The Economic Consequences of the Iraq War

FLASHBACK: Economists Predicted That A Prolonged U.S. Presence In Iraq Could Lead To A Recession

In yesterday’s press briefing, a reporter asked White House Press Secretary Dana Perino about the tie between the current U.S. economy and the Iraq war. Perino quickly dismissed the reporter’s question, insisting that the U.S. economy has been “very strong” and adding that the money was necessary to “take the fight to the enemy” after 9/11.

Oil prices are at approximately $88 a barrel, although they have dropped from the record high of $100 earlier this month. As Nobel laureate Joseph Stiglitz recently noted in Vanity Fair, “The soaring price of oil is clearly related to the Iraq war. The issue is not whether to blame the war for this but simply how much to blame it.”

Before the war, economists were predicting that oil prices at just $75 a barrel could potentially send the U.S. economy into a recession. Therefore, the current economic situation should not come as a complete shock to the Bush administration. A look at economists’ pre-war predictions:

“A war against Iraq could cost the United States hundreds of billions of dollars, play havoc with an already depressed domestic economy and tip the world into recession because of the adverse effect on oil prices, inflation and interest rates, an academic study [by William Nordhaus, Sterling professor of economics at Yale University] has warned.” [Independent, 11/16/02]

“If war with Iraq drags on longer than the few weeks or months most are predicting, corporate revenues will be flat for the coming year and will put the U.S. economy at risk of recession, according to a poll of chief financial officers.” [CBS MarketWatch, 3/20/03]

“If the conflict wears on or, worse, spreads, the economic consequences become very serious. Late last year, George Perry at the Brookings Institution ran some simulations and found that after taking into account a reasonable use of oil reserves, a cut in world oil production of just 6.5 percent a year would send the United States and the world into recession.” [Robert Shapiro, former undersecretary of commerce in the Clinton administration, 10/2/02]

“Gerd Häusler, the IMF’s director of international capital markets, said that ‘purely from a financial markets perspective, a serious conflict with Iraq would not be a very healthy development.’ … Häusler said there could be a repeat of what happened in 1990 following the Iraqi invasion of Kuwait, when there was a sharp rise in oil prices.” [World Bank, 9/02]

MoveOn has a petition here to tell Congress to “quickly pass a stimulus package” that helps mitigate this “Iraq recession.”

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