Nordhaus: war may cost $400 billion



Last November, Yale economics professor William Nordhaus estimated that a war with Iraq could cost between $100 billion and $2 trillion. At a faculty teach-in Sunday, Nordhaus provided an updated price tag of $400 billion.

Speaking at a forum titled “The Economic Costs of the War in Iraq,” Nordhaus was joined by School of Management professors Roger Ibbotson and Douglas Rae and Office of New Haven and State Affairs Director of Urban Academic Initiatives Cynthia Farrar, who moderated the panel. During the talk, the panelists touched on an array of issues, from military spending to oil markets to diplomatic relations.

While military spending has been substantial, Nordhaus said the relatively small effects on Iraqi oil fields would be important in keeping costs down. He said despite high military spending, the major costs of the war would likely come from occupation and rebuilding costs.

“What was surprising was that these collateral costs were likely to be perhaps much larger than actual military costs,” Nordhaus said.

Because the U.S. already had a large standing army when the war began, Nordhaus said the conflict would not likely promote economic growth. As evidence, Nordhaus compared the massive military buildups that have stimulated the domestic economy in the past to the recession that followed the first Gulf War in 1991.

“That was the episode that ended the relation of war with economic growth,” Nordhaus said. “Things changed after Vietnam because there was no military buildup.”

Rae applauded Nordhaus’ economic analysis, but said because of the uncertain nature of the war — which he said closely resembled the Louisiana Purchase in terms of territorial expansion and added responsibility — it was harder to estimate costs.

“If you imagine that there are unpredictable turns in other nations in that region, American economic costs get to be a lot higher than the ones we are talking about in [Nordhaus’] analysis,” Rae said.

Speaking about the impact the war would have on markets, Ibbotson said wars are economically beneficial for the victorious parties.

“The simple news is that war has been good for markets, especially when we win the war,” Ibbotson said.

After the panelists gave their lectures, they opened the floor for questions. When asked about the possible use of Iraqi oil revenues for reconstruction of the country, Nordhaus said the costs of occupying and rebuilding Iraq would far outweigh any oil revenues.

“The most contentious issue over the next five years is going to be oil,” Nordhaus said. “The numbers coming out of the oil industry are just miniscule compared to what Iraq is going to face in terms of reconstruction.”

In terms of the impact the war will have on relationships between the United States and its allies, Nordhaus said such unilateral action was dangerous and gave him “the shivers.”

“The U.S. is playing God, deciding on the fate of nations by itself,” Nordhaus said. “The U.S. is good at making war, but we’ve not proven ourselves good at cleaning up the mess.”

Marisa Anderson ’04 said while the teach-in was educational, there was no way to predict what would happen.

“It was informative and interesting, but there is just no way to know what will happen in the future,” Anderson said.

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