Wizdom
17-11-02, 14:20
War against Iraq may plunge world into deep recession
By Andrew Gumbel
LONDON, 17 November 2002 — A war against Iraq could cost the United States hundreds of billions of dollars, play havoc with an already depressed domestic economy and tip the world into recession because of the adverse effect on oil prices, inflation and interest rates, an academic study has warned. According to William Nordhaus, Sterling professor of economics at Yale University, the best-case scenario of a short, “clean” war is likely to incur costs for which no amount of increased Iraqi oil production could compensate. If the conflict becomes protracted and involves urban guerrilla fighting, the destruction of Iraq’s oil fields, or the use of biological or chemical weapons, the costs of both the fighting and post-war reconstruction could multiply. “The Bush administration has not prepared the public for the cost or the financing of what could prove to be an expensive venture,’’ Professor Nordhaus said. “Perhaps the administration is fearful that a candid discussion of wartime economics will give ammunition to skeptics of the war; perhaps it worries acknowledging the costs will endanger the large future tax cuts, which are the centerpiece of its domestic policy.
“None the less, the price must be paid, by raising taxes, by cutting expenditures, or by forcing the Federal Reserve do the job by raising interest rates. One way or another, Americans will pay for the war.’’ Professor Nordhaus’s analysis, part which was published in this week’s New York Review of Books, is based on estimates from the US government as well as private research by Washington think-tanks.
Two official recent studies, one by the Democratic Party contingent of the House Budget Committee, the other by the Congressional Budget Office, both put the baseline cost of the initial military campaign at about $50 billion (31 billion pounds), a little less than the cost of the last Gulf War. That assumes a force of about 250,000 troops, which is what the latest leaks of the Pentagon’s plans suggest, roughly half the number deployed in 1991. The big difference between now and 11 years ago is that the United States will almost certainly have to foot the bill itself; in 1991, most of the effort to roll back the Iraqi invasion of Kuwait was underwritten by US allies, leaving Washington with just over $2 billion to pay itself.
That $50 billion does not take into account the costs of a post-war military occupation. Professor Nordhaus estimates anywhere from $75 billion to $500 billion (47 billion pounds to 316 billion pounds), depending on the length and difficulty of the operation or the task of rebuilding the country and nurturing its economic development. To rebuild modestly, bringing Iraq up to the level of Iran or Egypt would cost at least $20 billion; launching an Iraqi-style Marshall Plan could cost as much as $100 billion.
Professor Nordhaus noted the poor US record in standing by its postwar reconstruction promises. In Afghanistan, for example, it has spent just $10 million on economic redevelopment compared with the $13 billion on the bombings and Special Forces operations. But he also argued that neglect would carry its own price as a furious Middle East vents its anti-Americanism on the occupying army and on US targets around the world.
The baseline figures are a best-case scenario. A modest amount of disruption could push the price of the war up to $140 billion, or 1.5 percent of US gross domestic product. There has been much talk of renewed Iraqi oil supplies offsetting the cost of war and, to a large degree, justifying it. But Professor Nordhaus argued that the best hope, bringing Iraqi production quickly up to three million barrels a day, would yield only about $25 billion a year. Most of that would be needed for food, medicine and other immediate necessities, and the rest would probably go to paying off the $300 billion in unpaid claims from other countries left over from the 1991 war. (The Independent)
By Andrew Gumbel
LONDON, 17 November 2002 — A war against Iraq could cost the United States hundreds of billions of dollars, play havoc with an already depressed domestic economy and tip the world into recession because of the adverse effect on oil prices, inflation and interest rates, an academic study has warned. According to William Nordhaus, Sterling professor of economics at Yale University, the best-case scenario of a short, “clean” war is likely to incur costs for which no amount of increased Iraqi oil production could compensate. If the conflict becomes protracted and involves urban guerrilla fighting, the destruction of Iraq’s oil fields, or the use of biological or chemical weapons, the costs of both the fighting and post-war reconstruction could multiply. “The Bush administration has not prepared the public for the cost or the financing of what could prove to be an expensive venture,’’ Professor Nordhaus said. “Perhaps the administration is fearful that a candid discussion of wartime economics will give ammunition to skeptics of the war; perhaps it worries acknowledging the costs will endanger the large future tax cuts, which are the centerpiece of its domestic policy.
“None the less, the price must be paid, by raising taxes, by cutting expenditures, or by forcing the Federal Reserve do the job by raising interest rates. One way or another, Americans will pay for the war.’’ Professor Nordhaus’s analysis, part which was published in this week’s New York Review of Books, is based on estimates from the US government as well as private research by Washington think-tanks.
Two official recent studies, one by the Democratic Party contingent of the House Budget Committee, the other by the Congressional Budget Office, both put the baseline cost of the initial military campaign at about $50 billion (31 billion pounds), a little less than the cost of the last Gulf War. That assumes a force of about 250,000 troops, which is what the latest leaks of the Pentagon’s plans suggest, roughly half the number deployed in 1991. The big difference between now and 11 years ago is that the United States will almost certainly have to foot the bill itself; in 1991, most of the effort to roll back the Iraqi invasion of Kuwait was underwritten by US allies, leaving Washington with just over $2 billion to pay itself.
That $50 billion does not take into account the costs of a post-war military occupation. Professor Nordhaus estimates anywhere from $75 billion to $500 billion (47 billion pounds to 316 billion pounds), depending on the length and difficulty of the operation or the task of rebuilding the country and nurturing its economic development. To rebuild modestly, bringing Iraq up to the level of Iran or Egypt would cost at least $20 billion; launching an Iraqi-style Marshall Plan could cost as much as $100 billion.
Professor Nordhaus noted the poor US record in standing by its postwar reconstruction promises. In Afghanistan, for example, it has spent just $10 million on economic redevelopment compared with the $13 billion on the bombings and Special Forces operations. But he also argued that neglect would carry its own price as a furious Middle East vents its anti-Americanism on the occupying army and on US targets around the world.
The baseline figures are a best-case scenario. A modest amount of disruption could push the price of the war up to $140 billion, or 1.5 percent of US gross domestic product. There has been much talk of renewed Iraqi oil supplies offsetting the cost of war and, to a large degree, justifying it. But Professor Nordhaus argued that the best hope, bringing Iraqi production quickly up to three million barrels a day, would yield only about $25 billion a year. Most of that would be needed for food, medicine and other immediate necessities, and the rest would probably go to paying off the $300 billion in unpaid claims from other countries left over from the 1991 war. (The Independent)