The Economic Consequences of War in Iraq

Louis Proyect lnp3 at
Sat Nov 16 08:36:35 MST 2002

The New York Review of Books
December 5, 2002

Iraq: The Economic Consequences of War
By William D. Nordhaus

The United States is marching, two steps forward and one step backward,
toward war with Iraq. The Bush administration has articulated its reasons
for war, but has produced no official estimates of the costs. Although cost
estimates are often ignored when war is debated, most people recognize that
the costs in dollars, and especially in blood, are acceptable only as long
as they are low. If the estimates of American casualties mount to the
thousands, if the costs to the economy are major tax increases or a deep
recession, or if the United States becomes a pariah in the world because of
callous attacks on civilian populations, then decision-makers in the White
House and the Congress might not post so expeditiously to battle.

In views of the salience of cost, it is surprising that there have been no
systematic public analyses of the economics of a military conflict in Iraq.
This essay attempts to fill the gap.[1] We must start by acknowledging that
the estimates given here are virtually certain to be wrong in some
respects, for the fog of war extends far beyond the battlefield to include
forecasts of political reactions and economic consequences. However, as
Keynes said, it is better to be vaguely right than precisely wrong.

An assessment of the costs of a war with Iraq needs to be based on
scenarios for the conduct of the war, the aftermath of hostilities, the
impacts on the oil market and other related markets, and the
"macroeconomic" impacts, i.e., on the overall US economy. It is impossible
to project detailed military strategies. However, we can describe the
general contours of a "quick victory" and a "protracted conflict" and
attempt to put price tags on each.

The difference between good and bad cases does not depend on who will win,
for there is little doubt among military specialists that the United States
will prevail if it enters with overwhelming force and is willing to
persevere through all obstacles. Rather, the difference lies in the
duration of the conflict, the total damage to Iraq, civilian casualties,
the potential for unconventional warfare, and the spread of the conflict
outside Iraq.

A study prepared by the Democratic staff of the House Budget Committee[2]
and other studies by private specialists such as Anthony H. Cordesman and
Michael E. O'Hanlon[3] lay out a plausible starting point for an analysis.
These studies estimate that in order to achieve overwhelming force, the US
will deploy between 150,000 and 350,000 personnel, which is approximately
one half of the level deployed in the first Persian Gulf War of 1990 to
1991. Specialists provide a wide variety of scenarios for a war, including
heavy reliance on Special Forces, intensive air war, and ground invasion.
The tactical details are unpredictable, but they are not essential for an
economic analysis.

The "quick victory" scenario would resemble the first Persian Gulf War, the
Kosovo war, and the Afghanistan war. It would involve some combination of
strategy and luck in which Saddam Hussein and his top leadership are
captured or killed, the Iraqi army surrenders quickly, and US forces
prevent the breakout of disorders in the south or in the Kurdish regions in
the north. This is the "New War A" analyzed in the Democratic staff report,
which envisions between thirty and sixty days of air war and ground combat,
followed by two and a half months of post-victory presence by troops in the
theater. It is hard to see how anything short of preemptive capitulation by
the Iraqi regime could be less costly than this scenario.

A "prolonged conflict" is a situation where the dice of war roll
unfavorably. Analysts point to a wide variety of potential complications
and costs that need to be considered. These include prolonged conflict and
an Iraqi strategy of concentrating forces in urban areas such as Baghdad;
adverse impacts on oil markets; escalation of war by Israel; terrorist acts
around the world; heavy occupation and peacekeeping costs; burdensome
reconstruction costs and nation-building; costly humanitarian assistance;
shocks to the overall US economy; and the use of weapons of mass destruction.


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