[jyl]

We got on to the subject of the cost of the war.

I do not think the cost of the war, be it $50BN or $150BN, is a major issue.

It won't do too much to stimulate the economy, because it is a one-time event and goes either to resupply military consumables or to pay for military-related personnel. The companies that make military consumables are not the most troubled parts of the economy nor are they likely to fire up capital spending given the one-time nature of the revenue (why spend millions to increase your capacity to make munitions and MREs when you know the orders are going to dry up in a few months?) The military-related personnel will pump their pay back into the economy as consumer spending, but again that's just a one-time help to WalMart and General Motors.

Nor will a one-time government borrowing of that amount hurt the economy, because there is a huge appetite for US government bonds and issuing $50-150BN isn't going to drive up interest rates too much. It is ongoing, structural deficits that hurt the economy - of course, we're headed for those too under the Administration's budget but never mind . . .

People say "war is good for the economy" but the evidence for that is primarily WWII. I saw a chart recently, WWII cost something like $3 trillion (in today's dollars), lasted 5 years, and drove the US to a fully industrialized economy, dominant in the world, with many new technologies. Some people cite the Vietnam War, but similarly that war cost something like $0.9 trillion (today's dollars) and lasted a decade (and ultimately led to severe inflation because it was deficit financed). So those wars pumped a huge amount into the economy and continued doing so for many years. In comparison, Gulf War I cost only $0.06 trillion, lasted a couple months, and did not trigger an economic recovery. Gulf War II will cost appx $0.1 trillion and last a couple months - I don't see why it will trigger an economic recovery either. I may be off on these numbers but the point is that the Gulf Wars are peanuts in size and duration.

I think the problems with the economy are excessive debt at the household level (household debt/income is at record levels), excessive debt at the corporate level (ditto), over-capacity in most areas of production (capacity utilization is very low), a large trade deficit (the US has to import foreign capital to keep its books balanced), and the longest / largest capital markets declines since the Great Depression which has slammed everyone, from individual investors and their 401k's to corporations and their pension plans, with huge wealth losses which makes them not want to spend (indeed, SP500 companies are being forced to plow $100s to $1000s of millions into their pension plans, which is money that isn't available for wages or capital spending).

The war, even if quick and successful and not accompanied by retaliatory terrorism, is not going to cure those problems.

One thing it will hopefully do is bring oil prices back down. High oil prices are a drag on the economy. Oil at the $40/bbl level is really harmful to the economy - ask truckers who are going bankrupt at record rates, low-income families who are suddenly spending $100/wk more on fuel, airlines that are seeing jet fuel prices rise 40% in a few months, etc.) So the war may help that. But the economy was bad long before oil prices began their rise. (I would argue that what we need is a sustained, long-term effort to reduce our dependence on oil, i.e. alternative energy and conservation, which Washington doesn't seem too interested in promoting - but that's another story).

Sorry for the rambling.