The Wages of Peace
by Robert Pollin and Heidi Garrett-Peltier
www.thenation.com/, March 13,
With just the amount of the Iraq budget of 2007, $138 billion,
the government could instead have provided Medicaid-level health
insurance for all 45 million Americans who are uninsured. What's
more, we could have added 30,000 elementary and secondary schoolteachers
and built 400 schools in which they could teach. And we could
have provided basic home weatherization for about 1.6 million
existing homes, reducing energy consumption in these homes by
But the economic consequences of Iraq
run even deeper than the squandered opportunities for vital public
investments. Spending on Iraq is also a job killer. Every $1 billion
spent on a combination of education, healthcare, energy conservation
and infrastructure investments creates between 50 and 100 percent
more jobs than the same money going to Iraq. Taking the 2007 Iraq
budget of $138 billion, this means that upward of 1 million jobs
were lost because the Bush Administration chose the Iraq sinkhole
over public investment.
Recognizing these costs of the Iraq War
is even more crucial now that the economy is facing recession.
While a recession is probably unavoidable, its length and severity
will depend on the effectiveness of the government's stimulus
initiatives. By a wide margin, the most effective stimulus is
to expand public investment projects, especially at the state
and local levels. The least effective fiscal stimulus is the one
crafted by the Bush Administration and Congress--mostly to just
send out rebate checks to all taxpayers. This is because a high
proportion of the new spending encouraged by the rebates will
purchase imports rather than financing new jobs in the United
States, whereas public investment would concentrate job expansion
within the country. Combining this Bush stimulus initiative with
the ongoing spending on Iraq will only deepen the severity of
Is Militarism Necessary for Prosperity?
The government spent an estimated $572
billion on the military in 2007. This amounts to about $1,800
for every resident of the country. That's more than the combined
GDPs of Sweden and Thailand, and eight times federal spending
The level of military spending has risen
dramatically since 2001, with the increases beginning even before
9/11. As a share of GDP, the military budget rose from 3 percent
to 4.4 percent during the first seven years of the Bush presidency.
At the current size of the economy, a difference between a military
budget at 4.4 rather than 3 percent of GDP amounts to $134 billion.
The largest increases in the military
budget during the Bush presidency have been associated with the
Iraq War. Indeed, the $138 billion spent on Iraq in 2007 was basically
equal to the total increase in military spending that caused the
military budget to rise to 4.4 percent of GDP. It is often argued
that the military budget is a cornerstone of the economy--that
the Pentagon is a major underwriter of important technical innovations
as well as a source of millions of decent jobs. At one level these
claims are true. When the government spends upward of $600 billion
per year of taxpayers' money on anything, it cannot help but generate
millions of jobs. Similarly, when it spends a large share of that
budget on maintaining and strengthening the most powerful military
force in the history of the world, this cannot fail to encourage
technical innovations that are somehow connected to the instruments
Yet it is also true that channeling hundreds
of billions of dollars into areas such as renewable energy and
mass transportation would create a hothouse environment supporting
new technologies. For example, utilities in Arizona and Nevada
are developing plans to build "concentrated" solar power
plants, which use the sun to heat a liquid that can drive a turbine.
It is estimated that this technology, operating on a large scale,
could drive down the costs of solar electricity dramatically,
from its current level of about $4 per watt to between $2.50 and
$3 per watt in the sunniest regions of the country. At these prices,
solar electricity becomes much cheaper than oil-driven power and
within range of coal. These and related technologies could advance
much more rapidly toward cost competitiveness with coal, oil and
nuclear power if they were to receive even a fraction of the subsidies
that now support weapons development (as well as the oil industry).
Swords, Plowshares and Jobs
How does it happen that government spending
devoted to healthcare, education, environmental sustainability
and infrastructure can generate up to twice as many jobs per dollar
as spending on militarism?
Three factors play a role in determining
the overall job effects of any target of government spending.
Let's compare the construction of Camp Victory, the main US military
base on the western outskirts of Baghdad, with weatherizing existing
homes in New England to increase their energy efficiency. The
first factor to consider is the jobs that get created directly
by each project. The second is the job creation in the industries
that supply products for building the camp or weatherizing the
homes. These would include the steel, concrete, weapons and telecommunications
industries for building Camp Victory; and lumber, insulation and
trucking industries for home weatherization. Finally, new jobs
will result when people who are paid to build Camp Victory or
weatherize a house spend the money they have earned--a weapons
engineer at Camp Victory buying a lawnmower during his vacation
leave at home or a construction worker in New England buying a
How does one spending target create more
jobs for a given amount of dollars spent? Still considering Camp
Victory construction versus New England home weatherization, there
are, again, three factors:
1._More jobs but lower-paying jobs. Average pay is lower
in the construction industry working on home weatherization in
New England than in mounting weapons installations at Camp Victory.
So a given pool of money is divided among more employed people.
2._More spending on people, less on
machines and supplies. In weatherizing
a home, the machinery and supplies costs are relatively low, while
the need for construction workers is high. Building a high-tech
military base in Baghdad entails enormous investments in steel
and sophisticated electronic equipment and relatively less spending
for people on the job.
3._More money stays within the US economy. We roughly estimate that US military personnel
spend only 43 percent of their income on domestic goods and services,
while the overall population spends an average of 83 percent of
their income on domestic products and 17 percent on imports.
It is important to know which of these three factors is relatively
more important in generating the overall increase in jobs. In
particular, it would not necessarily be a favorable development
if the overall increase in employment opportunities is mainly
just a byproduct of creating lots of low-paying jobs.
In fact, if we were simply to send a rebate
to taxpayers for the full amount of the Iraq War budget--i.e.,
a measure similar to Bush's current stimulus plan--the increased
spending on personal consumption would produce lots of what are
now bad jobs, in areas such as retail, hotels, restaurants and
personal services. Because of this, a transfer of funds from the
military to tax rebates and personal consumption increases would
produce a 25 percent increase in employment but an 11 percent
decline in overall wages and benefits paid to working people.
The opposite is true with education as
the spending target. Here, both the total number of jobs created
and the average pay are higher than with the military. It's less
clear-cut when it comes to healthcare, energy conservation and
infrastructure investments. More jobs will be created than with
military spending, and the total amount of wages and benefits
going to workers will also be significantly higher than with military
spending. But the average pay for a healthcare worker or those
engaged in mass transit or construction is lower than in the military.
Is it better for overall economic welfare
to generate more jobs, even if average wages and benefits are
lower? There isn't a single correct answer to this question. It
depends on the size of these differences: how many low-paying
jobs are being generated, and how bad are these jobs? How many
high-quality jobs would be sacrificed through a transition out
of the military, where the average pay is relatively high? Indeed,
by completely shutting off Iraq War-related spending and transferring
the money in equal shares to education, healthcare, energy conservation
and infrastructure, average salaries would decline. However, the
majority of new jobs created by these peaceful alternatives would
command salaries above a reasonable living-wage standard of $16
Pushing Unemployment Down
As of January there were 7.6 million people
unemployed in a labor force of 154 million, producing an official
unemployment rate of 4.9 percent. This was a significant increase
over the 4.5 percent unemployment rate in mid-2007, and thus one
important sign of a weakening economy. Unemployment is likely
to keep rising as the economic slowdown continues.
In our current context, what would be
the overall job effects of transferring the entire 2007 Iraq War
budget of $138 billion into healthcare, education, energy conservation
and infrastructure investments? If we assume that all else would
remain equal in the labor market, a net increase (i.e., the total
expansion of jobs in public investments minus the reduction in
military jobs) in the range of 1 million jobs would therefore
reduce the total number of unemployed people to around 6.6 million.
The unemployment rate would fall to about 4.3 percent.
This is still an unacceptably high unemployment
rate. But if the public-investment-directed spending shift out
of Iraq were combined with a stimulus package of roughly the same
size as the Iraq War budget--i.e., in the range of the Bush Administration's
$150 billion stimulus--the overall impact would be a strong program
to fight recession and create decent jobs.
In particular, through this combination
of a spending shift out of Iraq and a stimulus program focused
on public investment, there is a good chance that unemployment
would fall below 4 percent. When unemployment fell below 4 percent
in the late 1960s and late 1990s, the high demand for workers
led to rising wages and benefits, in particular at the low end
of the job market. Poverty fell as a result. Near full employment
in the late '60s also brought better working conditions and less
job discrimination against minorities.
Of course, we cannot assume that everything
about the labor market would stay unchanged after a huge job expansion
in healthcare, education, energy conservation and infrastructure
investments, while jobs connected with the military contracted.
There would no doubt be skill shortages in some areas and labor
gluts in others. There would also probably be an increase in inflation
that would have to be managed carefully.
These concerns are real. But it is still
true that large-scale job creation within the United States is
possible as an outgrowth of ending the Iraq War, reallocating
the entire Iraq budget to important domestic public investment
projects and fighting the recession with further increases in
What if the Iraq War budget is transferred
only partially to domestic public investments? Let's assume, optimistically,
that a new Administration takes serious initiatives to end the
Iraq War immediately after coming into office next January. This
new Administration would almost certainly not have the wherewithal
to shut down operations within one year. And even if it could
completely end the war within a year, the government should still
commit significant funds to war reparations for the Iraqi people.
The job expansion within the United States
will decline to the extent that spending of any sort continues
in Iraq rather than being transferred into domestic public investments.
But even if the net transfer of funds is, say, $100 billion rather
than $138 billion, several hundred thousand new domestic jobs
would still be created. There is also no reason that the domestic
public investment expansion has to mirror the decrease in the
Iraq War budget. Any stimulus program initiated over the next
few months--either a Bush-style program or one focused on public
investment--would entail spending beyond the current Iraq budget
Public Investment and Recession
There's also a strong argument for a stimulus
program that emphasizes public investment at the state and local
level. State and local government revenues--which primarily finance
education, healthcare, public safety and infrastructure--are always
badly hit by economic downturns and will be especially strapped
as a result of the current recession. State and local government
revenues decline when the incomes and property values of their
residents fall. Property tax revenues will fall especially sharply
as a result of the collapse of housing prices. Moreover, state
and local governments, unlike the federal government, cannot run
deficits and are forced to maintain balanced budgets, even in
a recession. This means that unless the federal government injects
new revenue into the state and local budgets, spending on public
investments will decline.
Deficit Reduction: The Responsible Alternative?
The federal fiscal deficit in 2007 was $244 billion. Shutting
down the Iraq War and using the fiscal savings to cut the deficit
would mean a 57 percent deficit reduction.
Is this the best use of the funds released
by the Iraq War? Of course, the government cannot run a reckless
fiscal policy, no matter how pressing the country's social and
environmental needs. But a $244 billion deficit in today's economy
is not reckless. It amounts to about 1.8 percent of GDP. This
is slightly below the average-sized deficit between 1960 and 2006
of 1.9 percent of GDP. The largest deviation from this long-term
average occurred under Ronald Reagan's presidency, when the deficit
averaged 4.2 percent of GDP--i.e., more than twice as large as
the current deficit as a share of the economy.
The recession and stimulus program will
of course produce a large increase in the deficit. Recessions
are not the time to focus on deficit reduction. But even if we
allowed the deficit to double from its 2007 level--to about $500
billion--its size, as a share of GDP, would still be below the
average figure for the entire Reagan presidency, including both
the boom and recession years.
We would certainly need to worry about
the deficit today, and even more after the recession ends, if
it were persistently running at Reagan-era levels. This is because
the government would soon be consuming upward of 20 percent of
the total federal budget in interest payments, as it did at the
end of the Reagan era. This is opposed to the 10 percent of total
government spending we now pay to the Japanese and Chinese bondholders,
US banks and wealthy private citizens who own the bulk of US government
debt. But because the deficit has been at a reasonable level coming
into the recession, the primary problem with the Treasury's fiscal
stance is not the size of the deficit per se but how the money
is being spent--that we are using the money for Iraq and a private
consumption-led stimulus rather than public investment.
There are many good reasons government
policy should now initiate major commitments to investment in
the areas of healthcare, education, environmental sustainability
and infrastructure. All these spending areas stand on their own
merits. But moving the $138 billion spent on the Iraq War in 2007
into public investments will also increase employment, adding
up to 1 million jobs. On top of this, expanding public investment
spending is the single most effective tool for fighting the recession.
A great deal is at stake here. The Iraq War has been about death
and destruction. Ending the war could be a first serious step
toward advancing a viable program for jobs, healthcare, education
and a clean-energy economy.