The Impact Of War With Iraq On The Us Economy, Based On An Article From Business Week

1513 words - 7 pages

Article:U.S. official says war on Iraq could boost global economyBy Pawel Kozlowski (Rueters)ADVERTISEMENTWARSAW (Reuters) - A senior U.S. Commerce Department official said on Wednesday that a possible war on Iraq could boost the global economy by eliminating a terrorist threat and releasing fresh oil supplies onto world markets.The comments in Poland by Under Secretary Grant Aldonas came amid diplomatic wrangling over sending weapons inspectors to Iraq, which U.S. President George W. Bush says is threatening the world with weapons of mass destruction.Aldonas told a news conference that war was not inevitable and the impact on the world economy would depend on how long the conflict lasted, ...view middle of the document...

Washington is pressing for a tough U.N. Security Council resolution which would ensure full access for weapons inspectors, backed up by the threat of military action if Baghdad fails to comply.Aldonas was in Poland on a trip to boost economic ties and discuss the impact of a dispute between the European Union and the United States over U.S. steel import tariffs. Poland is a NATO member and candidate to join the EU.Article Available at: http://asia.news.yahoo.com/021003/reuters/asia-128017.html(Note: Other references on page 6)War with Iraq and the Effects on the Economy.IntroductionSince the debate about a possible attack on Iraq started, shortly after the terrorist attacks in the United States on September 11, 2001, economists have speculated about the costs of such a war and the potential damage that the economy might suffer.In the article written by P. Kozlowski (Reuters), Under Secretary Grant Aldonas from the U.S. Commerce Department suggests that a war in Iraq might turn out beneficial for the global economy. Aldonas stated: "The combined effect may actually be positive economically because it would eliminate one of the real sources of terror and one of the real clouds hanging over the economy", and he makes the point that the duration of a war would be an important factor in how the economy would be affected. According to Kozlowski, the statements were made in response to the position assumed by the Director General of the World Trade Organization (WTO), Supachai Panitchpakdi, who is quoted to have said that the impact of war, although not severe, would be negative.Historical BackgroundHistorically wars have been known to give the economy a boost, just as Aldonas predicts. Through increased government spending on "guns and butter", production has gone up and unemployment down, leading to increased consumption and a stronger economy. The best example of this is the economic situation created by World War II (WWII), which ended the great depression of the 1930's.In addition, the development in the costs of wars of annual GDP indicates that the United States have used a decreasing percentage of GDP in every war since WWII.Figure 1:The Costs of America's Major WarsTotal Direct Cost Percent ofBillions of 2002 dollars Annual GDPRevolutionary War (1785-83) $2.2 63%War of 1812 (1812-15) $1.1 13%Mexican War (1846-48) $1.6 3%Civil War (1861-65)* $62.0 104%Spanish American War (1898) $9.6 3%World War 1 (1917-18) $190.6 24%World War 11 (1941-45) $2,896.3 130%Korea (1950-53) $335.9 15%Vietnam (1964-72) $494.3 12%Persian Gulf War (1990-91) $76.1 1%*Combined Union and Confederate costs(Ref. nr.1)The fact that wars have become less costly to fight is caused by a combination of things. The most important factor, however, is the increased efficiency of production in our society, which not only has resulted in a more effective, and thereby less costly, manufacturing process of military equipment, but more importantly a continuous...

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