Bush isn't thinking ahead
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By David Lazarus
San Francisco Chronicle Staff Writer
Friday, September 20, 2002
The looming war with Iraq finally has an official price tag. Lawrence Lindsey, President Bush's chief economic adviser, estimated this week that the conflict would cost U.S. taxpayers between $100 billion and $200 billion.
Yet there was Bush, in a speech to Iowa factory workers the other day, lecturing Congress on the perils of profligate spending. "If you overspend," he said, "it creates a fundamental weakness in the foundation of economic growth."
Peter Duignan, senior fellow emeritus at Stanford's Hoover Institution, can only shake his head at the growing contradiction between the president's words and his impending deeds.
"This man just doesn't understand the unforeseen consequences of acts," he said of a clash with Iraq. "No one has realistically costed this out. It hasn't been thought through."
While the White House may have a sense of how much a military strike on Baghdad might cost, Duignan and other academics say virtually no attention has been paid to the economic aftermath of a war in the Middle East.
Duignan is a historian who has done extensive work on the Marshall Plan, which provided $13 billion ($220 billion in today's dollars) to a cash-starved Europe after World War II.
He points out that while postwar Europe needed to rebuild infrastructure, there were plenty of highly skilled, well-educated Europeans on hand ready to get the job done.
"With the Marshall Plan, you didn't have to train doctors and lawyers and nurses," Duignan said. "They already had them. You focused instead on rebuilding hospitals and railways."
That won't be the case in Iraq. If Bush's goals are successful, the entire Iraqi government will be eliminated. In so doing, it's probable that much of the nation's infrastructure will be reduced to debris.
Newly installed leaders will likely find their fate linked to the speed with which Iraq's agricultural, transportation, communications, financial and health care sectors can be rebuilt and modernized.
Moreover, the Iraqi people, many of whom have little experience with modern society, will need to be shown how to tend to their new-and-improved resources for themselves.
They will have to accomplish this without allowing centuries of ethnic animosity and tribal blood feuds to get in the way (as is already the case in Afghanistan).
A tall order? You bet, and, as in Afghanistan, the United States will almost certainly be the key player overseeing Iraq's reconstruction.
It will not be cheap.
I've already written about the potential impact of a war with Iraq on world oil prices. Analysts say the price for a barrel of oil could soar from $30 today to more than $50, especially if Saudi and Kuwaiti oil fields are pulled into the fray.
"For a sluggish, slow-growing U.S. economy, this type of shock would be enough to dip back into recession," Morgan Stanley's chief economist, Stephen Roach, told a recent conference in Madrid.
But what about all the other costs associated with rebuilding a war-ravaged Iraq? The White House's military budget of up to $200 billion doesn't address these matters.
Most experts I've spoken with place the initial cost of reconstructing Iraq's infrastructure at about $50 billion, a portion of which would eventually come from Iraq's own oil reserves.
However, this does not include such ancillary expenses as training the populace to use modern technologies and maintaining a peacekeeping force in the country for an open-ended duration.
"We're opening ourselves up to about $20 billion a year in Iraqi reconstruction for the foreseeable future," said Brad DeLong, a professor of economics at UC Berkeley.
"This is why George H.W. Bush didn't go into Iraq," he said. "He didn't want to be proconsul for developing Iraq and looking after its well-being for the next few decades. It's why Clinton bugged out of Somalia. You don't want to be nation-building for people who don't want their nations built."
While DeLong said paying Iraq $20 billion a year "is not an overwhelming burden" to the vast U.S. economy, it's still worth asking where all this money will come from.
The United States is expected to run a deficit of $157 billion this year, and, according to the Congressional Budget Office, will remain in the red until Bush's $1.3 trillion tax cut expires in 2010.
Meanwhile, the Brookings Institution estimates that America is still spending as much as $2 billion a month in Afghanistan, and there's no end in sight to that commitment.
"We have terrible budgetary problems," said David Romer, a UC Berkeley economics professor. "That means we have to be cautious about spending."
The president apparently agrees.
"They have no plan to balance the budget, and that's a concern," he said this week of the Senate. "It's a concern because if you have no budget, it means there's no discipline. And if there's no discipline, it's more than likely that the Senate will overspend."
A prudent philosophy. If only Bush would practice what he preaches.
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