Saturday, August 18

Economists project recovery


With the end of the war on Iraq in sight, certain parts of the
U.S. economy are expected to make a recovery, according to analysts
from the Anderson School at UCLA.

According to Tom Lieser, senior economist for UCLA’s
Anderson Forecast, consumer spending is expected to go up
temporarily following the war when the uncertainty stemming from
the conflict is resolved.

“There may be some increase in activity as people decide
that it’s all right to go ahead and commit the money,”
he said.

While the war was in full swing, the greatest impact it had on
the economy was the creation of uncertainty, which discouraged
investors and consumers, said Christopher Thornberg, another senior
economist at the UCLA Anderson Forecast.

“We weren’t sure of the ramifications (of the
conflict),” he said.

With the last remaining cities in Iraq falling into coalition
hands, Thornberg said this uncertainty may start to fade away.

Usually uncertainty in financial markets causes people to put
investment decisions on hold because they are not sure about return
rates.

Shortly before the war, such uncertainty produced a downturn in
some economic markets, particularly in consumer markets.

“Auto sales were down in March and probably when we get
real estate transactions data, it will show a decline because
they’re major money commitments,” Lieser said.

Nationwide, there were concerns that the oil industry would be
affected by a conflict with Iraq.

For the United States, oil supply was not interrupted, but
Americans still had to pay higher prices at the pump.

“We had to pay higher prices because of the secondary
effects on the oil market,” Thornberg said.

Some critics of the war have argued the United States went
through with the war in order to profit greatly from an influx of
oil. The profits, however, may not be as great as previously
thought.

“It depends how the United States handles this
diplomatically ““ once Iraq recovers, it may or may not
benefit us,” Lieser said. “We avoided the worst
outcome: if Saddam torched the oilfields, then costs would have
risen.”

Though the United States is not expected to gain greatly from
oil, the war did not have an adverse effect on pump prices.

“The thing to keep in mind is that (oil prices) are way
below what they were in the ’80s in real terms (adjusted for
inflation), and they’re already on their way down. It’s
a temporary market situation,” said Thornberg.

Because California is home to some of the major makers of
military weapons and airplanes, such as Lockheed Martin and
Northrop Grumman, some may expect California to profit from the
war.

“We might get a little benefit from the military, but I
don’t see a whole lot of impact,” Lieser said.
“The war was over so quickly, and it’s hard to see what
comes next.”

Due to its expected short length, the war is not anticipated to
have great influence on the economy.

“It delayed the economy for a few weeks, but the effects
are too small to measure because it was a short time and nothing
really bad happened,” said Thornberg.

What will happen after the campaign on Iraq is over is
uncertain, but there are some things which remain clear.

“War is a negative concerning the economy because it
influences the timing of the expenditures,” Lieser said.
“If you pay for the war as you go, it would amount to a tax
increase now, so it’s clear that we will have to pay for it
later.”

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