How war would hit US wallets

Inflated oil prices have been partly to blame for the last three recessions. And this spike would be no different, according to the CSIS panel. This worst-case scenario would trigger a double-dip recession lasting two or three quarters with higher unemployment for at least two years.

Trying to gauge the exact price of oil and length of recession in the worst-case scenario is a bit like "throwing darts," cautions Peter Navarro, an economist with the University of California-Irvine.

"If we go to even $40 or $50 a barrel of oil, we'll have a recession," Mr. Navarro says. "And it would be a global recession."

That said, the price of inaction would be worse, says Navarro.

"It's not the price spike of $80 that bothers me over a two-week period, it's the one year of $30 a barrel of oil plus because the situation isn't resolved. That's much more pernicious."

The debate over war with Iraq has focused more on its cost than on the impact on the economy.

Several estimates fall in the ballpark of $50 billion for a month-long war, followed by several months of mop-up. So found two separate analyses, one by Democratic staff members on the House Budget Committee and another by the Congressional Budget Office.

The first US war against Iraq, by comparison, cost roughly $76 billion in today's dollars.

Larry Lindsey, a former Bush economic adviser, turned heads in Washington when he predicted a price ceiling of $100 to $200 billion. The White House distanced itself from the estimate, and followed up later with figures from the Office of Management and Budget that echoed Congressional estimates.

A high price tag would give opponents of the war ammunition and force fiscal sacrifices to offset budget deficits.

For this reason, Nordhaus created a further stir when his study predicted a much higher worst-case cost of the war than even Lindsey.

His "favorable" war estimate, $99 billion, was not much higher than government figures. But for a war gone wrong, Nordhaus estimated a cost of $1.9 trillion, which includes projected economic losses. Dividing that sum equally, each American household's portion of the bill would be $20,000 spread over a decade, he notes.

Take out the projected losses from a souring economy and the direct government costs would top out at $755 billion.

Nordhaus's worst-case figures dwarf the government estimates because he factors in the cost of winning the peace as well as the war.

Peacekeeping doesn't come cheap. After all, peacekeepers are still in Bosnia. Nordhaus estimates a cost of $75 billion to $500 billion depending on the hostility in post-Hussein Iraq. That's compared to a worst-case military spending of $140 billion.

Add to that the cost of reconstruction and humanitarian assistance, which he estimates to be between $31 billion and $115 billion based on historical comparisons.

This high price tag could spell economic peril down the road.

"The real problem is not the money we spend but the deficit we incur, which leads to higher interest rates down the line. That chokes off private investment," Navarro says.

However, war expenditures are not be without some economic benefit. Cohen says that after Gulf War I, many of the reconstruction purchase orders were given to US companies, thereby boosting American business. Allies also contributed substantially to the conflict costs in what was dubbed Operation Tin Cup by the first Bush administration. Similar generosity would alleviate some of the budget pressure.

The attitude of allies, the deepening oil crisis in Venezuela, and the ultimate course of war or peace will all factor into whether better days lie ahead for the economy.

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