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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: Skywatcher who wrote (10699)	12/20/2002 5:22:04 PM
From: stockman_scott	Respond to of 89467

THE COST OF WAR AND THE PRICE OF GOLD By John Myers How much would a war in Iraq cost? We ask no one in particular. No one really knows, of course, but there is reason to think the cost could be far higher than politicians would have us believe. A short and successful war, suggest estimates from two different congressional reports, would cost around $50 billion, compared to about $80 billion (in current dollars) for the Gulf War. But these costs are likely too low, suggests William Nordhaus, an economist at Yale University. Why? One possibility is that leaders are given biased information; another is that costs are understated to gain political consensus. "It is much easier to raise the extra billions of dollars once troops are in the field and bullets are flying," he notes. A more prolonged engagement, including an Iraqi urban defense strategy and a refusal by neighboring countries to allow the United States to base forces in their territories, would bump up the cost to about $140 billion, Nordhaus estimates. Neither scenario includes the costs of occupation, peacekeeping and so forth, and both assume no use of weapons of mass destruction and no subsequent terrorist attacks. They also exclude macroeconomic effects, like rising oil prices, for example. Blowing a country apart isn't nearly as expensive as trying to put it back together again while also working to keep the peace. The Congressional Budget Office estimates the cost of maintaining "occupation forces" at $17 billion to $45 billion a year. So over the next decade, the United States could be looking at a figure approaching $500 billion for this purpose alone. Add to that anywhere from $25 billion to $100 billion for reconstruction and nation- building. Undoubtedly, the United States would have to pick up the lion's share of such costs. And even though Iraqi oil production of 3 million barrels per day would yield about $25 billion per year at current prices, Nordhaus points out that these resources would be spread thin meeting a host of claims ranging from the need to import daily necessities to the cost of satisfying foreign debts. As for how the oil markets might be affected, a study by George L. Perry of the Brookings Institution outlines possible bad, worse and worst-case scenarios in a supply shock brought about, for instance, by Iraqi destruction of its own supplies or a boycott against the United States. For the record, we doubt that the most pessimistic scenarios would come to pass. However, if they did, Perry predicts a drawdown from our strategic oil reserves with accompanying first-year boosts in crude oil prices to between $32 and $75 per barrel, and increases in gasoline prices to between $1.76 and $2.78 per gallon (these prices would then gradually decline in subsequent years). A "happy" outcome for the oil markets would be a quick victory, stability in the region and increased Iraqi supplies of about 1 million barrels per day over the five years following the war. But even then, says Nordhaus, "a major increase in Iraqi oil production has a time frame of a half-decade to a decade rather than one or two years." And crude prices would still be flat to gradually rising over the next decade, using Nordhaus' model. This is a sobering analysis indeed. Yet I think that even when the costs of a prolonged military occupation are factored in, Nordhaus' analysis underestimates the long- term and ancillary costs of war, particularly a "pre- emptive" war. The renewed emphasis on America as the world's policeman means an accelerated push for even bigger government. Witness the swift passage of the legislation authorizing the monstrous Department of Homeland Security, a reorganization originally advertised as being "budget neutral." Rest assured, there will be nothing neutral about it. The bottom line: lots more government spending financed by the federal government's preferred method of "payment" - inflation...which leads us, of course, to gold.... John Myers, for The Daily Reckoning