BY EVA CHENG
US President George Bush's administration estimates that the US federal budget deficit will balloon to US$304 billion this fiscal year, but has not yet given any forecast of the financial costs of its planned invasion and occupation of Iraq.
Bush's chief economic adviser Lawrence Lindsey, told the Wall Street Journal in mid-September that the US war bill would amount to between $100-200 billion. Lindsey's comments reportedly sparked a wave of criticism from the White House.
On December 6, Lindsey resigned from the Bush administration. Three weeks later, White House budget director Mitch Daniels told the New York Times the war would cost between $50-60 billion. He gave no information on the assumptions or methodology used to reach this estimate.
Among an array of unofficial estimates, the US Congressional Budget Office's (CBO) is among the most instructive as it spells out its exclusions, projection variables and assumptions. Released last October, the CBO projection has excluded from its calculations various non-combat costs such as "humanitarian assistance", reconstruction work and construction of bases for US occupation forces.
On this basis, the CBO estimates that a three-month air and ground war, involving 250,000 US troops, and a five-year occupation by a large US force would cost at least $272 billion.
The CBO estimate is by no means the ceiling, according to Yale University economics professor William Nordhaus. In his piece in the American Academy of Arts and Sciences' November 2002 study War with Iraq: Costs, Consequences and Alternatives, Nordhaus believes five years is the minimum period required for a "successful occupation", though it could "easily extend for two decades".
Based on the costs of US "peacekeeping" in the Balkans against the scale required for an occupation in Iraq, Nordhaus believes the costs for the occupation of Iraq alone would be between $75-500 billion.
The White House's efforts to fudge the true costs of the war are hardly surprising. Were the costs more widely known, public opposition to the war might be considerably higher.
As for the non-combat related costs of the war, the Bush gang is trying to make them as obscure as possible.
To start, even rich as the US appears to be, its federal government doesn't have ready cash to pay the war bill. In fact, in order to maintain its economic and military supremacy, Washington has increasingly resorted to borrowing since the early 1970s. This has pushed US federal debt up sharply from about $500 billion to $6,200 billion ($6.2 trillion) at the end of the 2002 fiscal year (September 30). In 12 months up to September 30 alone, the debt rose by more than $420 billion.
The Iraq war bill will worsen this debt burden but it won't be the only factor. To fund Bush's overall war drive, the US military budget (which doesn't cover the Iraq war bill) has risen to $380 billion in 2003 from $329 billion two years ago, projecting to top $500 billion a year by 2009. In addition, $110 billion of extraordinary military funding has been approved in the wake of 9/11, funding for "home security" doubled to $38 billion a year, and the war on Afghanistan has cost nearly $20 billion so far.
All these expenditures will not only push up the already substantial accumulated US federal government debt, they will also squeeze the government's yearly operational budget.
President Bill Clinton's administration gave the US a small break from this high-debt strategy, leaving it with a projected budget surplus of $313 billion for 2002 and $5.6 trillion surplus for 2002-2011.
But the Bush administration has wiped out these projected, by giving the rich $1.3 billion in tax cuts, then the rapidly inflating military expenses.
In his budget for fiscal year 2004 announced in January, Bush not only tried to make the 2001 tax cuts permanent, he sought to introduce new tax cuts to the rich, to the tune of $1.46 trillion over the next 10 years.
In testimony to the joint economic committee of the US Congress on February 26, Henry Aaron of the Brookings Institute, said the latest tax cuts alone will increase the government's interest bill by $130 billion a year.
Aaron criticised the Bush administration's rosy assumptions, saying under more realistic assumptions and more defensible accounting conventions, the cumulative budget deficit over the next decade will rise to about $5.5 trillion.
In justifying his tax cuts proposals, Bush claimed they would help the economy. Ken Courtis, vice-chairperson of Goldman Sachs Asia, disagreed. Speaking to the Australian Broadcasting Corporation's Lateline program on February 24, he said Bush's tax cuts were "really skewed towards people who have so much money that if they have a tax cut they're not going to be doing much to lift the economy".
According to the US Federal Reserve Board, in its February 11 report to Congress, the US economy "has not yet broken out of the pattern of subpar performance experienced over the past year". The US was in recession in 2001. Current estimates suggest that US real gross domestic product (GDP) rose by only 0.75% in the quarter ended December, yielding a 2002 growth rate of 2.75%.
But even this modest growth was built on shaky ground. Facing structural decline in profit rates, US corporations remained deeply reluctant to make new capital investment. "Spending on structures fell sharply", said the Fed report, adding that "overall business fixed investment moved lower last year, although the decline was not nearly as precipitous as in 2001".
The rising oil price triggered by Bush's war threat will make things worse. In October 2001, when crude oil was priced at $25 per barrel (pb), George Perry of the Brookings Institute estimated a rise in its price to $32pb would shave 0.6% of real US GDP growth.
With the bulk of the capitalist world struggling to achieve any growth at all in the second half of the 1990s, the US economy, propped up by speculative "new economy" stock market boom, accounted for more than 60% of the cumulative GDP growth of the world between 1995-2002.
With the US economy sucking in large amounts of capital and goods from around the world, the US current account deficit hit a new record of $485 billion (annualised) in the first half of 2002, or 4.7% of the GDP. The US current account deficit has been rising sharply since 1991, reaching 3.6% of GDP in 1999 and 4.4% in 2000.
International borrowing has been Washington's main answer to covering these deficits, pushing such net borrowing to 12.6% of GDP in 1998, a 20-year high.
Household consumption, increasingly funded by debt, has been the main driving force behind US economic growth in recent years. The Fed's easy credit policy has contributed significantly to this development, partly through encouraging the late '90s stock market bubble.
While the bubble burst in 2000, low interest rates have continued to fuel consumer spending, particularly in housing and automobiles.
A bubble of fast inflating housing prices has been in formation, prompting many families to borrow or borrow more against their housing purchases, or against their existing homes to fund other expenditure. In the third quarter of 2002 alone, such US borrowing, on an annualised basis, amounted to $320 billion. This has brought US mortgage debt currently outstanding to $5.8 trillion.
Adding all government (local, state, federal), household, business and foreign debts in the US, the nation's total debt currently amount to $32 trillion — more than three times its annual GDP.
From Green Left Weekly, March 12, 2003.
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