28 Mar 2003 War Dampens Early Enthusiasm
In just a week the faint signs of optimism have succumbed to the brutal realties of war. It is not clean and it rarely, if ever, goes according to script. Investors are realizing that they likely allowed excessive optimism to get ahead of reality. The war will take longer than earlier hoped.
U.S.consumer confidence fell in March to the lowest in almost a decade as the buildup to the war in Iraq and higher energy costs threatened to slow the economy. The Conference Board’s confidence index dropped to 62.5 during the month from 64.8 in February. That was the lowest since 60.5 in October 1993 and marked the ninth decline in the past 10 months, according to Bloomberg News. Americans’ outlook for the economy was the weakest since the Gulf War in early 1991. The University of Michigan’s survey, released today, showed similar declines in confidence.
Existing and new home sales declined slightly, but remained strong, bolstered by low interest rates and relatively steady employment. But the business side of the economy continues to languish. U.S.orders for durable goods dropped in every category during February except defense equipment as theU.S.prepared for war withIraq. Orders for items made to last at least three years declined 1.2% to $170.2 billion, after a 1.9% increase in January, according to the Commerce Department. Spending on defense equipment surged 28% after falling in January and was up 22.5% from a year earlier.
TheU.S.economy grew from October through December at about a third of the prior quarter’s pace, hobbled by slower consumer spending blamed on theIraqwar, a harsh winter, and higher energy costs. Gross domestic product, the sum of all goods and services produced in theU.S., expanded at a 1.4% annual rate, matching the Commerce Department’s estimate last month. The economy grew at a 4% pace in the third quarter. Consumer spending was the weakest since the third quarter of 2001 when terrorists attackedNew York and Washington.
Investors, like consumers, fall prey to the same negative effects of the war. U.S.investor optimism, as measured by UBS AG and the Gallup Organization, fell to a record low for a second straight month. The UBS Index of Investor Optimism fell to 5 in March from 9 in February. The March level was the lowest since the survey began in 1996 with a baseline of 124. Prior to February and March, the previous low was 29 in October 2002.
The index has fallen for three straight months for the first time since dropping for six months from August 2000 to February 2001. Some 44% of those surveyed between March 1 and March 12 said the decline in U.S.stocks has caused them to permanently change the amount they expect to invest in the future.
Why Fight This War?
Most humans desire peace, and all of us to a varying degree embrace inertia or the status quo. It is easy to see why the world would rather go on ignoring dictators who have not overtly impacted their own or their collective self-interests. It is human nature to ignore or avoid those things that do not immediately threaten us. Indeed by taking action against a sleeping threat, we risk causing the very threat we fear.
As we discussed last week, history is a great teacher. While its predictive powers should be suspect, its broader lessons are too important to ignore. I have not seen a better synopsis of the world’s blindness to the events leading up to Hitler’s aggression than that of Alistair Cooke’s “Letter From America.” The following excerpt is taken from Sir Alistair Cook’s weekly radio address and is entitled “Peace For Our Time.”
“…I promised to lay off topic A:Iraq, until the Security Council makes a judgment on the inspectors report, and I shall keep that promise. But I must tell you that throughout the past fortnight I’ve listened to everybody involved in or looking on to a monotonous din of words, like a tide crashing and receding on a beach making a great noise and saying the same thing over and over. And this ordeal triggered a nightmare a day-mare, if you like.
Through the ceaseless tide I heard a voice, a very English voice of an old man Prime Minister Chamberlain saying: “I believe it is peace for our time,” a sentence that prompted a huge cheer, first from a listening street crowd and then from the House of Commons, and next day from every newspaper in the land. There was a move to urge that Mr. Chamberlain should receive the Nobel Peace Prize.
In Parliament there was one unfamiliar old grumbler to growl out: “I believe we have suffered a total and unmitigated defeat.” He was, in view of the general sentiment, very properly booed down. This scene concluded in the autumn of 1938, the British prime ministers effectual signing away of most of Czechoslovakia to Hitler. The rest of it, within months, Hitler walked in and conquered. ”Oh dear,” said Mr. Chamberlain, thunderstruck. “He has betrayed my trust.”
During the last fortnight a simple but startling thought occurred to me every single official, diplomat, president, prime minister involved in the Iraq debate was in 1938 a toddler, most of them unborn. So the dreadful scene I’ve just drawn will not have been remembered by most listeners. Hitler had started betraying our trust not twelve years but only two years before, when he broke the First World War peace treaty by occupying the demilitarized zone of theRhineland. Only half his troops carried one reload of ammunition, because Hitler knew that French morale was too low to confront any war just then, and ten million of eleven million British voters had signed a so-called peace ballot. It stated no conditions, elaborated no terms. It simply counted the number of Britons who were for peace.
The slogan of this movement was “Against War and Fascism,” chanted at the time by every Labor man and Liberal and many moderate Conservatives a slogan that now sounds as imbecilic as against hospitals and disease. In blunter words, a majority of Britons would do anything, absolutely anything, to get rid of Hitler except fight him.
At that time the word pre-emptive had not been invented, though today it’s a catchword. After all, the Rhineland was what it said it was, part of Germany. So to march in and throw Hitler out would have been preemptive wouldn’t it? Nobody did anything and Hitler looked forward with confidence to gobbling up the rest of Western Europe country by country, course by course, as growler Churchill put it.
I bring up Munich and the mid-30’s because I was fully grown, on the verge of thirty, and knew we were indeed living in the age of anxiety. And so many of the arguments mounted against each other today, in the last fortnight, are exactly what we heard in the House of Commons debates and read in the French press. The French especially urged, after every Hitler invasion, “negotiation, negotiation.” They negotiated so successfully as to have their whole country defeated and occupied. But as one famous French leftist said: We did anyway manage to make them declare Parisan open city no bombs on us!
In Britain, the general response to every Hitler advance was “disarmament and collective security.” Collective security meant to leave every crisis to theLeague of Nations. It would put down aggressors, even though, like the United Nations, it had no army, navy or air force. The League of Nations had its chance to prove itself when Mussolini invaded and conquered Ethiopia(Abyssinia). The League didn’t have any shot to fire. But still the cry was chanted in the House of Commons: “the League and collective security is the only true guarantee of peace.”
But after the Rhineland, the maverick Churchill decided there was no collectivity in collective security, and started a highly unpopular campaign for rearmament byBritain, warning against the general belief that Hitler had already built an enormous mechanized army and superior air force.
“But he’s not used them, he’s not used them,” people protested. Still, for two years before the outbreak of the Second War you could read the debates in the House of Commons and now shiver at the famous Labor men. Major Atlee was one of them who voted against rearmament, and still went on pointing to theLeague of Nations as the savior.
Now, this memory of mine may be totally irrelevant to the present crisis. But it haunts me. I have to say I have written elsewhere with much conviction that most historical analogies are false because, however strikingly similar a new situation may be to an old one, there’s usually one element that is different and it turns out to be the crucial one. It may well be so here. All I know is that all the voices of the 30s are echoing through 2003…”
Time will reveal the depth and breadth of Saddam’s evil ambitions, but for now we OWE our support, prayers, words, and actions to our brave men and women on the front lines who are willing to sacrifice all for this country and her Constitution. I also honor President George Bush and Prime Minister Tony Blair for their courageous stand against the global and political status quo. They speak as courageous, if unpopular, “growlers” against aggression and oppression.