Behind the Headlines
by Justin Raimondo

July 3, 2002

Larry Kudlow and the Economics of the War Party

If you want to see the face of pure evil, cast your eyes on a recent column in National Review Online by resident financial guru Larry Kudlow, "Taking Back the Market – By Force." The market is down, he moans, and it isn't really about corporate corruption and the Bush administration's anti-free market policies: these, we are told, are "only partly to blame." So, what's the problem? Not enough war!

The ongoing "war on terrorism" isn't big enough, and too many Americans think we aren't winning. "There has been a big drop in the American spirit," according to Kudlow, and the only way to uplift it is to embark on some "decisive follow-through" – an invasion not only of Iraq, but potentially of the entire Middle East. Kudlow praises Bush's recent speech on the Mideast, and suggests that the principles touted by the President – free markets, democracy, and the rule of law – be imposed at gunpoint throughout the region:

"Bush wasn't only speaking to Iraq, Iran, and Syria, but also to Saudi Arabia, and perhaps even Egypt. But these are just more words in this global and just war on terror. The president must now execute and follow-through in support of these fine principles."

If he'll only forget the American national interest, and unequivocally take up Israel's cause in deeds as well as words, then we'd be on our way to Nirvana, but that is only the beginning of the Kudlow Plan. It is even more important, Kudlow thinks, to launch an immediate attack on Iraq, because, well just because it's there: "Americans," he grandly declaims, "have never liked loose ends." So for that reason, tens of thousands of Iraqi civilians must die – in order to satisfy the American antipathy for "loose ends."

In normal times, no one outside an insane asylum would even dare to suggest such a warped rationale for war. In the post-9/11 era, such outbursts of homicidal madness are routinely emitted by our leading pundits. Indeed, our warhawks seem to be in a friendly competition to see who can come up with the most outrageously immoral arguments. The winner of the Bloodlust Award, up until recently, has been Max Boot, without question. Who, after all, could top his argument that we didn't suffer enough casualties in the Afghan phase of the current war? The same sort of monstrous moral inversion, however, is the theme of Kudlow's piece, which essentially says that war will bring us renewed prosperity:

"The shock therapy of decisive war will elevate the stock market by a couple-thousand points. We will know that our businesses will stay open, that our families will be safe, and that our future will be unlimited. The world will be righted in this life-and-death struggle to preserve our values and our civilization. But to do all this, we must act."

This, of course, is precisely what the Marxists say: that capitalism feeds on human destruction, and top-hatted capitalists are the merchants of death, human vultures who live off the pain and suffering of others. Both Kudlow and the commies are wrong.

In their mutual ignorance of how markets work ­ and, perhaps in Kudlow's case, on account of a deep cynicism and real malevolence ­ the warhawks of the Right and the anti-capitalist dunderheads of the anti-war Left have the same analysis: Kudlow and the Commies are merely represent different sides of the same coin of doubtful value. For the economic assumptions of both camps are equally false, based as they are on a profound misconception of what capitalism is and how free markets function. As Ludwig von Mises, the founder of the "Austrian" or pure free-market school of economics, put it:

"War prosperity is like the prosperity that an earthquake or plague brings. The earthquake means good business for construction workers, and cholera improves the business of physicians, pharmacists, and undertakers; but no one has for that reason yet sought to celebrate earthquakes and cholera as stimulators of the productive forces in the general interest."

Surely Mises was not expressing anti-capitalist sentiments by recognizing that war, like all human activity, is governed by the invariable laws of the market, and that some will profit from the spilling of human blood. The existence of what we might call the Undertakers Lobby should hardly come as a shock to conservative and libertarian critics of Big Government – and isn't Kudlow just too perfect as their official spokesman? We, the Merchants of Death, recommend "shock therapy" for a benumbed nation – just what we all need in the aftermath of 9/11. Shock us, torture us, jolt us into prosperity! If the Marquis de Sade had founded a school of economics, instead of writing all those obsessively long and quite boring pornographic novels, this is the doctrine he would have enunciated.

The Kudlow Doctrine is dead wrong, and profoundly anti-capitalist. For war sets the stage for the eventual strangling of free markets. High taxes, more systematic government regulations, and the massive physical destruction of capital, including especially human capital – these are the conditions for the eradication of market mechanisms and their replacement by the machinery of the State. The war spirit also gives added impetus to the arguments of our latter-day Mensheviks, the Blairites, Clintonites, and various and sundry other Third-Wayers who argue that war means the era of Big Government is back.

For all his talk of exporting the idea of "free markets" to the Arab world, it seems that Kudlow doesn't understand how economic freedom is being threatened right here on the home front. Worse, he doesn't seem to understand – or care – that the "shock therapy" he recommends could send world markets crashing, as Bill Powell speculates in his Fortune piece, "How a War With Iraq Will Change the World."

Powell makes the argument that the markets live in fear of Gulf War II and its possible consequences. He points out that consumer confidence "fell off a cliff" during the first attack on Iraq, and convincingly argues that the same pattern is likely to hold this time around. He also brings up the question of cost: with Japan and the Saudis, not to mention the Europeans, failing to write generous checks, record federal deficits make a tax hike inevitable.

"The mother of all economic nightmares," Powell writes, "revolves around oil." While pro-American members of OPEC could easily make up for the withdrawal of Iraqi oil from the market during the fighting, there may not be any pro-Americans left anywhere in the Arab world – especially if Ariel Sharon has anything to say about it. As Powell puts it:

"The oil-driven disaster would probably come only if a wider war involving Israel prompts an Arab embargo, something angry populations might demand and quaking Gulf governments would accede to. Six months of oil at $50 a barrel would stick the U.S. economy with the equivalent of a huge tax increase. As Mark Zandi, chief economist at, points out, a mere $10 increase in the price of oil shaves a full percentage point off of GDP. Another oil shock may not be likely, but to dismiss it out of hand would not, as President Bush's father used to say, be prudent. For that and other reasons George W. Bush needs to do as his father did in 1991 and make sure the Israelis stay out of it when Saddam's remaining Scuds take flight. But in this environment, and with Ariel Sharon as Prime Minister, will they?"

I would argue that Israel need not be directly involved to spark a Mideast conflagration. US military action against Iraq would strengthen the hand of groups like Hamas and Al Qaeda immeasurably, and the conflict would quickly become region-wide, possibly leading to a revolutionary ultra-Islamist upsurge against the pro-American monarchies of the Gulf, as well as in Jordan and quite possibly Egypt. Even solidly secular Turkey would be shaken to its foundations: for this chain of events would re-ignite their long-simmering war against the Kurds, emboldening rebel factions to seize their chance for independence. The possibility of "oil shock," however, is not the only looming danger depressing the American economy. There are deeper problems….

Those faint rumblings you hear – a falling dollar, the recent vote to increase the limit on the national debt, the stock market hovering around post-9/11 lows – may be the fore-shocks of a coming economic earthquake, if James Pinkerston is right. While everyone is fixated on dishonest accounting practices and other forms of corporate crookery, the real problem, he avers, is the rapidly weakening dollar. The President can get up on his bully pulpit and scold corporate rip-off artists to much applause, but the paying customers have already walked out of the theater. As Pinkerton points out:

"Maybe it's too late to avoid substantial damage, because foreigners have reached a negative judgment about the U.S. economy – a judgment that has already eroded the value of our money and could even cause a crash in our stock market."

Describing the course of capital flight from the US, Pinkerton argues that Americans have good reason to be worried. He cites a recent Goldman Sachs study that predicts a further decline, by 8 percent,over the next year, and still the dollar will fall. If it falls far enough, fast enough, the result could be catastrophic:

"Given the rotten state of corporate America, such a further dollar-decline might be inevitable, and yet the Goldmanites note a greater danger if our money loses too much too soon. Their report recalls a brief interlude of dollar deterioration, from 1985 to 1988, when the dollar fell by about a third. During those years, the decline in the dollar destabilized financial markets in the United States, and this destabilization was 'the trigger mechanism that helped to generate the 1987 stock market crash.'

"Yikes. Remember Black Monday, Oct. 19, 1987, when the Dow Jones Industrial Average fell 508 points – 22.6 percent?"

It could happen again, says Pinkerton, although the Goldmanites don't seem to think so. But George Soros, the man who broke the Bank of England, now tells us he "wouldn't be surprised" if the dollar sinks by as much as 30 percent in a period of a few years. As Pinkerton trenchantly points out:

"And since a one-third drop in the dollar helped trigger the '87 crash, a dollar-watching doomsayer could predict another Black Day for the market sometime soon. In today's numbers, such a fall would clip off about 2,000 points from the Dow. That would be ruinous to many investors, but it's not so hard to imagine because it's happened before."

Sometime soon, eh? Maybe that's why Kudlow and his fellow neocons are in such a hurry to drag us into a Middle East war: they want to start it before anyone realizes that we'll have to mortgage the future economic health of this country well into the next century in order to pay off mountains of debt. Such are the dubious rewards of Empire.

George W. Bush and his neocon amen corner think they are going to launch a war of "liberation" against Iraq, and even the entire Arab world, but they may face yet another Pearl Harbor, not a new terrorist strike but a sneak attack coming from a completely different direction. Let Bush "lecture Wall Street" all he wants, writes Pinkerton:

"But he should also keep in mind that the world market is watching, too, looking for signs that he is focused on the economy, stupid. And that means keeping the dollar strong, dammit."

Focused on the economy he is not. Instead, we are mired down in this endless "war on terrorism." Resources and energy that might have gone into productive uses are instead re-directed and malinvested in a parasitic and essentially useless bureaucracy. Even bankrupt Amtrak, which was slated for privatization (or a much-deserved death), has been saved in the name of "national security."

War is the centralizing, State-empowering dynamic that has propelled the growth of Big Government in America. Two world wars and a third one served "cold" were enough to bloat the federal Leviathan far beyond the Founders' worst fears. "War is the health of the State," as Randolph Bourne famously put it, and an affliction on the private sector. This is a lesson many conservatives will have to re-learn. Their forefathers on the Right knew it, the much-maligned "isolationists" of liberal lore, who dared ask: why defeat national socialism in the trenches, and let another form of national socialism win on the home front? While the ideological implications of the "Homeland Security" campaign can easily be overdrawn, it should be clear to many conservatives that a perpetual "war on terrorism" entails a radical assault on personal as well as economic liberty. Will these two pillars of conservative principle be demolished and replaced by the odious Kudlow Doctrine – perpetual war for permanent prosperity?

The odd mixture of Sadean economics, Christian Zionism, and world-saving neo-Wilsonianism that National Review and the Weekly Standard are peddling seems too exotic for its own good. Certainly it seems far too kooky for mainstream conservatives. That 's why I'm pleased to report that my recent series of columns on why we need to turn toward the Left and leave the Right to the neocons may have been premature, to say the least. The launching of a new fortnightly magazine by Pat Buchanan and Taki, The American Conservative, couldn't have come at a better time. At last the hegemony of the neocons is broken, and the guff handed out by Kudlow and his ilk won't go unchallenged for much longer.

Yes, I've been challenging them here, in this space, for some time: but I can't tell you what a relief it is to know that reinforcements are on the way.

For the Kudlow Doctrine – better living through mass murder – is, by far, the worst product of the conservative movement's degeneration into little more than a pack of bloodthirsty monsters. Kudlow wins the Bloodlust Award hands down. His scheme is far uglier, morally, than anything Max Boot has come up with. Beside Kudlow's "let's kill our way out of the recession" scenario, National Review editor Rich Lowry's proposal to "nuke Mecca" seems innocently schoolboyish.

Aside from the laughable economics of Kudlow-ism, even if he was right, and Mises was wrong – even if, somehow, the laws of the market, and of nature itself, could be repealed in wartime, by special dispensation from a Higher Authority – and war did bring us prosperity, still it would be the wrong course to take. Indeed, one could argue that the crime would be even greater, insofar as the motive was purely mercenary. By this standard, what Kudlow is proposing amounts to an expression of pure evil.

The moral meaning of the Kudlow Doctrine is all too plain: these guys will stoop to anything in order to drag us into a permanent war on a global scale. If Christian Zionism and fairy tales of the "end times" don't work, try anthrax conspiracy stories blaming Saddam. If that doesn't work, then tell them a Middle East war will usher in a new era of prosperity. Lie, cheat, smear your enemies, and spread the poisonous "memes" of the War Party far and wide. What a rotten bunch! Thank God for Pat Buchanan, the heroic Taki, and the indefatigable Scott McConnell. The cavalry has arrived, or, at least, they're on their way. The Old Right is back – and not a moment too soon.

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