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(Reproduction of this material in any
form is prohibited without the permission of the author amiller@stkate.edu)
Many have made clear the serious moral and
international relations issues involved in the question of whether or not
the U.S. should make a unilateral pre-emptive strike against Iraq as the
Bush administration has advocated. As
the Scripture exhorts, one should tally up the costs and implications
before one embarks on an action. So
this review of some of the economic aspects of the question can add to the
many other dimensions that need to be considered in weighing the question.
What are
likely to be direct costs of such a war?
Different figures
ranging from a low of $30 billion to a high of $200 billion have been
given. The “official” Bush administration figure has been $60 billion,
but Lawrence Lindsay, an economic advisor to the administration was quoted
in the Wall Street Journal with a figure of $100-200 billion. But
of course, these figures are based on the assumption that it would be a
quick war, easily won. They also do not include any of the costs of
rebuilding Iraq after the destruction of a war, or of meeting the dire
humanitarian needs of the people. Experts who testified before the
congressional hearings in August indicated, according to the New York
Times (8/2/02) “that setting up a stable, pro-Western government in
Baghdad would require a huge infusion of aid and a long-term commitment of
American troops to maintain peace.” A force of 75,000 U.S. troops would
have to be deployed at an annual cost of more than $16 billion for at
least a year after Hussein is deposed, and at least 5,000 American troops
would be needed for at least five more years to maintain stability, said
one expert. Only one of the six experts who testified said that the U.S.
did not have any responsibility to play a major role in rebuilding Iraq.
According to official sources the Persian Gulf War cost $61.billion
--$79.9 billion in 2002 dollars-and other nations paid $48.4 billion of
this. But it looks as if the U.S. will bear the full cost of an invasion
of Iraq, since unilateral action does not usually win cooperation.
Won’t a war
help the economy recover from the doldrums as World War
II did? The defense industry will experience an increase in
government spending on weaponry and so this industry will prosper, with
its stock prices increasing, and its earnings growing. Some more people
will get jobs in the defense industries and their income will increase and
their spending will help stimulate the economy. But these industries are
concentrated in certain states, and the last military boom in the 1980s
led to what Ann Markusen called “the hollowing out of America, i.e. the
decaying of the industrial heartland while resources flowed to the defense
industries at the expense of other areas of the country.
Remember that World War II came to an economy that had
endured a decade of depression and had wide popular support. It was a time of total mobilization in a nationally
endorsed cause. The federal government did what private investors and
citizens could not, sell bonds (i.e. borrow) in order to pay the bills and
put people to work, giving them income to spend – and thus it started
the flow of spending, production, employment and income again. But,
it is important to note that if a war of similar size had been waged on
inadequate housing, poor public facilities or other public goods it would
also have stimulated production, employment and income and brought the
economy out of the doldrums. War is not the answer to our economic
problems.
What are
likely to be the effects on the U.S. economy?
First, the federal
government is already in a deficit situation, and this means the federal
government already does not have enough revenue to meet the needs of its
people. Adding wartime expenditures will only worsen the public deficit
and enlarge the national debt. Second, it all depends on whether or not
this would be a long war or a short war. In the short-term, war spending
might help end the recession sooner, but if the war lasts a longer time it
will be a drag on the civilian economy which serves the needs of the U.S.
people. Third, the uncertainty about whether or not the country will go to
war is prolonging the current recession, in particular because it
depressing effects on the investment spending by businesses as well as
household spending. And, this uncertainty has already caused Arab
investors to pull $300 billion out of the USA and tourism from Middle
Easterners is also down. This translates into loss of investment and of
jobs and income for Americans, i.e. it is prolonging the economic
downturn/recession.
What is likely
to happen to oil supplies and prices?
Some argue that oil issues are what are really driving the Bush
administration’s decision. Because the Middle East is so rich in oil and
the U.S. is so dependent on imports from that area, the inevitable
instability in oil prices and supplies due to a war with Iraq would have
wide effects on all users of oil and petrochemicals, worldwide. During the
Persian Gulf War oil prices increased rapidly from $15 per barrel to $40
per barrel and remained high for almost a year in what amounted to a tax
on worldwide consumers of oil. So, an initial price increase due to
uncertainty is likely, but some oil experts predict that, if a war on Iraq
were short and resulted in a new Iraqi regime willing to triple oil
output, oil prices would then decline as the supply increased.
Iraq, it should be noted, contains the world’s
second largest reserves of untapped petroleum (Saudi Arabia has the
largest). The increased U.S. dependency on imported oil has been
well-publicized by the Bush administration which has informed us that we
depended on imported supplies for half of our consumption in 2000 and at
current rates this will be two-thirds by 2020.
The Persian Gulf thus has critical strategic importance to us. As
concerns about the stability of Saudi Arabia grow, having a foothold for
U.S. oil companies in Iraq becomes more critical. Though Saddam has
already made huge contracts with countries in Europe and with Russia and
China, a “regime change” is likely to mean that these contracts would
be revisited or cancelled in favor of U.S. oil firms. Iraq is also thought
to have large areas of currently unexplored and unclaimed petroleum,
offering potential rich opportunity for oil companies.
What will be
left undone if we go to war? Economists
have a useful concept called “opportunity cost” which is important,
and mostly unmentioned in the public discussion of a war on Iraq. The
opportunity cost of some action includes what gets left undone because of
the choice one makes. So one has to ask:
If the U.S. chooses to spend $100-200 billion on a war what will it
not be able to do? What public goods will the nation sacrifice in
order to go to war?
We
already have plenty of evidence that states and cities, which provide the
services closest to the people, face fiscal stringency due to the
recession (and to the tax cuts many gave just a few years ago). This means
that, because by law they have to match their expenditures and their
revenues (i.e. they cannot deficit-spend as the federal government can),
they are cutting spending on education, health care, libraries,
conservation efforts and the like. This then means a lack of services for
people, but also a loss of jobs and income for state workers and so this
contributes to recessionary trends.
We know that the Bush Administration already
requested increases in military spending, apart from any spending on a
war. We know that, though the
budget negotiations have taken a back seat to war discussions in
Washington, the domestic services portion of the budget is being cut
dramatically. Less money is available for education, for housing, for
health care, for roads and railroads, for safety regulation of workplaces,
for the care of the environment and the rest. We need to keep the reality
of these opportunity costs of a war in mind and consider the gruesome data
on the numbers of hungry and homeless, the increasing numbers of those
poor and those uninsured for health care, as well as the two-thirds of
unemployed workers not covered by unemployment compensation. Along with
the horrible loss of lives on both sides, and the destructive effect of
war on land and property, we need to remember these costs of war as we
think about it and about our messages to the President and our
representatives in D.C.
In conclusion, even looking at the question from just
the one perspective to which this brief article was addressed, this writer
is not convinced that war is justifiable.
**********************
Resources: Michael Klare,
“Oiling the Wheels of War”, The
Nation. 275/11 (October 7, 2002),6-7;
James Dao, “Experts Put Large Price Tag on Rebuilding of Iraq” New
York Times, (August 2, 2002), A4;
Patrick Tyler and Richard Stevenson, “Profound Effect on Economy
Seen in A War on Iraq” New York
Times, (July 30, 2002), A1, A8;
Daniel Yergin, “Oil Supplies Key to World Economy,”
USA TODAY, (September 18, 2002), 13A’ James R. Healey, “Oil Falls 4% as Iraq Tensions Ease”
USA TODAY (September 17,
2002), 3B
Author’s note: Robert Reich, in a New York Times editorial on October 15,
2002, stated:
“Even if a war with Iraq were to cost $100 billion, that amount of
government spending would be too little and too late to give the economy the
stimulus it needs.”
To read the entire
editorial, go to http://www.nytimes.com/2002/10/15/opinion/15REIC.html
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