Iraq: The Economic Consequences of War

George W. Bush
George W. Bush; drawing by David Levine

The United States is marching, two steps forward and one step backward, toward war with Iraq. The Bush administration has articulated its reasons for war, but has produced no official estimates of the costs. Although cost estimates are often ignored when war is debated, most people recognize that the costs in dollars, and especially in blood, are acceptable only as long as they are low. If the estimates of American casualties mount to the thousands, if the costs to the economy are major tax increases or a deep recession, or if the United States becomes a pariah in the world because of callous attacks on civilian populations, then decision-makers in the White House and the Congress might not post so expeditiously to battle.

In views of the salience of cost, it is surprising that there have been no systematic public analyses of the economics of a military conflict in Iraq. This essay attempts to fill the gap.1 We must start by acknowledging that the estimates given here are virtually certain to be wrong in some respects, for the fog of war extends far beyond the battlefield to include forecasts of political reactions and economic consequences. However, as Keynes said, it is better to be vaguely right than precisely wrong.

1.

An assessment of the costs of a war with Iraq needs to be based on scenarios for the conduct of the war, the aftermath of hostilities, the impacts on the oil market and other related markets, and the “macroeconomic” impacts, i.e., on the overall US economy. It is impossible to project detailed military strategies. However, we can describe the general contours of a “quick victory” and a “protracted conflict” and attempt to put price tags on each.

The difference between good and bad cases does not depend on who will win, for there is little doubt among military specialists that the United States will prevail if it enters with overwhelming force and is willing to persevere through all obstacles. Rather, the difference lies in the duration of the conflict, the total damage to Iraq, civilian casualties, the potential for unconventional warfare, and the spread of the conflict outside Iraq.

A study prepared by the Democratic staff of the House Budget Committee2 and other studies by private specialists such as Anthony H. Cordesman and Michael E. O’Hanlon3 lay out a plausible starting point for an analysis. These studies estimate that in order to achieve overwhelming force, the US will deploy between 150,000 and 350,000 personnel, which is approximately one half of the level deployed in the first Persian Gulf War of 1990 to 1991. Specialists provide a wide variety of scenarios for a war, including heavy reliance on Special Forces, intensive air war, and ground invasion. The tactical details are unpredictable, but they are not essential for an economic analysis.

The “quick victory” scenario would resemble the first…


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