Friday, March 28, 2008

Did the Iraq War cause the sub-prime crisis

Try the following thought experiment;

As a matter of arithmatic, Stiglitz may be right. But does he really think that, absent the war, we would have suddenly found a political consensus to fix Social Security? Do the MoveOn-niks really believe we would have used the money to reform health care?

Here is a little thought experiment. Had there been no occupation, we would have had a balanced budget by fiscal 2007. The deficit was $162 billion, almost exactly equal to the direct cost of the war that year. Factor in other foregone costs, such as the expense of caring for wounded vets and the like, and we probably would have had a modest surplus.

And what would we have done with it? This is just speculation, of course, but if Stiglitz can do it so can I. The White House would have said, "We have balanced the budget, so let's extend the 2001 and 2003 tax cuts." Congressional Democrats would have said, "We have a balanced budget, let's extend the SCHIP child health program." And, in the end, they may very well have done a little of both. But long-term entitlement fixes? I don't think so.

If I were MoveOn, I'd probably do all I could to blame the poor economy and the lack of progress on health reform on the war too. It is probably a political winner. But it doesn't happen to be true.

Six Degrees of Joseph Stiglitz

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