March 27, 2003
From the desk of Jane Galt:Here's another estimate of the cost of the war, from some of the leading lights of the University of Chicago Business School, which estimates that the direct costs to teh US taxpayer of reconstructing Iraq would have to exceed $500b before it became a net economic loss.
There are some very good things about the essay. For one thing, it attempts to weigh the cost of the war against the likely alternative -- containment -- which the Nordhaus estimate doesn't. It uses appropriate discounting of future expenditures at the 2% real interest rate implied by the pricing of TIPS (inflation-adjusted US securities). It generally uses conservative estimates -- for example, it takes the CBO's worst case price on the invasion as its starting point, which is more than twice the amount Bush has requested. And it attempts to account for the direct costs of domestic as well as foreign expenditures.
There are a couple of things that bother me. Most notable is its treatment of the increased risk of a 9/11 type event from Iraqi containment, which they estimate at 5% a year. While it's indisputable that 9/11 was a byproduct of containing Iraq, they don't offer a rationale as to why invading Iraq would reduce that threat. It's certainly conceivable to me that it would, but they don't tell me why, or how they arrived at 5%, which stands in contrast to the extensive explanations at their methodology for deriving the cost of containment. The other major issue one must take into account when comparing it to the Nordhaus numbers is that they don't attempt to account for the two major components of the Nordhaus paper: macroeconomic effects and the effects on the price of oil. The latter is absolutely correct, since we now know that Saddaam has not succeeded in destroying his oil fields (their paper was written last week); the former makes it hard to compare the numbers, although I have a feeling that they have excluded it because the impact is impossible to quantify given current uncertainties, and likely to be trivial in the long run. Nonetheless, it would be nice to see it discussed, if only to dismiss it.
Posted by Jane Galt at March 27, 2003 1:31 PM | TrackBack | Technorati inbound linksWhat's surprising to me is that they don't factor in any increased risk of terrorism that a war might cause.
I mean, maybe Hussein's survival means an additional 5% per annum chance of another 9/11 -- but it's just as plausible that his removal has the same result. Even though he won't be around to share weapons with terrorists, it didn't take WMD to cause 9/11 in the first place. Just pissed off radicals. War could cause plenty of those.
I'd be happy to ignore this cost in an economic analysis, but to do as they do here, factoring it in when it comes to containing Hussein, but not when it comes to removing him, seems like the wrong way to go about things.
it's indisputable that 9/11 was a byproduct of containing Iraq, they don't offer a rationale as to why invading Iraq would reduce that threat
I don't follow you.
You mean that 9/11 is a result of our previous containment policies of the post Gulf War I era?
Jim -- that's what I was trying to say, but apparently not saying well. . . it might increase the risk, it might reduce it, but they don't offer any reasoning on their assumption that occupation of Iraq will reduce that particular cost of containment.
GT -- I think it's clear that one of Osama's major objections to us, though not the only one, is our presence on Saudi soil, which is part of our containment regime.
Here's a good article on paying for the war:
http://mosler.org/docs/docs/paying_for_the_war.htm
I don't know that I agree. My guess is that if Iraq were just another garden variety ME dictatorship (like Syria say), unworthy of our containment, we would have still gone through 9/11.
IMHO our policies towards Iraq were not necessary in getting Osama to hate us enough to create a 9/11. There were plenty others.
I do agree with you and Jim that the estimate should explain where the 5% came from and why getting rid of Hussien could not increase the likelihood of another attack.
I think the reasoning behind why taking out Saddam wqill decrease the likelihood of a major attack on the US is as follows:
(a) It will remove the primary likely source of chemical and biological weapons for terrorist groups. With Saddam in power, it is almost inevitable that these weapons would leak over to these groups, with which he has extensive ties.
(b) It will remove one of the primary terror-supporting regimes. These groups need state sponsors to be as effective as they have been. Without safe home bases in places like Afghanistan, Iraq, Syria, etc., they spend all their resources trying to survive.
(c) As we crush one terror regime after another, it suppresses enthusiasm for radical Islam over time.
Against this is the hoary old notion that the Arab street will rise if we attack. Still waiting, of course, for the Arab street to do anything that matters much. Face it, folks - them that would rise and join fanatical terror groups to attack us, have mostly already done so. 9/11 proved that the fanatics are already about as mad at us as they are going to get, so what's the diff if we do things that piss them off?
Naturally, none of this is quantifiable on either side, but if you had to bet on whether (a) attacking terrorism on its home turf (the Bush doctrine), or (b)waiting passively for the terrorists to go away (the Clinton/Chirac doctrine), and we do have to place this bet, like it or not, then I will go with (a).
It's hard to argue that Iraq is "one of the primary terror-supporting regimes."
The extent of their support of terrorism appears to be making payments of $25,000 to the families of Palestinian suicide bombers.
According to Human Rights Watch, there have been 52 suicide bombings since January of 2001, so on an annual basis from then to now, Hussein is spending the princely sum of $650,000 -- money which may end up funding terrorism, but not necessarily.
It's hard to argue that this essentially token gesture makes Iraq a primary supporter of terrorism. It's public relations for Hussein.
Nor can one argue that this money is the cause of suicide bombings, a tactic which was used long before Hussein began offering payments to families of bombers.
Nor can one argue that this activity constitutes a threat to the United States.
What else is there?
Iraq once suported Abu Nidal's terrorist organization, but it stopped doing so over a decade ago, and the group hasn't been implicated in the death of a Westerner since 1988.
Hussein's regime is not one of the driving forces behind international terror. It has, apparently, been too busy oppressing its own subjects.
PS: Although securing any weapons of mass destruction that Iraq may have would be a good thing if doing so wouldn't be too costly, it seems important to stress again that terrorism does not require weapons of mass destruction.
Most terrorism has not relied on these weapons, 9/11 being just one in a long line of examples. Eliminating a source of these weapons may prevent their use in terrorism, but we should all know by now that terrorism does not need nukes or sarin to be deadly.
Many more people died in the 9/11 attacks than from the anthrax mailings.
The benefit of securing any weapons Iraq has needs to be weighed against the cost of a possible increase in conventional, non-WMD-assisted terrorism.
I think it's silly to try to arrive at a final figure for things like this. People working in fields that are not hard sciences should stop trying to ape their colleagues in the hard sciences. There is no way to assign accurate probabilities to these outomes. In the end, you have to go with your gut.
And, uh, into whose pockets is all this money going? i.e., whose making profits off of death and misery? (Our own and the Iraqis)
I have to disagree with Smith. The right way to do these things is recognize as many risks as possible. Attach probabilities (sorry for being redundant, but I don't have time right now to think of the right way to say it) to those risks, and recognize that your making a guess. Then invite your readers to plug in their own probabilities if they don't like the ones you've used. That at least gives the range of identifiable costs, benefits and risks an airing.
Larry Meyer recnetly did a work-up of what he considers post-war economic outlook to be, attaching probabilities to various lengths of war. To my knowledge (I'm not a client), he did not offer a rationale for the probabilities he used for various lenths of war. My guess is, most economists are pulling the probabilities of various political outcomes out of any convenient oriface. If so, they should say so, but go ahead and do it. That way, the rest of us can apply our favorate probability and play along.
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