Can The Iraq War Explain The Economic Crisis?
Can The Iraq War Explain The Economic Crisis?
Via Andrew Sullivan, Derek Thompson examines a new Brookings Institution report in which economist James Hamilton argues that the economic crisis was caused by the sharp rise on oil prices that occurred over the last several years:
Hamilton went back to 2003, when crude oil was around $30 a gallon and forecast what an oil shock like the one we experienced in 2007-08 (when oil peaked around $140) would do to GDP. He graphed the result through the end of 2008 and, lo and behold, it was damn close to actual GDP. [...]
What about real estate, subprime mortgages and defaults? Hamilton says the housing industry had been tightening up long before the recession — “subtracting 0.94% from the average annual GDP growth rate over 2006:Q4-2007:Q3.” And housing is factored into Hamilton’s analysis. It was just one of a handful of multipliers that always turn down during oil shocks.
When considering the impact that oil prices had on the U.S. economy, it’s also obviously worth considering what impact the Iraq war — by creating greater uncertainty and risk in the world’s leading oil producing region — had on oil prices. According to a leading oil economist, Dr. Mamdouh Salameh, the Iraq war “tripled the price of oil…costing the world a staggering $6 trillion in higher energy prices alone”:
Salameh, who advises both the World Bank and the UN Industrial Development Organization (Unido), [said] that the price of oil would now be no more than $40 a barrel, less than a third of the record $135 a barrel reached last week, if it had not been for the Iraq war.
This is part of the combined impact of the war on the U.S. economy that economist Joseph Stiglitz placed at around $3 trillion, possibly going as high as $5 trillion. Of course, these are just the economic costs — there are numerous political and security costs still to be tallied, but they all need to be kept in mind when confronted by conservatives arguing that the Iraq war was, in any sense, “worth it.”
3 Responses to “Can The Iraq War Explain The Economic Crisis?”
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And I thought is was greed, leverage, sending 2 million jobs to China, artificially low interest rates and assuming the business cycle could be engineered out of existence.
April 23rd, 2009 at 2:55 pm“costing the world a staggering $6 trillion in higher energy prices alone”
Those Martians must be laughing all the way to the bank.
Seriously, I question whether aggregate global or even national or regional costs can meaningfully be calculated in dollars.
I’ve never seen an explanation I can grasp. The dollars in question pass from some people to other people. Certain behaviors are promoted, others suppressed as prices of a given commodity change, but the number of dollars in circulation does not change as a result. Whenever I see an aggregate like this I think either someone is not thinking clearly or does not want me thinking clearly.
April 24th, 2009 at 12:04 pmThis article is simply another example of the unaware commentary we see all around us concerning the current world economic crisis. It’s just another wasted few hundred words added to the millions or billions already out there.
It makes no difference, on either a personal or global level, what the exact causes of the present situation are. The fact of the matter is that the economy has always been, is now, and always will be, beyond purposive, long-term control. Just like the rest of human society.
Accept the fact that we are living at the end of the fourth price revolution to have occurred since 1185 AD and that it will resolve itself as the previous three resolved themselves.
At the end of each of the revolutions the return on labor increased relative to the return on land and capital and a period of price stability, or slight deflation, replaced the inflation and increasing misvaluation of assets found during the price revolution. In addition, the social turmoil associated with the price revolutions became somewhat less during the ensuing periods.
Thus, we get the periodic resets of value and expectation that are necessary to correct the herd mentality of homo sapiens. This periodic correction of value occurs, to a greater or lesser degree, after every recession, depression, panic–whatever you want to call it. The only difference between the downturn of the 1930s and the current resetting is that this one bids fair to end the current price revolution, which began in 1896, rather than being internal to it, as the decline of the 1930s was.
April 26th, 2009 at 7:20 pm