James Galbraith


Often wrong, never in doubt,”—so Richard Nixon described his economists. Doesn’t apply to me; I’m haunted by doubts. And they torment me too, and here’s why. Professionally, I’m a pessimist, always looking at the dark side. (It complements my sunny private mood.) My doubts are tortured because they are about the possibility that things may turn out better than I fear.

I have been very pessimistic about Iraq—briefly too much so, as the invasion unfolded. But past that point, there was an economic logic to the downbeat view. Occupation is expensive, resistance is cheap. Soft targets emerge quickly in any reconstruction effort. “Improvised explosive devices” work against hotels, police stations, pipelines, and jeeps on patrol. Soldiers are not police. Civil order can be maintained only through the cooperation of civilians or by terror. In France during the early 1940s, the resistance goal was to force civilians away from the first and the Germans toward the second. So it is for the fedayeen in Iraq.

Will they succeed? It may be too early to tell and I’m too far away. The economic plans announced by Paul Bremer look disastrous to me: a “Morgenthau Plan” to de-industrialize Iraq masquerading as a Marshall Plan to rebuild it. But having opposed the war, I want this occupation to work, warts and all. Retreat would not be a good thing. Our opponents are not good people. Our troops are there, along with many Iraqis who would like them to succeed. This is not the moment to undercut them.

But for how long? We should set some clear targets. By next summer, either there will be security or there won’t be. The electricity and water will be fixed, or not. Oil will be flowing, or it won’t be. And Iraqis will be down the road toward their own government—or they won’t be. If there is sharp improvement in all of these areas, the soldiers will be on their way home, and Bush will win in 2004, like it or not. Otherwise, we should judge the crowd who got us into this at the polls. And then we should start to bring the troops home, as soon as we can.

The other turnaround issue is, of course, our economy at home. Here the “invasion force” is the power of war spending and the “improvised explosive device” is the consumer debt bomb. War spending doubled the growth rate earlier this year, and more is on the way. Will consumers jump on board, and start adding, once again, willy-nilly to their debts? That is what the Bush-folk are counting on. If they do, real recovery, with growth rapid enough to add jobs, might just come next year.

The possibility can’t be ruled out. Cars and computers are getting old. Prolonged low interest rates must have brought down total debt service, creating some breathing room for new loans. And the Fed will keep rates low next year, giving Bush as much help as it can.

But I still think it won’t work. The economic growth rate needs to be very high next year in order to bring unemployment down. Business investment needs to revive on the ground—what we’ve seen so far is largely just in the statistics. And if consumers are even just a wee bit sensitive to their financial condition, or a little bit nervous about their jobs, or just a bit anxious about their retirements, or a wee bit worried about medical costs, or about rising tuition for their kids—they’ll keep their money in the bank, for now.

And for my actual predictions? On Iraq, I think we will find that by a year from now, not much has improved. But they will say we can’t leave because our prestige is committed, and what about all the boys who will, by then, have already died in the cause? There will, of course, be another huge bill to pay for the occupation next year.

On the economy, much the same. We will see a “growth rate” of three percent give or take over the next year, very little net job creation and unemployment not very different (though possibly worse) than it is now. This will bring a lot of cheery headlines but not many cheerful people. And they will say, well, the stage is set, the pump is primed—wait ’til next year.

Of course, depressed people don’t vote. So don’t even ask me to predict what may happen in the election. But if you want to fight off the gloom, get out and organize. After all, there could be a turnaround there, too—hey, that’s a cheerful thought.

James K. Galbraith teaches at the LBJ School.