March 24, 2003	Monday	Muharram 20, 1424

“The age of chivalry is gone”, thus goes the famous lament of Edmund Burke. Burke added regretfully that in place of the chivalrous characters of the past, his age — and by extension, ours — was populated by people from dubious professions such as the economists who calculated the costs of everything. A century later, Oscar Wilde added insult to injury when he declared that economists knew the price of everything and the value of nothing.

Perhaps both Burke and Wilde are right. Yet war is a serious business that costs. It is the sad and prosaic duty of an economist who takes both economics and citizenship in a democracy seriously to do his best in figuring out at least some of these costs for himself and for his fellow citizens.

The importance of such information can be gauged, at least partly, by the sensitivity of the government officials to such information.

When Gen. Eric Shinseki, the US Army Chief of Staff, told a Senate committee that several hundred thousand troops might be needed to carry out missions in a postwar Iraq, his comments were rejected as “wildly off the mark” by Deputy Defence Secretary Paul Wolfowitz. One suspects that both the political embarrassment and implications regarding the economic costs of such a frank statement required such a strong denial by the Deputy Defence Secretary.

The White House was clearly perturbed last fall when then-chief economic adviser Larry Lindsey predicted that a war against Iraq could cost $100 billion. We know that Lindsey was later fired in a shake-up designed to control political damage from the ailing economy.

However, Lindsey’s fateful prediction that a war against Iraq could cost $100 billion may be both too large and too small.

It is large if the war is a short one and Saddam Hussein is killed or captured. Even then the costs — according to the very cautious best estimates made by respected economists such as William Nordhaus and others would run into $50 billion. No cost of occupation and other postwar expenses are taken into account in this scenario. If these are taken into account, then Prof. Nordhaus’s figures add upto about $99 billion. My own estimates when such costs are factored in under the benign assumption that the oil revenues keep flowing is also close to Lindsey’s original estimate. But what if the benign scenario is not realized? In the worst case scenario where maximum infrastructural and human damage occurs on both sides and the oil wells are torched beyond any hope of a quick return to normal operations, the costs of fighting and repairs after the war would run close to one trillion and $800 billion. This is the estimate that I and some others have derived under these assumptions. This is actually somewhat lower than Prof. Nordhaus’s worst case scenario estimate. But clearly, if this happens then Lindsey would have erred on the side of giving estimates that are too small by a factor of about 18.

Neither economics nor military science is an exact science. However, my simple and pedestrian exercise can help us in a reality check regarding the economic costs of the war. The uncomfortable question is: who will pay for the war and how?