The air is full of calculations of what the Persian Gulf War will cost. George Bush won't estimate the bill until a supplemental request later this month, so people are doing it for themselves.
It might cost $164 billion, or around $2,600 for a family of four, according to economist James Love, in a study done for Ralph Nader's consumer advocacy group, Public Citizen. Some members of Congress have pressed for an immediate tax increase to meet the cost. People know intuitively there's something wrong with such calculations, but they can't put their finger on it.
What's wrong is this: The figuring leaves out the gains the war may bring. And in thinking about both the benefits and costs in their broader sense is a key to imagining the postwar world. For example, on the day the war broke out, oil dropped nearly $10 a barrel in a single trading session, to around $23 from about $33 a barrel. Assume, for a moment, that without the outbreak of war prices would have stayed at around $33 -- which, after all, is what Saddam Hussein's war aims in his invasion of Kuwait were all about.
Had the West done nothing then, oil owners, notably the Persian Gulf states, would have collected huge sums of windfall profits on the roughly 13 million barrels that they pump each day -- much of which they would have poured into buying still more weapons with which to fight each other and further jigger the price of oil.
Depending on what estimates you make, you can argue that the war is all but self-financing -- especially when you figure that much of the material with which it is being fought was purchased during the Reagan administration buildup in hopes of intimidating the Soviets. Instead of being written down slowly as its rusts, it is subject to highly accelerated, even explosive depreciation.
In fact, it makes at least as much sense to ask the same questions about the Iraq-Iran war, that eight-year epic during which some 4 million citizens of those two unfathomable nations were killed or wounded. How much did that cost each American household? Given that oil prices averaged $25 a barrel or more for most of the years of the war, you can argue that most of the killing was financed by a tax on American, Japanese and European oil consumers.
The key here is understanding the Organization of Petroleum Exporting Countries, which for 30 years has been trying to run an effective cartel to control oil prices. Twice OPEC has been spectacularly successful at running the price up high above its competitive level -- in 1973 and in 1979. The results of this price-rigging include great dislocations in the world economy and great riches conferred on the nations of the Persian Gulf. Only slowly have the ordinary and reliable workings of the market -- consumers buy less, producers pump more -- brought prices back to the levels where they would be without such strong-arm tactics. Oil was at $12 a barrel and about to go lower when Saddam decided in August to invade Kuwait.
But here the going gets very sticky. It turns out that many of the bureaucrats who run the industrial democracies are not especially averse to high prices. You have only to think back to poor April Glaspie, America's ill-fated ambassador to Baghdad, telling Saddam that many people in her government would like higher oil prices, too -- offering what Saddam Hussein says he took as a go-ahead for his plans.
Twenty years of working with their opposite numbers among the OPEC nations to achieve "dialogue," "cooperation" and "harmony" have left the diplomats of the State Department and the bureaucracy of the Energy Department almost totally undependable guides to the oil situation. They don't want to ruffle feathers and imperil American "access" to oil; they don't want to lose the perpetual energy "crisis" and the funding mechanism that supports their way of life.
Indeed, maintaining high prices in the wake of a successful conclusion to the war is one way of paying for the expedition against Iraq. Peter Garber, an economics professor who teaches a course on war at Brown University, has suggested that America might tacitly agree to a floor under prices in exchange for a Saudi promise to buy U.S. government bonds at inflated prices.
The result would be an under-the-table rebate to American consumers via their Treasury, and a tax laid effectively on those foreigners, the Europeans and Japanese particularly, who didn't pay much for the war.
Intriguing? Certainly. Realistic? Perhaps. After all, it's been done this way before. But this is emphatically the wrong way to pay for the war. For 20 years, American governments have tolerated high oil prices because they liked what the beneficiaries did with the swag. Arms for the Shah, profits for the weapons makers; revenge on the Ayatollah, profits for the weapons makers: These Frankensteins have a way of getting out of hand. The only good reason even to consider a high world tax on petroleum would be to cope with the greenhouse effect -- and then the matter would have to be far more universally understood than it is at the present time.
So how to pay for the war? The right way is to permit the price of oil to fall to under $10 a barrel in its wake. Economic growth will take care of the rest.
David Warsh is a columnist for the Boston Globe.