America’s Next Fake Enemy: Deficits

After Saddam, America’s Next Fake Enemy: Deficits

Tuesday 31 August 2010

by: Paul Krugman, Krugman & Co.

(Photo: The New York Times)

Were Americans misled into the Iraq war? Yes.

But Karl Rove, who served as senior adviser and deputy chief of staff to President George W. Bush, argued in the Wall Street Journal in July that his “biggest mistake” was not fighting back in 2004 when the story began to spread that the Bush administration had lied to Americans during the run-up to the Iraq war.

“That was wrong and my mistake: I should have insisted to the president that this was a dagger aimed at his administration’s heart,” he wrote. His main evidence that there was no deception? The fact that a governmental commission on the war found no wrongdoing. But that investigation took place when Mr. Bush was riding high, and intelligence officials feared retaliation if they spoke out.

So what would a real investigation look like? The government inquiry on the Iraq war currently taking place in Britain. Following months of evidence collection and interviews, the inquiry has shown that Mr. Bush and Tony Blair, the former British prime minister, wanted a war, exaggerated intelligence to get it, and disregarded warnings that the war would help, not hurt, Al Qaeda.

And off we all went.

Lately, the hysteria over deficits in the United States has definitely brought back memories of that march to war. In a recent opinion piece about the current enthusiasm for fiscal austerity, Chris Hayes, Washington editor for The Nation, wrote: “From one day to the next, what was once accepted by the establishment as tolerable — Saddam Hussein — became intolerable, a crisis of such pressing urgency that ‘serious people’ were required to present their ideas about how to deal with it.”

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If the Iraq parallel is any guide, and deficits become intolerable for everyone, years from now, when the American economy is mired in a deflationary trap — long after most people will have conceded that austerity was a mistake — only those who went along with the mistake will be considered “serious,” while those who argued strenuously against a disastrous course of action will still be considered flaky and unreliable.


BACKSTORY: Iraq’s Uncertain Future

Seven years after the American-led invasion of Iraq, combat operations are scheduled to officially end on Aug. 31, and the bulk of responsibility for the nation’s security is back in the hands of Iraqis. The test of independence will require that Iraqi leaders stabilize the economy.

The nation relies on oil production for most of its income, and is currently producing about 2.4 million barrels a day. On Aug. 23, Abdul Mahdy al-Ameedi, deputy director general at Iraq’s Petroleum Contracts and Licensing Directorate, told Bloomberg News that the nation expects to increase daily crude production by about 13 percent in 2011. He also said Iraq intends to develop its natural-gas reserves next year.

These goals will be difficult to achieve since the Iraqi leadership is mired in partisan bickering and ideological divisions — five months after parliamentary elections, the different factions have yet to form a coalition government and select a prime minister. Even if leaders were to agree on how the country should be run, doing so would be no easy feat, given ongoing sectarian violence, rampant unemployment and the country’s ravaged infrastructure.

But of the many problems facing government and business, most Iraqis would cite as the most crucial the rebuilding of the power grid. As it stands, Iraqis suffer through daily blackouts and are provided with barely enough power to provide for basic services, let alone new manufacturing or business ventures. Limited access to electrical power has become a decisive issue for Iraqi voters enraged by years of mismanagement and corruption.

Nevertheless, Vice President Joseph R. Biden Jr. said in an Aug. 23 speech that while combat troops from Iraq have been pulled out, the Obama administration would “continue to help strengthen its economic and political institutions, foster new ties of trade and commerce and support Iraq’s return to its rightful place in the region.”

© 2010 The New York Times Company

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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.

Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007).

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