The Unbearable Costs of Empire
Bush's war could help the
economy in the short run.
The big harm comes later.
by James. K. Galbraith
The American Prospect magazine,
Talk in Washington these days is of Rome
and its imperial responsibilities. But George W. Bush is no Julius
Caesar. France under Napoleon may be the better precedent. Like
Bush, Napoleon came to power in a coup. Like Bush, he fought off
a foreign threat, then took advantage to convert the republic
into an empire. Like Bush, he built up an army. Like Bush, he
could not resist the temptation to use it. But unlike Caesar's,
Napoleon's imperial pretensions did not last.
Analogy is cheap but the point remains.
Empire is not necessarily destined to endure, least of all in
the undisturbed, vapid decadence to which our emperors so evidently
aspire. True, in recent times the British Empire lasted for a
century (or perhaps two, depending on how you count). The Soviet
Union held up for seven decades. Napoleon was finished in just
There is a reason for the vulnerability
of empires. To maintain one against opposition requires war-steady,
unrelenting, unending war. And war is ruinous-from a legal, moral
and economic point of view. It can ruin the losers, such as Napoleonic
France, or Imperial Germany in 1918. And it can ruin the victors,
as it did the British and the Soviets in the 20th century. Conversely,
Germany and Japan recovered well from World War II, in part because
they were spared reparations and did not have to waste national
treasure on defense in the aftermath of defeat.
THE UNITED STATES TODAY IS RICH AND PROSPEROUS.
But this does not mean that we have the
financial or material capacity to wage continuing war around the
world. Even without war, Bush is already pushing the military
budget up toward s400 billion per year. That's a bit more than
4 percent of the current gross domestic product. A little combat-
on, say, the Iraqi scale-could raise this figure by another $100
billion to s200 billion. A large-scale war such as might break
out in a general uprising through the Middle East or South Asia,
with the control of nuclear arsenals at stake, would cost much
more and could continue for a long time.
One is tempted to analyze these sums,
particularly the immediate costs of war in Iraq, in terms of budget
deficits and interest rates-in terms, that is, of the conventional
arithmetic of fiscal irresponsibility. But this misses the point.
The real economic cost of Bush's empire building is twofold: It
diverts attention from pressing economic problems at home and
it sets the United States on a long-term imperial path that is
Fiscal irresponsibility is an important
issue, mainly because of the Bush tax cut of 2001. If allowed
to survive, that long-term program of relief for the rich would,
by itself, ruin the federal fisc into the indefinite future. But
the problem of toppling Saddam Hussein next year is not fiscal.
The United States would have no difficulty selling bonds to pay
for it. On the contrary, with our domestic economy in the dumps,
with private business disinterested in investment, government
bonds would sell easily. And even if they did not, the Federal
Reserve itself could buy them. So, too, could the successor government
in Iraq, which will have the oil with which to purchase, after
the fact, its own assumption of power. Either way, interest rates
need not rise, and Bush's Iraq war will be timed to help, not
hurt, the short-term performance of American growth and employment.
Nor is Bush's strategy necessarily irrational
insofar as it affects oil-in the short run. With a new Iraqi government,
the United States will gain a client state that is prepared to
help keep the oil price within the band that both U.S. consumers
and the remaining U.S. oil producers can tolerate-low enough so
as not to fatally drain purchasing power from the former, high
enough so as not immediately to ruin the latter. Given the George
W. Bush-Dick Cheney commitment to unlimited oil consumption, this
will prove useful in putting off a day of reckoning. As total
world oil production declines-credible scientific evidence suggests
that this may start happening quite soon-the Middle East's share
of the remaining reserves will rise. So, too, would the potential
for cartel control and price manipulation. A robust U.S. military
presence in the oil fields, directly or by proxy, will naturally
make higher oil prices less of a danger. This is part of the appeal
of war with Iraq.
In other words, the Iraqi war could prove
both stimulative and stabilizing in the short run. Unless the
campaign goes badly or the neighborhood blows up, it is unlikely,
in and of itself, to produce an immediate economic disaster. And
so the political
opportunists-we may safely suppose they
exist-who favor such a war because it might help rescue Bush in
2004 may not be entirely wrong in their calculations.
But it would be wrong to conclude that
all is therefore quiet on the war-economy front. The disaster
will, instead, play out in at least two different ways over time.
The immediate problem of the Bush-Cheney war policy lies in the
neglect and indifference, which it fosters, of all our other economic
First, private business investment in
the United States has now fallen virtually to the capital replacement
level. There is no early prospect of revival because the recession
in consumer spending still lies ahead. Until that storm comes
and passes, businesses will hold off on net new investment. As
a result, there will be little further application of new technologies
to economic life. Instead, new technologists will be pulled back
into the military sector from whence they emerged 30 years ago,
and the advanced private sector on which we have, until recently,
based our hopes will wither.
Second, the recession in consumer spending
cannot be put off forever. American households are still being
crushed by debt. After September 1l, their spending was held aloft
by falling oil prices, falling interest rates, the tax rebate,
rising government spending and the auto companies' willingness
to unload their inventories at a loss. Interest rates remain very
low, alongside a continuing I bubble in the price of housing,
which supports a continued flow of equity loans. But this source
of consumer spending is already | nearing its limits. The auto
companies may give up their effort soon enough (right after the
November election?). After that, the second loop of the "W."
recession will soon be on us in force.
Third, state and local government budgets
continue to implode. Reasonable estimates now show $50 billion
in deficits at the state level, and the losses are surely almost
as large at the local level. As rainy-day funds are depleted,
these will translate into service cuts and sometimes into tax
increases. Either way, household budgets will take the full hit.
The war fever in Washington-alongside political cynicism, willful
ignorance of the economics, defeatism and inertia-has so far blocked
an effective campaign for revenue sharing with the states, the
one way in which the federal government might prevent this calamity
Fourth, we have the economic effects of
the decline of our financial markets, which have already lost
more than s8 trillion in nominal shareholder value since their
peak in 2000. To some extent, these losses are due to the corruption
of certain major corporations, including several (not least Halliburton)
that are closely tied to the military-petroleum complex. Failure
to attend to these issues is necessarily endemic in an administration
built on corporate fraud and committed to war for oil.
None of these problems will be cured so
long as war remains our dominant political theme. But serious
though they are, they pale in comparison with the larger problem
of the international trade-and-financial order under conditions
of permanent war. It is a straightforward fact that if global
oil production starts to decline but U.S. consumption does not,
everyone else will be required to cut purchases and uses of oil.
But how can oil prices be held stable for Americans yet be made
to rise for everyone else? Only by a policy of continuing depreciation
in everyone else's currency. Such a policy of dollar hegemony
amid worldwide financial instability, of crushing debt burdens
and deflation throughout the developing world, is perverse. It
will make our trading partners' exports cheap, render their imports
dear and keep their real wages low. It will price American goods
out of world markets and lead to unsustainable dependence on foreign
capital. It will be a policy, in short, of beggar-all-of-our-neighbors
while we live alone, in increasing idleness and inside the dollar
This is the policy that Bush and Cheney
are actually imposing on the rest of the world. But they cannot
make it last. It will make lives miserable elsewhere, generating
ever more resistance, terrorism and military engagement. Meanwhile,
we will not experience even gradual exposure to the changing energy
balance; we will therefore never make the investments required
to adjust, even eventually, to a world of scarce and expensive
oil. In the end, therefore, that world will arrive much more abruptly
than it otherwise would, shaking the fragile edifice of our oil
economy to its foundations. And we will someday face a double
explosion: of anger against our arrogance and of actual shortage
and collapsing living standards, when the confidence of investors
in the dollar finally gives way.
Compared with this future, a new commitment
to collective security, to a new world financial structure, to
a rational energy and transportation policy, and to spending to
meet our actual domestic needs would be a bargain. At the end
of the Constitutional Convention, Benjamin Franklin was asked
what type of government the framers had given our new country.
He famously replied, "A republic, if you can keep it."
The republicans in those days opposed empire. The author of Poor
Richard's Almanack understood the economics very well. ~
JAMES K. GALBRAITH is the Lloyd M. Bentsen
Jr. Chair in government-business relations at the Lyndon B. Johnson
School of Public Affairs at the University of Texas at Austin,
and a senior scholar of the Levy Economics Institute.