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To be honest, it is very difficult to say with any degree of certainty how the war in Iraq has affected the national of state economies. This is almost always the case, whether looking to isolate the impact of events like wars, natural disasters, government policy changes, or technological innovations. This is because any economy is always being affected by three major types of influences: cyclical forces, structural forces, and shocks. For example, during 2003 and 2004, the state’s economy has been affected by: the business cycle via the transition from jobless recovery to positive job growth, by structural forces via the ongoing and long-term shift from manufacturing towards services, and by shocks such as the start of the war during March 2003.

Because all of these forces are occurring simultaneously, it is a tough job to try to disentangle the separate influences of these forces. Now, it is largely this kind of disentangling that economists try to do all of the time, often with very complicated statistical models. For the current purpose, however, we can consider some of the trends we’ve seen since the spring of 2003.

The war began in March 2003 at a time when the South Carolina economy was just starting to eke out some positive job gains. Between March and July 2003, the state’s economy experienced another dip in total employment. Since that time, the state has posted fairly impressive total employment growth. A similar trend is apparent in other economic indicators, including such measures as retail sales and total state sales tax collections. Also, the same general pattern is apparent in national data – the U.S. economy turned in very strong economic growth during the third quarter of 2003.

Overall, it appears that the onset of the war in Iraq coincided with a lull in the economy but starting a few months after the war began, the state and national economies began to post much more solid improvement. Again, though, this kind of casual observation cannot be used to prove anything about the relationship between the war and the economy. I will note, though, that the start of the war did involve a large surge in federal defense expenditures, and that in classic fashion, these expenditures have undoubtedly had a fairly large ripple effect on the economy helping to boost economic growth. On the whole, I think it is quite difficult based on the numbers to claim that the war has had a negative impact on the state’s economy.

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