Despite US Republican presidential candidate John Mccain’s assurances that the impending US economic downturn is purely a product of our collective imagination, the sad truth remains otherwise.

Yes, “psychological” factors do play a significant role – albeit an intangible one – in moving the economy one way or the other. Consumer spending, for example, depends on our day to day decision-making and our own expectations of the future. Feeling good about the future? You’ll probably treat yourself to a Starbucks Caramel Macchiato during your coffee break. Worried about how to make ends meet with hefty mortgage payments, outstanding tuition loans and the like? You’ll likely think twice before splurging on that $4.50 cup of coffee, and settle for a less glamorous, but equally satisfying double-double for $1.25 at Tim Hortons. These decisions, multiplied a thousandfold, do affect the economy.

However, the impending US recession – or depression, in some circles – has less to do with demand-side factors (i.e. consumers) than it does with real and tangible supply-side factors and the role of a self-serving Bush administration. These are the “real” problems with the economy, problems that can’t simply be solved by hiding under our sheets, closing our eyes and wishing them away.

I will first examine the effect of rising oil prices on the US economy, and then move on to discussing the role of the current US administration in exacerbating the economic situation by involving itself in the unnecessary occupation of Iraq.

The integral supply-side problem at the heart of wracking the US economy is oil. How do rising oil prices do so much damage? Rising oil prices mean that pretty much everything is more expensive. Every productive process requires energy to function, and since oil prices – and thus energy costs – have risen sharply in recent years, producing stuff is a lot more expensive. In response to these rising costs, productive firms have no choice but to reduce production in order to stay alive.

Essentially, this means that the aggregate supply of the economy decreases, resulting in a sickening situation called stagflation, which combines the evils of inflation, unemployment and a recession. What this means to Mr. Average Joe is that he’s more likely to get laid off, and that he can’t live the way he used to before since everything is more expensive now. He now can buy less than he used to with his wages – unless he gets laid off, in which he can’t buy a single thing.

All this because of rising oil prices. But that isn’t the worst of it. The craziest part about stagflation is that the government faces a terrible dilemma when it attempts to reverse the damage caused. If the government tries to right the ship and restore the economy to its potential GDP, by fiscal policy for example, it worsens inflation and prices rise even further. However, if the government, in fear of inflation, does nothing in an attempt to protect the integrity of its currency, the economy is doomed to languish in a recession, and many workers will stay unemployed. The government can seemingly do no right in this situation, whatever good intentions it has.

Basically, in an oil-price-initiated state of stagflation, the government and consumers are screwed every which way they turn, and are thus at the mercy of ruthless oil companies and oil-producing countries. Unfortunately, the situation we are facing right now, whether Senator Mccain believes it or not, is even worse than the one I’ve described above.

Why? Because key members of the Bush administration have vested interests with the oil companies that have the entire world at their mercy. Most evidently, US Vice President Dick Cheney retains strong ties with Haliburton, in the form of deferred salary and significant stock options. This ridiculous conflict of interest creates a terrible situation – since the government and the oil companies are on the same “winning” side, the only losers are… everyone else.

In a nutshell, Bush, Cheney & Co. profit from the rising oil prices. They profit from the crippled economy. They profit from the death of the American dream. The stagflation dilemma faced by governments (inflation or recession?) doesn’t apply to them, because they win no matter what.

This brings me to my next point: the occupation of Iraq. Whatever way the Bush administration has strip mined the US economy for personal gain pales in comparison to what they have done to Iraq. So much has been written on this unjust occupation, this terrible atrocity, this hellish nightmare that has materialized from one little man’s thirst for blood and another’s psychotic avarice, that I won’t even go there in this article. What I’m going to talk about is the opportunity cost of the war – not even in intangible terms, such as the loss of American prestige and goodwill with its allies.

No, I’m just going to focus on the monetary opportunity cost of the Iraq occupation, in terms of averting the impending economic disaster which we face today. To date, close to a trillion dollars has been spent on Iraq – conservatively. This trillion dollar opportunity cost is massive – imagine what the economy would’ve been like had even a fraction of this been spent on educating future leaders, on training and developing an able labour force and keeping that very labour force healthy. This ABC article by Temple University professor John Allen Paulos cleverly states what a trillion dollars would have meant for the US economy. The trillion-dollar war, as Paulos writes, could have funded the annual budgets of national US health and science organizations hundreds of times over, bringing significant improvements to healthcare methods and green technology. It could have given every US citizen $3000 each – indubitably boosting aggregate demand and thus the economy where misguided mass-media attempts to coax consumers into buying more crap have failed miserably. It could have paid for $150 worth of healthcare to every single living human being on earth.

What indeed is the opportunity cost of the Iraq occupation? Forget merely averting the imminent recession. The trillion dollars could’ve changed the world – for the better. Instead, barely 5 years after US troops invaded Iraq, we have a credit crunch, dispossessed homeowners, soaring oil prices and plummeting living standards.

Perhaps the most hurtful, saddening but undeniably apt metaphor of our current situation is the site of the 911 attacks itself. In the wake of the September 11 attacks, Americans were promised that their country and their pride would be rebuilt from the ground up – and that the very symbol of their freedom which had been struck down, the World Trade Center itself, would be resurrected, grander and more majestic than ever before. Today, seven years on, the World Trade Center is still a rubble-filled hole in the ground, the sorry victim of logistical and financial problems – much like the US economy.

Thank you, George and Dick.