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What Price Freedom?

By Lawrence Kudlow

Thursday, April 17, 2008

Surprise, surprise. Having failed to puncture Gen. David Petraeus' story about great improvements on the ground in Iraq, liberals are now saying the cost of the Iraq war has somehow undermined the economy -- even caused the current slowdown. What complete nonsense.

First point: The United States has spent roughly $750 billion for the five-year war. Sure, that's a lot of money. But the total cost works out to 1 percent of the $63 trillion gross domestic product over that time period. It's miniscule.

But here's the real question we ought to be asking: What is the cost of freedom? While the left refuses to acknowledge it, the U.S. homeland has not been attacked since Sept. 11. Right there is a big economic plus. Since President Bush went on the offensive and took the battle to Iraq, al-Qaida and other extremist terrorist groups have been utterly routed by U.S. forces. But in tying the jihadists down on their home turf, and keeping them from mounting another coordinated attack on the United States, our economy has benefited incalculably.

Then again, the antiwar forces might want to recall John F. Kennedy's inaugural address, in which he called on Americans to "let every nation know, whether it wishes us well or ill, that we shall pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to ensure the survival and the success of liberty."

Do these folks actually think 1 percent of GDP is too large a price, too heavy a burden? I sure hope not.

The leader of the "Iraq is sinking the economy" school is Joseph Stiglitz, a former Nobel Prize winner who worked for President Clinton and now teaches at Columbia University. Even Stiglitz admitted to me in a recent interview that the United States can afford the Iraq war. His real agenda, however, is to cut Iraqi funds and defense spending in general in order to launch a Keynesian big-spending campaign here at home.

Of course, the liberal government-spending appetite is insatiable during wartime or peacetime. And for nearly three decades voters have rejected it, opting instead for the low tax rates that spur economic growth while allowing them to keep their money.

And by the way, despite the current slowdown, the U.S. economy has performed remarkably well during the five years of the Iraq war. Real GDP has increased by 16 percent, or 3 percent annually. The unemployment rate has hovered below a historically low 5 percent for quite some time. Nearly 10 million jobs have been created. Household net worth has increased by $20 trillion. Industrial production has expanded by 13.5 percent. Even home prices, despite the current correction, have increased by 20 percent.

Lest we forget, anti-freedom, anti-capitalism jihadists were attempting to drive a dagger through our economy. That was the point of hitting the World Trade Center, wasn't it? But they failed miserably to stop the rising tide of free-market capitalism throughout the world. Global GDP has averaged nearly 5 percent annually in the last five years. The capitalization of the world's stock market has increased 159 percent -- or $35 trillion. New emerging-market economies have seen their stock markets collectively rise by 223 percent.

Incidentally, the Congressional Budget Office estimated that if troops in Iraq were reduced to 75,000 by 2013, war costs will amount to just over $1 trillion for the entire period -- roughly one-half of 1 percent of $177 trillion in newly created GDP. Still a tiny amount.

And how can anybody truly approximate the cost of permitting Saddam Hussein to remain in power? In 2006, several economists at the University of Chicago estimated that in certain scenarios the containment of Saddam might have produced security costs that are similar to the actual expenses of the Iraq war.

But what of the benefits of removing the totalitarian Iraqi dictator? How are we calculating those? It was Saddam who launched a 10-year war against Iran, invaded Kuwait, and gassed and killed hundreds of thousands of his own people. And it could well have been Saddam who blew up the entire Middle East had he been left in power.

Where is the liberal price-out of the potential consequences of not going to war? And should the Iraqi surge continue to safeguard an American ally and promote the kind of 7 percent economic growth that is now occurring in Iraq, how does one estimate the economic benefits to that nation, the region, the United States and the rest of the world?

Liberals like Stiglitz have blinders on when it comes to the strategic course of U.S. civilian and military operations in Iraq, Afghanistan and elsewhere. They're only willing to evaluate the negatives, rather than think through the positives.

This is called single-entry bookkeeping. It makes for bad economics and even worse national security.

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