More on the Economic Costs
of a Negative-Case War with Iraq

I wrote an earlier article on the costs and benefits of a war with Iraq. During our later research, we discovered two additional studies that are quite thought-provoking. The first is a negative-case war scenario analysis by William Nordhaus at Yale University and the second is by the Center for Economic and Public Policy CEPR). The CEPR study builds on Nordhaus' earlier study and includes an assessment of potential costs of a protracted, worst-case scenario war.

William Nordhaus' November 2002 study can be found here.

You may find this December 2002 Center for Economic and Public Policy analysis of the economic cost of a war with Iraq to be of interest.

In sum, the Nordhaus study concludes that in 2003-2004, a 2.4 percent decline in GDP could occur causing the loss of 1.6 million U.S. jobs. Then, if a major oil crisis is triggered and it takes the U.S a long time to recover, we could see another 0.5 percent decline in GDP coupled with the loss of another 300,000 jobs in 2005-2007 period.

The CEPR builds upon the Nordhaus study and works at pinpointing economic costs to different industries and states. For one, CEPR estimates that domestic security spending would increase if the Iraq drags on and terrorism remains a major threat. For example, if every retail establishment in the United States were to post a full-time security person the cost would be more than $100 billion a year.

Both studies drive home the point that Bush Administration officials may be under-estimating the full costs of various war scenarios at this point for political reasons. One thing to be sure, while economics can inform on a subject such as this, it remains more of an art form than a science.