2006 September 16 Saturday
Iraq Economy Suffers High Inflation

Living standards are declining in Iraq because disruptions caused by the insurgencies are raising the costs of trade and transportation.

But Iraq's economy is weaker than at any point since the US invasion. Some estimate joblessness at 60 percent (the CIA shows a 30 percent rate for 2005), and prices for foodstuffs and basic goods have doubled - and in some cases tripled - since 2003.

Earlier this month, Iraq's planning minister, Ali Baban, said the rise in the consumer price index (CPI) - the basket of goods and services used to measure inflation - increased by nearly 70 percent in July compared with 12 months earlier. In July 2005, the CPI rose by 30 percent.

While the daily death toll frightens Iraqis - it topped 100 in the past two days alone - the country's economic grind is eroding the standards of living of millions of Iraqis and leading to mounting frustration in a country where the average monthly wage is less than $200.

Hunger is a problem. The higher the prices go the more people won't be able to feed their kids or themselves.

The violence in Iraq is cutting into the demand for labor and cutting output.

Usually when wages are flat and unemployment high, prices are stable, because consumption also stays flat. In developed economies like the US, inflation walks hand-in-hand with economic growth and job creation. But in Iraq, violence is driving the price increases, destroying jobs and testing a social net that was already weak before the fall of Saddam Hussein's regime. Economic despair, in turn, generates new recruits for the sectarian militias most responsible for the economic decline.

Corruption and the violence both are weighing down the Iraqi economy.

Corruption is another major problem. An audit sponsored by the United Nations last week found hundreds of millions of dollars of Iraq's oil revenue had been wrongly tallied last year or had gone missing altogether. Business is being done, but it isn't often very productive in nature. "There is a lot of activity in terms of trade and finance but there is not much activity in terms of production and that is not very healthy," said the central bank's Shabibi.

The financial corruption is probably filling a lot of Swiss bank accounts.

The Los Angeles Times reports that some Bush Administration officials have begun to think that Iraq would be better off under a strongman dictator. Um, you know, like Saddam Hussein.

Should a second government fail, it would not only raise questions about Maliki's effectiveness but might indicate that anyone would have difficulty leading Iraq. Few in the U.S. government so far have suggested anything as drastic as another change in the leadership, although some, frustrated by the lack of progress, have voiced a private view in recent weeks that Iraq might be better off under a traditional Middle Eastern strongman.

"But that's not the policy," said the second senior U.S. official, discussing the idea of changing governments again. "The policy is to prevent that from happening by making this government succeed."

Putting a Sunni dictator in charge would also yield strategic bonus points for neoconservatives who want to make Iran less of a potential future threat to Israel. An Iraq run by Sunni Arabs would make the Iranians think more about their own neighborhood and less about more distant countries that the Mullahs despise. The neocons really messed up by making Shias powerful in Iraq.

It is no wonder some Bush Administration officials are thinking about a dictator for Iraq. Democracy is not working - at least one in ways that people with Western values would want it to work. Iraqi Prime Minister Maliki can not crack down on the Shia death squads because democratically elected Shia political parties in his coalition support the death squads.

Despite their growing desire for action, U.S. officials say they recognize the difficulty Maliki faces in trying to lead a fractious government with only the narrowest base of public support. For example, though a top goal of both the Bush administration and the Maliki government is suppressing sectarian violence, it is difficult for the prime minister to try to bring pressure on groups associated with Sadr.

"People here recognize that it's a political reality that he depends on the votes of groups which, while not all dirty, have some ties to Shia death squads," the second senior official said. "He's a decent man, a serious person, but there are realities."

I wonder whether George W. Bush knows that democratically elected Shia political parties are supporting Shia death squads that are killing not just insurgents but just people who have Sunni-sounding names. A recent Bush speech on Iraq and terrorism is full of the same myths and delusions that characterised Bush Administration rhetoric on Iraq and terrorism a few years ago. Is he sincere when he makes ridiculous speeches or is he just trying to cover up the ways that the Iraq invasion was a mistake?

Update: The majority Shia Iraqi people elected leaders who support the infiltration of the government by Shia militiamen.

BAGHDAD, Sept. 16 — Shiite militiamen and criminals entrenched throughout Iraq’s police and internal security forces are blocking recent efforts by some Iraqi leaders and the American military to root them out, a step critical to winning the trust of skeptical Sunni Arabs and quelling the sectarian conflict, Iraqi and Western officials say. The new interior minister, Jawad al-Bolani, who oversees the police, lacks the political support to purge many of the worst offenders, including senior managers who tolerated or encouraged the infiltration of Shiite militias into the police under the previous government, according to interviews with more than a dozen officials who work with the ministry and the police.

This is democracy at work in Iraq.

The ministry recently discovered that more than 1,200 policemen and other employees had been convicted years ago of murder, rape and other violent crimes, said a Western diplomat who has close contact with the ministry. Some were even on death row. Few have been fired.

Shiite interior minister Jawad al-Bolani has to weigh reform against the risk of getting himself killed.

Mr. Bolani, a Shiite engineer appointed last May, sincerely wants to purge the ministry of Shiite partisans brought in by his predecessor, the officials interviewed said. But his independence from powerful Shiite political leaders — the very quality that earned him the job — also means Mr. Bolani has limited power to remove politically connected subordinates and enact changes.

“He’s got to be careful about what he does, just to stay alive,” the Western diplomat said.

His democratically elected colleagues will put out a hit on him if he goes too far and makes substantial reforms.

But deluded man of irrational faith George W. Bush still holds that democracy is a panacea.

"We believe that freedom is a gift from an almighty God, beyond any power on earth to take away," Bush said. "And we also know, by history and by logic, that promoting democracy is the surest way to build security."

Democracy in Mexico has built Nuevo Laredo into a shooting gallery between drug gangs, corrupt police, and corrupt soldiers (with considerable overlap between the soldiers and the drug gangs). Democracy in Iraq has fueled ethnic hatred. See my post from over two and a half years ago: Prospect Of Democracy Breeding Ethnic Hatred In Iraq. As for why too many liberals and neoconservatives (which I view as a type of liberal) can not see the implications of Iraq for their own beliefs see my comments on another site about how the desire to see liberalism as a universal aspiration of all humans blinds many intellectuals from admitting the obvious lessons that Iraq drives home.

Share |      By Randall Parker at 2006 September 16 11:07 PM  Mideast Iraq Economics

Tony said at September 17, 2006 11:48 AM:

Randall - yours is the best blog around. The acid test for me is whether the writer can change my views. You have on a number of occasions. I now know what a real Burkean conservative is, and as i read you i shed more and more of my lifelong liberal, multi-cultural views (sob!). I'd like to send you a copy of my book 'Achieving Business Value from Technology' (Gartner). Let me know how - and keep up the good work. Your tech blog is great as well.

Krusty Krab said at September 18, 2006 1:17 PM:

You would be more convincing if you didn't need childish ad hominems like this one "But deluded man of irrational faith George W. Bush still holds that democracy is a panacea."

History will judge whether democracy is a panacea, but your foolish taunts serve only to make you look foolish.

What exactly are you advocating, other than apparently subjugation to tyrannical despots like Saddam Hussein. Apparently, for you, (likely temporary) high inflationary periods are less desirable than the despotic rule of a tyrant who on average inflicted 100,000 deaths per year upon his countrymen. Now those were the good old days, weren't they?

Randall Parker said at September 18, 2006 5:08 PM:

Krusty Krab,

Childish? The man has committed one of the greatest foreign policy blunders in American history. I'm really holding back.

He's either lying massively or deluded massively.

History has already judged whether democracy is a panacea. Most US interventions in other countries failed. Eminent historian of the Soviet Union who called the Soviets correctly while being excoriated for years by the Left says that the current push for democracy as a panacea is a folly that puts the cart before the horse.

Iraq is deterioriating. Bush's policies have failed and the failure is getting worse.

Tony said at September 20, 2006 9:37 AM:

Krusty Krab's grasp of figures is as tenuous as GW's grasp of truth. Best estimates suggest Saddam was killing about 5,000 people per year (if GW had remained as Governor of Texas maube he'd have caught up?) while the esteemed British Medical Journal The Lancet has estmated that Operation Iraqi Oil - sorry make that Freedom - has cost over 100,000 so far. The adventure has had a 180 d. opposite affect to the stated objectives. It's enraged the Islamic world (admittedly, not difficult), created hunders of new terrorists, diverted the West's resources from the real enemy.

Randall Parker said at September 20, 2006 6:56 PM:


The problem with the figures Krusty Krab cited for deaths under Saddam is that they include the Iran-Iraq war in the average. That does not make sense for a few reasons:

1) The US was quite happy to see Iraq take on the Mullahs and basically drain the Iranian revolution of fervor and influence.

2) The US even helped Saddam during the Iran-Iraq war and Donald Rumsfeld travelled to Baghdad to negotiate ways we could help.

3) The Iran-Iraq war was long over before we invaded and Saddam was unlikely to do anything else that would bring the death rates in Iraq up to the levels it reached during that war. Saddam's police state had scared everyone into line and he didn't have to kill many people per year to maintain power.

4) The death rate now is far higher than it has been in Iraq for many years before our invasion.

The Lancet estimates are old at this point. The rate of death from bombings is much higher. Plus, inflation his causing hunger and the hospitals and doctors can't get supplies. So death rates from hunger and disease must be rising.

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