The War Whoop Rally is going strong.
The stock market has jumped 10 percent in the five trading days since Wall Street decided that war with Iraq is inevitable. It’s got to be the war, because there’s nothing else on which to build a bull market.
Housing starts plunged in February. The Fed didn’t cut interest rates. The jobs numbers have been horrible. Consumer sentiment is at its lowest level in years.
Wall Street likes the war news, the pundits say, because it marks an end to uncertainty.
Never mind the sheer bloodlessness of that calculation: the triumph of stock charts over body counts. Blaming investors for being heartless is like blaming a cat for eating a mouse.
The most troubling part about the War Whoop Rally isn’t its heartlessness. It’s its wrongheadedness.
Investors are cheered because the uncertainty is over. What, have they been sleeping in caves?
As short-term investment horizons go, this argument has a discrete life span: 48 hours. The amount of time President Bush gave Saddam Hussein to flee Iraq.
Forty-eight hours. Then comes chaos.
Investors don’t want to hear that. They’d prefer to listen to the military briefings that make war seem choreographed.
The shooting part of this war might well turn out that way. But even if it does, the military operations could prove to be the most manageable part of this conflict.
The war is expected to cost roughly $120 billion if all goes well, says Yale economist William Nordhaus. If the worst happens–the fighting lingers, occupation and nation-building prove costly, Iraq’s oil machine is trashed and Islamic militancy creates military and political resistance–then the cost could be $1.6 trillion, Nordhaus figures.
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Wars never look so controllable as they do just before the shooting starts.
Nordhaus, in a paper published last fall, noted that the North’s Civil War expenditures were 13 times estimates, that economists missed forecasting the Great Depression after World War I and that the $10 billion initial forecast of the Vietnam War’s cost was off by $100 billion.
Even the relatively tidy $80 billion U.S. cost of the 1991 gulf war mushroomed well beyond the optimistic $25 billion initial estimate. Outlays would have been worse if allies hadn’t picked up 80 percent of the cost–a sharing that won’t occur this time because the U.S., Britain, Australia and Spain are going it alone.
The cost of the Iraq war will go well beyond bodies and budgets. There are intangibles that could become quite tangible over time.
Terrorist attacks are possible in the U.S. and elsewhere. Fighting could spread in the Middle East or beyond.
Who knows? Even if the U.S. wins a quick, relatively tidy victory in Iraq, President Bush may not be done fighting. An attack on North Korea might not seem likely now–just as a U.S. attack on Iraq seemed far-fetched not so long ago.
One of the biggest potential casualties is globalization itself.
This war could mark the end of the era of the shrinking planet, of ever-closer relationships between trading partners, of a world in which economic ties might outweigh historic enmities.
After all, we are now estranged from France and Germany, two close trading partners. Even China, which has an $85 billion trade surplus with the U.S., spoke out against the war.
“Countries will sometimes make foreign policy decisions that are incompatible with their economic interests,” observes Chicago economist David Hale.
The U.S. war headquarters is in Doha, Qatar. The latest round of World Trade Organization talks–the “Doha Round”–began in Doha, Qatar.
The Doha war is putting the Doha Round at risk.
Experience says war with Iraq will cost much more than President Bush expects. The impact on peace and trade looks bleak.
Here’s hoping investors enjoy their War Whoop Rally. Seems like they’ve got precious little to shout about.
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