Competence Inspired the World Markets
A new spirit was emerging in U.S. and world markets Thursday in response to early success in the Persian Gulf War. And even though it was undoubtedly chilled by reports after the close of U.S. trading that Iraqi missiles had hit Israel, it could emerge again when the war ends successfully--as it surely will--to spark a new, long bull market and a revival of the U.S. economy.
What was emerging was a confidence going beyond finance to those fundamental impressions and values that underlie markets and consumer and business sentiment--the whole economy, in short.
Competence inspired the market, a respect for and belief in competence.
You could feel it in the way the stock market rose strongly but not chaotically, not euphorically. Traders were cognizant that events in the war could still go badly--and, indeed, markets could well open down today.
Traders knew the U.S. economy is in recession. They knew that plane sorties against Iraq would not erase debts, reduce the budget deficit or repair neighborhoods and education.
But they felt a start could be made, because what they saw on their television screens was competence. If sharp talkers personified the last decade, two laconic public servants might embody the new: Defense Secretary Dick Cheney and Chairman of the Joint Chiefs Colin L. Powell. They gave no boasts, they made few claims. “The air operations,” said Powell, “are part of a plan.” You plan your work and work your plan.
As Cheney and Powell said, prophetically, it’s too early for optimism. But in the war so far, even with the bad news, there are hopeful lessons for business and the economic outlook.
They begin with relief that the weapons worked. Before Wednesday night, the newspapers and airwaves were filled with experts voicing fears that high-technology weapons wouldn’t work, would prove an embarrassing and life-threatening failure.
But the weapons worked, the missiles and the high-tech jets, the night vision equipment and the pilots and ground and carrier crews worked. And why? Because of testing and training. Ever since Vietnam two decades ago, when high-tech weapons in the hands of undertrained personnel broke down in the steaming jungle, the military has been improving the weapons and training the people.
It hasn’t taken shortcuts--and that has cost money. The Defense Department’s research and development budget has been running close to $40 billion a year, four times the R&D; expenditure on health and human services, six times R&D; on energy. But you get what you pay for, the technology worked.
Let’s keep a little perspective. Those weapons were designed and built to counter the awesome military power of the Soviet Union. So if they’re successful against a Third World adversary, that’s no cause for boasting.
But the war is serving a purpose. It is restoring belief that the rule of law will prevail among nations. Markets overseas rejoiced that the world was safer for commerce because another 1980s impression--that the United States was a fading superpower, lacking the will to act--was dispelled. That’s why U.S. Treasury bonds rose in price on Thursday.
Still, the United States didn’t go to war to prove its mettle. It went basically because only a superpower could bring stability to the Middle East. With Saddam Hussein threatening his neighbors with extortion and Israel with extinction, war was probably inevitable. But if Israel had fought it alone, the area’s instability would only have been compounded--meaning in commercial terms, higher priced oil and a riskier world.
Instead, when the gulf war is over, U.S. power will stand behind the region’s changes--from the disposition of Iraq, to a peace conference on Palestine, to political reform and the movement of oil.
That doesn’t mean U.S. military power is on call. On the contrary, power needs to be demonstrated but once; done repeatedly it becomes mere bullying. Moreover, the United States is not an isolated superpower. Rather its real current achievement is a coalition with 28 nations, involving a revived United Nations. Such a coalition did not even come together in the 1950s, when U.S. supremacy was unquestioned.
On Thursday, it did not seem impossible that the coming time could be even better than that. And even if events in the war put those hopes on hold, they are not extinguished.
Economically, the outlook is bright for the war’s aftermath. Yes, there is a recession. In the market’s near-record rise no one lost sight of it, although economist Norman Robertson of Pittsburgh’s Mellon Bank said that if the war were over quickly, the economic decline could be over by the second quarter.
In bonds, too, overseas investors bought heavily, but New York traders were more restrained, questioning whether inflation would return if recession ended. The readiness of oil to decline in price, even though it rebounded Thursday night in Asian trading, signaled that the answer on inflation would be no.
But beyond such day-to-day questions, the war’s successful end will boost the economy because money will flow again, capital will be invested. Even the federal budget problem will ease because military spending can come down. And it is likely to because Secretary Cheney has pledged to take $180 billion out of defense over three years.
To speak of the war’s end is premature while Iraqi missiles fly. But unless the war widens, its end is already in sight. And its aftermath will see a new confidence that if the United States has work to do, it can be done well. That’s the message the markets responded to on Thursday, and one hopes will respond to again in the days to come.
