The build up to a potential war on Iraq has afflicted the nation
with a deep sense of uncertainty about the national economy,
depressing investor sentiment and increasing gasoline prices,
according to economists from The Anderson School at UCLA.
With the decision to initiate the conflict hanging in the
balance, wary investors who are unwilling to take risks are
postponing investment decisions.
“Depressed investor mood will induce less trading activity
and will drive down the market in the long run,” said
Avanidhar Subrahmanyan, a finance professor for the Anderson
School.
In many respects, a war would only increase uncertainty
regarding issues such as the cost, duration and intensity of the
war, which would all become major factors in the performance of the
economy.
In the last three months, the Bush administration has repeatedly
announced different figures for the total cost, with estimates
ranging between $50 billion and $200 billion.
The accumulation of troops in the Middle East and the increases
in defense spending since Sept. 11, 2001 have already turned the
war into an expensive endeavor before it has even started.
Tom Lieser, executive director for UCLA Anderson Forecast, said
the total economic impact of a war would depend largely on the
duration of the conflict.
“We’ve already spent a large amount of money getting
troops into place, which already will have a negative impact by
channeling funds into defense away from other potential
recipients,” he said. “Taxpayers are always the ones
who have to foot the bill ““Â a long war, such as the
Vietnam war, is hugely inflationary.”
A war on Iraq could also severely push up oil prices, and
consequently gasoline prices, across the world.
Gas prices on the West Coast have already increased markedly,
leaping by as much as 11 cents in the last two weeks.
But Subrahmanyan attributed the rise to decisions made by oil
producers.
“I suspect that oil companies across the board are raising
prices, even without a shortage, because they believe consumers are
more willing to absorb price increases in a time of war,” he
said. “Before the war has started, the public is more willing
to accept price rise.
Severe increases in gas prices could hurt transport industries,
Lieser said, potentially affecting a student’s mobility.
Pradeep Yadav, an Anderson school professor of finance, said a
drawn out war could affect a student’s ability to find
work.
“An extended conflict would put the economy on hold,
essentially freezing the production of any new jobs,” he
said. “Companies will want to wait until the horizon clears
before making strategic decisions.”
But while conflict in the Middle East could impose a detrimental
short-run budgetary cost, Lieser said the long-run benefits would
be the diminished possibility for terrorist attacks, providing
stabler environments for industries such as transport and
tourism.
“Of course, this would assume a causal nexus between Iraq,
al Qaeda and other organizations out to do damage to our
nation,” he said.