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The Fog of War
The stock market is concerned about delay.


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Larry Kudlow

The stock market surged Wednesday as Secretary of State Colin Powell effectively made the case before the UN Security Council that Saddam Hussein and his despotic government are in material breach of Resolution 1441.

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Powell laid out charges that there is “irrefutable and undeniable” evidence that Saddam is hiding weapons of mass destruction, moving weapons from place to place to avoid detection by UN inspectors, failing to provide evidence of chemical weapons that were supposedly destroyed, and preventing scientists from meeting alone with inspectors. He also supported claims that Iraq is not only harboring terrorists, but teaching al Qaeda operatives how to make biological and chemical weapons. As he did so, the U.S. stock market rallied significantly. Gold and oil prices fell.

Our financial markets have long been suffering under the fog of war. They would vastly prefer that the U.S. and its allies implement regime change and disarmament in Iraq sooner rather than later. Instead of fearing war, markets have been greatly concerned over the delay of war.

Why? Every day we wait for the impending invasion of Iraq is a day Saddam Hussein grows stronger, a day our national security is threatened, and a day our economic security is jeopardized.

Every day of waiting raises the probability of another terrorist attack in the U.S. What kind of attack? Perhaps poisonous toxins in our water supply, or the assassination of our citizens. Maybe more bombings of our key institutions, or any of a thousand nefarious plots to prevent families from being safe and hinder businesses from remaining open to work and produce.

This is the fog of war. And not only does it have our citizens skittish, it’s masking real improvements inside our economy.

Productivity, profits, investment, and consumption are all showing new signs of life, but they are being hidden by the fog of war. Large-scale money creation by the Federal Reserve has all but ended the threat of deflation, a key barrier to economic recovery. But we can’t see this through the haze of Iraq and looming terror. Strengthening commodity prices in metals and industrial materials have provided profitable new pricing power for important economic sectors for the first time in three years. But all this is overshadowed.

So is the most aggressive stimulus plan we’ve seen since Ronald Reagan was in the White House.

The Bush administration has proposed a dazzling array of new tax incentives to promote much-needed saving, investment, capital formation, and risk-taking. These tax-reform measures, including lower income-tax rates, family-oriented tax breaks to nurture marriage and childrearing, an end to the double tax on dividends, and a simplification and expansion of supersaver accounts, will all combine to trigger a much stronger economy and provide new value for a sagging stock market. Lost capital and wealth will be rebuilt, and economic vitality restored. Budget deficits, meanwhile, will dissolve — once again the victim of maximized economic growth.

But here, too, the benefits of the Bush budget are being obscured by the fog of war. Consequently regime change in Iraq has become an economic issue, as well as a matter of national security.

Military troops are being put in place in the Iraq theatre. Special forces are on the ground, preparing to capture the oil fields. The mightiest air-bombing campaign in history is being planned. A government-in-exile, one pledged to develop a representative democracy with social pluralism and true human rights in Iraq, is being organized. War, it appears, is on the way.

And now it is time for action. Most Americans today are waiting for President Bush to once and for all pull the plug on Saddam. The nation has placed its trust in the commander in chief. There is no doubt that we will succeed in this venture. There is no doubt that the dominos of freedom and democracy will fall throughout the Middle East after Saddam’s removal. And there is no doubt that international terrorism will be dealt another mortal blow.

For all these reasons and more, let’s hope that delay is coming to an end. Investors, businesses, consumers, and families are not questioning the rightness of the war. They just want to know why it’s taking so long.

Mr. Kudlow is CEO of Kudlow & Co.



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