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Politics






Posted on Mon, Nov. 04, 2002
Critics of Iraq war point to costs

Chicago Tribune

Supporters and opponents of a war with Iraq have debated everything from Saddam Hussein's purported link to terrorists to how long it will take him to develop nuclear weapons.

Largely overshadowed has been any discussion of how much a new Iraq conflict would cost in dollars and whether it would inflict serious damage on the nation's and the world's economy.

Bush administration officials argue that a war would cost relatively little and that the nation can afford it, but they have deflected detailed questions about the war's cost as premature because President Bush has not decided whether to invade Iraq.

But critics, including many economists, are increasingly saying these costs should be acknowledged and debated along with the other aspects of a potential conflict.

"I don't think the administration, and most of the people who are talking about this, are really preparing the public that it might be a long and costly war and it might be a long and costly peace," said Alice Rivlin, former director of the Congressional Budget Office and a former member of the Federal Reserve Board.

White House economic adviser Larry Lindsey has said a war could cost $100 billion to $200 billion over several years, which is a small sum compared to the overall U.S. economy. Others say that estimate could be significantly low.

Whatever the direct expense of the war, many economists warn, if it does not go smoothly, oil prices could soar and the Middle East could explode into instability, sending tremors through the world economy just as it struggles to recover from a recession. That echoes the situation leading up to the Persian Gulf War. When Hussein invaded Kuwait, the U.S. economy was slowing. The subsequent war exacerbated that recession.

With the rest of the world depending on a healthy U.S. economy, this would be a terrible time to stage an invasion from an economic standpoint, said Christopher Probyn, chief international economist at Boston's State Street Bank.

"It is playing with fire at a time when there's lots of gasoline," Probyn said.

A protracted war could lead to a jump in oil prices and cause a major blow to consumer confidence, he added, possibly pushing the world economy into another recession.

But Lindsey recently predicted that once Iraq's oil fields are secured, economic uncertainties would evaporate and the economy would benefit. Iraq's defeat would add 3 million to 5 million barrels a day of production to world supply, and actually be good for the world economy, Lindsey said.

Indeed, during the Persian Gulf war, oil prices rose sharply after Hussein invaded Kuwait in August 1990 - but declined after U.S. and allied forces began fighting in January 1991. Administration officials also noted that Saudi Arabia has promised to increase production during any new Iraq war to take up the slack from a loss of Iraqi oil on the market.

Archie Dunham, chairman of ConocoPhillips and chairman of the National Association of Manufacturers, said he expected prices would jump swiftly from today's $27 a barrel to $40--but would rapidly come down with a successful war effort.

"There is no reason for them to spike for a long time," he said.

That view could be right if the war is over swiftly and without complication, economic analysts agreed. But other concerns, such as Hussein's possession of chemical and biological weapons and the risk that the entire Middle East could be destabilized, give many experts pause about forecasting a painless war economically.

These analysts say the administration is underestimating the magnitude of the risks. For example, Probyn said there is a moderate probability that the war would not go so well as the administration hopes, and that could set off a chain of economic events - such as uprisings in neighboring Arab countries - potentially throwing the world into recession.

"My biggest concern is that I don't think the aftermath of the war has been fully thought out, with all the potential risks and political instability that it could cause throughout the region," said Kathleen Stephansen, economist at Credit Suisse First Boston.

David Wyss, chief economist at Standard & Poors, was equally wary.

"It's hard to draw limits on how badly it can go wrong," Wyss said. An oil embargo like the one that roiled the world economy in the 1970s is unlikely, he said, but if the war goes badly, it could lead to oil prices remaining above $40 a barrel for more than two years.

For the most part, administration officials have declined to comment on the potential costs of a war, saying speculation would be premature.

Alan Stoga, who heads Zemi Investments in New York, said the economic threat stems not just from soaring oil costs, but also from the dollar cost of the invasion itself. "The consequence is that it keeps us locked for some time into a period of very slow economic growth, where we are constantly flirting with recession," Stoga said.

Among the elements that could add to uncertainty and boost war costs: The U.S. could face a long occupation after the hostilities wind down.

Joseph Wilson, who served as U.S. charge d'affaires in Baghdad just before the gulf war broke out, told reporters recently that the occupation could turn into "a very, very nasty affair. There will be vengeful killings against the Sunnis, against the Tikrities, against the Ba'aths. There will be Shi'ia grabs in the south and probably Baghdad. There will be Kurdish grabs for power. � And in the middle of that will be an American occupation force."

He added, "This war is not going to be over when we get to Baghdad. In fact, the war will have just essentially begun."

Estimates of the war's direct costs vary significantly, because no one knows precisely how it will play out.

The 1991 gulf war cost about $80 billion in today's dollars. But in that case, the enemy put up little resistance, while a battle to topple Hussein now could involve heavy urban warfare. Also, U.S. allies shouldered a large part of the cost of the war, something that is unlikely to happen this time around.

In a detailed estimate, the Congressional Budget Office differed from Lindsey's prediction of a $100 billion to $200 billion cost. The CBO said it would cost as much as $13 billion to redeploy U.S. troops in Iraq; up to $9 billion a month to fight the war itself; as much as $7 billion to send the troops back home; and up to $4 billion a month to occupy Iraq.

A war lasting two months with a five-year occupation, in other words, could cost as much as $269 billion.

The CBO acknowledged that its estimates are fraught with uncertainty and could even be on the low side. For example, they do not include "any costs for reconstruction or foreign aid that the United States might choose to extend after the conflict ends."

Still, some economists agree with the administration that a rich nation like the U.S. can afford the war and occupation, even if it means that budget deficits probably will grow larger and require belt-tightening in other areas.

William Niskanen, chairman of the Cato Institute, said the U.S. could afford a war with Iraq from a budget standpoint, though he added that he opposes it because it would detract from the war on terrorism.

James Galbraith, economics professor at the University of Texas, said the military costs "could be quite low" with the price of oil hardly affected at all. "What we are acquiring here is an enormous gas station," he said. Galbraith added that the long-term costs could be great if war with Iraq represents the first major strategic move by the United States to achieve "unilateral security against all comers. � It will ruin any country that tries it."

Leon Panetta, who served as budget director and chief of staff in the Clinton administration, said the country was in danger of repeating the same mistakes it made in the 1980s, when a defense buildup and tax cuts contributed to huge budget deficits.

The U.S. can afford to go to war with Iraq, Panetta said, but Congress needs to keep a close watch on how the military spends during wartime.

"Once the checkbook is open, they are going to try to crash everything they can through that door," Panetta said. "And I think there can be an awful lot of waste that is included in the defense budget under the excuse that everything is needed."

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