The Causes of Our Economic Woes: an Alternative View
The stock market fell and then rose nearly three hundred points in what had to have been a queasy day for investors. The turmoil in the markets and concerns about the economy are casting a shadow over an atypically gloomy meeting of the World Economic Forum in Davos. The roots of the brewing economic crisis have been well-discussed: risky sub-prime lending and consumers over-extending themselves by borrowing against homes they optimistically bet would continue to appreciate indefinitely. But today Think Progressive reminds readers that there may be at least one other contributing factor to the looming downturn--the war in Iraq.
The bloggers at Think Progress (picked up on the Huffington Post) remind us that, in the run up to the war, economists warned that should the conflict turn into a prolonged occupation, the economy would take a hit. Here are two representative quotes from back before the war:
"A war against Iraq could cost the United States hundreds of billions of dollars, play havoc with an already depressed domestic economy and tip the world into recession because of the adverse effect on oil prices, inflation and interest rates, an academic study [by William Nordhaus, Sterling professor of economics at Yale University] has warned." [Independent, 11/16/02]
"If war with Iraq drags on longer than the few weeks or months most are predicting, corporate revenues will be flat for the coming year and will put the U.S. economy at risk of recession, according to a poll of chief financial officers." [CBS MarketWatch, 3/20/03]Oil is down to approximately $87 a barrel from its earlier high of more than $100, but it is not unreasonable to suspect that this price is influenced by the situation in Iraq. While the rising cost of energy is clearly only part of the picture, it is worth asking whether it has played some role in our current economic woes, and what may be behind the price increases.