America has won a war, a probable end to the recession, new faith in its technology and an opportunity.
The most important part is the opportunity.
With a new positive attitude, the U.S. public finally might be ready to tackle financial and economic problems hobbling it for more than a decade.
The key unanswered question: From an economic standpoint, will the American people decide to become as smart as their weapons?
Much depends on whether President Bush, basking in the glow of the U.S. military`s smashing triumph over Iraq, capitalizes on this new mood to wrestle with a domestic agenda filled to the brim with problems of education, productivity, jobs and health care.
”The rap on him until now is that he loves foreign policy and diplomacy and doesn`t like domestic policy,” said Frank Levy, a University of Maryland economist. ”Now is the time to get some leverage on domestic issues. What he has is the bully pulpit.”
The Persian Gulf victory doesn`t change much economically in the U.S., except what`s in consumers` minds. But that could be the most important indicator of all.
Many observers of the American economy have written and lectured in recent years about how the nation seems to have lost a sense of its ability to perform.
Iraqi President Saddam Hussein`s invasion of Kuwait intensified this feeling, coming at a time when the nation was struggling with debt, recession, bankruptcies, financial crises in banks and savings and loan associations, and a fall in housing prices. In December, consumer confidence fell to the lowest level since the deep recession of 1980-81.
But Levy said attitude can make a difference. ”Though it`s hard to measure, a lot of the economy is nothing more than attitude. The things you can do are determined by the things you think are possible. Things that are possible determine what people are willing to attempt.”
So when people see military success and competent commanders, he said, it might just be the tonic required for correcting problems that have long been ignored.
David Wyss, economist for DRI/McGraw Hill of Lexington, Mass., said people are returning to shopping centers and car lots because of a new attitude, and because they aren`t riveted to television anymore.
The recession might last another month until stepped-up buying leads to more hiring, he said. But he predicts the recovery will be slow and unsatisfactory because the nation`s tougher economic problems have not been addressed.
Still, said economists David Hale of Kemper Financial Services in Chicago and Barry Bosworth of the Brookings Institution in Washington, the victory will give the U.S. and its allies several years of stable oil prices-something they have been unable to count on in the past.
Gary Hufbauer, a Georgetown University economist, said that with lowered oil prices, the U.S. should seize the opportunity to raise gasoline taxes and help cut the deficit. Adjusted for inflation, economists said, gasoline prices are lower today than they were prior to the 1973 surge in oil prices.
One thing that America achieved in the war was sending the clear message that the world`s oil-producing areas are special, and will bring military intervention if they are threatened.
And to Hale, there`s something to be said economically for the fact that the U.S. military victory is an important check against future aggression in world hot spots. It`s an intangible, he said, but the principle of non-aggression fuels economic growth.
But here at home, the opportunity to address economic problems could be lost if Americans use euphoria as a substitute for action. It has happened before-in the 1980s, for example, a decade in which the nation racked up record debt and lost many key markets.
It will take time and hard work to solve the budget deficit, rebuild the financial system, upgrade schools, open up new job opportunities, make high-quality products that compete better in world markets and escape the debt burden of the last decade.
”If I had to sum up the basic, domestic view of ourselves of recent years, it was that we were basically incompetent,” Levy said. ”We weren`t able to educate our kids, make good products or balance the budget. I have to believe that some of that involved our perception of a military that bought expensive toilet seats and suffered many setbacks.”
The success in Kuwait changes that perception but does not immediately translate into victory over all these problems.
Bosworth said that if the nation is not careful, one problem-the budget deficit-could get worse.
The Persian Gulf victory almost certainly will raise the size of the military budget from the slimmed-down versions set for the next five years, he said.
”This war gives a boost to people who want to maintain a high level of defense spending,” he said.
There`ll be a push to build more high-tech weapons and to divert funds away from reserve to active forces, as well as a ”big political battle over Star Wars,” the space-based anti-missile system-all expensive items.
Other analysts agreed the military is apt to be more flush with money than planned, but said the military budget still will decline because of troop withdrawals from Europe.
Internationally, the war could give the U.S. a unique chance to put pressure on Europe and Japan to make concessions on longstanding trade disputes, such as agriculture, said Robert Hormats, an economist for Goldman Sachs & Co. and a former White House adviser.
”I think we won the right to go after the Japanese and the Germans to ante up more in the Uruguay Round,” he said, referring to the official name for the trade discussions, which have been deadlocked since last year.
America`s ability to throw its weight around on the international stage, however, has limits. If its allies fail to come through to help finance its role as international peacekeeper, Bosworth said, U.S. taxpayers will fill the bill.
And Wyss, of DRI/McGraw Hill, said the fact that the U.S. still must borrow from overseas to keep the domestic economy afloat makes the country vulnerable. ”The war doesn`t change the fact there`s an international capital shortage,” he said.
This is not obscure stuff, Wyss noted. With the U.S. economy forced to compete with other countries for a shrunken pool of capital, interest rates here must go up to bring that money in. Ironically, that was one of the first things to occur after the war-bond yields went up.
”The bond market has gotten very weak,” Hormats said.
Such examples show why it`s so tough to ride a glorious moment of national euphoria to economic success, analysts said.
