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The Price of War

Removing the uncertainty surrounding Iraq could be the best economic stimulus out there.

11:00 PM, Jan 27, 2003 • By IRWIN M. STELZER
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The trivial short-term effect of the Bush plan, the likelihood that it will anyhow be watered down by Congress, and continuing fears that the economy is somewhere between stagnant and heading towards the dreaded double dip, are encouraging Washington's lobbyists to deluge the White House with suggestions for still more tax cuts--faster write-offs, a more favorable tax treatment of research and development, and a cut in capital gains taxes head their wish list.

The good news is that once the uncertainties over Iraq are resolved, oil prices will return to $20 or less. The lower dollar will begin to stimulate exports.

The recent declines in unemployment claims should soon be reflected in a drop in the unemployment rate. Corporate cash flow is rising. Productivity continues to increase, and that will inevitably be reflected in improved profit performances--real, mind you, not fictitious profits. Competitive pressures are forcing businesses to invest in obsolescing equipment, so that spending on equipment and software rose by 2 percent after falling by 10 percent in 2001. Real incomes are rising, suggesting that any consumer slowdown will be modest. About the best thing the politicians can do is eliminate uncertainty by getting on with the war, winning it quickly, and opening Iraq's oil industry to new investment. That would be a real stimulus package.

Irwin M. Stelzer is director of regulatory studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.