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September 16, 2002

Economic effect of war seen as small
By Donald Lambro

     White House economic adviser Lawrence Lindsey says that "the likely economic effects would be relatively small" if the United States goes to war in Iraq to depose Saddam Hussein.
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     In an interview with The Washington Times on Friday, Mr. Lindsey said that there would be great uncertainties for the U.S. and global economies in any military action against Iraq, but that if the war was successful and short, the economic benefits of removing Saddam would far exceed the costs.
     "It's hard to say whether the net economic effects would be positive or negative. There are enormous uncertainties about what might happen. It depends on the prosecution of the war. But under every plausible scenario, the negative effect is quite small relative to the economic benefits that would come from a successful prosecution of the war," he said.
     "The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil," which would tend to lower oil prices, he said.
      Mr. Lindsey, who is President Bush's chief economic adviser, said the threat of terrorist attacks and Iraq's growing arsenal of weapons continued to pose dangers to the U.S. and world economies that a regime change would help alleviate.
     "It is hard to see how you get sustained economic growth in that kind of environment. The risks to the world economy are so great in that case that any costs of the war are absolutely dwarfed," he said.
     Mr. Lindsey said the nation's economy, whose condition will be a critical factor in the midterm elections, was "moving forward in spite of the challenges we've faced." He predicted that the economy would grow by more than 3 percent in the third quarter, which ends this month, and by 3 percent overall for the year.
     Still, he said, "We are going to have a sustained period of adjusting to the excesses of the '90s. There were huge distortions in the balance sheets of the country, and that has to be undone. Terrorism is still with us."
     Asked what he would say to investors, who polls show make up two-thirds of all likely voters, when they receive their third-quarter statements next month showing their 401(k) and IRA retirement investments have lost much of their value, he said he would tell them to blame the Democrat-controlled Senate for blocking much of Mr. Bush's economic agenda.
     "What I would say to them is, 'Is this the right time for gridlock?' Lots of things have been proposed. The House has passed them all. The Senate hasn't. Who is responsible? Do you want continued gridlock? Will gridlock help your portfolio?"
     His answer: "If you look at the host of proposals that the president has made that has not been acted on in the Senate, I think the answer is obvious."
     Asked what Republican candidates should tell disgruntled voters who are affected by the slower-than-expected recovery of the economy, he said, "The president and the House have done everything they can to minimize both the impact of the war and the adverse impact of what happened in the 1990s."
     "We passed the best-timed tax cuts in history. We have a second stimulus package that the House passed, but that the Senate waited five months to pass, and then only passed half of what the president wanted. The Senate refused to move on terrorism insurance, in order to protect the trial lawyers, even though thousands of jobs are lost because of it," he said.
     "So we have been dealt a tough hand to play," he said. "We'd like to do better, but many of the president's proposals have been stalled."

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