by Robert D. Hormats
published by Henry Holt & Co.
© 2007 by Robert Hormats
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Exploring the idea that the need to pay for wars often drives financial
innovation, Goldman, Sachs & Co. managing director Hormats traces
the fiscal decisions made in American wars from the revolution to today's
war on terror. Customs duties often fall off with hostilities, he observes,
leading to increased reliance on excise and other consumption taxes.
These cut civilian demand, freeing up resources for war, but may be
unduly burdensome on the poor, who also do most of the dying. Taxes
on businesses and the rich are more popular, he notes, but don't reduce
consumption and may discourage energetic investment in war industries.
Printing money is easy, but stimulates demand and inflation. Borrowing
requires faith in the ability of the government to prosecute the war
and its willingness to honor the debt afterwards. If broad-based, debt
can cement support for the war, but if not, it can create a class of
creditors with excessive political power. Hormats shows that, despite
their differences, each treasury secretary seems to pick up where his
predecessor left off, refining the old ideas and adding new wrinkles.
Moving from history to current events, the author strongly criticizes
the Bush administration for failing to adhere to the principles that
have paid for 230 years of American liberty.
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