Then we will feel the effects of the dollar's decline on the prices of goods from Europe, Japan and Canada. The dollar's decline is already, no doubt, a component of the rising dollar price of oil. And this fact assures that Europe suffers less than we do from the consequences of our occupation of Iraq. Markets reward the peaceable, as nations from Switzerland to Sweden to China have long known. Economically speaking, empire is a suckers' game.

And there is profiteering. Firms with monopoly power usually keep some in reserve. In wartime, if the climate is permissive, they bring it out and use it. Gas prices can go up when refining capacity becomes short -- due partly to too many mergers. More generally, when sales to consumers are slow, businesses ought to cut prices -- but many of them don't. Instead, they raise prices to meet their income targets and hope that the market won't collapse. Own a telephone? Cable TV? Electrical connection? Been to a doctor? Filled a prescription? Have a kid in college? Then you know what I mean.

Meanwhile, lurking in the background are Alan Greenspan and the Federal Reserve. They await the election and their moment to raise interest rates. The pressure is clearly building -- as reflected in the hortatory tone of the New York Times headline on Floyd Norris' story on April 16: "It's Time for an End to Super Low Interest Rates."

Really? Says who? The theory that higher interest rates control inflation is based on the idea that inflation is driven by too much civilian spending, by too much business investment, and especially by greedy workers demanding big raises. But business investment has barely started to recover. Wages are not rising these days -- how could they be? Real wages (adjusted for the price increases) are falling. Higher interest rates will add another injury to that one.

Think through what will actually happen when interest rates rise. For firms that administer prices, interest rates are just another cost. Like the rise in oil, the rise in rates will be passed through. Prices will rise. High interest rates may, indeed, choke off inflation eventually. But they do it in only one way: by forcing households and businesses to cut back, by squeezing people with debts, and therefore by slowing down the civilian economy. Expect this cure to come later, cheered on by the business press. It will be worse than the disease.

Higher interest rates, in other words, are not a way to fight inflation in the short run. They are, instead, part and parcel of the strategy of inflationary war finance. Their function is to help ensure that debtors pay, and creditors do not.

Is there another way? The answer is yes, but it isn't easy.

In wars past -- notably in World War II and Korea -- the job was done by steeply progressive taxes including taxes on excess profits, by "forced saving" (which was an essentially compulsory private holding of public debt), and by price control. Interest rates were frozen at 2 percent on government bonds -- and essentially at 0 on bank deposits. The principle was: No one profits from the war.

This combination kept inflation down -- prices were stable from 1942 through 1945. Not many grew rich off that war. Instead, my generation grew up with series EE bonds to our names. They were the promise that those working to win the war would see some of the material fruits of their labor later, when peacetime production returned. Together with progressive taxes and stable prices, they formed a bond between those leading the war effort, and those working to support it.

It's clear that we shouldn't expect anything of the kind from Team Bush.

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