Is It a War Boom?

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

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NEW YORK SUN CONTRIBUTOR

Q: How much does a candy bar cost, Raymond?

A: About $100.

Q: How much does a new car cost, Raymond?

A: About $100.

You’ll probably recognize this scene, paraphrased from the movie “Rain Man,” in which Raymond (Rain Man) is asked by his physician a number of pointed questions in a hearing designed to demonstrate to the arbiter that Raymond was not fit to live outside of an institution. He could not function, you see, because he lacked all sense of reasonable proportion. That’s why this scene came to mind last Thursday as we read a Washington Post analysis that suggested that our current economic boom is because of spending on the war.

“War has usually been good for the economy in the short run, and this one appears no different,” the Washington Post wrote. It was hardly the first attempt by a newspaper to find a way to discount the evidence that the Bush tax cuts worked. The New York Times suggested the same thing in April: “The American economy grew at a vigorous annual rate of 4.2 percent in the first quarter, with military spending making a significant contribution to economic growth for the first time since the early days of the war in Iraq,” the Times reported then.

This is where “Rain Man” comes to mind. By any reasonable standard the proportions are out of whack in this scenario. The American economy is currently producing $11.5 trillion a year in goods and services. All of federal spending combined is expected to be approximately $2.3 trillion a year, according to the Congressional Budget Office, and the defense portion is only about half a trillion dollars. Our current growth spurt is broad-based; residential housing is booming, as are retail spending and business capital investment. In order for war spending to create ripples throughout the economy it would have to be relatively huge. Instead it is relatively small.(The same point can’t be made about the Bush tax cuts, because they affect incentives in a way that government spending does not.) However, for critics of the president, who have been forced to concede first that the economy was growing, second that the growth was of boom proportions, and most painfully third that this is not a “jobless recovery,” any port in a storm will do.

In 2003, defense spending increased by $46.8 billion from 2002. That increase is roughly 0.4% of GDP. What’s missing is a sense of proportion. America’s economy is simply too large by several orders of magnitude to be pushed around by variations in typical levels of defense spending, and the Iraq war is too small to account for anything other than the tiniest proportion of our current economic boom. It is President Bush’s other major decision — the tax cut — that is responsible.

The New York Sun
NEW YORK SUN CONTRIBUTOR

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.


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