[A-List] The Unbearable Costs of Empire

["Mark Jones" <markjones011@xxxxxxxxxxxxx>]

[this new article by James Galbraith sums up the disastrous likely outcome
of the Bush strategy for world domination. What's also important is that
here is a mainstream albeit leftish Keynesian economist who FULLY
UNDERSTANDS THE EPOCHAL SIGNIFICANCE OF LOOMING ENERGY CRISES AND BASES HIS
ANALYSIS ON OIL DEPLETION. This is a major step forward, and I'd be
interested to see for instance how our own Henry Liu, who doesn't believe
there is an oil-supply crisis in prospect, makes of this.

This is a breakthru of sorts into the liberal intelligentsia's understanding
of the real world, but of course it is just a beginning. Galbraith teds to
think of war and of rising popular resistance to the American Imperium in
terms of the domestic economic effects. But the truth is that we HAVE NOW
ENTERED an epoch of war, violent class struggle, working class mobilisations
on a mass scale, of the crisis of imperialism in its death-throes, an era of
open revolution, revolution was scale, historicla epth and significance will
far outweigh the revolutiosn of the 20th century.

Mark]


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
Issue Date: 11.18.02
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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 15
years.

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 $400 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 $200 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 economically
ruinous.

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 problems.

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 11,
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 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 this year.

Fourth, we have the economic effects of the decline of our financial
markets, which have already lost more than $8 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 bubble.

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