[OPE-L:8440] Re: RE: petrodollars, oil, etc.

From: rakeshb@stanford.edu
Date: Thu Feb 06 2003 - 15:38:54 EST

Quoting Bill Cochrane <billc@waikato.ac.nz>:

> For a more 'orthodox' view take a look at "The Economic 
> of
> a War with Iraq" (Nordhaus, 2002) - available from
> http://cowles.econ.yale.edu/ - there is also a whole lot of other
> stuff
> on the site assessing Iraq military capacity, likely post war US
> strategy and the like. All good stuff for those inclined towards
> Engel's
> fascination with the martial. 

quickly skimming the article, I would say that Nordhaus 
underestimates how easily the US may be able to finance its  
deficits through sales to foreigners of  govt paper (Asian govts may 
want to maintain the relative strength of the dollar to keep their own 
exports competitive; the dollar remains attractive as it is the 
reserve currency and oil is priced in dollars; a meldown of the US 
economy is not in their interest for various reasons; the US can 
always strong-arm foreign govts--perhaps even the German and 
French) and how willing the US may be to run a Marshall Plan in 
reverse in Iraq, i..e., use Iraqi oil revenues to pay for its occupation 
no matter how starved that leaves Iraq. 

Nordhaus, Krugman, DeLong and many other economists are 
worried about how military-driven govt deficits will lead to capital 
crowd out, inflationary worries, higher long term interest rates. It's 
not obvious to me that Bush does not have a better estimate of the 
power of the US imperial state to run massive deficits without  
negative effects on its economy--whether they will be enough of a 
stimulus is another question.   It seems that the economists are 
working from textbook models, and Bush is working from a better 
sense of actual imperial power and all that implies and allows. 

Yours, Rakesh

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