Monday, September 29, 2003

Blood Money

What do Steven den Beste, Kyle Markley and Senator Joe Biden (D) all have in common? They're talking about economics and its relationship to terrorism. Biden proposes that a tax be reimposed on the top 1% of American earners to pay for Iraqi reconstruction.

"I haven't found one single wealthy American" who wouldn't be willing to do that, Biden told Fox News. The idea has been gaining steam among his fellow Democrats in the Senate and may be introduced in the House by Congressman Tom Lantos of California.

Despite its headline grabbing qualities, the Biden proposal is in essence 'tax and spend'. No expenditure reductions are proposed, just more taxes to pay for them. In contrast, Steven den Beste suggests a cut to government spending by abolishing farm subsidies. He argues that US and EU farm subsidies lower impoverish poor countries, destroy their domestic food industries by flooding the market with cheaper goods and line the pockets of huge agricultural conglomerates like Archer Daniel Midlands. And they cause resentment. Agricultural subsidies are:

One of the reasons world political support for our strategy has been so low ... Though they don't necessarily see themselves as directly aligned with the Arab nations ... they do see the Arab nations overall right now as being sort of first among our many victims. There's a certain feeling elsewhere that they're all in the same real boat, and have to work together.

Kyle Markley disagrees, though only in part. The crux of his argument is that poor nations have already had time to adjust to subsidies by shifting their production to compete in unsubsidized areas; that the removal of subsidies would have very harsh short term effects by increasing the price of wheat, upon which many starving nations now subsist. Although he doesn't quite say it, others may recall that India and China have prospered dramatically in the last decade by letting their markets shift resources to industries where they could compete, whereas countries like Cuba and the Philippines have continued to persist in commodities like sugar, which will never regain their glories with or without US subsidies.

Both arguments scarcely mention subsidies within the poor countries themselves. China, for example, subsidizes its exports to the world by keeping its exchange rate artificially low. And there are a whole range of sacred cows which are kept alive in poor countries for political and prestige reasons. National airlines, railways, banks, steel mills and other 'flagship' industries, once called 'the commanding heights of the economy' by Marxist academics, are rife in the Third World. Most of them are complete wastes of money.

Yet the discussion touches upon a pretty neglected area of the policy debate. Andrew Sullivan and a number of Republicans have begun to misgive President Bush for his inability to rein in Federal spending. One way to help pay for Iraqi reconstruction without increasing taxes would be to cut US agricultural subsidies and transfer the money to the Coalition Provisional Authority.

But there are other hidden costs and benefits incident to terrorism which continue to remain below the radar screen. The standard Leftist canard of the 1960s, credible to people who grew up without the direct experience of World War 2, was to claim that War Is Good For Business. That its ultimate embodiment was the 'military-industrial complex'. World War 2 was probably an exception, because it used up surplus capacity following a great depression. As people suspect today, war is bad for business. Insurance rates are up, air travel and tourism is down. The stock market is in the dumps. The free movement of labor is restricted. Billions of productive man-hours are used up simply because travelers must show up four hours before a flight instead of two. The exchange of scientific papers is now restricted by Homeland Security considerations. Buildings will be more expensive if they are designed to withstand multiple wide body aircraft crashes. Although Leftists who don't have to work for a living will continue to say that War is Good for Business, anyone with a day job may think otherwise.

It follows then, that really successful campaigns against terrorism will yield economic benefits, just as economic benefits will tend to reinforce the War on Terror. One reason that pump prices may now be falling from their highs is that oil is flowing again in Iraq. And Iraq may be quieting down now that oil revenues are priming the local economy. Anyone who doubts that the economic perspective adds something to the debate would do well to read Christopher Hitchen's review of Bernard-Henri Levy's Who Killed Daniel Pearl? (Hat tip: Winds of Change) with its conclusion: "Islamism is a business" -- in which the WTC victims were merely an externality. That would look good on the flip side of a placard saying 'No Blood for Oil'.