Economics Is Against the War. But Economics Isn't Everything.
Many of President Bush's critics, especially in Europe, believe that the coming war with Iraq has no rational justification. This fight has nothing to do with making America safer, they say: What drives George Bush is a mixture of arrogance, personal hatred, and a desire to strike at any convenient target. The administration, in the view of these critics, should worry more about American interests.
On the other hand, and seeing no tension between the two ideas, many of the same people condemn the White House for worrying too much about a certain kind of American interest—that is, for calculating the balance of advantage too cynically. The war with Iraq has nothing to do with security, they say. It is all about oil.
People who suspect the administration of economic motives for war see this as a grave accusation. But is it? Wars are often fought for economic reasons, and waging such a war may be just or unjust. When Saddam Hussein invaded Kuwait in 1990, it was partly for economic reasons. He wanted to increase his wealth and power, both by adding to his oil reserves and by increasing his influence over the price of oil. He was in the wrong not because his motives were economic but because he was a robber, an unprovoked aggressor.
In responding with force and ejecting him from Kuwait, America and its allies were in the right—even though their principal interests, just like Saddam's, were economic. At the time, they chose not to emphasize this, preferring to talk about international law. Only later were officials such as James Baker, secretary of State during the first Bush administration, willing to admit that economics was the real reason for the first Persian Gulf War.
To my mind, using force in 1991 to frustrate Saddam's predatory economic intentions was nothing to be ashamed of. If a legitimate economic interest is big enough, it can be worth fighting for, so long as other tests are also met. It is a mistake to regard economic interests as morally second-rate. There is more to an oil-price spike than slimmer profits for a handful of wealthy capitalists, though this is how many of the administration's critics seem to see the world, as if "economic interests" were just a polite term for the interests of the plundering rich. In the oil-shock slumps of the 1970s, millions in the West were thrown out of work, and many into poverty. Averting such a threat is no doubt too little, by itself, to justify war—but it is a legitimate interest that governments have a duty to weigh alongside others.
Is economics still driving foreign and defense policy? Despite the similarities, today's calculation looks very different. The economic case for war is weaker than before. In fact, so far as the numbers can be crunched, they argue against it. The White House often denies that the war against Iraq will be all about oil-just as the previous Bush administration did in 1991. This time, the denials are probably true.
Oil is still a big factor, of course, given the West's increasing dependence on the stuff. The administration would be financially, strategically, and morally incompetent if it left oil out of its calculations over Iraq. What has changed, though, is the balance of oil-related economic risk. This was comparatively clear-cut in 1991: Back then, the economics argued for war. That is no longer so. The economic threat if Saddam were left in power is smaller now, or anyway less immediate. More important, the likely cost of fighting him and then dealing with the mess that will be left behind has grown—a lot.
In 1990, Saddam actually took possession of Kuwait's oil, significantly increasing his wealth and future power. That was not a danger to be speculated about; it was a fact. Today, in contrast, weakened militarily and shackled by the present regime of supervision, Iraq no longer poses a direct threat to its neighbors or the global oil market. This could change, and certainly would change if the controls on Iraq were relaxed. But weapons that have to stay hidden cannot be used to seize territory. After Iraq's invasion of Kuwait in August 1990, it was too late to try containment. A dozen years after Saddam's forced removal from Kuwait, containment would most likely be adequate, if the aim were merely to keep Saddam's hands off other countries' oil.
The other difference between then and now is the cost of going to war. Precisely because economic motives were at the fore, the war of 1991 had limited aims. The goal was not to transform Iraq, only to get it out of Kuwait. That narrow goal kept costs down (and America's outlays were later offset by large payments from allies). This time, the aim will be to destroy Saddam and his regime. With luck, Saddam's army will be a pushover, America's costs will be moderate, and casualties will be minimal. But after the fighting is over, the United States, if the White House is to be believed, will shoulder the burdens of keeping the peace in a country riven by ethnic and religious quarrels, rebuilding the economy's infrastructure, and reinventing the system of government. The costs of all this could easily exceed the costs of the military operation itself (less of which, incidentally, will be defrayed by allies, given that there are fewer of them this time).
Yale University's William Nordhaus has estimated that America's direct military spending might be between $50 billion (if all goes well) and $140 billion (if the Iraqis drag things out). This compares with a total of around $80 billion for the military costs of the first Gulf War (all figures at 2002 prices). For the costs of occupation, peacekeeping, and reconstruction, none of which had to be borne after 1991, add a further $105 billion at the low end and as much as $605 billion if things go badly.
These numbers exclude the broader economic costs that would arise if war drove the price of oil up and kept it there for some time. We must expect Saddam to try to destroy his own oil-production infrastructure once he comprehends his fate, and he may try to spread the damage beyond his own borders. In the worst case, oil supplies would be hit in other ways as well: for instance, if the war against Iraq destabilized Saudi Arabia, bringing its oilfields under the control of Qaeda sympathizers.
That would be a hideously expensive development. An analysis by George Perry at the Brookings Institution worked through the effect of cuts in global oil production ranging from several million barrels a day up to 10 million barrels a day (in each case, partly offset by calls on the strategic reserve). This would raise the price of oil, resulting in a loss of American gross domestic product of between $60 billion and $480 billion in the first year alone. Any such oil shock, if it happened now, would be applied to a world economy that is already fragile, recovering only slowly, at best, from its post-1990s exhaustion. As a result, the full macroeconomic effect of a new oil shock could be greater still.
And what fabulous economic prize is supposed to make these daunting economic risks worth bearing? If the war goes well, Iraq's oil production might plausibly be expected to rise in due course by nearly a million barrels a day. That would make oil a bit cheaper, raising America's productivity and increasing its GDP by some $40 billion over the next decade, according to Nordhaus; and there might be a macroeconomic benefit of another $17 billion. Set that beside the $156 billion of aggregate economic costs in Nordhaus's best-case 10-year scenario—never mind the $1.9 trillion of costs in the worst case. Not such a good bet, in economic terms, is it?
Perhaps the administration believes the cost will be much lower than even Nordhaus's lowest estimate. More likely, the White House agrees with its critics that a lot is at stake besides slightly cheaper oil and the enormous costs of securing it. Today, the biggest single danger that Saddam's Iraq poses to America and the West has nothing to do with oil and its economic implications. It is that any weapons of mass destruction that Saddam retains or may yet develop might find their way, with his covert and deniable assistance, into the hands of terrorists, to be used against the United States, the author of his misery these past 12 years, and its friends. This is the peril that September 11 brought home. It is a prospect that sanctions, inspections, and nuclear deterrence all fail to address.
Removing that danger, not to mention liberating Iraq from Saddam's tyranny, could easily cost upwards of $100 billion, net, even if all goes well—and maybe much more. The president apparently believes this is a price worth paying. I think he is right. Money isn't everything.