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The “Iraq Recession” Fallacy

I couldn’t believe my ears when I was on a radio program a few days ago with Rep. Barbara Lee, one of the most liberal members of Congress (she represents Berkeley and environs). She referred to our current economic difficulties as the “Iraq recession,” blaming the downturn not on the mortgage crisis or other commonly cited factors but on the Iraq War. This is a nonsensical argument on its face: If the recession is due to the war in Iraq, why has it started (if in fact it has started—the evidence isn’t definitive) after five years of war?

In a slightly more sophisticated form, Barack Obama picked up this theme in a speech yesterday in West Virginia. Obama is too savvy to come right out and call it the Iraq Recession but he hints at the same linkage: “Because at a time when we’re on the brink of recession–when neighborhoods have For Sale signs outside every home, and working families are struggling to keep up with rising costs–ordinary Americans are paying a price for this war.”

He then goes on to blame the war for the high cost of oil: “When you’re spending over $50 to fill up your car because the price of oil is four times what it was before Iraq, you’re paying a price for this war.” But why blame the war for the increase in oil prices?

According to page 36 of the Brookings Iraq Index, Iraq this month will produce 2.44 million barrels of oil a day, close to the peak prewar level (2.5 million barrels). Iraqi oil exports, at 2.11 million barrels a day, are actually higher today than at some periods before the war when exports ranged from 1.7 to 2.5 million barrels of oil a day.

In short, it is absurd to suggest that a lack of Iraqi production is responsible for the rise in oil prices; the likely culprits are increased demand in China, India, and other emerging markets.

Obama is more on target when he laments the continuing cost of the war which is running at some $120 billion a year. What he leaves out is any context. The overall size of our economy is $13.1 trillion. So the Iraq War is costing us less than 1% of GDP (0.91% to be exact). Even if you add in the entire defense budget that still only gets us to roughly 4% of GDP—roughly half of what we spent on average during the Cold War, to say nothing of previous “hot” wars such as World War II (34.5% of GDP), Korea (11.7%), and Vietnam (8.9%). (A handy chart may be found here.)

You can make a lot of arguments against the war in Iraq, but the one Obama is now making is the least persuasive of all—that this is a war that “America can’t afford.” At least in dollar terms, it is eminently affordable. What we really can’t afford is a precipitous pullout which, among other consequences, could spread turmoil throughout the Middle East that would greatly exacerbate our current economic woes.



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