War is hell, the saying goes. It's also expensive as hell.
National security has become fashionable once again following the Sept. 11 terrorist attacks on the World Trade Center and Pentagon. It's not just our airports that need their security beefed up. Our national monuments, power plants, water and food supplies, sports stadiums, public gathering places, roads and bridges, government buildings, vital industries -- all forms of infrastructure need protection against an attack by flying airplanes-turned-missiles and contamination by biological or chemical agents.
All this costs money. With the federal budget in surplus, patriotism flying high in the wake of the terrorist attack and a mid-term election next November, fiscal restraint pretty much went out the window.
"Government grows during wars," says Andy Laperriere, a political economist with International Strategy & Investment in Washington, DC. "It generally doesn't go back to the levels it was before." "Every time there's a war, the Washington area population doubles," says Pete Davis, president of Davis Capital Investment Ideas in Washington, DC.
The problem is nothing else shrinks.
"Defense spending is going up; it was going up anyway," says Paul Kasriel, director of research at the Northern Trust Corp in Chicago. "But we're not cutting back on anything else. We're going to spend more on drugs, vaccines, etc."
The bidding war started with President George W. Bush's proposal for a fiscal stimulus of US$60 to US$75 billion. Congress upped the ante to US$100 billion. The bill passed by the House Ways and Means Committee last week "is loaded for bargaining purposes," says Davis. "Congressional staff talk about the Chinese menu approach to the stimulus bill: ordering everything everyone wants."
Behind the fascade of politicians united behind the worst attack and single-day loss of life in US history, there's been "the worst partisan bickering in recent memory," Davis says.
"The real question is, will Bush sign a bill over US$75 billion that is close to half spending?" Everyone pretty much agrees on the need for and desirability of increased defense spending. The debate about which Pentagon programs and weapons to retain and which ones to cut has become moot. Now there's money for ships, planes and tanks, along with all sorts of high-tech surveillance equipment.
Outside of defense, it's no surprise how the parties are lining up. The Republicans want to structure the stimulus around tax cuts for business and individuals, including an acceleration in marginal tax-rate cuts enacted earlier this year, the repeal of the corporate alternative minimum tax and a reduction in the capital gains tax rate. The Democrats are arguing against tax cuts for the rich, preferring to devote half of the stimulus to new spending, including transfer payments to low-income Americans (you can't get a rebate on taxes you don't pay) and additional unemployment compensation and health benefits.
The wave of anthrax scares has Administration and Congress asking for more money to purchase antibiotics, not to mention increased funding for health agencies, now that men in moon-suits -- the HAZMAT, or hazardous materials, guys -- are becoming a fixture of city life.
The latest initiative would put the government in the insurance business, making it responsible for as much as 90 percent of the insurance claims from future terrorist attacks.
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