One of the hoariest myths in America is that wars, awful as they are, at least rev up the economy and create jobs. I'll argue with that idea in a moment. But before I do, let me note that the war with Iraq hasn't even lived up to its myth. From the very moment it hove into view, it has been destroying jobs.
The Iraqi invasion of Kuwait drove up oil prices, which swiftly increased the price of gasoline and heating oil. That left consumers with less money to spend on other goods. Fear of war, in addition to the pocketbook pinch, helped set off a crash in consumer confidence in the fourth quarter of last year. In response, corporations hastened to lay off workers -- all of which made the recession worse.
Ultimately, inflation clocked in at 6.1 percent for 1990 -- overrunning wage increases and inflicting the largest real loss in consumer purchasing power since 1981. Had Saddam Hussein stayed home, the fourth quarter would not have been so bad. If the economy's precipitate slide now starts to ease, we will not have the war to thank. Quite the contrary. Any good news depends almost entirely on the hope that the hot war won't last more than a few weeks. Business will be revived not by war, but by the anticipation of war's end.
The true source of any "wartime boom" is heavy government spending supported by large new supplies of money pumped into the economy.
"It wasn't World War II that brought us out of the Depression," says Jerry Jordan, chief economist at First Interstate Bancorp in Los Angeles. "It was the central bank deciding to take its foot off the brake. Before 1937, the economy was rebounding from the depths of 1933. Then the central bank raised bank reserve requirements sharply, which lowered the amount of money available to lend and slammed the economy back down. Just before the war, business was starting to go back up again."
What ended the Depression, then, was the change of central-bank policy with regard to feeding money into the economy. The Korean and Vietnam wars were also accompanied by a liberal fiscal and monetary hand. Not so the current war -- at least, not yet.
Assuming that the conflict doesn't drag out very long, defense production won't gear up. You won't see a lot of extra spending on hardware such as planes and tanks or on the workers needed to build them. War spending did add $2.7 billion to last year's budget and perhaps $12 billion to $15 billion so far this year, according to congressional sources. But most of that money is being consumed by daily operations -- things like fuel, food and extra military pay.
Barry Blechman, president of Defense Forecasts in Washington, says that new war-related procurement contracts are chiefly for munitions and soft goods: desert camouflage, netting, freeze-dried foods, antidotes to chemical weapons and the like.
Wartime booms eventually end in busts, when wartime inflation is wiped out. A long war with Iraq would divert money back to the Pentagon and start the defense factories humming again. But you couldn't count on an economic boom. More likely, federal spending on the civilian economy would be reduced; jobs would be shuffled from the civilian sector into defense.
With its federal deficit, this country can't afford guns and butter anymore. It's one or the other -- which makes it doubly important that this war be short.