- Sep 6, 2000
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As America marches toward renewed war against Iraq, the stock market marches toward new lows. It's an added reason to wonder if all those polls showing a majority in favor of kicking Saddam Hussein's butt are really as solid as they appear to be.
There could be other reasons for the stock market's decline, of course. Perhaps investors are disappointed by the Federal Reserve's reluctance to cut the overnight interest rate further. Alan Greenspan's recent assertion that the Fed's power to manipulate the economy is limited may have come as a shock to those accustomed to viewing him as a wizard of last resort. Or perhaps investors are simply worried that the economy is double-dipping. Zero percent financing for cars may have kept the auto industry afloat for awhile, but it may turn out to be only a last gasp before Detroit sinks beneath the deflationary waves. Other industries report a similar loss of pricing power. And consumers may finally be feeling tapped out.
But the renewed decline in stock prices also appears to correlate closely to the rise in the Bush administration's apparent determination to use armed force against Iraq. Mr. Bush made a good legal case at the United Nations that Saddam Hussein should be held to account for violations of the 1991 cease-fire agreements, as well as violations of basic human rights. But the uncertainties associated with such a venture must hang heavy over the markets, even if one assumes the shooting war goes well for America.
For one thing, Congress is likely to exact a price for a war resolution. In the fall of 1990, the first President Bush's determination to focus his energies on kicking Iraq out of Kuwait was clearly a major factor in the decision to engage in a "budget summit" that ended up raising taxes in return for the usual empty promises of spending restraint. Bush 41 had pledged "no new taxes," but he proved intellectually incapable of fending off demands for "fiscal responsibility"--Democratic code for taxing the most productive sectors of society.
Bush 43 showed welcome signs of rebelling against the austerity crowd this summer, and a market rally promptly ensued. But it's tough for a president to be advocating both a strategic revolution in foreign affairs--Mr. Bush's announced shift from deterrence to pre-emptive action against terrorists and their state sponsors--and a revolution in domestic affairs, much less a tax cut. The bully pulpit has room for one message at a time. Few of Mr. Bush's advisers, particularly the hapless Treasury Secretary Paul O'Neill, are going to help him much in advancing a growth-oriented economic agenda.
Moreover, to justify pre-emptive action, Mr. Bush and his aides are using Wilsonian rhetoric about bringing freedom and prosperity to a large section of the world that has been long resistant to such ideas. "We do not use our strength to press for unilateral advantage," as Mr. Bush put it last week in his request for congressional authorization to use force. "We seek instead to create a balance of power that favors human freedom: conditions in which all nations and all societies can choose for themselves the rewards and challenges of political and economic liberty."
Granted, there is enough Realpolitik in that formulation--"we seek instead to create a balance of power"--to suggest that Mr. Bush has limited goals. But some of the rhetoric we're hearing from his closest advisers suggests he really is on a messianic mission to bring "enlightenment" to the Middle East. National Security Adviser Condoleezza Rice talks of "the march of freedom in the Muslim world," while Deputy Defense Secretary Paul Wolfowitz reportedly has pushed removal of Saddam as part of an overall policy of draining the swamp of terrorism.
But bringing freedom and prosperity to such a region would be a long, expensive process at best. Even if the collection of ethnic groups that make up Iraq were amenable, it's not clear we would know where to start. Few Americans, after all, understand what makes for a free and prosperous society. Most Washington politicians seem to see freedom and prosperity as something delivered to people by government programs that require heavy taxation of the more successful citizens.
In reality, the institutions in which economic and political liberty are rooted are a result of long, even bloody struggle. All people might share such aspirations, but they tend to arise from historical circumstance, a particular human values and old-fashioned hard work rather than wish fulfillment. It is in the American character to serve as a city upon a hill for the rest of the world. But is it in the Iraqi character to serve as a model for the Muslim world?
The stock market is a hardheaded place. Among the polls being taken about American attitudes toward war with Iraq should be included the minute-by-minute poll of the millions of investors who daily put their money where their mouths are. It's not that anybody likes Saddam Hussein and his ilk. And it would be nice to think we could restore America's sense of invulnerability to the nasty little spats and power vacuums that breed the kind of murderous rage brought to bear on Sept. 11.
But until it's clearer that the Iraq strategy will actually work, public support for anything so bold as bringing freedom and prosperity to the Middle East is likely to remain thinly rooted at best. That will be particularly true if the administration continues to sound an uncertain trumpet about how to restore economic growth on the home front--much less falls prey to the sort of budget dynamic that afflicted another Bush during another crisis in the Persian Gulf.
As America marches toward renewed war against Iraq, the stock market marches toward new lows. It's an added reason to wonder if all those polls showing a majority in favor of kicking Saddam Hussein's butt are really as solid as they appear to be.
There could be other reasons for the stock market's decline, of course. Perhaps investors are disappointed by the Federal Reserve's reluctance to cut the overnight interest rate further. Alan Greenspan's recent assertion that the Fed's power to manipulate the economy is limited may have come as a shock to those accustomed to viewing him as a wizard of last resort. Or perhaps investors are simply worried that the economy is double-dipping. Zero percent financing for cars may have kept the auto industry afloat for awhile, but it may turn out to be only a last gasp before Detroit sinks beneath the deflationary waves. Other industries report a similar loss of pricing power. And consumers may finally be feeling tapped out.
But the renewed decline in stock prices also appears to correlate closely to the rise in the Bush administration's apparent determination to use armed force against Iraq. Mr. Bush made a good legal case at the United Nations that Saddam Hussein should be held to account for violations of the 1991 cease-fire agreements, as well as violations of basic human rights. But the uncertainties associated with such a venture must hang heavy over the markets, even if one assumes the shooting war goes well for America.
For one thing, Congress is likely to exact a price for a war resolution. In the fall of 1990, the first President Bush's determination to focus his energies on kicking Iraq out of Kuwait was clearly a major factor in the decision to engage in a "budget summit" that ended up raising taxes in return for the usual empty promises of spending restraint. Bush 41 had pledged "no new taxes," but he proved intellectually incapable of fending off demands for "fiscal responsibility"--Democratic code for taxing the most productive sectors of society.
Bush 43 showed welcome signs of rebelling against the austerity crowd this summer, and a market rally promptly ensued. But it's tough for a president to be advocating both a strategic revolution in foreign affairs--Mr. Bush's announced shift from deterrence to pre-emptive action against terrorists and their state sponsors--and a revolution in domestic affairs, much less a tax cut. The bully pulpit has room for one message at a time. Few of Mr. Bush's advisers, particularly the hapless Treasury Secretary Paul O'Neill, are going to help him much in advancing a growth-oriented economic agenda.
Moreover, to justify pre-emptive action, Mr. Bush and his aides are using Wilsonian rhetoric about bringing freedom and prosperity to a large section of the world that has been long resistant to such ideas. "We do not use our strength to press for unilateral advantage," as Mr. Bush put it last week in his request for congressional authorization to use force. "We seek instead to create a balance of power that favors human freedom: conditions in which all nations and all societies can choose for themselves the rewards and challenges of political and economic liberty."
Granted, there is enough Realpolitik in that formulation--"we seek instead to create a balance of power"--to suggest that Mr. Bush has limited goals. But some of the rhetoric we're hearing from his closest advisers suggests he really is on a messianic mission to bring "enlightenment" to the Middle East. National Security Adviser Condoleezza Rice talks of "the march of freedom in the Muslim world," while Deputy Defense Secretary Paul Wolfowitz reportedly has pushed removal of Saddam as part of an overall policy of draining the swamp of terrorism.
But bringing freedom and prosperity to such a region would be a long, expensive process at best. Even if the collection of ethnic groups that make up Iraq were amenable, it's not clear we would know where to start. Few Americans, after all, understand what makes for a free and prosperous society. Most Washington politicians seem to see freedom and prosperity as something delivered to people by government programs that require heavy taxation of the more successful citizens.
In reality, the institutions in which economic and political liberty are rooted are a result of long, even bloody struggle. All people might share such aspirations, but they tend to arise from historical circumstance, a particular human values and old-fashioned hard work rather than wish fulfillment. It is in the American character to serve as a city upon a hill for the rest of the world. But is it in the Iraqi character to serve as a model for the Muslim world?
The stock market is a hardheaded place. Among the polls being taken about American attitudes toward war with Iraq should be included the minute-by-minute poll of the millions of investors who daily put their money where their mouths are. It's not that anybody likes Saddam Hussein and his ilk. And it would be nice to think we could restore America's sense of invulnerability to the nasty little spats and power vacuums that breed the kind of murderous rage brought to bear on Sept. 11.
But until it's clearer that the Iraq strategy will actually work, public support for anything so bold as bringing freedom and prosperity to the Middle East is likely to remain thinly rooted at best. That will be particularly true if the administration continues to sound an uncertain trumpet about how to restore economic growth on the home front--much less falls prey to the sort of budget dynamic that afflicted another Bush during another crisis in the Persian Gulf.
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