Economist's View

Paul Krugman: Errors and Lies

"The Iraq war wasn’t an innocent mistake":

Errors and Lies, by Paul Krugman, Commentary, NY Times: Surprise! It turns out that there’s something to be said for having the brother of a failed president make his own run for the White House. Thanks to Jeb Bush, we may finally have the frank discussion of the Iraq invasion we should have had a decade ago...

The Iraq war wasn’t an innocent mistake, a venture undertaken on the basis of intelligence that turned out to be wrong. America invaded Iraq because the Bush administration wanted a war. The public justifications for the invasion were nothing but pretexts, and falsified pretexts at that. We were, in a fundamental sense, lied into war. ...

This was, in short, a war the White House wanted, and all of the supposed mistakes that, as Jeb puts it, “were made” by someone unnamed actually flowed from this underlying desire. ...

Now, you can understand why many political and media figures would prefer not to talk about any of this. Some of them ... may have fallen for the obvious lies, which doesn’t say much about their judgment. More, I suspect, were complicit: they realized that the official case for war was a pretext, but had their own reasons for wanting a war, or, alternatively, allowed themselves to be intimidated into going along. ...

On top of these personal motives, our news media in general have a hard time coping with policy dishonesty. Reporters are reluctant to call politicians on their lies, even when these involve mundane issues like budget numbers, for fear of seeming partisan. In fact, the bigger the lie, the clearer it is that major political figures are engaged in outright fraud, the more hesitant the reporting. And it doesn’t get much bigger — indeed, more or less criminal — than lying America into war.

But truth matters, and not just because those who refuse to learn from history are doomed in some general sense to repeat it. The campaign of lies that took us into Iraq was recent enough that it’s still important to hold the guilty individuals accountable. Never mind Jeb Bush’s verbal stumbles. Think, instead, about his foreign-policy team, led by people who were directly involved in concocting a false case for war.

So let’s get the Iraq story right. Yes, from a national point of view the invasion was a mistake. But (with apologies to Talleyrand) it was worse than a mistake, it was a crime.

'Did the Iraq War Cause the Great Recession?'

Via Henry Farrell:

Did the Iraq War Cause the Great Recession?, Henry Farrell: Thomas Oatley thinks that it very plausibly did. His argument draws upon an interesting article (should be ungated) in the new issue of Perspectives on Politics, where he, Kindred Winecoff, Andrew Pennock and Sarah Bauerle Danzman argue that international political economy scholars pay too little attention to the structural characteristics of international politics. By concentrating too much on states as unitary actors, they fail to recognize the importance of the network connections between them. The network topology – the shape of the network – can have consequences – networks where no node gets very much more links than any other node are quite different in their consequences from networks where one or a couple of nodes receive a lot more links than others. This has implications for financial contagion – if contagion spreads across links, network topology will have important consequences for the likelihood of spread. As it turns out, there is strong reason to believe that the international financial system is one of the latter kinds of networks rather than one of the former. On two measures of financial ties, most countries on the periphery of the network have few links to other peripheral countries, but pretty well everyone has links to the US, and many have links to the UK too. ...[more]...

I'm not fully convinced by this theory that the Iraq war caused the recession, but it does bring up some important issue about network connectivity. Are highly interconnected networks better at dispersing risk? It depends upon the type of risk. Suppose a toxin hits a network. If diluting the toxin across the network also dilutes its effects to practically nothing, then we want the network to be as large and interconnected as possible. When shocks hit they will be quickly diluted and rendered relatively harmless. But for toxins that are deadly in minute doses, toxins that kill whatever they touch even when they are highly diluted, we want the infected node on the network to be isolated as much as possible.

Optimally, then, assuming that most shocks are not toxic if they are dispersed across a large network, we want the network to be large and highly interconnected so that risks can be diversified across the network to practically nothing. But we also want the ability to quickly disconnect nodes that become infected with toxins that don't lose their potency as they are diluted. And that's the problem, identifying when such a toxin hits a network is difficult -- there will always be denial if disconnecting nodes in the financial system costs people money -- and it may not be easy to quickly disconnect nodes from the network so that problem nodes can be isolated/quarantined before the toxin spreads.

We have been told that problems in places like Cyprus have been walled off -- nodes in the network have been isolated -- but so long as a few isolated connections still exist that are difficult to cut, highly toxic shocks can pollute the rest of the network. In addition, as we saw today when "Jeroen Dijsselbloem, the current head of the Eurogroup, held a formal, on-the-record joint interview with Reuters and the FT today, saying that the messy and chaotic Cyprus solution is a model for future bailouts" and financial markets reacted negatively (the statement is being walked back), some connections -- those involving expectations -- cannot be severed in any case.

Highly interconnected networks are highly desirable so long as (1) we can quickly identify trouble, and (2) nodes can be quickly and effectively isolated. But when those conditions are not present, the occasional highly toxic shock will cause quite a bit of damage.

Paul Krugman: Marches of Folly

When will we ever learn?:

Marches of Folly, by Paul Krugman, Commentary, NY Times: Ten years ago, America invaded Iraq... Some voices warned that we were making a terrible mistake... And those warnings were, of course, right. ... So did our political elite and our news media learn from this experience? It sure doesn’t look like it.

The really striking thing during the run-up to the war was the illusion of consensus. To this day, pundits who got it wrong excuse themselves on the grounds that “everyone” thought that there was a solid case for war. Of course, they acknowledge, there were war opponents — but they were out of the mainstream.

The trouble with this argument is that it was and is circular: support for the war became part of the definition of what it meant to hold a mainstream opinion. Anyone who dissented, no matter how qualified, was ipso facto labeled as unworthy of consideration. ...

All in all, it was an object lesson in the dangers of groupthink... But as I said, it’s a lesson that doesn’t seem to have been learned. Consider, as evidence, the deficit obsession that has dominated our political scene for the past three years.

Now, I don’t want to push the analogy too far. Bad economic policy isn’t the moral equivalent of a war fought on false pretenses...

But now as then we have the illusion of consensus, an illusion based on a process in which anyone questioning the preferred narrative is immediately marginalized, no matter how strong his or her credentials. And now as then the press often seems to have taken sides. ... How many times, for example, have you seen news articles simply asserting that the United States has a “debt crisis,” even though many economists would argue that it faces no such thing?

In fact, in some ways the line between news and opinion has been even more blurred on fiscal issues than it was in the march to war. ...

What we should have learned from the Iraq debacle was that you should always be skeptical and that you should never rely on supposed authority. If you hear that “everyone” supports a policy,... you should ask whether “everyone” has been defined to exclude anyone expressing a different opinion. And policy arguments should be evaluated on the merits, not by who expresses them; remember when Colin Powell assured us about those Iraqi W.M.D.’s?

Unfortunately, as I said, we don’t seem to have learned those lessons. Will we ever?

'Significantly More Negligence Than Has Been Disclosed'

"Bin Laden was merely pretending to be planning an attack to distract the administration from Saddam Hussein, whom the neoconservatives saw as a greater threat":

The Deafness Before the Storm, by Kurt Eichenwald, NY Times: It was perhaps the most famous presidential briefing in history.

On Aug. 6, 2001, President George W. Bush received a classified review of the threats posed by Osama bin Laden and his terrorist network, Al Qaeda. That morning’s “presidential daily brief” — the top-secret document prepared by America’s intelligence agencies — featured the now-infamous heading: “Bin Laden Determined to Strike in U.S.” A few weeks later, on 9/11, Al Qaeda accomplished that goal.

On April 10, 2004, the Bush White House declassified that daily brief — and only that daily brief — in response to pressure from the 9/11 Commission... Administration officials dismissed the document’s significance, saying that, despite the jaw-dropping headline, it was only an assessment of Al Qaeda’s history, not a warning of the impending attack. While some critics considered that claim absurd, a close reading of the brief showed that the argument had some validity.

That is, unless it was read in conjunction with the daily briefs preceding Aug. 6, the ones the Bush administration would not release. While those documents are still not public, I have read excerpts from many of them, along with other recently declassified records, and come to an inescapable conclusion: the administration’s reaction to what Mr. Bush was told in the weeks before that infamous briefing reflected significantly more negligence than has been disclosed. ...

The direct warnings to Mr. Bush about the possibility of a Qaeda attack began in the spring of 2001. By May 1, the Central Intelligence Agency told the White House of a report that “a group presently in the United States” was planning a terrorist operation. Weeks later, on June 22, the daily brief reported that Qaeda strikes could be “imminent,” although intelligence suggested the time frame was flexible.

But some in the administration considered the warning to be just bluster. An intelligence official and a member of the Bush administration both told me in interviews that the neoconservative leaders who had recently assumed power at the Pentagon were warning the White House that the C.I.A. had been fooled; according to this theory, Bin Laden was merely pretending to be planning an attack to distract the administration from Saddam Hussein, whom the neoconservatives saw as a greater threat. ... In response, the C.I.A. prepared an analysis that all but pleaded with the White House to accept that the danger from Bin Laden was real. ... And the C.I.A. repeated the warnings... Yet, the White House failed to take significant action. ...

"Will the Obey Plan End the War?"

If people had to pay for the cost of the war with an explicit, dedicated tax for that purpose, would they still support it? I think it's a good idea to make clear what the war costs - e.g. the $11 billion per month the war effort costs would pay for a lot of health care and other domestic needs - but I'm not sure that raising taxes during a recession (or during the inklings of a recovery) is a good idea.

The economic effects of a tax increase are one of the worries, though the size of those effects depends upon where the burden falls. If the Bush tax cuts didn't do much to help middle and lower class income and employment -- and I don't see any strong evidence that they did -- it's hard to see how reversing such taxes would have much of an effect either. But the tax surcharge proposal is broad-based, everyone would face higher taxes not just the wealthy, and the effects of a broad-based tax change might be larger. Why take a chance when the job market doing so poorly?

The main worry for me is not the size of the debt or the economic consequences (though the latter is of concern), it's the political message that raising taxes right now would send. Raising taxes to pay for the war would send the message that the federal debt is such a large problem we have to implement a tax surcharge even while the economy is struggling to recover from a recession. That is the opposite of the message I think we should be sending -- the economy and labor markets still need more help -- and it's hard to imagine how to get that help after sending a message that the debt is so worrisome.

We do have debt problems down the road, and rising health care costs are the driving force behind the budget trajectory. We will need to address this problem. In addition, we should pay for the wars and the stimulus package when the economy is on better footing. Thus, I would support legislation that raises taxes (or cuts "wasteful" spending, though good luck with that) to pay for these items at some point in the future. That would highlight the cost of the war without simultaneously sending a message that the budget problem is urgent, so urgent that it ties our hands from doing anything more. It would also blunt the inevitable "tax increases will kill jobs" objection that is sure to come.

So yes, let's raise taxes now to pay for these things, but the tax changes shouldn't take effect until the economy surpasses some metric for health -- unemployment falling below a particular number could be one trigger -- or it could come at some date certain in the future, e.g. two years from now, (assuming that gives the economy enough time to regain more solid footing).

If I thought that the Obey tax surcharge plan would actually end the war, or stop it sooner, I might see this differently. But it seems to me that highlighting budget problems now would be more likely to affect funding for needed social programs such as food stamps and unemployment compensation than it would be to affect the war effort.

I'm curious to hear your thoughts on this:

Will the Obey Plan End the War?, by Bruce Bartlett, Commentary, Forbes: In recent years, Republicans have been characterized by two principal positions: They like starting wars and don't like paying for them. George W. Bush initiated two major wars in Iraq and Afghanistan, but adamantly refused to pay for either of them by cutting non-military spending or raising taxes. Indeed, at his behest, Congress actually cut taxes and established a massive new entitlement program, Medicare Part D.

Bush's actions were unprecedented. During every previous major war in American history, presidents demanded sacrifices from rich and poor alike. As Robert Hormats explains in his 2007 book, The Price of Liberty: Paying for America's Wars, "During most of America's wars, parochial desires--such as tax breaks for favored groups or generous spending for influential constituencies--have been sacrificed to the greater good. The president and both parties in Congress have come together … to cut nonessential spending and increase taxes."

During World War II, federal revenues roughly tripled as a share of the gross domestic product (GDP) and the number of people paying income taxes expanded tenfold, from 3% of the population in 1939 to 30% by 1943. In 1940, a family of four needed close to $80,000 of income in today's dollars before it paid any federal income taxes at all. By the war's end, it saw its effective tax rate rise from 1.5% to 15.1%. (Today such a family only pays a federal income tax rate of about 6%.) But taxes weren't the only way the war was paid for. Spending on nondefense programs was cut almost in half, from 8.1% of GDP in 1940 to 4.4% in 1945.

Even during wars closer in magnitude to those in which we are presently engaged, significant sacrifices were made. In 1950 and 1951 Congress increased taxes by close to 4% of GDP to pay for the Korean War, even though the high World War II tax rates were still largely in effect. In 1968, a 10% surtax was imposed to pay for the Vietnam War, which raised revenue by about 1% of GDP. And there was conscription during both wars, which can be viewed as a kind of tax that was largely paid by the poor and middle class--young men from wealthy families largely escaped its effects through college deferments.

However, Bush and his party, which controlled Congress from 2001 to 2006, never asked for sacrifices from anyone except those in our nation's military and their families. I think that's because the Republicans understood, implicitly, that the American people's support for the wars in Iraq and Afghanistan has always been paper thin. Asking them to sacrifice through higher taxes, domestic spending cuts or reinstatement of the draft would surely have led to massive protests akin to those during the Vietnam era or to political defeat in 2004. George W. Bush knew well that when his father raised taxes in 1990 in part to pay for the first Gulf War, it played a major role in his 1992 electoral defeat.