The real cost of regime change Australian Financial Review 7 November 2002. In this piece from three months ago, I prognosticate a bit, estimate the costs of a war and look at some of the more dangerous postwar options

The big danger is that the US will seek to use Iraqi resources to offset the costs of the invasion, thereby turning a war of liberation into an old-fashioned war of conquest. Lawrence Lindsey, economic advisor to President Bush has argued that a conquered Iraq could be induced to expand oil production and drive down the world price. The resulting savings in import bills would, he suggests, more than offset the cost of the war.

New York Times columnist William Safire has voiced a more extreme scenario circulating within the administration. A ‘democratic’ Iraqi government would, he asserts, repudiate Iraqi debts to, and contracts with, countries such as France and Russia that had failed to back the US with sufficient vigour and instead contract on favourable terms with the US and its allies.

Leaving aside the dangerous political implications, the economic consequences of these proposed policies would be disastrous. An expansion of Iraqi oil production would take years to organise. In the interim, OPEC would have every incentive to drive the price of oil to $40 a barrel and beyond.

The idea of debt repudiation is even worse. The US is not only the world’s financial centre, but the world biggest debtor nation, with gross obligations running into the trillions. The suggestion that a US-controlled government should repudiate debts to score political points casts doubt on the credit of all debtors, not least the US itself. If a US invasion goes ahead, and this suggestion has not been scotched, holders of US government debt would be well advised to get out before the market as a whole wakes up to the economic implications of unilateral pre-emption.

The various components of my move to Brisbane have finally come together to the point where I can update my website properly, starting with my opinion piece from the Fin. The first one, APEC is simply a sideshow, 24 October, deals mainly with the EU rather than APEC. Opening and closing grabs

When John Howard returns from the APEC Summit next week, he is sure to bring back one thing: A declaration that the progress made over the past year proves that APEC is more than a ‘talking shop’. Such declarations have been made every year since APEC was established in 1989, and will no doubt continue to be made until the organisation disbands or, less likely, actually does something significant enough to silence its critics.

….

As with America 200 years ago, the creation of what Churchill envisaged as a ‘United States of Europe’ is a complex, messy and often unedifying process. Nevertheless, its success or failure will determine the shape of the world in the 21st century while APEC will remain a sideshow.

For this week’s Monday Message Board I thought I’d invite comments on a couple of issues that have arisen in several different contexts on this blog. Under what circumstances, and to what extent, is it legitimate to alter quotations of another person’s words? And when does a pseudonym become a ‘sock puppet’ ?

(As always, feel free to comment on any topic, and keep it clean and civilised, please).

According to Ken Parish, Tim Blair has written to say that his move to The Bulletin was entirely of his own doing, that he will still write occasional pieces for The Australian, and that any further speculation on this issue will be countered with a nude protest in Byron Bay.

Unlike Ken, I find the prospect of Tim naked in hippie country bizarrely amusing, so I’ll assert (on the basis of extensive current intelligence from MI6 and other sources, natch) that “he didn’t jump, he was pushed”.

The Slate Saddameter (which I’ve been mis-spelling as Saddamometer), has the odds of war at 95 per cent. While war has obviously got closer (as witness my Freudian slip ‘first Gulf war’, picked up by c8t0 recently), I think Slate is underestimating the Blair problem, as it has done all along.

Saddam has already caved on the issue of private interviews with weapons inspectors, and will clearly do the same on U2 flights if he can get a positive report from Blix next week. The crucial issue, which has been at the centre of things all along, is the production of some documentary (or maybe eye-witness) evidence of weapons destruction. If Saddam delivers on this in some form (which would be possible assuming he’s destroyed at least some weapons), and Blix reports that he is getting satisfactory co-operation for the moment, things will get really interesting (in the sense of the ancient Chinese curse). There are some big ifs here, but I’d say the chances of these two things happening are closer to 50 per cent than 5 per cent, so I’ll proceed on this assumption.

Given a positive report from Blix, there’s no chance of the UNSC endorsing an immediate strike. On the other hand, it’s virtually certain that Bush will dismiss the report. This will leave Blair in an incredibly difficult position, not helped by the exposure of his fraudulent dossier on Iraqi intelligence. If he backs a US invasion in these circumstances, anything less than a best-case outcome (a quick victory, hardly any US or British casualties, modest Iraqi casualties, the exposure of a large-scale weapons program, succesful democratisation) will end his career and perhaps even the Labor government. On the other hand, refusing to back Bush will be exceptionally difficult. All of this applies equally to Howard and to other putative allies like the Turks.

Conversely, the risks for the UN are great. Should Bush bypass the UN and deliver the best-case outcome, the advocates of unilateralism in the US will be strengthened immeasurably (at least until they run out of money – see three posts down).

My own view is that, viewing the Iraq problem, in isolation, the best outcome is one where the pressure is kept as high as possible, as long as possible, without resorting to war. The difficulty is that the expenditure of political and diplomatic capital on this issue has come at the expense of more dangerous problems like OBL, Kim Jong-Il and Israel-Palestine.

vaara is back from hiatus (has been for at least a month actually). The commentary is good, but I could do without the lurid yellow background.

A lot of short stories by Frank Moorhouse, notably Conferenceville which perfectly captures the feeling of the Left in the late 70s – a time of confusion and disillusion. I can’t say I miss that time at all. I haven’t read anything recent by Moorhouse except Grand Days and Dark Palace. I wonder whether he has done (or could do) anything to capture the mood of the post-Cold War world.

I’m also reading more of the Folio History of England. I’m currently on the Victorian era. An interesting observation is that English conservatives in the C19th made much of the examples of self-made millionaires etc, pointing to this as evidence that the English system provided opportunity for all to grow rich, as against the dead level of equality prevailing in (you guessed it) the United States.

The late Herbert Stein, Chairman of the Council of Economic Advisors in the Nixon administration is credited with the observation “if a trend can’t be sustained indefinitely, it won’t be”. Asking Why Are We Ruled by These Fools? the normally equable Brad DeLong presents budget projections showing a deficit equal to 17.5 per cent of GDP in 2060 (gross debt around 250 per cent of GDP) and observes that the 2003 Bush Budget has put the US on a path to national bankruptcy. Fiscal conservative Andrew Sullivan is almost equally scathing. (I must, therefore, withdraw my previous assessment of him as a reliable Bush supporter.)

Although 2060 is a long way away, it’s important to observe that even the short-term projections showing continuous but modest deficits for the next decade are based on over-optimistic growth projections. And there’s nothing for a war on, and occupation of, Iraq or for reforming the Alternative Minimum Tax – between them they will probably add $150 billion per year indefinitely to the deficit.

Given the pace at which the official estimates have deteriorated, my guess is that the crisis will be clearly apparent by Inauguration Day in 2005. By then, even the official estimates will show deficits chronically in excess of 5 per cent of GDP, which is generally recognised as the critical point. If Bush is re-elected, my guess is that the likely resolution will involve some form of repudiation of US government obligations. Either Social Security and Medicare will be cut drastically or the printing press will be used to solve the public debt problem. The latter seems more in keeping with the Bush style.

The 2003 Budget is based on the idea that large tax cuts will make it politically impossble for a subsequent Democratic Administration to increase expenditure. Kim ‘small target’ Beazley fell into this trap in 2001. Given the size of the crisis, any Democratic candidate who wants any chance of a second term must run on a platform of repealing Bush’s tax cuts, that is, soaking the rich. My guess is that, as with Beazley, most of the Democratic hopefuls will wimp out, and the primary process will weed out those who don’t.

Update We can drop the ‘almost’ in “Andrew Sullivan is almost equally scathing”. He now says:

I’ve been trying to give him the benefit of the doubt, but his latest budget removes any. He’s the most fiscally profligate president since Nixon. He’s worse than Reagan, since he’s ratcheting up discretionary spending like Ted Kennedy and shows no signs whatever of adjusting to meet the hole he and the Republican Congress are putting in the national debt.

This raises the question of how Bush is going to pay for the lengthy occupation and reconstruction of Iraq supported by Sullivan and others. Those in the Administration who favour a quick decapitation of the regime, the destruction of as many weapons as possible and immediate withdrawal will have a powerful fiscal argument in their favour.

Having an urgent paper to finish, I am naturally finding as many excuses as possible to read irrelevant material on the net. So I finally read the whole of James Lindgren’s demolition of Bellesiles, via a link from Instapundit (PDF file).

I was not surprised to learn that Bellesiles picture of an almost gunless Colonial America was false, and that gun ownership was actually higher than now. But, as Lindgren points out, that’s not the only thing Bellesiles got wrong. Bellesiles argued that in his mythical utopia, homicide rates were far lower than today, and that rates rose after the Civil War. In fact, as Lindgren shows, homicide rates were very high in Colonial America. He lists a number of cases in an Appendix of which, admittedly, only one is clearly stated to involve a firearm.

As Lindgren notes “

Just as the gun culture and the romance of the gun were supposedly taking over (in the decades after the Civil War), homicide rates were actually plummeting throughout much of the country, while in the Reconstruction South murder was rising”

Lindgren correctly notes:”

The relationship between guns and homicides over time is so complex that it cannot be reduced to the easy formula put forward in Arming America that high gun ownership and high homicide rates go together”

. Still, if the civil strife in the South is regarding as being a special case, Lindgren’s correct figures give the same (positive) raw correlation as Bellesiles’ bogus ones. So Bellesiles story is the mirror-image of the truth, but in an important sense his errors cancel out.

On the face of it, the fact that large sections of a British dossier on Iraqi intelligence were plagiarised from publicly available sources seems like no big deal, any more than the revelation that John Lott participated in Internet debates using a pseudonym. But, as with Lott, the closer you look the worse it gets.

First, the original source was an article in a journal published in Israel. This doesn’t mean it was false, but the concealment of such a fact is clearly more than a failure of academic courtesy.

Second, the material was presented as current intelligence, but reference to the original article shows that most of the primary source material dates back to the first Gulf War.

Third, the source material was altered to make the Iraqis look worse – for example, “monitoring of foreign embassies” was replaced by “spying on foreign embassies”. Given that there was clearly no additional evidence to justify the change, this is fraud, which would have been detected earlier if the material had been properly cited instead of being plagiarised. (Amusingly, despite these ‘improvements’, the cut and paste job reproduced typos from the original).

It appears that this material came from Blair’s spin doctors rather than from British intelligence or the foreign office. But presumably if Blair had any useful intelligence he would not have resorted to this amateurish fraud.

In terms of Powell’s case against Saddam this reinforces the point I made previously. By throwing in a lot of old and bogus arguments, Powell undermined the credibility of the new evidence he was presenting.

Sources: The Guardian and The Telegraph

BTW, I observed previously that Jack Straw had put forward a more convincing case for war than Colin Powell. Obviously this judgement will need to be revised.