of the cost of war, say panelists
War is always a "negative-sum game," because the gains of the winners are always much less than the losses suffered by the losers, noted economist William D. Nordhaus at an April 6 "Yale University Teach-In on the War with Iraq."
Nevertheless, as wars involving the United States go, the economic impact of the war with Iraq is relatively small in comparison to the nation's two most expensive military conflicts, the Civil War and World War II, said Nordhaus, Sterling Professor of Economics.
Nordhaus predicted that the current war will cost the United States about $400 billion dollars, including American investment in post-war occupation and peacekeeping in Iraq, and rebuilding the country. In terms of economic impact, he likened this war to such "small" U.S. wars as the Mexican War and the Spanish-American War.
Nordhaus was the main speaker at the teach-in on "The Economic Costs of the War in Iraq," which also included commentary by Roger G. Ibbotson, professor of the practice of finance at the School of Management, and Douglas W. Rae, the Richard S. Ely Professor of Organization and Management. Cynthia Farrar, director of urban academic initiatives in Yale's Office of New Haven and State Affairs and associate professor (adjunct) of political science, moderated the event.
Nordhaus told his audience that when he originally calculated the cost of a war with Iraq last November, he estimated it to be between $100 billion (for a relatively short war with little or no destruction to Iraqi oil fields) and $2 trillion (for a protracted military conflict). He said he has since updated those figures to reflect the current realities of the war.
The economist said he considered a number of components in arriving at his estimate, including military spending; indirect costs such as the war's impact on the overall economy in terms of spending, employment and the cost of imported oil; the post-war costs related to humanitarian assistance, occupation, peacekeeping and the rebuilding of Iraq; and, to a lesser degree, the human costs to both combatants and non-combatants.
Most analyses of war costs are based predominantly on military spending, Nordhaus said, because calculating the cost of the other components involves greater uncertainties.
"It's a giant roll of the dice in terms of what the cost and outcomes will be," Nordhaus admitted.
While military spending is one of the most substantial costs of war, Nordhaus said, because the United States has a large military establishment even in peacetime, it doesn't "have to spend so much more to go to war."
"The 82nd Airborne of the 101st Airborne are not much more expensive in Iraq than they are in the United States," asserted Nordhaus. He added that the military costs of the war "are not as bad as some have feared."
The post-war occupation and reconstruction of Iraq, however, may ultimately be the mostly costly consequence of the conflict, he said, adding that he believes the Bush administration is "wildly optimistic" in predicting that the U.S. occupation will last only from six months to a year.
"All of the private-sector analysts think it will be much longer and much more costly," Nordhaus told the audience. "The United States is good at making war, but we've not proven ourselves good at cleaning up the mess."
The U.S. military's success in protecting Iraqi oil fields from destruction and preventing the war from spreading into Israel are two factors that contributed to Nordhaus' re-evaluation of his earlier price tag for the war, he said.
Nordhaus asserted, however, that the oil market will be "the single most important thing to keep an eye on" and that oil will be "the most contentious issue over the next five years." He noted that the price of oil has been central to all American business problems in the last quarter century and pointed out that economic downturns or recessions are associated with the hikes in oil prices that followed the Arab-Israeli war of 1973, the Iranian revolution in 1979 and the first Persian Gulf War in 1990. One big uncertainty is whether Iraq's oil-producing neighbors will be friendly to the United States after the war, and the possibility of government takeovers by radical or terrorist factions in the region also makes the issue of oil markets one of the most "idiosyncratic," Nordhaus said.
The once-touted notion that war is always good for the economy no longer holds true, Nordhaus remarked. While very large wars have positive economic impacts from military spending, smaller wars can have either adverse or positive effects, he told the audience. "Psychological factors" such as consumer spending and the stock market are more likely to influence the economy in smaller wars.
Nordhaus acknowledged that even with the certain U.S. victory in the war against Iraq, "it is too early to tell" what the long-term impact of the war will be. He said that "Iraq is much easier to conquer than to rule," adding that the country's economy is in "catastrophic shape," having experienced a decline since Saddam Hussein took power "that is unlike any we've ever seen in modern history."
Ibbotson told the audience that war is traditionally beneficial for the economy of the victorious nation.
"The simple news is that war has been good for markets, especially when we win the war," he said.
He pointed out that the last time the stock market went down for three years in a row was before the United States entered World War II. Several months after the nation became engaged in the war, the stock market picked up. Likewise, the market fell "dramatically" when Iraq invaded Kuwait in August 1990, Ibbotson said, but rebounded during the Gulf War that followed.
Rae said the U.S.-led war on Iraq was more like the Louisiana Purchase than a real war in that it represented a major expansion of American power in the region. He said that the long-term costs of the war might be "a lot more" than the more immediate economic costs.
"If you think about projecting military power into a region as complex as the one that includes Iraq, and imagine unpredictable turns in that region, its easy to spin out a story where the cost of American power gets to be a lot higher than what we are talking about in [Nordhaus'] formula," he said. He noted particularly the uncertain future of America's relations with its historic allies, and said that the U.S. might find a great burden of responsibility in Iraq that extends well beyond military maneuvers.
"We're out there trying to play a leading role in world governance while being a nation-state," he continued.
Furthermore, Rae also said another negative impact of the war is what he called the "distraction cost," charging that focus on the war is causing U.S. government leaders to neglect other important domestic issues, including Social Security and health programs.
The panelists agreed that the reconstruction of Iraq after the war will be a massive project in which the U.S. is likely to play a leading role.
"At the end of the war, if [Iraq] is a mess, it's going to be our mess," said Rae.
While the war with Iraq may be a moderate cost to the United States, another terrorist attack on the United States will, expectedly, have a negative impact on the nation's economy, said Ibbotson.
"We are going to have more [terrorist attacks]," he predicted. "I think it's inevitable."
-- By Susan Gonzalez
All events in "The War in Iraq: Yale University Teach-Ins" are being recorded on videotape and can be seen online at www.yale.edu/opa/@yale/teachin/video.html.
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