Monday, January 27, 2003

Remora

Tomorrow, as the President gives his State of the Union address, LI will be out with (one hopes) thousands of Austinites protesting the war.

Why? Why shouldn't the U.S, with or without a coalition of allies, invade a country that is ruled by a bloody dictator? A country that manifestly would do better without the dictator?

As we have hammered home on this site, the problem with Saddam Hussein is not his expansionist policies. These have been little in evidence since the Kuwait war. The most striking instance of the change in S.H.'s view, or more likely, ability to incurse on his neighbors is the practical division of his own country. Those attempts that he has made to take back Northern Iraq have been feeble. They've been feeble even judged by his military strength. Though Iraqi forces are probably strong enough to defeat the Kurds in Northern Iraq, those forces, as Hussein knows, would be quickly reinforced by others. Or at least so he must calculate, given his relative inaction.

LI thinks S.H. will topple internally. We also think that an invasion is no guarantee that the country would manifestly do better -- there is absolutely no guarantee that the U.S. would even dismantle the Ba'athist infrastructure; or that, if they did, they would do it in order to create democracy. The Bush administration, while making the required rhetorical genuflection to democracy, has made evident plans for post-Saddam Iraq that are anything but democratic, involving the use of Iraq's oil, and the use of the country as a platform to attack Iran. The kind of country that would allow such things would most likely be either a colony or a tyranny.

This isn't a case of blaming America first -- it is a case of reading the press. Business Week, back in November, published one of those cheerfully obscene articles that you come across in the business press about re-arming Iraq. This one sounds like it could have come from one of the war game scenarios created by the Washington Institute for Near East Policy, who are to the D.C. belligerent crowd what the Lake District was for the Romantic poets -- an inspiration and a home.


"Flash forward to 2003. Saddam Hussein, the despised Iraqi despot, is now in exile on the isle of Elba, once Napoleon's haunt. A new coalition government in Baghdad friendly to the U.S. is getting organized. But Iran is making ominous noises about border issues, raising fears it might exploit its neighbor's weakness. A decade of economic sanctions has seriously eroded the Iraqi military's conventional capability, and now the country is sorely in need of weapons to defend itself. So the U.S., which just finished disarming Iraq by rooting out weapons of mass destruction, now is considering how to rearm Bagdhad.

Sound farfetched? Hardly. Indeed, some U.S. Iraqi watchers already are mulling how to fortify a friendly post-Saddam regime. And some Wall Street analysts are talking about a new export market for American arms makers -- though comparisons to the bullish market for sales to Egypt and Israel after Camp David are probably overblown."

LI has often pointed out that the occupation of Iraq is almost surely going to create the kind of attrition visited upon American troops in Lebanon in 1982 and 1983, bringing forth the same choices: do I stay or do I go? But staying involves ratcheting up hostilities and taking casualties on a scale that begins to look like the first couple years of the Vietnam war. Meanwhile, at home, instead of the Great Society, Bush is pushing the Great Giveaway. We've been here before. William D. Nordhaus, of the Yale Economics Department, has a paper on his website that asks about the economic consequences of a war with Iraq. It begins with some sobering historical considerations (oh, and this is a pdf link):



"While historians have documented the many miscalculations
involved in war, little has been written on faulty economic forecasts, but a
couple of examples will suffice. Lincoln�s Secretary of the Treasury
estimated that the direct cost of the war to the North would be $240 million,
which amounted to about 7 percent of annual GDP at that time. The actual
cost to the North turned out to be $3,200 million, or about 13 times the
original estimated cost.2 The cost to the South was much greater, for most of
its capital stock was destroyed and output per worker was depressed for
nearly a century. The most prophetic economic analysis of war and peace of
all time, Keynes�s Economic Consequences of the Peace, did not foresee the
great German inflation that was virtually at hand, nor did it contain any
hints of the Great Depressions in Britain of the 1920s or of the world of the
1930s.

"In more recent times, the costs of the Vietnam War were grossly
underestimated when the buildup occurred. The original budget estimate
in early 1966 underestimated the cost for the coming fiscal year by $10
billion, or about 1� percent of GDP. By assuming that the war would end
by June 1967, the Pentagon underestimated the cost of the war by around
90 percent. The war in fact dragged on until 1973, and the total direct cost
was in the range of $110 to $150 billion.3 The indirect costs were more
difficult to gauge but comprise inflation and economic instability, civil
unrest, and, some have argued, a growing disenchantment with authority
and government in the United States."

Of course, left out of this list, and considered most pertinent by the belligerents, is the cost of the last Gulf war. However, that comparison is probably misguided. The financial contribution of the Kuwaitis and the Saudis is not going to carry the burden of this one. Alas, when the war is discussed in the mainstream press so far, the emphasis is on the defeat of S.H. That, it seems to us, is only the first stage in the war. The next stage, the occupation, will be filled with low level conflicts -- acts that will be described as terrorist. If we take the intifada in Israel as a model, we are talking about a couple of thousands of casualties -- U.S. soldiers and their collaborators in Iraq taking the hits. It is at this point that the money meter -- to say nothing of the blood meter -- starts ticking. This is why we find analyses like this of the Independent's Jeremy Warner much too optimistic.



".... The double-dip recession, so much talked about at the last WEF annual meeting in New York but widely dismissed as unlikely, may already be upon us, and that's before an Iraqi war has even begun.As one chief executive puts it: "We need a quick and successful outcome. If we don't get it, we're dead." This seems to me still by far the likely outcome, but don't bet on it. A senior Bush adviser told me: "If the war is still going after a month, then we may be in trouble."

In the less benign scenario, the war proves difficult and protracted. The price of oil rises sharply and then stays there. Developed economies are not as reliant on oil as they used to be, but the consequences would still be catastrophic, turning a weak recession of the type that followed the Gulf War into something much more serious.

As war stretched into a third and fourth month, with no end in sight, the Fed would continue to cut rates, perhaps down to zero if necessary. With the federal funds rate already at an historic low of 1.25 per cent, it can readily be seen that the US is already very low on monetary ammunition. Furthermore, higher oil prices might eventually prove inflationary, necessitating a rise in interest rates and deepening any economic downturn.

All very scary, and alarmingly, only too possible."

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