War lands home: homeland debts & credits

Is there a link between the fantasy war on terror that Bush and Blair started (and the homeland security apparatuses they necessitated) and the current financial crisis brought on by the so-called credit crunch? Is it possible to think that the current financial crisis is related to the enormous outlay financing the war on terror around the world but also at home? I can’t help but think that the two are related. I am not a political economist. But the link troubles me a great deal.

The debate on the war on terror and especially in relation to Afghanistan and Iraq is converging toward a consensus: that it has gone awry and that these occupations have been grand failures. Pankaj Mishra’s review in the Guardian illustrates how this consensus plays itself out and concludes,

A gracious acceptance of the limits of US firepower may not be forthcoming from the next administration, which will face the hard choice to get out or fight on. Indeed, failure may make it even more determined to maintain the pride of US arms and the image of the mightiest power on earth.

So the consensus is that while the US may not admit or accept it, by virtue of its failure the war on terror shows the weakness of force.

Money that used to be spent on American goods now got diverted abroad

What troubles me about this consensus (and the analysts that accept it) is that I don’t understand why the war on terror is so easily understood as a failure. Against which benchmarks will we measure its success? We cannot use the official reasons because they have been so vague from the get go and so that’s a non-starter. This is why I find it astonishing that many commentators are almost at pains to keep the war on terror and the financial crisis as unrelated events. If there is a relation it is simply put as the ‘cost’ of the war but not how it has been financed.

Creative Commons Image Army.mil, some rights reserved
Soldier in Iraq

The fact is, the war on terror has been a great success — until now. It has redistributed an unprecedented three trillion dollars in the US and some twenty billion pounds in Britain from the wage-earning classes to the capital-owning classes especially those whose fortunes are bound up with the military-technological-industrial complex as Joseph E. Stiglitz and Linda Bilmes argue in a new book: The three trillion dollar war: the true cost of the Iraq conflict. Why call this a success? As historian Charles Tilly argued, capital, coercion and state constitute a vicious cycle at least since the birth of modern capitalism in his book Coercion, Capital, and European States, AD 990-1992. The war on terror has mobilized more capital than ever before. But how it has done this brings the credit crunch and war together.

In a recent interview with CNN, Stiglitz provides three reasons for the financial crisis. While he cites the well-known reasons such as lack of regulation and greed, he draws attention to a third as the decisive:

The coup d’grace [sic] was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going. It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.

Stiglitz and Bilmes further elaborate on this in their book. In essence the argument is that the war was financed with a false credit economy. Yet, it seems to me, that it is important not to interpret the credit crunch as a miscalculation or the consequence of shortsightedness as Stiglitz does. Rather, it is the result of a false economy that transformed a significant fraction of wage-earning classes into investors and thereby into a fraction of capital-owning classes (not only with property ownership but also with stocks, shares, options, funds and bonds all financed against the underlying future value of house property). That the bubble burst is not at issue here as Stiglitz says it was borrowed money and borrowed time. Yet, as insightful as Stiglitz is the problem with his response to the crisis is as astonishing as the mainstream media’s: let’s now regulate markets better. We ought to know better.

Aren’t wars always financed with false credit economies? As sociologist Peter Saunders described it, Britain (and America) has become ‘a nation of homeowners’ at least during the postwar period.

This has required the creation of a mass market of single-family dwellings owned by their occupiers, which in turn transformed a fraction of wage-earning classes into investors or a fraction of the capital-owning classes. The integration of the housing market with two other markets—the military and technology—was necessary for its operation. Military expansion continually revolutionized technological innovation and spurred the creation of a global consumer industry, which, in turn, directly contributed to the expansion of housing markets. Has not this been the spine of postwar capitalism? At the height of the Vietnam War, an economist Seymour Melman aptly called it ‘Pentagon Capitalism’ in Pentagon capitalism: The Political Economy of War - a book as relevant today as it was some forty years ago. If Pentagon capitalism seemed to reach a crisis in the 1970s (the so-called the oil crisis) did it not get out of it by various wars? Is it surprising that America (and Britain) have been continuously at war for 30 years since the 1970s?

The current crisis makes what another sociologist, Pierre Bourdieu, said so prescient. In The social structures of the economy he insisted that because the postwar middle classes (a fraction of wage-earners transformed into investors),

find themselves drawn to live beyond their means, on credit, they discover the rigours of economic necessity almost as painfully as did the industrial workers of a different era, particularly sanctions imposed on them by the banks, to which they had looked to work miracles on their behalf

Now the banks are looking to governments for miracles on their behalf. To think all this was because of greed seems simply naïve. To think bailouts, recapitalization or nationalization will create miracles without asking tough questions about the logic of the postwar economy seems folly. When governments need miracles they turn to wars. That has been the vicious cycle.

Find out more

Pentagon Capitalism: The Political Economy of War
by Seymour Melman, published by McGraw Hill

The Social Structures Of The Economy
by Pierre Bourdieu, published by Polity

The Three Trillion Dollar War: The True Cost Of The Iraq Conflictby Joseph E. Stiglitz and Linda Bilmes, published by W.W. Norton

Coercion, Capital, and European States, AD 990-1992
by Charles Tilly, published by Blackwell

A nation of home owners
by Peter Saunders, published by Unwin Hyman