The Economist this week has a great analysis of the likely economic costs of a war in Iraq. It argues against the overly optimistic forecasters who make simplistic historical arguments (such as the notion that stock markets always rise after war gets underway) by pointing out that on almost every front - stock valuations, oil production capacity, inflation rates, trade deficits, and likely military expenditures - we are now at a very different point than in 1991. It notes that “America’s over-indebted households, Japan’s deflation and its crippled banks, Europe’s structural rigidities and its overly tight fiscal and monetary policies…all…mean that the world economy is horribly vulnerable to shocks of any kind.”
Even beyond the macroeconomic effects, the article argues are the direct costs: between $0.1 and $1.9 billion over a ten year period, or 2% of GDP per year. This should lay to rest any leftist cant that the war is simply to open Iraqi or even Mideast markets; the cost-benefit analysis simply does not hold and any business-political elite would presumably be able to make that analysis. At the same time, the daunting cost should be a sign to the Republicans of the need to be forthcoming and truthful about the real economic costs of the war. And to actually do something to address the macroeconomic challenges we face.
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