Global Policy

Global Policy

An American attack on Iraq could profoundly affect the American economy, because the United States would have to pay most of the cost and bear the brunt of any oil price shock or other market disruptions, government officials, diplomats and economists say.

Eleven years ago, the Persian Gulf war, fought to roll back Iraq's invasion of Kuwait, cost the United States and its allies $60 billion and helped set off an economic recession caused in part by a spike in oil prices. For that war, the allies picked up almost 80 percent of the bill. Today, however, as the Bush administration works on plans to overthrow Saddam Hussein, the United States is confronting the likelihood that this time around it would have to pick up the tab largely by itself, diplomats said.

Unless the economic outlook brightens, the government could well find itself spending heavily on the military even as the economy recovers falteringly from last year's recession. Senior administration officials said Mr. Bush and his top advisers had not begun to consider the cost of a war because they had yet to decide what kind of military operation might be necessary. Whatever choice is made, experts say, the costs are likely to be significant and therefore may ultimately influence the size, scale and tactics of any military operation.

Already, the federal budget deficit is expanding, meaning that the bill for a war would lead either to more red ink or to cutbacks in domestic programs. If consumer and investor confidence remains fragile, military action could have substantial psychological effects on the financial markets, retail spending, business investment, travel and other key elements of the economy, officials and experts said.

If oil supplies are disrupted, as they were during the 1991 gulf war, and prices rise sharply, the economic effects would be felt in the United States and around the world. All of that could present a complicated political problem for President Bush, both in the Congressional mid-term elections in November and as he manages a war and looks ahead to his re-election campaign in 2004.

Taipei Times

The direct costs of a military attack on Iraqi President Saddam Hussein's regime will be minuscule in terms of total US government spending. Most analysts put the total costs of the war at less than 0.1 percent of America's GDP, the highest at 0.2 percent of GDP. Much of that, moreover, includes the usage of munitions that already exist, implying that little or no stimulus will be provided to today's economy.

The US President George W. Bush administration's (admittedly wavering) commitment to fiscal prudence means that much, perhaps most, of the war costs will be offset by expenditure cuts elsewhere. Investments in education, health, research and the environment will almost inevitably be crowded out. Accordingly, war will be unambiguously bad in terms of what really counts -- the standard of living of ordinary people.

America will thus be poorer, both now and the future. Obviously, if this military adventure were in fact necessary to maintain security or to preserve freedom, as its advocates and promoters proclaim -- and if it were to prove as successful as its boosters hope -- then the cost might still be worth it. But that is another matter. I want to debunk the idea that it is possible both to achieve the war's ends and benefit the economy. There is also the uncertainty factor. Of course, resolving uncertainty is no reason to invade Iraq prematurely, for the costs of any war are high, and are not to be measured only, or primarily, in economic terms. Innocent lives will be lost -- possibly far more than were lost on Sept. 11. But the wait for war adds to uncertainties that already weigh on the US, and the global, economy.

Indeed, should the US go to war, no one can predict the effect on oil supplies. A peaceful, democratic Iraqi regime could be established. Desperate for funds for reconstruction, that new regime could sell large amounts of oil, lowering global oil prices. Domestic US oil producers, as well as those in allied countries, such as Mexico and Russia, would be devastated, though users of oil around the world would benefit enormously. Or the turmoil throughout the Muslim world could lead to disruptions of oil supplies, with high prices the result. This will please oil producers in other parts of the world, but will have enormously adverse consequences for the global economy, akin to those resulting from the oil price hikes in 1973. Whichever way one looks at it, the economic effects of war with Iraq will not be good. Markets loathe uncertainty and volatility. War, and anticipation of war, bring both.

Denver

A short U.S.-Iraq war would be better for Colorado's economy than a long one, according to economists. A long, expensive war could even cause a double-dip recession here. But even a quick, decisive war could negatively affect Colorado's economy, along with the U.S. economy, according to Minneapolis-based Sung Won Sohn, Wells Fargo & Co.'s chief economist.

Post-war terrorism, especially affecting Middle Eastern oil facilities, and its economic impact is another concern. It could keep oil prices sky-high. Colorado oil companies could profit from higher Middle-Eastern oil prices by getting higher prices for their own oil. But that profit could be offset by other losses.

Higher energy prices would also hurt Colorado's already ailing transportation and tourism business, inflating the cost of airline tickets and gasoline for cars and commercial trucks. Those industries already have been wounded by extraordinary events of the last few years -- 2001's terrorist attack, last year's hugely destructive forest fires and the drought.

The local transportation industry's problems also trickle down to other industries that depend on it, including hotels and resorts. The construction and food industries, which also rely on the trucking industry for transporting materials and goods, will suffer. Even government, with all its vehicles, will be hurt by higher energy costs.

While Colorado is rich in defense contractors, they probably won't see new business from the U.S.-Iraq war because they've already gotten most of those contracts, according to the

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