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State of Uncertainity

Karl Rove, the White House political adviser who seems to take special joy every time some television talking-head calls him …

Karl Rove, the White House political adviser who seems to take special joy every time some television talking-head calls him the secret brains of the Bush administration, keeps a classic photograph of Abraham Lincoln on his office wall. Perhaps it is to remind him that a president is treated well in history when he is recalled as the Great Liberator.

Or perhaps it is because Lincoln faced a problem that George W. Bush faces today: keeping the economy on track at a moment when uncertainty about war becomes the single greatest drag on it.

The message of President Bush’s State of the Union address was that he could handle both: He could wage war, if necessary, and restore economic growth at the same time. But in private his aides admit that the war and America’s economic path are inseparable. When Bush invited 15 economists into the Oval Office a few weeks ago, he was told that war jitters explained why the market was still in the doldrums, and why an economy that seems to grow one quarter peters out the next.

“What was said-and he didn’t disagree with this-is that uncertainty hampers investment decision, and that markets don’t like uncertainty,” one of the economists at the session, Brian S. Wesbury, from the investment firm of Griffin, Kubik, Stephens and Thompson in Chicago, said afterward. Ask Alan Greenspan, chairman of the Federal Reserve, and his answer is surprisingly straightforward: Stimulus plans are nice, but eliminating the overhang of questions about Iraq would be even more helpful to the American economy.

Bush will never make the argument that reviving the economy is a good reason to send Saddam Hussein into enforced retirement. Economic stimulus is never a reason for war (though countless wars have been fought for economic advantage). “The president is going to make his decisions because of the security concerns of the United States,” Ari Fleischer, the White House press secretary, told reporters recently. At the same time, he said, Bush was acutely aware of what uncertainty was doing to the economy.

Which takes us back to Lincoln. For decades, economists thought that the Civil War had been a boon to the economy, revving up Northern productions, encouraging entrepreneurship and organizational skill. It wasn’t until a few decades ago, running better numbers, that it became clear that on the whole, the war years probably retarded growth. They also prompted the Treasury to invent duties on every sort of manufactured good, while the Confederacy adopted an income tax, license taxes and what later generations would call an “excess profits tax.”

Some wars, of course, have prompted economic growth: World War II lifted America out of the Depression, and even Vietnam led to an economic boom. But staring at that picture of Lincoln, Rove must be thinking that the war against terrorism is, in economic terms, more like the Civil War.

The uncertainty doesn’t revolve much around the fate of Saddam Hussein. Iraq is not exactly an economic powerhouse, and right now it doesn’t pump enough oil to make a real difference in world supplies. But the threat of war in the Middle East-and the threat of retaliation here or in Europe-has sent oil prices up by $5 a barrel or more. It is doing unseen damage to confidence around the world-just ask the airlines pushed into Chapter 11.

So Bush knows that if a resolution to the Iraq problem is delayed, then the recovery is delayed. But he also knows that just solving the Iraq problem won’t solve the uncertainty problem.

There is North Korea, a nation that, unlike Iraq, has the missile capability to reach our allies and our troops in the Pacific. There is al Qaeda, whose goal is to hit the soft economic underbelly of the West. In short, the risk of catastrophe will not be solved with the occupation of Baghdad.

So perhaps the real lesson of the war-economy link is that none of this is going away soon. America will have to learn to live with a new form of risk, the kind you can’t hedge against. Politicians don’t like to talk that way; it sounds better to talk about the prosperity at the end of the rainbow. But there is little reason to think there are solid analogies with the industrial boom that followed the Civil War, or the computer age that was born of World War II. This time, the end of the rainbow is hard to see, and the war dividend is simply a lessening of fear.

David E. Sanger covers the White House for The New York Times.

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