Arnold Kling  

Reconstructing Iraq

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Comment of the Week, 04-09-03... Agricultural Trade Barriers...

The future of Iraq's economy is suddenly a topical issue. I wrote,


The new government in Iraq should encourage the growth of a private sector, by keeping taxes and regulation on businesses to a minimum. However, for the next several years, the government itself may have to be a large part of the economy. It can finance expenditures by using oil revenues and even by borrowing against future oil revenues.

For unskilled Iraqi citizens, the government should provide work in construction and clean-up, in order to rebuild the infrastructure of the country. For well-educated citizens, the government can provide work in civil service and education.


A piece in the Wall Street Journal says, "Unless the U.S. knows wages and prices around Iraq, it risks setting off a round of hyperinflation when wages are no longer fixed."

That seems wrong to me. As long as government spending does not have to be financed by money creation, there will not be hyperinflation. It is true that the government may have a difficult time determining the correct salaries for government workers, but overall one has to trust the market to find the equilibrium wage rate.

One of Iraq's problems is that it has accumulated a large external debt. 'Jane Galt' says that repudiation is justified.


Asking the Iraqi people to pay the bill for the armaments used to oppress them is abhorrent. Most other people I've read agree. Excepting the French, Germans, and Russians, who appear to hold most of the debt that will be repudiated.

For Discussion. Would the UN or other international bodies be likely to endorse debt repudiation?


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CATEGORIES: Macroeconomics



COMMENTS (1 to date)
Eric writes:

Here's an idea: pay the Franch and Russians back with their own crappy weapons, not with oil or cash.

You would disarm the country at the same time you paid off the debt. Iraq seems to be overflowing with AKs and RPGs, this would be a great way to get rid of them.

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