Guns, No Butter


Democrats have rightly gone ballistic over the cynical White House efforts to use Iraq to change the subject of the fall elections. But the incessant beating of the war drums does more than distract voters from the sick economy: It makes the economy even sicker and weakens the Administration's ability to treat it.

The recession is turning into prolonged stagnation. Employment is down. Incomes are down. Poverty and long-term unemployment are up sharply. Eight trillion dollars were lost as the stock market tanked. Seniors are forced back to work to pay for soaring drug prices. Consumers are starting to tighten their belts. Companies have cut investment and jobs but still have overcapacity. States and localities are slashing spending in the face of decreasing revenue. Record trade deficits require America to soak up unsustainable amounts of foreign investment, even as the corporate scandals expose systemic fraud that gives any sensate investor pause. And America's woes are spreading to the rest of the world.

The fear--widely discussed at the grim meetings of world bankers in Washington recently--is that one more shock to the economy could shatter the fragile confidence of consumers and investors. Falling demand would drive down prices, producing a deflationary spiral even with interest rates at record lows. Deflation afflicted Japan a decade ago, and it still has not recovered. And if America goes down, the rest of the world will surely follow.

In this situation, the war dance over Iraq is particularly corrosive, feeding the insecurity that undermines investment. The cost of the war, which White House economist Lawrence Lindsey puts at up to $200 billion, won't lift the economy from its doldrums, but it will handcuff any federal effort to help states and localities avoid devastating cuts in schools, police and other essential services.

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