June 14, 2006
Diaz Hendropriyono
Washington, DC
Until now, I am still puzzled by the Bush policy to start the War in Iraq. How could he decide to go to Iraq when the financial situation in the U.S. was not conducive to fund the war? The decision to go into Iraq was made when the U.S. was faced with financial troubles.
First, the federal government had just experienced a deficit of $158 billion in 2002, after enjoying a surplus since 1998, in which it produced $69 billion. It was the federal government’s first surplus since a $3 billion surplus in 1969. The government’s finance was characterized by large annual budget deficits from the early 1980s through the early 1990s. Factors contributed to this situation included a severe recession in the early 1980s, a sharply increased spending for national defense during the 1980s, and a continued expansion of spending on entitlement programs, such as Social Security, Medicare and Medicaid.
Second, the U.S. economy was experiencing a downturn in the early part of the 21st century. The National Bureau of Economic Research announced that the world’s largest economy sank into a recession in March 2001, marking the end of the nation’s longest economic expansion of ten years. Real Gross Domestic Product (GDP) growth slowed by summer of 2001 and then declined over the second half of the year before finally picked up. Business fixed investment fell sharply, declining an estimated 3.6% in 2001 after eight straight years of growth above 8%. Real consumption only grew 3% compared to 5% for the last three years. U.S. employment fell by 1.1 million jobs while the unemployment rate increased to 5.8%, showing its highest level in seven years. In reaction to the weak economy in 2001, U.S. employers cut around 415,000 jobs, the biggest since May of 1980, which involved 460,000 job losses.
Third, the events of 9/11 changed federal spending dramatically, especially on strengthening homeland security. For example, through the Aviation and Transportation Security Act, Congress created the Transportation and Security Administration (TSA), charged with developing policies to ensure the safety of U.S. air traffic. TSA personnel took over airport security from the airlines employing private screeners and replaced them with a better-paid and better-trained work force a few months after the attacks. The move to federalize airport security obviously did not come without any cost. The Bush Administration originally submitted a $4.4 billion budget request for TSA for fiscal year 2002 and $4.8 billion for fiscal year 2003 in the Emergency Supplemental bill. While the Senate Appropriations Committee approved its request, the House cut the funding for the newly-created agency to $3.85 billion for fiscal year 2002, or $550 million below the administration’s request. Its approved budget for fiscal year 2003 was $4.95 billion. And the remainder of the agency’s budget would come from user fees, such as a security fee on airline tickets.
The Anthrax attacks have also increased the nation’s financial burden. The outbreak, which caused four deaths, including two postal workers, cost the United States Postal Service $5 billion in equipment damage, clean-up efforts and lost revenues.
Fourth, in June 2001, President Bush signed a $1.35 trillion tax cut into law. Although the relief, which would occur slowly over the next decade, was smaller than the $1.6 trillion amount that he originally proposed, Bush hailed it as major victory. After fulfilling his campaign promise, he stated that tax relief has only occurred twice since WWII, during the Kennedy’s administration and Reagan’s presidency. “And now it’s happening for the third time, and it’s about time,” said he. Although tax cut would normally boost national economy, a study conducted by Peter Yoo of the Federal Reserve Bank of St. Louis in 1996 concluded that consumers saved most of a tax cut in the months immediately after the tax relief occurred. He found that the 1964 tax cut did not result in an immediate increase in spending. This tax cut would substantially contribute to deteriorating the budget outlook. The Congressional Budget Office (CBO) estimated that the tax cut coupled with the increases in discretionary spending would worsen the budget outlook by $550 billion in fiscal year 2002.
Fifth, on September 22, 2001, President Bush signed into law H.R. 2926, the Air Transportation Safety and System Stabilization Act to “provide compensation to any individual, or relatives of a deceased individual, who was physically injured or killed as a result of the terrorist-related aircraft crashes of September 11, 2001,” as stated in Section 403, Title IV of ATSSSA. By December 2003, a total of 2,823 death claims, averaging $1.8 million per claim, in addition to 3,517 injury claims were received. The $18 billion federal bailout was also meant to help the airline industry since the families receiving the compensation must renounce all rights to sue airline companies whose airplanes were used in the attacks. Rand Corporation study reported that by November 2004, these individuals as well as businesses impacted by the attacks had received $38.1 billion in compensation. Of this, the federal assistance amounted to $15.8 billion, insurance companies contributed $19.6 billion, and charitable groups donated $2.7 billion.
Sixth, in February 2003, the U.S. national debt had become so high that Treasury Secretary John Snow urged Congress to raise the debt ceiling to maintain the full faith and credit of the U.S. government and avoid any negative repercussions both at home and abroad. Such a request came with criticisms as the borrowing limit had just been upped by $450 billion to $6.4 trillion in June 2002. Representative Ron Paul described the request to increase the debt limit showed the administration’s fiscal irresponsibility and would endanger the U.S. economy. Senator Kent Conrad stated that the Bush administration “wants our children and grandchildren to pay our bills.” The House, however, agreed to a $984 billion increase as part of its 2004 budget blueprint.
Seventh, the War on Terror was launched in October 2001 with the deployment of U.S. military troops to Afghanistan. At the start of the war, the Center for Strategic and Budget Assessments estimated the Afghan invasion, aided by the United Kingdom and the NATO alliance, would cost “a staggering $400 to $800 million in its first 25 days of action.” Initially, Congress provided $17.4 billion to the Defense Department for the overall war on terrorism. However, in March 2002, President Bush requested another $14 billion to fund for the remaining months of the fiscal year. Such a request was considered reasonable knowing the high costs of war (A carrier-based F/A-18 fighter-bomber costs $5,000 an hour to fly; 90 Tomahawk land-attack cruise missiles, used by the U.S. Navy, cost about $1 million apiece). Thus, it is not surprising that the Afghan War had already cost $4.4 billion since the start of the war through Feb 2002. At a price tag of around $1 billion a month the Afghan War had become the nation’s most expensive war since Vietnam (For comparison, the 78-day air attack against the Serbians in Kosovo in 1999 cost about $3 billion, and the Gulf War in 1991 only cost $2 billion, after the original cost of $14 billion was offset by reimbursements from a few grateful Persian Gulf Nations).
Finally, the decision was made when the U.S. economy was suffering from a sluggish growth in the first quarter of 2003 and when was facing the growing costs of entitlement programs, such as Medicare and Medicaid—costing $397 billion and $438 billion in 2002 and 2003, respectively.
First, the federal government had just experienced a deficit of $158 billion in 2002, after enjoying a surplus since 1998, in which it produced $69 billion. It was the federal government’s first surplus since a $3 billion surplus in 1969. The government’s finance was characterized by large annual budget deficits from the early 1980s through the early 1990s. Factors contributed to this situation included a severe recession in the early 1980s, a sharply increased spending for national defense during the 1980s, and a continued expansion of spending on entitlement programs, such as Social Security, Medicare and Medicaid.
Second, the U.S. economy was experiencing a downturn in the early part of the 21st century. The National Bureau of Economic Research announced that the world’s largest economy sank into a recession in March 2001, marking the end of the nation’s longest economic expansion of ten years. Real Gross Domestic Product (GDP) growth slowed by summer of 2001 and then declined over the second half of the year before finally picked up. Business fixed investment fell sharply, declining an estimated 3.6% in 2001 after eight straight years of growth above 8%. Real consumption only grew 3% compared to 5% for the last three years. U.S. employment fell by 1.1 million jobs while the unemployment rate increased to 5.8%, showing its highest level in seven years. In reaction to the weak economy in 2001, U.S. employers cut around 415,000 jobs, the biggest since May of 1980, which involved 460,000 job losses.
Third, the events of 9/11 changed federal spending dramatically, especially on strengthening homeland security. For example, through the Aviation and Transportation Security Act, Congress created the Transportation and Security Administration (TSA), charged with developing policies to ensure the safety of U.S. air traffic. TSA personnel took over airport security from the airlines employing private screeners and replaced them with a better-paid and better-trained work force a few months after the attacks. The move to federalize airport security obviously did not come without any cost. The Bush Administration originally submitted a $4.4 billion budget request for TSA for fiscal year 2002 and $4.8 billion for fiscal year 2003 in the Emergency Supplemental bill. While the Senate Appropriations Committee approved its request, the House cut the funding for the newly-created agency to $3.85 billion for fiscal year 2002, or $550 million below the administration’s request. Its approved budget for fiscal year 2003 was $4.95 billion. And the remainder of the agency’s budget would come from user fees, such as a security fee on airline tickets.
The Anthrax attacks have also increased the nation’s financial burden. The outbreak, which caused four deaths, including two postal workers, cost the United States Postal Service $5 billion in equipment damage, clean-up efforts and lost revenues.
Fourth, in June 2001, President Bush signed a $1.35 trillion tax cut into law. Although the relief, which would occur slowly over the next decade, was smaller than the $1.6 trillion amount that he originally proposed, Bush hailed it as major victory. After fulfilling his campaign promise, he stated that tax relief has only occurred twice since WWII, during the Kennedy’s administration and Reagan’s presidency. “And now it’s happening for the third time, and it’s about time,” said he. Although tax cut would normally boost national economy, a study conducted by Peter Yoo of the Federal Reserve Bank of St. Louis in 1996 concluded that consumers saved most of a tax cut in the months immediately after the tax relief occurred. He found that the 1964 tax cut did not result in an immediate increase in spending. This tax cut would substantially contribute to deteriorating the budget outlook. The Congressional Budget Office (CBO) estimated that the tax cut coupled with the increases in discretionary spending would worsen the budget outlook by $550 billion in fiscal year 2002.
Fifth, on September 22, 2001, President Bush signed into law H.R. 2926, the Air Transportation Safety and System Stabilization Act to “provide compensation to any individual, or relatives of a deceased individual, who was physically injured or killed as a result of the terrorist-related aircraft crashes of September 11, 2001,” as stated in Section 403, Title IV of ATSSSA. By December 2003, a total of 2,823 death claims, averaging $1.8 million per claim, in addition to 3,517 injury claims were received. The $18 billion federal bailout was also meant to help the airline industry since the families receiving the compensation must renounce all rights to sue airline companies whose airplanes were used in the attacks. Rand Corporation study reported that by November 2004, these individuals as well as businesses impacted by the attacks had received $38.1 billion in compensation. Of this, the federal assistance amounted to $15.8 billion, insurance companies contributed $19.6 billion, and charitable groups donated $2.7 billion.
Sixth, in February 2003, the U.S. national debt had become so high that Treasury Secretary John Snow urged Congress to raise the debt ceiling to maintain the full faith and credit of the U.S. government and avoid any negative repercussions both at home and abroad. Such a request came with criticisms as the borrowing limit had just been upped by $450 billion to $6.4 trillion in June 2002. Representative Ron Paul described the request to increase the debt limit showed the administration’s fiscal irresponsibility and would endanger the U.S. economy. Senator Kent Conrad stated that the Bush administration “wants our children and grandchildren to pay our bills.” The House, however, agreed to a $984 billion increase as part of its 2004 budget blueprint.
Seventh, the War on Terror was launched in October 2001 with the deployment of U.S. military troops to Afghanistan. At the start of the war, the Center for Strategic and Budget Assessments estimated the Afghan invasion, aided by the United Kingdom and the NATO alliance, would cost “a staggering $400 to $800 million in its first 25 days of action.” Initially, Congress provided $17.4 billion to the Defense Department for the overall war on terrorism. However, in March 2002, President Bush requested another $14 billion to fund for the remaining months of the fiscal year. Such a request was considered reasonable knowing the high costs of war (A carrier-based F/A-18 fighter-bomber costs $5,000 an hour to fly; 90 Tomahawk land-attack cruise missiles, used by the U.S. Navy, cost about $1 million apiece). Thus, it is not surprising that the Afghan War had already cost $4.4 billion since the start of the war through Feb 2002. At a price tag of around $1 billion a month the Afghan War had become the nation’s most expensive war since Vietnam (For comparison, the 78-day air attack against the Serbians in Kosovo in 1999 cost about $3 billion, and the Gulf War in 1991 only cost $2 billion, after the original cost of $14 billion was offset by reimbursements from a few grateful Persian Gulf Nations).
Finally, the decision was made when the U.S. economy was suffering from a sluggish growth in the first quarter of 2003 and when was facing the growing costs of entitlement programs, such as Medicare and Medicaid—costing $397 billion and $438 billion in 2002 and 2003, respectively.
Knowing all these financial difficulties that the US was facing, how could Bush decide to go to Iraq when we all knew from the beginning that the U.S. could not afford to wage this war—at least financially.
The federal deficits, significant economic decline since March 2001, the increased security measures in response to the 9/11 attacks, the tax cuts in 2001 (which inevitably would fuel more deficits), the compensation package given to the family of 9/11 victims, the rise in national debt, and the already-high price of executing the Operation Enduring Freedom in Afghanistan, should have shown the clearest evidence that the funding of the Operation Iraqi Freedom was going to be problematical from the very start.
The federal deficits, significant economic decline since March 2001, the increased security measures in response to the 9/11 attacks, the tax cuts in 2001 (which inevitably would fuel more deficits), the compensation package given to the family of 9/11 victims, the rise in national debt, and the already-high price of executing the Operation Enduring Freedom in Afghanistan, should have shown the clearest evidence that the funding of the Operation Iraqi Freedom was going to be problematical from the very start.
