Infrequently Noted

Alex Russell on browsers, standards, and the process of progress.

Unjustified

I'm having the hardest time trying to figure out what Bush's justification for this war is. It's not simply that I'm against it (I am against it, mostly because I can't reason a way to support it), but that I want to understand why the administration is pushing so hard to get where it's going. It's hard to refute an argument that doesn't make any sense.

The first (most widely repeated) theory about GWB's push for war is that it's going to help his buddies in the oil industry. While it seems a simple and tempting answer to the question of "what's it really all about?", it doesn't fit. The oil industry is built on infrastructure (and infrastructure investments) that make most highway construction projects seem like trivial blips on the civil engineering landscape. The returns on these projects is measured in decades, and so stability of both oil prices and geopolitics is of paramount importance to oilmen. It's one of the reasons that my former employer (Schlumberger) is paid billions a year to tell oil companies exactly what's down there. Drilling for oil is a billion dollar gamble, and anything that has a negative long-term effect on the price of oil makes that gamble ever more risky. And businessmen hate risk they can't control. The capital to develop a reservoir (the term for a set of oil fields all drawing from the same geological formation) is justified by the margin of a barrel over and above exploration costs. Most new explorations today are done in deep water (all the "low hanging fruit" has been picked) and therefore incredibly expensive, a massive influx of high-quality, low price oil onto the world market would throw the return on most new wells drilled in the last decade or so into jepordy. If GWB's stated vision for a post-war Iraq comes to be, then such an influx of cheap oil is exactly what will happen, and the chances are that American oil companies will get first dibs on whatever fields go into production isn't assured by any means. That's billions of dollars of investment that American oil bosses are beholden to their shareholders for. If they want control of Iraqi oil, it's to keep it in the ground, not to develop it.

So what about the argument that America wants control of Iraqi oil in order to stabalize its energy supply? This makes more sense to me, but still not enough for me to buy the oil argument. If America wanted to stabalize its energy supplies, we would be investing in nuclear and alternative energy sources hand-over-fist. This would be a win-win for the Bush administration: silencing critics on the left who say the administration is beholden to oil interests, while helping to make America more self sufficent. And guess where most of that research money could go? You got it, Detroit and the incumbent energy companies. So long as the Bush administration were able to funnel most of this money into the coffers that feed back into it's warchest, it would be a no-brainer.

Going to war in Iraq makes absolutely zero sense if the "real reason" is oil. None whatsoever.

So with oil out of the way, what's left? There's some talk of the Bush administration hoping for an economic turnaround on the back of a successful military action in Iraq. While this also sounds plausible at first blush, the risks involved in plunging the market further downwards due to a "war discount" is significant. Moreover, consumer confidence (fueled by low interest rates propping up the housing market) has been keeping the economy from tanking in a big way. War, more specifically, the fear of war, has a negative impact on consumer confidence, driving down spending and reducing the effectiveness of the Fed's attempts thus far to keep spending buoyant. If the current debt load of American households becomes overtly onerous (and unless wages increase, it will) then a sudden collapse in consumer spending will kick out the last proverbial leg of the American "recovery". War only heightens this risk, and since the "postwar bounce" that has been widely talked about is so strongly anticipated, the markets will likely have already anticipated and nullified a significant portion of the benefits successful military action often provides to market confidence. Buy the rumor, sell the reality. Either way, the Fed is put in the unenviable position of needing to create large amounts of inflationary pressure to "cheapen" the debt load of households. While this might provide relief to some sectors of the economy, it punishes equity holders, further reducing the chance of large in-fluxes of capital into the marketplace any time in the near future. And the worst part of it is that such a scenario is more desirable than the stagflation currently being suffered by Japan, but we don't have a household savings rate that will allow our economy to withstand such shocks with the same level of calm. Call it the downside to a dynamic economy.

And all of that is without factoring in the incredible drag on every unit of economic output thanks to the high price of energy brought to us by the "war premium" of 3-5 dollars a barrel combined with the deteroriating political situation in Venezuela (for those that don't know, we import roughly 15% of our yearly energy needs from Venezuela who is not producing jack squat due to a lingering energy worker strike). The current price of oil does indeed help GWB's oil barron buddies in the short term, but the long term consequences for both their oil and non-oil investments alike place them squarely in the "against" category when it comes to this war.

So the economy isn't it. What about political gain? The Bush whitehouse (assuming it's run by shrewd politicians) cannot be ignorant of the impact that the potential for large American casualties can have on the President's re-election hopes, hence the need to win the support of Turkey in opening up a second front for any type of military action. The faster the war is over, the better. But how much cachet does a successful military result in Iraq really buy the President? The example set by the President's father clearly demonstrates that Americans care much less about foreign affairs than their ability to find well-paying jobs and pay for their children's college educations. There is a mild counter to this argument in the now deeply rooted fear of terrorism in the American psyche. If GWB is seen as "doing something" about the amorphous terrorist threat, then perhaps conflict in Iraq plays into his hand. But I'd argue that the administration hasn't sold the connection between Iraq and Al-Quieda well enough. I just don't think American's believe it.

Even if the conclusion in Iraq is favorable and the average American thinks fondly of it because it shows strong leadership on the terrorism issue (which, as above, is debatable), the shocks suffered by the economy while GWB is out to lunch playing policeman could certainly be enough to deep-six any chance for re-election. The administration is pointing to it's tax cut package to relieve some of this pressure, but Alan Greenspan has expressed significant doubts in both the timing and efficacy of such a move. At best, it's a long term sledge-hammer (as most fiscal adjustments tend to be) for a very pressing short-term problem which will still go under-addressed. Best case, it causes investment (and the associated inflationary pressure) in 4 quarters. A day late, a dollar short.

So what in the hell is GWB thinking? I'm left with several unsettling thoughts. The first is that he really thinks that doing something in Iraq is going to decrease the potential for terrorist activity in the Muslim world. I would argue that if Mr. Bush were truly serious about reducing America's exposure to terrorism, he'd be taking a significantly more active role in rebuilding Afghanistan (the 60 billion we've committed to toppling Saddam could build a lot of roads and goodwill...). It helps the American cause very little if we simply play whack-a-mole with tyrants the world over while leaving the peoples of countries we've invaded to fend for themselves in a power vacuum of our creation.

Should Saddam be dealt with definitively? Yes. But that was Bush Sr.'s job, and he failed. True, America has significant security issues to deal with, but allowing problems in Pakistan, Saudia Arabia, N. Korean, and Afghanistan to go un-addressed while containment seems to be working in Iraq belies a miss-appropriation of understanding and resources by an administration that declares that it wants security for America.

The other bad option that I'm left with is that GWB could be truly convinced that Iraq poses such a significant threat to the world that it must be dealt with now rather than letting the doctrine of containment run its course. In such a case, I pray that he knows something we don't (which might explain Tony Blair's willingness to fall on his own sword for the US). The costs to world trade, international relations, and America's position in the minds of the Arab population of the world are potentially enormous. Strong-arming the world can only work for so long.

If the case for war made sense from a political, economic, or ideological standpoint I might be able to be more comfortable with it. But for now all I can do is scratch my head and hope that Mr. Bush knows what the hell he's doing.