015, the costs of the
Iraqi war will still be substantial.

As the Washington
Post reported two months ago (April 27, 2006) the current costs
of the Iraqi war will soon reach $320 billion, according to the
Congressional Research Service. According to the Post article, "Even
if a gradual troop withdrawal begins this year, war costs in Iraq
and Afghanistan are likely to rise by an additional $371 billion
during the phase-out, the report said, citing a Congressional Budget
Office study. When factoring in costs of the war in Afghanistan,
the $811 billion total for both wars would have far exceeded the
inflation-adjusted $549 billion cost of the Vietnam War."

As Robert Higgs
author of Resurgence
of the Warfare State
, Against
and Crisis
and Leviathan
, and editor of the scholarly quarterly journal,
The Independent Review, makes clear we are witnessing the
latest episode in the federal government’s expansion in response
to another “crisis” or "threat" to America’s security.
Historically, when America has been at war, regulations have increased,
taxes have skyrocketed, spending has exploded, and our rights have
receded. After each crisis has ended, America is less free and prosperous
because the welfare-warfare state has grown.

He concludes
his January 2003 essay with these words: "For conservatives
who now claim to support both free enterprise and a U.S. war of
conquest against Iraq, the lesson ought to be plain: they cannot
foster free enterprise and support war — the greatest of all socialistic
undertakings — at the same time. Unfortunately, it appears that
once again they are willing to sacrifice free enterprise on the
altar of Mars."

Peace, prosperity,
and sound money go hand in hand. The chart below shows how since
World War I war has correlated with the acceleration of inflation,
the debasement of the currency. In World War II, price inflation
was suppressed because of wage and price controls. Clearly, inflation
accelerated during the Vietnam War. The next chart shows that price
inflation is accelerating since the American invasion of Iraq.

To nip the
inflation genie, we will have another recession in the next year.
In other words, the cycle of boom and bust is still with us because
of war and the Federal Reserve, the institution that can create
new money out of thin air and then "tightens" money by
raising interest rates to put a lid on inflation. While the players
have changed in Washington DC, the ideas that give birth to war
and inflation are entrenched in the federal government.

Chart 1



What then does
the future hold? A few quotes over the centuries are just as applicable
today as when they were written or uttered by numerous well-known

War is a
racket. It always has been. It is possibly the oldest, easily
the most profitable, surely the most vicious.

General Smedley Butler

is an institution under which one nation asserts the right to
seize the land or at least to control the government or resources
of another people.

John T. Flynn

[T]he essence
of so-called war prosperity; it enriches some by what it takes
from others. It is not rising wealth but a shifting of wealth
and income.

Ludwig von Mises

I hate those
men who would send into war youth to fight and die for them; the
pride and cowardice of those old men, making their wars that boys
must die.

Mary Roberts Rinehart

Of all the
enemies to public liberty, war is perhaps the most to be dreaded
because it comprises and develops the germ of every other.

James Madison

If Tyranny
and Oppression come to this land, it will be in the guise of fighting
a foreign enemy.

James Madison

We must guard
against the acquisition of unwarranted influence, whether sought
or unsought, by the military-industrial complex.

Dwight D. Eisenhower

That we are
to stand by the president, right or wrong is not only unpatriotic
and servile, but is morally treasonable to the American public.

Theodore Roosevelt

Peace, commerce
and honest friendship with all nations; entangling alliances with

Thomas Jefferson

Right is
right, even if everyone is against it, and wrong is wrong, even
if everyone is for it.

William Penn

There are an
endless number of quotes about war — and particularly the Iraq war.
War, in the final analysis, is about deception, deceit, debt and
debasement. We have witnessed the lies of the Washington DC political
establishment to justify the use of force overseas. The deceptions
by government officials, pundits in the media, and analysts in the
think tanks who engage in illogical and disingenuous arguments provide
the propaganda to support the war. The explosion of government debt
to pay for the war is putting an enormous burden on future generations.
And the continued debasement of our money to maintain the welfare-warfare
state makes us poorer.

War is hell.
And the sooner we leave purgatory, the sooner we will fulfill the
promise of America — peace, liberty and free enterprise.

28, 2006

Sabrin, Ph.D. [send him mail],
is professor of finance in the Anisfield School of Business, Ramapo
College of New Jersey, where he is executive director of the Center
for Business and Public Policy.
He is the author of Tax Free
2000: The Rebirth of American Liberty.

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