Diminishing Chances of War Jude Wanniski January 21, 2003

The chance that the US forces being assembled in the Gulf will go into action anytime soon are rapidly evaporating as the risks of a unilateral action by President Bush diminish day by day. When UNMOVIC’s Hans Blix and IAEA’s Mohammed al-Baradei met in Baghdad Sunday, top Iraqi officials simply asked them what they wanted, and when told, promptly agreed to all requests. When Defense Secretary Donald Rumsfeld Sunday announced that the U.S. would agree to set Saddam Hussein and his family up in the lap of luxury, in a place of his choosing far from Baghdad, it was clear the hawks had lost their arguments for a go-it-alone war without a “smoking gun” to replace him. This clear sign of desperation on Rumsfeld’s part actually strengthened the hand of the doves in Baghdad, those arguing for total cooperation with the UN inspectors, and led to their 10-point agreement with the requests of Blix and Baradei. To me, this means the chance of war with Iraq in the near future is getting close to zero and in the longer-term dropping below 25%. The fact that Rumsfeld continues to dispatch troops to the Gulf in preparation for war has little relevance given all the signs pointing in the opposite direction. Here are notes and comments I made Sunday morning during the political talk shows on ABC, NBC, CBS, Fox, and CNN.

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1. Tom Daschle reminded Tony Snow (Fox) that the resolution the Senate passed on Iraq only gave Bush authority to use force with "conditions." One is that Bush has to go to the UN and if the diplomatic effort fails, he must return and report to the Senate. This is why I always defended the Democrats on this resolution, and why the market began to turn up on Oct. 9 when it was known. Bush really does not have the kind of running room that the media always seem to indicate. Yes, he can "go it alone," but only after he runs a long series of very high hurdles. Or if a smoking gun appears.

2. Colin Powell was very hawkish on the shows, barking like a pit bull, demanding that Saddam cooperate and come forth and blah blah blah. But Powell barks as loudly as he does because he is also elliptically saying that it will require UN involvement to go get him. I had worried, and so have many others, that Powell had become a hawk in the last two weeks, when he said he thought it would be proven at the end of the month that Iraq was in violation of #1441. Does he know something that will turn out to be a smoking gun? When asked on two shows today about this, Powell said it is already obvious to him that Saddam has not been cooperating and it will be obvious to others at the end of the month. No smoking gun, just rhetoric so the warhawks do not accuse him of being soft. They can`t while he is barking.

3. The discovery of the empty artillery shells by UNMOVIC inspectors actually seems to have worked in favor of the doves, as Rumsfeld and other hawks who made a big deal out of them seemed foolish, and the journalists like Wolf Blitzer (CNN) were not buying this as an argument on non-cooperation.

4. Lieberman is the most hawkish of the Democrats, and he was on a few shows, but not barking as loudly as he had been in favor of war, as he can smell the wind going in the other direction and he is now a serious candidate for President.

5. The Chinese Ambassador to the UN was on FoxNews and was flawless in all his responses, all of which directed the flow of international opinion back to the inspectors and the UNSC.

6. Rumsfeld and other hawks repeated the mantra about how they would be satisfied if the top tier of leaders in Baghdad was removed by the lower tiers, and Saddam could leave and live in luxury somewhere. This is clearly desperation.

7. If there is no startling revelation about a hidden munitions site in the next week, the chance of Bush going it alone is approaching zero.

8. Tucker Carlson predicted (NBC) there would be no war. He is a top editor of the Weekly Standard, the home base of the warhawks. He reflects the views of the others there like Bill Kristol who have been absolutely predicting war in February.

9. The administration is now putting out the argument that the only reason Saddam is cooperating as much as he has is that Bush played hardball. Colin Powell voiced that on CNN. The Washington Post had a story along these lines as well. I`ve been telling folks in the White House for several months that Bush will be able to fall back on this -- taking political credit to avoid war with diplomacy backed by a credible threat of war.

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There are of course other forces pushing the financial markets in a variety of directions, but the only one that might cause a significant shift up or down in the next several weeks is war or peace, and for that reason I think there is near-term upside in the equity market with gold coming off a bit from its recent levels above $350. The risks of a go-it-alone war with Iraq, absent a smoking gun, are directly related to the costs of a war and its aftermath, which would not be shared with a coalition of deep pockets, as was the Gulf War. As the administration has decided not to include these projected costs in its budget for Fiscal 2004, Democrats are beginning to reckon them in contrast to the projected costs of the Bush tax-cutting plan to boost the economy. I’m hearing more of the work done by William Nordhaus of Yale, a top economist in the Carter administration, whose low- and high-estimates were reported in the Dec. 5 NY Review of Books. The low estimate in a short war favorable to the U.S. is $121 billion, which is much below the $200 billion number that got Larry Lindsey in trouble at the White House. Nordhaus figures the high estimate in a protracted war that is unfavorable to the United States at $1.6 trillion over a decade. The biggest swing is in the impact on oil markets, with a favorable impact of -$30 billion in the low estimate and an unfavorable impact of $500 billion in the high estimate.

I disagree with some of the inflated Nordhaus analysis, but note his high estimate only covers federal costs  – higher spending and lower revenues – not state and local costs and not the rest of the world’s costs. It also makes no attempt to estimate the costs if there are terrorist attacks on the U.S. in response to a go-it-alone war, which all political analysts expect. In addition, the market cannot really begin discounting any positive effects of the Bush tax proposals until the risk of war is removed, as it will be impossible to get tax cuts through the Congress with ballooning projections of war deficits. Instead of $1.6 trillion over a decade, a go-it-alone war would cost that much in a year.