JUST before the Gulf war began, some economic forecasting firms predicted that a ``short war'' would boost the American economy and lead us out of recession. The WEFA Group of Washington added that a short war ``would launch a brisk recovery on the heels of an American victory.'' WEFA compared three scenarios: long war, short war, and stalemate, using four indicators - gross national product (GNP), oil prices, inflation, and unemployment. Not surprisingly, a ``short war'' looked best. The conventional wisdom that ``war is good for the economy'' is widespread and contradictory. The same reason to oppose military spending cuts is cited for the war in the Gulf - preserving American jobs. For many reasons, such conventional wisdom is not only obsolete, but also is part of a worrisome new trend: a US policy shift toward a ``mercenary'' economy.
As America loses exports, it may shift toward exporting its unquestioned security ability. America's trillions of dollars of sunk costs in our military-industrial sector (which until the end of the cold war accounted for one in six of all US jobs) steers much of our national policy and Washington lobbying.
The war is being fought in the middle of a recession, triggered partly by the loss of consumer confidence the war itself caused. Federal Reserve Board Chairman Alan Greenspan said in late January the US faced ``a long deep recession if the war with Iraq last past the middle of April.'' These conflicting forecasts illustrate the unreliability of economic indicators and the dangers of relying on one-dimensional statistics such as GNP.
The focus on GNP in the US and other countries causes us to overlook vital social, cultural, political, and environmental factors. For example, the cost estimates for Desert Shield and Desert Storm overlooked vital social indicators of overall national progress, such as the United Nations Development Program's Human Development Index (HDI) now being adopted in Venezuela, Germany, France, and Denmark.
These new indexes add in data on life expectancy, infant mortality, military versus education budgets, and new ``standard of living'' measures that go beyond average money incomes per capita. If the US does not shift to such indicators in its own policies, urgent domestic priorities - education, drugs, crime, deteriorating infrastructure, and the need to shift our economy from waste to more efficient use of energy and materials - will continue to be short-changed.
Forecasters' false optimism over the war overlooked many of these deep-seated domestic threats to our national security. They also failed to account for the costs of the war's aftermath, such as stabilizing the Mideast region, and rebuilding the bomb-damaged economies and the trust of Arab populations.
The new American policy of ``burden-sharing'' is a milestone in military financing. Even though the US-led coalition is in Iraq with a UN mandate, the US-led operation and our pro-active stance was labeled by the magazine The Economist that of a ``rent-a-superpower.'' Developing countries also label the conflict as ``Bush's war.'' In India, these fears have destabilized the new government of Chandra Shekhar. The US will need to convince both its friends and detractors that it does not intend to become the world's mercenary.
If a new meeting of the minds is shaping up between military actuaries, economic forecasters, and policymakers, offensive war may replace our historic defensive warfare. Such war may appear more ``economical.'' New economic and conflict indicators such as those of the WEFA Group may fuel growing mercenary sentiments on the part of strategists.
Yet such a new course relies heavily on the quality of government statistics, and data quality is declining alarmingly. One poll of forecasters found that only four disagreed that the government's ``economic statistical gathering system has deteriorated significantly over the past decade.'' It's clear that a growing GNP does not reflect growing financial health, let alone account for social and environmental costs. After eight years of GNP growth, we are faced with crisis in the savings and loan industry, trouble in banking and insurance sectors, and falling literacy rates.
Even if we ``win'' the war, dealing with economic and domestic problems is better than drifting toward a mercenary economy.