Econometric Projections Show Iraq War is Bad for the Economy

[BurtWorm]

No shit.

http://www.prospect.org/deanbaker/2007/05/the_iraq_war_slows_growth_cost.html

Yeah, that would not be news to any economist, but why is the negative impact of military spending on the economy never raised in political debates? President Bush has said that he won't do anything serious to reduce greenhouse gas emissions because it would hurt economic growth, and that was the end of his discussion. But, for some reason, the fact the jobs the growth and jobs that are lost because of his wars is never even raised as an issue.

CEPR commissioned Global Insight (formed by the merger of WEFA and DRI, two of the country's oldest econometric forecasting firms) to simulate the impact of an increase of defense spendning equal to 1 percent of GDP (approximately the increase associated with the wars). The model shows that after an initial stimulus, the impact of higher spending turns negative around the 6th year. By the 10th year, payroll employment is down by 460,000 jobs, By the 20th year, it is down by 670,000. The construction and auto industries are the hardest hit sectors. Higher defense spending is also projected to lead to a larger trade deficit. The cumulative increase in the trade deficit over the 20-year period is more than $1.8 trillion (2000 dollars).


--Dean Baker


More of the study's findings:


http://www.cepr.net/documents/publications/military_spending_2007_05.pdf


The projections show that:

• After an initial demand stimulus, the effect of higher defense spending turns negative around the sixth year. After 10 years of higher defense spending, payroll employment would be 464,000 less than in the baseline scenario. After 20 years the job loss in the scenario with higher military spending rises to 668,100 compared to the baseline scenario.

• Inflation and interest rates would be considerably higher in the scenario with higher military spending. In the first five years, the annual inflation rate would be on average 0.3 percentage points higher in the scenario with higher military spending. Over the full twenty year period, inflation averages approximately 0.5 percentage points more in the high defense spending scenario. After five years, the interest rate on 10-Year Treasury notes is projected to be 0.7 percentage points higher than in the baseline scenario. After ten years, this gap is projected to rise to 0.9 percentage points, and after twenty years to 1.1 percentage points.

• Higher interest rates are projected to lead to reduced demand in the interest sensitive sectors of the economy. After five years, annual car and truck sales are projected to go down by 192,200 in the high military spending scenario. After ten years, the drop is projected to be 323,300 and after twenty years annual sales are projected to be down 731,400.

• Annual housing starts are projected to be 17,900 lower in the high military spending scenario after five years, 46,200 lower after ten years, and 38,500 lower after twenty years. The cumulative projected drop in housing starts over the twenty year period is 530,000. The drop in annual existing home sales is projected to be 128,400 after five years, 247,900 after ten years and 286,500 after twenty years.

• Higher interest rates are projected to raise the value of the dollar relative to foreign currencies. This makes imports cheaper, causing people in the United States to buy more
The Economic Impact of the Iraq War and Higher Military Spending �� 4
imports and makes U.S. exports more expensive for people living in other countries, leading to a drop in exports. The model projects that in the high military spending scenario, high imports and weak exports causes the current account deficit to increase (become more negative) by $90.2 billion (2000 dollars) after five years, compared to the baseline scenario. The current account deficit is projected to be $72.5 billion higher after ten years and $112.8 billion higher (both in 2000 dollars) after twenty years. The cumulative effect of higher imports and weaker exports over twenty years is projected to add approximately $1.8 trillion (in 2000 dollars) to the country’s foreign debt.

• Construction and manufacturing are the sectors that are projected to experience the largest shares of the job loss. While construction is projected to have a net gain of 8,500 jobs after five years, it is projected to lose 144,200 jobs after ten years and 211,400 jobs after twenty years in the high military spending scenario. Manufacturing is projected to lose 44,200 after five years, 95,200 jobs after ten years, and 91,500 jobs after twenty years in the high military spending scenario. Two-thirds of the projected job loss is in the durable goods sector.

[madrchsod]

1. economics 101-

military spending contributes nothing to economic growth. that`s in the first chapter in any economics 101 book

[Rydz777]

2. This war is a disaster in so many ways that

it's impossible to summarize them. The billions we are spending on it could have been used to rebuild our own infrastructure - but of course we have borrowed those billions from China, which creates another set of problems. I beg our Democratic Congress to stand firm against the veto. "Benchmarks" are a fraud. We need to get out NOW.