Obama’s Stimulus Cost More Than The Entire Iraq War [Reader Post]

Loading

Randall Hoven has a brilliant piece in the American Thinker blog:

The Iraq War ends this month. The last combat brigade left August 19. Operation Iraqi Freedom, which began in 2003, will end August 31. September 1 marks the beginning of Operation New Dawn. Now that it’s over, what did the Iraq War cost?

Here are examples of what some people Here are examples of what some people had been saying about Iraq War costs.

“It was under Mr Bush that the deficit spiralled out of control as we fought an unnecessary and endless $3,000bn war in Iraq…”
– James Carville, the Financial Times.

“The Iraq adventure has seriously weakened the U.S. economy, whose woes now go far beyond loose mortgage lending. You can’t spend $3 trillion — yes, $3 trillion — on a failed war abroad and not feel the pain at home.”
– Linda J. Bilmes and Joseph E. Stiglitz, The Washington Post.

“First, the facts. Nearly the entire deficit for this year and those projected into the near and medium terms are the result of three things: the ongoing wars in Afghanistan and Iraq, the Bush tax cuts and the recession. The solution to our fiscal situation is: end the wars…”


Hoven wonders where Carville comes up with the $3 trillion figure.

The correct answer to my question, according to the Congressional Budget Office, is $709 billion. The Iraq War cost $709 billion.

So what are deficits with and without the Iraq war?

This chart is nothing less than fabulous:

Here comes the slam dunk:

Not only do the critics of the Iraq War make 300% errors in their numbers, but they also contradict themselves with abandon. When Obama was pushing he stimulus, he said,

Then you get the argument, “well this is not a stimulus bill, this is a spending bill.” Whaddya think a stimulus is? (Laughter.) That’s the whole point. No, seriously. (Laughter.) That’s the point. (Applause.)

So spending $572B in two years stimulates an economy, but spending $554B over six years ruins one?

In other words, spending is a stimulus only when Democrats spend.

Spending goes nuts as soon as Democrats take over Congress, beginning with fiscal 2008.

Hoven shows clearly that the war in Iraq has nothing to do with our current financial mess. Keep that chart handy the next time a liberal tries again to make the argument.

0 0 votes
Article Rating
Subscribe
Notify of
68 Comments
Inline Feedbacks
View all comments

@Donald:

Please read the following, which was not written by bloggers and/or pundits, but which, instead, was written by Federal Reserve Economists:

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=4136

“Another way to measure the relationship between the CRA and the subprime crisis is to examine foreclosure activity across neighborhoods that are classified by income. Data made available by RealtyTrac on foreclosure filings from January 2006 through August 2008 indicate that most foreclosure filings (e.g., about 70 percent in 2006) have taken place in middle- or higher-income neighborhoods. More important, foreclosure filings have increased at a faster pace in middle- or higher-income areas than in lower-income areas that are the focus of the CRA.9/ (See Table 7.)

“Two basic points emerge from our analysis of the available data. First, only a small portion of subprime mortgage originations is related to the CRA. Second, CRA-related loans appear to perform comparably to other types of subprime loans. Taken together, the available evidence seems to run counter to the contention that the CRA contributed in any substantive way to the current mortgage crisis.”

These are facts:

1. CRA participating banks made fewer bad loans than non-CRA participating banks
2. The total dollar amount of CRA related defaults was a tiny fraction of total subprimes and total defaults
3. Fanny/Freddie losses were a fraction of total losses. Fanny/Freddie did the same things as did purely private financial institutions and for the same reasons — they were all motivated by making profits for their shareholders.

I’ll make you the same offer that I made to Hard in post #48. Find me an actual, reputable economist (not a political pundit or blogger) who’ll put his/her reputation on the line to assert that the CRA was in any way a cause of the financial meltdown and I’ll buy you dinner (which you can either eat with me or without me, at your choice).

– Larry Weisenthal/Huntington Beach, CA

@ post #53:

I’m sure you know the real story.

Bad loans resulted from inadequate financial industry oversight at all levels.

From the loan officer on up, quick money could be made by providing loans to people who weren’t really qualified to get them. The big money was in high volume. To generate high volume, you needed to authorize unacceptable risks. No problem! The unacceptable risks could easily be concealed and passed on up the chain. Often the concealment began by misleading the potential borrowers themselves, downplaying the risk of ARMs and assuring them that the rapidly increasing value of their property would make later refinancing easy. It wasn’t uncommon to misstate applicants’ income on their loan applications, often without the borrower’s knowledge. The financial industry was out beating the bushes for borrowers to make loans to. I remember televison ads, phone calls, daily offers in my mailbox…

Such loans were ultimately bundled into complex investment packages, given deliberately misleading ratings, and offered on the global market to unsuspecting investors.

It was one of the biggest financial scams in history, and highly successful for the people who pulled it off. For the most part they escaped with their loot and left investors and taxpayers holding the bag.

@Greg (#54)

What you are describing is simply the mechanism; you are not considering the root cause.

The root cause is precisely what I said: too much money chasing too few investment opportunities.

The following is a wikipedia quote, which I know in advance will elicit derisive scorns, but it’s currently 4:30 AM and it’s the best short summary I could find in my (hopefully also short) journey back to bed for a few more zzzzs:

The background is that the world money supply of liquid capital (largely in dollars) roughly doubled, from 36 trillion dollars to 70 trillion dollars in only 6 years (2000 – 2006). During the same time, US treasury yields were reduced from 6.5% to 1%, as Fed Chairman Greenspan sought to promote sufficient growth in the US economy to offset the deficits caused by the massive tax cuts which were the Bush administration’s version of a Keynesian stimulus to kick start the economy out of a mild recession. So the problem was, what do US capital managers and investors do with all the money flowing in from the tax cuts? Who can resist borrowing money to invest (i.e. “leverage”), with capital rates so low? What do Asia and the Middle East do with all the dollars they’ve got from selling us consumer electronics, clothes, and oil, when all they can get out of T-Bills is 1%?

Here’s the wiki quote:

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

Scroll down to High-risk mortgage loans and lending/borrowing practices

Investment banks on Wall Street answered this demand with financial innovation such as the mortgage-backed security (MBS) and collateralized debt obligation (CDO), which were assigned safe ratings by the credit rating agencies. In effect, Wall Street connected this pool of money to the mortgage market in the U.S., with enormous fees accruing to those throughout the mortgage supply chain, from the mortgage broker selling the loans, to small banks that funded the brokers, to the giant investment banks behind them. By approximately 2003, the supply of mortgages originated at traditional lending standards had been exhausted. However, continued strong demand for MBS and CDO began to drive down lending standards, as long as mortgages could still be sold along the supply chain. Eventually, this speculative bubble proved unsustainable.

Anyway, this is supply side economics run amok; it’s not do gooders forcing financial institutions against their will to lend money to poor people to buy houses.

– Larry Weisenthal/Huntington Beach, CA

For those who are interested, Larry’s arguments regarding housing, mortgages, and the CRA have already been ground to dust here at FA.

You can go here and here and here and here to find out more.

Oh, and Larry….here’s an economist who lays the blame on the CRA.

WHAT GET’s me is; those DEMOCRATS who come here, and throw their weight around
SAYING, NO it wasnt cause by… or read the following.. or it was not told by BLOGGERS or PUNDITS…WHAT do they think they are; SURELY not better than our conservatives who tells it like it is, THE TRUTH that everyone understand; BEING a majority, they did’nt show much to
THE AMERICANS, they are not equipt to come here and throw their weight around
LIKE ROMAN CONQUERER, to polites conservatives,who use a lot of TOLERANCE,
BUT are smart enough to be able to demolish their big words

A.C. and friends.Re Mortgage/R.E. industry.One thing I always learned in my years as a stockbroker 70’s,realtor 80’s and early 90’s, mortgage broker and banker 1998-2007 is a great secretary/admin.assist./processor is worth her/his weight in gold.I’ve always been a lousy,slow typist.NO SUPRISE.
Larry Villa Nova in N.B. a great restaurant near where I worked in Irvine in mortgage business.Unfortunately can’t take your dinner bet becaus I agree with most of what you’ve posted(will take N.D.+7 vs Mich)
Greg#54 This post quite succinctly tells the story.Ground Zero for the mortgage melt down was Irvine/NPB Ca.I was part of it. Brokers and bankers were making high risk no doc sometimes no down loans, often “hiding” large commissions.The mantra was “don’t worry values are increasing 15%+ a year and we’ll re-fi you into conventional loan in a couple of years” A little older than most ,I knew or should have known better having heard similar false prophecies in stock market over the years.
Early 2006 you could see the problem.Home SALES began dropping dramatically though values held through the year. 2007 the s hit the fan.
IMHO to blame Dems or Repubs for this meltdown is either too simple or too complex.How’s that for analysis.”Greed is good” definately played a major role.
I’d expand but rather than bore you my invite is to The Fisherman for sunset dinner and cocktails on the pier here in San Clemente Ca.Enjoy the rest of the summer.

Aye claims I was “ground into the dust.” By that he means that I was one guy against a tag team and, when the times came that we were just left going around and around, I just let it go. I’m sure that’s the way the present debate will end up, also. Last man standing method of awarding the championship belt. That’s OK. As good as any other way, absent a neutral jury.

Anyway, Aye did come up with an actual economist, DiLorenzo (who’s utterly wrong — see below, as well as seeing the links I previously provided); so I’ll keep my promise. Next time Aye’s in town, if he wishes, I’ll organize a dinner for him and any local So Cal people who want to join in and I’ll be happy to pick up Aye’s (and Curt’s, if he can make it) portions of the check.

Before offering a refutation of the arguments made by Aye’s Austrian school economist, DiLorenzo, I’d like to ask him to recall the fall election, circa 2008. The economy was in free fall and so were the election prospects of McCain and the entire GOP congressional caucus. Anyone remember McCain blaming the Democrats and the CRA in any of the debates? Anyone remember any prominent GOP candidate for office blaming the meltdown on the Democrats and the CRA? Is this because the GOP pols are all nice, polite people, who would think it rude to blame the Democrats for economic woes threatening to sink their party? They didn’t make those charges, because they are utterly absurd.

The essay below is a direct answer to DiLorenzo (Aye’s Austrian school economist)

http://hir.harvard.edu/blog/jason-lakin/mad-money-profits-not-cra-drove-the-sub-prime-debacle

We have all heard about how the Community Reinvestment Act (CRA) is responsible [n.b. note hyperlink to DiLorenzo’s arguments] for the surge in sub-prime lending, and therefore, extrapolating a touch, the financial crisis of 2008.

These claims about CRA are based on two premises which turn out to be false. The first premise is that sub-prime mortgages were mostly the result of CRA-regulated banks. But most sub-prime mortgages were in fact originated by mortgage brokers that were not covered under CRA. It turns out that fewer and fewer loans since 1977 have actually been covered by CRA, because fewer and fewer of these loans originated with banks that are covered by the law (see this Harvard Joint Center for Housing Studies report). In fact, between 2004 and 2006, only 9 percent of sub-prime mortgages to risky borrowers were from institutions complying with CRA. That is, nine out of every ten sub-prime mortgages to risky borrowers had nothing to do with CRA. They were originated by independent mortgage brokers that were able to evade CRA regulations.

The second premise is that sub-prime mortgages were primarily given to non-creditworthy borrowers who could not afford prime rate mortgages. But a Wall Street Journal article from nearly two years ago has categorically demonstrated that this is not true: in 2005, 55 percent of sub-prime mortgages went to people who could have qualified at that time for a prime mortgage. Indeed, the percentage of sub-prime mortgages under-written for creditworthy borrowers steadily increased between 2000 and 2006, from 41 to 61 percent.

All of this suggests that if anything has changed since 1977 that might explain the financial crisis, it is not the increasing number of CRA-compliant sub-prime mortgages to risky borrowers. The opposite is true: fewer and fewer loans have been covered by CRA, and more and more sub-prime loans have gone to creditworthy borrowers.

What then is the driver of this increase in sub-prime and the consequent rise in defaults? It turns out that the rise in sub-prime mortgage lending was the result of the exorbitant fees that brokers and bankers could collect on securitizing such loans (through such incentives as “yield spread premiums”), as well as the potential gains from holding riskier loan portfolios that had allegedly been bundled in ways that made them virtually riskless for investors. As Michael Lewis has shown, securitizers could not originate new risky loans fast enough in order to feed the appetite of investors looking for mortgage-backed securities based on sub-prime.

It is for this reason that even after mortgages in America had been extended to every completely non-creditworthy household in America, lenders began pushing creditworthy households into sub-prime. But after every non-creditworthy and creditworthy household in America had been sub-primed and bundled off, there was still more demand. And that is how the financial system went beyond financing and began to engage in full-on, outright gambling. When there were no more mortgages to write (and in truth, even before this), the banks began creating and selling synthetic products, bundles of fictional loans that tracked actual loans and which were little more than expensive and risky side-bets by investors hungry for more risk (For more on this, see Gillian Tett’s new book, Fools’ Gold). Keep in mind that the packaging of synthetic products does not generate any productive investment in the economy, but is simply a way to speculate outright on the housing market. The creation of synthetic products based on bundled sub-prime loans that were pushed onto credit-worthy borrowers who could have qualified for prime loans is the single best piece of evidence that the irresponsible lending practices of major financial institutions were not caused by CRA, but by the search for speculative profit wherever it could be found.

P.S. With respect to the following quote (from above) —

“That is, nine out of every ten sub-prime mortgages to risky borrowers had nothing to do with CRA.”

Even this mis-states the CRA’s degree of “culpability.” CRA loans were less than one in ten by volume, but the average CRA loan had a very low dollar amount and most of the subprimes went for re-finances, investments, and vacation homes — mostly in better neighborhoods and for much larger dollar amounts. So the CRA portion of the bad debt pie, by actual dollar amounts, was a tiny pittance of the total.

I do agree with DiLorenzo on one thing. The Fed (i.e. Greenspan) played a huge role in creating the capital glut and in directing foreign investment away from US treasuries (which were paying only 1% interest) and into collateralized debt obligations. But, again, the real driver behind the meltdown was supply side economics run amok.

– Larry Weisenthal/Huntington Beach, CA

RE #59 “irresponsible lending practices of major financial institutions were not caused by CRA, but by the search for speculative profit wherever it could be found.”True

Randal Hoven updates his post, discusses the $3 trillion figure and finds that argument…..”specious sophistry” because future Stimulus costs are not figured into the comparison. And so it is, the Stimulus cost has already been revised….up. who knows how much more it will rise as the unread law, full of who knows what, is eventually interpreted.

What if “indirect” costs and future costs are included? That is what Linda Bilmes and Joseph Stiglitz estimated. Their answer was an Iraq War cost of $3 trillion. But I have a few questions about that.

* (1) How accurate can any such estimate be? Counting dollars already allocated by the federal government is a moderately difficult accounting exercise. Counting future and indirect costs requires models, assumptions, and outright speculation. It becomes a metaphysics exercise based more on faith than fact.

* (2) How accurate is this specific estimate? Are the indirect and future costs really triple the actual costs of an ongoing war, with up to 170,000 troops deployed?

* (3) Would Joseph Stiglitz try to bias his estimate to the high side? He was President Clinton’s chief of the Council of Economic Advisors. He served on the international climate change panel. He argued for a “third way” and against “unfettered markets.” In short, he has a liberal agenda. Yes, he won a Nobel Prize, but so did Paul Krugman, Barack Obama, Al Gore, and Yasser Arafat.

* (4) What are the indirect and future costs of Obama’s stimulus? We can only compare apples to apples.

* (5) Is the $3 trillion figure a discounted present value, or simply the sum of all costs through infinity in then-year dollars? It is not directly comparable to any other number.

In my article, I compared apples to apples. To recall some highlights,

* Stimulus spending in just its first two years, 2009 and 2010, was more than all federal government spending on the Iraq War in all six years under President Bush — $572B to $554B. Even adjusting for inflation would make the stimulus spending rate roughly triple the Iraq War spending rate.

* Spending on the Iraq War, 2003 through 2010, was 3.2% of all federal spending in those same years.

* The federal government spent less on the Iraq War than it did on education over 2003-2008. (And federal spending is less than 10% of all spending on public education.)

* Iraq War spending through 2010 accounts for about 15% of all deficit spending over 2003-2010, and maybe 8% of all outstanding federal debt held by the public in 2010.

Those statements are true regardless of indirect and future costs.

The bottom line is that the Iraq War was not an economic tsunami. It was not the cause of our financial problems or our debt problem. It affected the economy about the same way the flap of a seagull’s wings changes the course of the weather forever. In short, it is a red herring and another resort to “blame Bush.”

If you want to estimate all costs, direct and indirect, past, present and future, of all things that followed from the decision to go into Iraq in 2003, be my guest. But if you do, will you also estimate all such costs for the Obama stimulus? And ObamaCare? And all other such spending inside and outside of government over the same years and using the same ground rules?

Because if you don’t, your answer is meaningless. One number is meaningless until it is compared to another number, using all the same rules of counting for both numbers. Anything else is specious sophistry.

The statement that the stimulus cost more than the Iraq War stands. And it is true.

http://www.americanthinker.com/2010/08/does_barely_true_mean_true.html

The primary contribution to the deficit is the Bush tax cuts of 2001/2003. We’d have a budget SURPLUS if they hadnt been passed. Source? The CBO.

The initial estimate of the Iraq was was $50B. And the true cost of the Iraq was will be much greater then 790B. There are many factors not being taken into account by the CBO – read http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200.html

The economic stimulus would of been passed regardless of what president was in place. Every single reputable economic advisor recommended this action to prevent a full blown depression.

Bush started the bailouts while he was still in office – the bank bailouts were passed during his reign.

Its utter nonsense. The GOP these days is a joke. They are the primary reason for this mess, and all they have done the past 2 years is obstruct and argue, while Obama has tried very very hard to stay center.

Netmonger #62 Absolutely agree.

You’re ignoring an important difference between dollars spent on the war and dollars spent on the stimulus: Stimulus dollars went back into the US economy, providing jobs in the short term and funding projects that will continue to provide positive returns in the long term. Money spent on the Iraq War was money down a rat hole. It bought us what? Benefited us how? What we got was a trillion bucks more debt and a couple more trillion in future costs to deal with the lingering damages.

Saddam is gone? Great. But that wasn’t our responsibility. Getting rid of Saddam was the responsibility of the Iraqi people. People appreciate and protect their freedom when they’ve earned it.

What sound conservative logic lets a president start a war without feeling a need to budget the money to pay for it? Or worse still, lets him start a war and cut taxes, when we were just getting out of a chronic deficit spending pattern that had plagued us for years?

There’s no consistent logic there at all.

@Monroe:

Stimulus dollars went back into the US economy

Eeewww, that was a lots of dollars, and for what, 9.6% unemployment and over a trillion in debt when you factor in the interest. Not forgetting the underemployed and those that have given up looking, makes it what? some say as much as 18% unemployed. Pretty expensive jobs and a lot of them are already……over.

Money spent on the Iraq War was money down a rat hole. It bought us what? Benefited us how?

Well, that money is still benefitting us. Ever wonder where all those Humvees are made? Indiana

May 26–The only plant making Army Humvees, the workhorse of troop transport in Iraq and Afghanistan, is ready to boost production even more to meet demand for additional armored versions of the vehicle.

U.S. Sen. Evan Bayh is seeking $610 million to buy more heavily armored Humvees for use in Iraq. Bayh, D-Ind., said his proposal would allow production to increase from 300 vehicles to 450 vehicles per month within 30-90 days. The military vehicles are made here by AM General, which is headquartered in South Bend.

“Whatever the Army decides it wants us to do, we’ll do,” said company spokesman Craig Mac Nab earlier this month.

AM General employs about 2,500, including 1,800 at two vehicle plants here. The Humvee is made in the smaller of the two plants, which employs 700 on one shift making about 650 vehicles a month for the United States and more than 40 other countries. The second plant makes a civilian version General Motors Corp.

http://www.accessmylibrary.com/article-1G1-118256149/mishawaka-ind-army-humvee.html

but maybe not for long:

http://dyn.politico.com/printstory.cfm?uuid=1A93F611-18FE-70B2-A81D0DF7F754E06E

Up-armoring….Armor Holdings Inc. Fairfield, Ohio…O’Gara-Hess & Eisenhardt

Oh my, armed robots:

Armed robots — similar to the ones now on patrol in Iraq — are being marketed to domestic police forces, according to the machines’ manufacturer and law enforcement officers. None of the gun-toting ‘bots appear to have been deployed domestically, yet. Both cops and company officials say it’s only a matter of time, however.

“Other than some R&D with the shotgun mount, we haven’t used it operationally,” Massachusetts State Police Trooper Mike Rogowski tells DANGER ROOM. “But they’re on the way. They’re coming,”

http://www.wired.com/dangerroom/2007/08/armed-robots-so/

How about body armor, there were a number of US plants participating, if memory serves, here’s one:

Point Blank Solutions, Inc. is a leader in the design and production of technologically advanced body armor systems for the U.S. Military, Government and law enforcement agencies, as well as select international markets. The Company is also recognized as the largest producer of soft body armor in the U.S. With state-of-the-art manufacturing and laboratory testing facilities, strategic technology and marketing alliances, and an ongoing commitment to drive innovation, the Company believes that it can deliver the most advanced body armor solutions, quicker and better than anyone in the industry. The Company maintains facilities in Pompano Beach, FL and Jacksboro, TN.

http://www.marketwatch.com/story/point-blank-solutions-wins-three-year-detroit-police-department-contract-2010-09-07?reflink=MW_news_stmp

Helmets and assault packs, again, this was probably not the only plant manufacturing…..Helmets:

Specialty Defense Systems Inc. is being awarded a maximum $131,430,290 firm-fixed-price contract for modular lightweight load-carrying equipment items. Other locations of performance are Kentucky, Pennsylvania, Tennessee, Arizona, Wisconsin and Puerto Rico. Using service is Army. The original proposal was Web solicited with six responses. This contract is exercising the second option year period. The date of performance completion is October 2011. The Defense Supply Center Philadelphia, Philadelphia, Pa., is the contracting activity (SPM1C1-08-D-1080).

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=9682886

Uniforms… and this was in 2004 and I bet there’s more than one plant:

This all adds up to big business. The DSCP is expected to procure $2.9 billion in textile/clothing products in fiscal 2004, up from $2 billion in fiscal 2003 and almost double the $1.5 billion of 2002. (The latter figure is typical of its peacetime procurement levels.) By comparison, only eight Apparel Top 50 firms had annual revenue of more than $2 billion in 2003.

~~~~
U.S. military uniforms must be produced domestically, per the Berry Amendment.

Then there are other necessities to think about that are war expenditures produced in the good old United States that employed patriots who no doubt were proud of their part as well as appreciative of that paycheck they picked up at the end of the week to spend within our economy.

Other companies I came across that benefited from the WOT:

Apparel Garmet Industry Corp., NYC….Defense Supply Center, PA…Velcro, USA, Manchester, NH, tip of the bucket all.

Now Monroe says:

Saddam is gone? Great. But that wasn’t our responsibility. Getting rid of Saddam was the responsibility of the Iraqi people. People appreciate and protect their freedom when they’ve earned it.

Is this your attempt at a very sad joke, a flat, fall on your face joke? Have you never bothered yourself to study the life Iraqis lived under Saddam? I won’t elaborate, you can visit our archives to find documented horror…. all by yourself. Needless to say, the Iraqis weren’t as equipped to overthrow Saddam as was the Green Revolution in Iran. Figure it out, let’s see if you can.

Monroe opines:

There’s no consistent logic there at all

.

Pfft!

Stimulus dollars went back into the US economy,

The stimulus was three parts…

1. Road and bridge Construction… wonder how much of that money went back to Mexico? and to the UNIONS?

2. The Working peoples tax credit… which was used to either pay down debt, or to buy products… when many of said products are produced overseas…

3. Grants to States for Teachers and such… which while looking good on paper, was a one year “fix” for teachers… which they have now had to do again…