With the outbreak of the war, these costs will rise considerably. The duration of the war, and how many troops remain in the Middle East after the fighting, are variables that will influence the direct costs. The minimum cost of the US operations in the Gulf for 1991 can be estimated at $50 to $60 bn, but could go as high as $100 bn. THE direct consequences: There is not the slightest possibility that this sum can be covered by a rise in taxes or tax income due to economic growth. The budget deficit will grow. Thus, there will be further borrowing by the state, inflating further the public debt. This will ing further the public debt. This will increase the tension on capital markets, push interest rates up and accelerate inflation. All these factors will coincide with the economic recession and make it worse.
The American arms industry was already working at full stretch before the
GULF WAR pers and TV screens are filled with pictures of military hardware; there is a total disassociation between the technology of allied weapons and their deadly consequences; endless repeats of the same few frames of film; irrelevant speculation about the progress of the war; and the marginalization of both domestic and world opinion hostile to the war. Thus is the public anesthetized in preparation for the carnage to come. * nsequences start of the Gulf crisis. Thus there will be no extra stimulus to economic activity as a result of the war. On the civilian sectors of the economy, the effects will be wholly negative. Consumer income will fall. High interest rates will hit the construction sector. It will be more expensive for enterprises to invest. Thus, the war will slow down economic activity and employment. For the first time in two centuries, the dominant capitalist economy will see recession and war at the same time. THE oil price: The war creates uncertainty about oil supplies in the short and medium term. These difficulties will appear even if Saddam Hussein does not temporarily put important centres of production out of action. The result will be extreme speculative oscillations on the
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On January 9, 1991, during the BakerAziz discussions, the oil price fell from $26 a barrel at nine in the morning to $23 by six thirty that evening. Two hours later it had gone back up to $30.
A price of $30 means a loss of 1% in real income in all the non-oil producing countries. A price of $40 would cause a 1.5% drop in purchasing power, and so on. The Pentagon predicts that the average price of oil in 1991 will be $44; optimists foresee an average of $25. It is impossible to make exact predictions. But it is certain that a rise in the price of oil would result in a weakening of economic activity throughout the world.
CUMULATIVE effects: A rise in US interest rates cannot be neutralized by a neo-Keynesian "cheap money" policy. Such a policy could only lead to the bankruptcy of the state. Thus Washington is going to keep interest rates up in order that Japanese investors continue to buy US treasury bonds.
High interest rates in the USA will put pressure on the other rich countries, whose rates will also rise. This will be true in particular for countries with a high public debt, such as Germany, or a significant budget deficit, such as Japan. Thus recessionary tendencies will be strengthened in the rest of the world. The American domestic market is the most important sector of the world market. A recession in the US means less exports by the rest of the world to the US, and a drop in production, employment and domestic demand.
Apart from the Anglo-Saxon countries, the recession is underway in Scandina-
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