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

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?

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 have.

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 State 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.

Presidential 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:

Woodrow 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 world.

“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.

"Despite 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:

"…the 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.

"The 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.

"As 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…

"Today's 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 and 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.

"It 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."

Costs 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 Leviathan 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

Chart 2


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 individuals.

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

~ General Smedley Butler

Imperialism 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 none.

~ 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.

June 28, 2006