The War-Recession Fallacy

Liberals have an inherent advantage in debates that comes from being unencumbered by facts.  This is especially apparent in their attempt to pin the blame for the current economic slowdown on the war and then use this as justification to cut defense spending.

Set aside the inconvenient truth that we are not in a recession. The latest economic reports show that rather than declining for two straight quarters — the definition of a recession — the economy grew by about 0.6% last quarter.  Consumer spending also rose (by about 0.4%).  Democrats nevertheless insist that we’re in a recession, that the economy is falling apart and that it’s all because of the cost of the war in Iraq.  Balderdash. 

Although the public’s focus has moved to the economy, liberals’ attention and antipathy have never wavered from the war against terror.  Their goal is to link the two as cause and effect.  The complete lack of evidence for this causal relationship is apparently only a minor detail that has no business getting in the way of a good story.

After six and a half years, it is difficult for even the most detached observer to see how the War on Terror — which costs billions of dollars a week — could not be having a telling impact on the economy.  But to say that is to say something else entirely.  First, the financial cost of the war is indistinguishable from any other government spending. It’s a drain on the economy, but how big?  The US economy, though, is so enormous — over $9 trillion per year — the real question is whether the economy is slowed by the cost of the war.  And there is no reason nto conclude that it is. 

This is not to say that terrorism has not caused a recession.  It has, the only problem is that it was that of 2001.  The 9/11 attack of 2001 and its aftermath was the final straw, tipping a teetering economy that had been weakening since 2000.   It was the mildest recession since WWII and, with the help of the 2001 (and later those of 2003) tax cuts, the economy recovered and began a period of sustained and solid growth that has only recently begun to show signs of weakness. 

Americans take prosperity as a birthright, so it is not surprising that we tend to overlook what a remarkable achievement the economy has been in the face of unprecedented adversity.  Despite the stock market’s unwinding in 2000, the crisis of confidence that followed, and the shock and aftermath of a terrorist attack at home, economic growth has been solid, inflation low, interest rates low, unemployment low, taxes have not risen, and last year’s federal budget deficit (at 1.2% of GDP) was half the average of the last forty years. 

So busy searching for the needle, liberals have managed to lose the haystack.  In their attempt to link today’s signs of economic slowdown to a six and a half year old war, they have overlooked the actual cause the rest of the nation clearly sees: the subprime crisis.
The subprime crisis’ origins lay not in the war but in the extension of loans to unqualified borrowers and the sale of those loans to unqualified purchasers.  This securitization allowed risk to be extended in both directions to borrowers and purchasers ill-equipped to handle it. 

The result was a false boom that in hindsight is now all too obvious.  So efficient are today’s markets that the contagion spread not just nationwide but globally. Today’s retrenchment of credit — an overreaction due to uncertainty and equal to the excessive credit extension — is also a global one.  This is the prime cause of the current economic slowdown, not the war: had there been no war, there still would have been a subprime crisis.

While ending the war will not save the economy, it would have disastrous impact on national security.  This is what makes such a course not only wrong, but dangerous. 
In debunking this dangerous fallacy it is important to first ask the question: Where would liberals cut defense?  National defense spending, measured as a percentage of GDP is not historically high.  It currently measures just 4% of America’s economy.  That is over 50% less than the average over the last 60 years (6.4%), less than half the level of the Korean and Vietnam war years (8.5% from 1947-1973), and less than the 4.6% post-Vietnam level (1974-2007).  In fact, it is only slightly higher than the post-Cold War average of 3.8%. 

Would liberals eliminate the funding for the War on Terror?  The increase in defense spending resulting from this war is relatively small.  The Clinton administration averaged 3.3% of GDP from 1994-2001 and pre-9/11, while 2007’s post-9/11 level is just 4%.  So cutting the spending dedicated to taking the war to the terrorists would only produce marginal savings while resulting in greatly reduced U.S. security.

Would liberals cut the conventional defense budget?  Conventional threats still exist — China and Russia to name but two – ones that we do not ever want to see elevated beyond potential ones.  To cut the conventional defense budget is also to ignore a strong national defense’s deterrent value to possible threats, in addition to its ability to respond to actual ones. 

America today and for the foreseeable future faces a two-front threat: the conventional one, which has always and always will exist, and the unconventional one that was visited upon us on September 11, 2001.  The unconventional threat, in the form of terrorism, cannot be dismissed because of its unconventional nature.  In many ways it is less easily defeated than Cold War communism.  Its unconventional nature makes it no less insidious or determined.  The seriousness of its threat is if anything increased by its unconventional means and aims. 

Liberals’ attempt to tie recession to war and the premise that defense spending can be reduced without consequences is akin to the stepsisters’ attempts to force their feet into Cinderella’s glass slipper.  Try as they might, it does not fit and it is painful to watch.  If successful, their attempt would not fix the economy but would assuredly undermine our security.