Price of war may be more than US thinks, says study

By John Garnaut (Sydney Morning Herald, December 27 2002)

The Bush Administration may have seriously underestimated the economic costs of a war with Iraq, complicating the Howard Government's efforts to promote Australian involvement in any American-led invasion.

An analysis by the Professor of Economics at Yale University, William Nordhaus, pictured, says a protracted conflict could leave the United States with a $US1.9 trillion ($3.36trillion) price tag - 10 times higher than the worst-case figure put out by the White House.

The report is confined to the US, leaving open questions on the impact to the world economy and Australia specifically.

Federal Government sources say Treasury has done its own economic modelling on the costs to Australia of the war, which has not been released.

The Government's report is believed to contemplate both positive consequences for Australia - because higher oil prices would also lift prices for Australian coal and gas exports - and offsetting costs caused by a softening in world demand.

It is understood that the report also considers the detrimental effects on the Australian economy of a prolonged war.

The Opposition spokesman for foreign affairs, Kevin Rudd, yesterday called on the Government to release its analysis.

"Given that the Prime Minister continues to describe war with Iraq as probable and that [he] has publicly spoken about the possibility of deploying an Australian armed brigade to Iraq, the time has come for this economic analysis to also enter the public domain," he said.

Professor Nordhaus says the cost to the US could be limited to about $US100 billion if the 1991 Gulf War "turkey shoot" scenario was repeated.

But he says a war in pursuit of "regime change" would entail urban fighting, occupation for a considerable period and considerable costs in cobbling together the necessary international coalition.

Professor Nordhaus says "the opportunity for miscalculation is unlimited" and previous analysis ignored a long list of complicating scenarios.

"These include the effects of prolonged conflict and an Iraqi urban defence strategy; the cost of buying support from allies; war with Israel; contagion of terrorist acts around the world; the use of weapons of mass destruction; impact on oil markets; subsequent terrorist acts inside or outside the United States; macro-economic shocks; spillover to other policies; occupation and peacekeeping costs; reconstruction costs; humanitarian assistance; and costs of nation-building," the report said.

The Bush Administration's only attempt to quantify the economic costs of war was provided by White House economist Larry Lindsey. Mr Lindsey said the liberation of Iraqi oil fields would drop the oil price by boosting oil production by 3 to 5 million barrels a day.

Two congressional studies, a Democrat Staff report and a Congressional Budget Office report, estimated the costs of a short war to be $US50 billion.

Neither the Administration nor Congress have publicly considered the costs of a protracted war.

The US Defence Secretary, Donald Rumsfeld, said before Christmas that there were considerable risks that war plans could not fully predict.

"Any war is a dangerous thing, and it puts people's lives at risk," he said. "I think that it is very difficult to have good knowledge as to exactly how Iraqi forces will behave."

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