The American stock market is in free fall, by many measures the greatest fall since the Great Depression.  But the news each evening is dominatd by Iraq.  Waht is the relation between the rumor of war, and the bad news about the American economy?

An essay by Huck Gutman published in Kolkata Statesman on October 16, 2002, on the Common Dreams News Center, October 16, 2002, and in the Karachi Dawn on October 21.  Available on the web at   Iraq War and the US Economy and  Abracadabra, Why Iraq!

"Abracadabra, why Iraq! "
   October 9, 2002, 2002

Huck Gutman

        In the USA, the news each night is dominated by the possibility of a war on Iraq. Saddam Hussein is not one of the world’s nobler creatures; he is a thug and a dictator, a man who has used chemical warfare on his own citizens and invaded neighbouring countries. But he has been a despot for many years, since long before he lost a desert war to the USA. Why is he now the focus of American ire?

        The Bush Administration tells its citizens that he is a great threat, but little seems to have changed, materially, in recent years, other than the terrorism of 11 September 2001. And, try as they might, the officials and agencies of the incumbent Administration have found no credible link between Al-Qaeda and Saddam Hussein.

        So why has the rumour of war taken over the front pages? First, there is 11 September. The American psyche was profoundly altered by the events of that day when terrorism became a reality and not just a distant threat. The need to protect the nation against eruptions of violence within its borders, has deep resonance. Yet the unhappy truth for the Bush Admi-nistration is that its onslaught against Al-Qaeda has not gone well. After an initial victory over the Taliban — a “lesson” taught that those who harbour terrorists will suffer grave consequences — the war on terrorism has had few triumphs to trumpet. Osama bin Laden has not been caught; his purported worldwide network has not been exposed.

        Thus, a war on a recognisable enemy, one that purportedly can be bombed into submission, entices many Americans. The Bush Administration has crassly used the promise of a victory over Iraq to transform, much like a magician with quick fingers, a red silk handkerchief into a rabbit. Quick, presto, the wand is waved, Al-Qaeda disappears, and Iraq is in front of the nation’s eyes.

        Then, there is oil. Iraq possesses, after Saudi Arabia, the richest oil reserves of any nation. In a roiled West Asia, with increasing questions in Washington about the links between Saudi money and the funding of Al-Qaeda’s operations, Saudi Arabia is no longer a totally secure source of relatively cheap oil. This petroleum-based Administration — Mr Bush and Dick Cheney were both oilmen — know its importance all too well.

        Those who prefer the simplicity of paranoid formulas often believe that oil is the sole motivation behind America’s sudden, implacable need to invade Iraq. But the answer to, “Why Iraq, why now?” is likely complex and overdetermined by a number of pressures. (That none of the pressures are rational, or defensible, does not make them any less real for those who chart strategy in the White House.)

        Third, and of remarkable importance, the proposed assault on Iraq serves domestic political purposes. A Congressional election is less than a month away. This summer the Democrats were hopeful of sustaining their one-vote majority in the Senate, and of retaking control of the House of Representatives. Talk of war emerged, and once again the magician was at work: the issues which gave the Democrats hope of regaining their majority have been pushed behind the curtain, while the magic rabbit of Iraq dominates the political stage.

        Through this legerdemain, the rumour of war has buried a statistical story of semi-catastrophic proportions. The narrative of a forthcoming armed conflict — in this case against the evil wizard “Saddam” — is far more dramatic than a recitation of numbers. So the current economic condition is pushed to the back pages.

                In the past four years, the USA lost two million manufacturing jobs, 10 per cent of its manufacturing work force. One in five jobs in the care industry was lost, one in three jobs in textile manufacture. The number of people living in poverty as well as those without health insurance are up. So too are personal bankruptcies. Unemployment is rising, long-term unemployment is going up even more rapidly. A ballyhooed “economic recovery” is nowhere in sight.

        The most stark and stunning news appears on the financial pages, where the daily reports of stumbling stock prices are listed. Stocks, of course, are not the economy: but they are an index to both what is happening, and what is to come. Yet the newspapers these days address them merely as a daily phenomenon, not as a narrative of historical dimension. The aggregate numbers of the declining stock market are stunning. But they are either buried deep in the financial section or not reported at all.

        By the close of the third quarter of 2002, the Dow-Jones average, America’s most widely cited measure of the valuation of its major corporations, had dropped 32.7 per cent since its high on 11 April 2000. Thus, it lost almost one-third of its value. In the great stock market crash of 1929, The Dow Industrial index fell 48 per cent over two months, but thereafter it rallied for the next for five months. So although the fall in stock prices of the nation’s largest corporations is not as precipitous as it was then, it is nonetheless steep, even by historical proportions.

        The Standard and Poor 500 index, a broader measure, has done even worse. It has fallen 46.4 per cent since 24 March 2000. Since the S&P index has been in existence since 1923, it can provide a reasonable comparative measure of historical trends. The 46 per cent decline is only 1½ per cent away from the biggest dip registered since the depth of the Great Depression, in 1937-39 and already the longest-lasting one since the bear (declining) market of 1938-1942.

        The numbers get even worse if we look at the Nasdaq, the market on which most emerging stocks are listed. On 10 March 2000 it was at 5048; at the end of the third quarter of 2002 it stood at 1182. That is a drop, from peak to current trough, of 76.8 per cent. Compare that with the drop between 29 October 1929 (“Black Thursday”) and the bottom of the Depression market, on 8 July 1932, a period when the market declined 89 per cent. Seventy-seven per cent is not far from 89 per cent — and the Nasdaq is still plunging.

        One could try to minimise this staggering loss by suggesting that the Nasdaq is a more speculative market than the New York Stock Exchange. But in the past decade, many of the nation’s fastest growing and most successful companies were listed there. Four of the top 10 corporations in market capitalisation — Microsoft, Cisco Systems, Intel and Oracle — were on the Nasdaq. In simple terms, a great deal of the money invested in US corporations was in Nasdaq-listed stock, which lost over three-quarters of its value in the past two-plus years.

        If markets were improving, there might be some reasonable explanation for the lack of news about the severity of the market declines. But things are not improving. Reuters reported of the third quarter that “stocks wrapped up a brutal September with a sell-off dragging the Standard & Poor’s 500 and the blue-chip Dow to their worst quarter since the crash of 1987”.
“Well,” might claim Bush Admin-istration hawks clamouring that Saddam represents the nation’s biggest threat, “these are just numbers on a graph.”

        What do the huge declines in America’s stock indices mean in actual dollars? The Wilshire 5000 is a widely used basket of stocks encompassing securities from the three major stock exchanges, and including large-cap (capitalised), mid-cap, and small-cap corporations. In the words of its compiler, Wilshire Associates, “The Wilshire 5000 Total Market Index represents the broadest index for the US equity market, measuring the performance of all US headquartered equity securities.” No other index is as comprehensive.

                In the just-ended third quarter, the Wilshire 5000 total market index dropped 17 per cent. That means that $1.9 trillion in market value disappeared in this “invisible” stock crash. To put it another way, in the past three months investments in US stocks lost an amount equal to $7,000 for each US citizen. (The current American population is just over 288 million.)
According to Wilshire Associates, close to $8 trillion in investor wealth — greater than the $6.62 trillion national debt — has evaporated since the spring of 2000. That means the US stock markets lost an amount equal to three-quarters of what the world’s leading economy produced in the past year. By my calculations — since the newspapers and securities firms refuse to report this decline, acquiring figures and using one’s calculator are the only way to find out exactly what has happened — the $8 trillion decline in wealth means that an amount roughly equal to $29,5000 per person has disappeared into the pit of the plummeting stock market.

        By many measures, the USA is in the midst of the largest, deepest stock market decline since the 1929 crash initiated a world depression. Why are these figures not on the front pages?
        Figures make tough reading. Drumbeats for war make a more enticing cadence. And bad economic news shakes consumer confidence. Amazingly, Americans keep buying even in the face of a major decline in corporate equities. If the media reported what is happening in the equity sector, consumers might not be so ready to spend, or to borrow money to spend now and pay later.

        Most important, America’s stock market crisis is invisible because the spectre of war keeps the nation occupied. The conjurer dominates the stage. One only sees what the magician wants us to see: Saddam Hussein, the wizard of evil who must be overthrown. “Regime change” becomes the nation’s central preoccupation.

        But magicians notwithstanding, the market crash has huge consequences for America, which will not disappear even though the news of it is invisible. What does the market plunge mean for the future of Americans whose retirement funds are heavily invested in the stock market? One quarter of Americans have an employer-based retirement plan, known as a 401(k). An even greater percentage have invested the savings they hoped to use in retirement in mutual funds. When the market crashes, so does their future.

        What does the huge decline in stock prices mean for America’s ability to fund the proposed war in Iraq and its consequent occupation? Senator Ted Kennedy recently estimated the war would cost $100-200 billion. But when the stock market plunges, so do tax revenues. According to figures compiled by the US Congress, capital gains taxes amounted to $129 billion in fiscal 2001. Rising stocks lead to profit taking; when investors take a profit, they pay taxes on it. Falling stock prices mean that the taxes formerly realised from capital gains taxes are no longer available.

        A fiscally hard-pressed government — and the USA’s surplus of $127 billion in 2001 is already predicted to be a deficit of $157 billion by the end of 2002 — will not be able to fund both a war and social services. So social services will be slashed.
Americans, if they were to believe the daily media reports, would think that all that faces their nation is a national security menaced by Iraq. Many watch the television news, and put their faith in the nation’s leaders who are eager for a unilateral attack. Many others, though, are increasingly uneasy as they read the quarterly reports of their retirement accounts, or watch their investments shrivel into smaller and smaller packets. They understand on a gut level that problems at home are often more compelling, though they provide less heated rhetoric, than military adventures abroad. Mr Bush must have been surprised by the responses to the latest poll, conducted by the New York Times/CBS News, when potential voters responded to the question, “Would you like to hear the candidates talk more about the possibility of war with Iraq or the American economy?” Seventy per cent of Americans wanted candidates to talk more about the economy; only 17 per cent wanted to know more about Iraq.

        So, perhaps the magician’s act on the centre stage of American politics is not as good as its scriptwriters thought. Still, the magician commands the stage, and despite a declining economy, war with Iraq seems to be part of his act.

The author is Professor of English at the University of Vermont. A former Fulbright Visiting Professor at Calcutta University, he is the author, with US Representative Bernard Sanders, of Outsider in the House.