Bear Flag Republic Radio Weblog

< 5:34:19 PM        >

Costs:

1. Direct costs of the military operation.  CBO estimates imply that a 3 month war and 5 year occupation would cost as much as ~$300 billion.  Unlike the previous Gulf war, where the US received underwriting from allies, the US taxpayer will likely pay all these costs (in 1991 the US taxpayer only paid 12% of the cost of the war).
2. Direct costs of the peacekeeping operation.  I haven't see a full accounting of the costs anticipated in rebuilding Iraq.  A "from the ground up" estimate of the costs of rebuilding the oil industry alone (if destroyed) is estimated to be $10 billion.  It could easily cost $30 b or more to rebuild after the war and repair infrastructure that has deteriorated during the years of sanctions.
3. Lost economic opportunity.  By far, the greatest potential cost is indirect economic impact.  The economic overhang caused by the impending war has been terrible.  These costs are incurred via a variety of sources.  Higher oil prices in the short term due to fears of potential or actual disruption in supplies.  A depressed stock market.  Lower economic growth as businesses halt investment and consumers put off purchases.  Economic dislocation as companies, that would be healthy otherwise, go bankrupt as the result of global turmoil (the airlines, etc.).  Even if we restrict this to the impact of higher oil prices (on average $5 higher per barrel last year than would be otherwise expected) and lower economic growth (1-3% less growth last year on a $10 T economy) we have already spent as much as $335 b so far on this war.  It is likely we will see a similar impact on economic opportunity over the next year or two.

The Benefits:

1. Sale of Iraqi Oil.  Iraq is producing 2 m barrels a day currently.  It is expected that it could, if the technology was improved, produce as much as 8 m barrels a day in ten years.  Assuming that there is only moderate destruction of the oil fields, Iraq may be able to produce, on average 4m barrels a day over the next 5 years.  At $25 a barrel, that is ~$175 b or so of revenue for Iraq (much less if production costs are deducted).  My guess that these production costs would reduce the potential revenue to ~$100 b or so.
2. Lower Oil prices.  Given that Iraq will be unable to produce much more incremental oil in the near term, it is unlikely that we will see any major impact on global oil prices.  Over the longer term, Iraq's incresed potential to produce oil will lessen potential oil shocks and may lower prices (however, given the calls on Iraqi's revenues, don't expect radically lower prices).

It is pretty clear that total costs of this war are much more that the potential economic benefits to the US -- perhaps 2 orders of magnitude less.  [John Robb's Radio Weblog]

comments < 5:31:48 PM        >

There is a strategy problem that defines this potential war that is worth exploring.  It is what I call John's "loose nuke problem."  It states that the real thing to worry about in the post cold war world is a terrorist nuke.   Bio, chem, and convential attacks are bad, but a terrorist nuke is the real threat.  I think that calculating the immediacy and likelihood of the threat in the "loose nuke problem", as well as the potential reductions of the threat through military and political action, is going to consume the top military and policy minds for decades.   A similar level of deep thinking was accomplished during the cold war when planners and strategists continously worked on how to contain the USSR without igniting a global conflagaration.  The "containment problem" (inclusive of strategic nuclear policy work) was the most fiendishly complex strategy problem I had ever seen, until now.  I think the "loose nuke problem" will be more difficult.

In this new strategy problem we are faced with a model scenario where through military or political inaction (or misapplied action), NYC is destroyed by a terrorist nuke.  The question becomes: should we change the regime in Iraq to reduce the chance of a nuke claiming 3 m NYC victims?  What if the risk was reduced by 20%?  How big of a risk is it?  This is a complex calculus.  The calculations stretch beyond Iraq.  What if fighting a war with N. Korea will cost 1 m lives.  Would it be worth it to fight the war to save 3m lives in NYC?   As you can see, this gets very complex and very dangerous very quickly. 

The flip side of the "loose nuke problem" is that the risk is not evenly shared across nations.  There is very little chance that a terrorist nuke will end up in Paris or Berlin.   It is little wonder then that when those governments did their calculus re:their own "model scenario" they determined war wasn't an option.  That added dimension -- a lack of shared risk -- will most likely continue to drive a wedge between the US and the rest of the world for the next couple of decades (the containment problem was evenly shared).

[John Robb's Radio Weblog]
comments < 5:31:01 PM        >

If we are going into a war that will cost hundreds of billions over the next couple of years, does anybody object to the the crass way Bush is allowing the wealthy in America to avoid paying for the war?  I think it is amazingly underhanded.  Not only do the wealthy in America NOT fight in American wars (a volunteer army shields them from this), under the Bush formula, they won't pay for them either.  [John Robb's Radio Weblog]
comments < 5:30:38 PM        >

The roots of the rift between the US and Germany/France may be tied to the disastrous decision by the Germans to hastily recognize Croatia in 1991 (followed by the EU).  This act set in motion the war in the Balkans.  For those that know the history of  WW2, Croatia was a client state set up by the Nazi's to manage Yugoslavia.  This state was responsible for the deaths of ~700,000 Serbs in the Holocaust.  Fear of a resurgent Croatian state, without first setting up an environment that allayed Serbian security concerns, set off the conflagration.

Of course, the US was able to clean up the mess but only after it was clear Europe had no intention to do so on their own.  I don't mean this to slam the Germans or the EU but rather point out that mistakes are often made in foreign policy (for example:  US suppport for Saddam and the Contras during the cold war infused 80's).  To point to those mistakes and imply that all future decisions made by that nation are tarnished or baseless is a sloppy way to decide right or wrong.  The US policy actions during the cold war are not a basis for discrediting current US policy as I have heard many in Europe claiming.  The US, Germany, and France are fundamentally well intentioned nations.  This is worth discussing. [John Robb's Radio Weblog]

comments < 5:30:15 PM        >

We are only a couple of weeks away from the US invasion of Iraq.  I have grave misgivings about that.   Lots of people have marched against the war.  However, I do recognize that the missing voices in Saturday's marches were Iraqi expatriots -- they clearly want a change but with minimal harm to their families (I do think the US is very mindful of that).  The marchers were mainly us, the children of privilege

The dangers of this war to the US are many.  They include a 1) terrible defensive effort (ala Grozny) that could turn this into a quagmire, 2) an exceedingly expensive invasion and occupation effort (the costs are mounting daily) in an era were we are about to take on MASSIVE deficit spending for baby boomer retirements, and  3) we could spark a wave of unrest that unseats our friends in the area (Saudi Arabia in particular).   I don't lose much sleep to France hating us (f* Chirac for his under the table oil and nuclear deals with Iraq).   However, given these risks and their probability of occurance, the whole operation gives me more than a little pause.

At the end of the day, it is a choice made by Americans.   Unfortunately, we have defaulted on that decision and let Bush make it for us.   It's clear  that Bush hasn't informed most Americans to all of the potential risks and costs of this operation.  That will likely be his undoing as a President (and his place in history).

[John Robb's Radio Weblog]
comments < 5:24:41 PM        >