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War with Saddam
and Virginia
These days, the
gloom never seems to go away. If this is an economic
recovery, it certainly seems a strange one. Stocks continue
their capricious ups and downs, deflation fears are
growing and jobs just aren’t being created. Add
to this Virginia’s budget crisis, state job cuts
and jettisoned school programs, not to mention snipers
in the Fredericksburg and Washington, D.C., area.
Yet
the biggest underlying fears (one that may or may not
involve snipers at this writing) are terrorism and war
with Iraq. President George W. Bush has won Congressional
authorization to move against Saddam Hussein despite
the strong lack of enthusiasm of other world leaders.
No one knows how different an Iraq War might be compared
to the cakewalk 11 years ago. No one knows how much
the U.S. will have to be involved over the long-term
in Iraq if it prevails over Saddam. At the same time,
U.S. success in Afghanistan has not stemmed al-Qaida
terrorism. These uncertainties are a major drag on any
economic recovery that now seems way overdue.
Economists
do not see much of an upside should the U.S. move against
Baghdad. Speaking at the Richmond Federal Reserve Bank,
Karen Johnson, director of international finance at
the U.S. Federal Reserve System and an advisor to Alan
Greenspan, said that war would be a negative for the
U.S. economy. How much of one depends on how long the
action lasts. Christine Chmura, head of Chmura Economics
& Analytics in Richmond, agrees, noting that the
previous Persian Gulf War was unhealthy for Virginia’s
economy and especially for defense-rich Hampton Roads.
One
contrarian view comes from Gilbert R. Yochum, a professor
of economics at Old Dominion University who heads ODU’s
Economic Forecasting Project. A recent report posits
that a new war wouldn’t have as much of a negative
effect on Hampton Roads as it did in 1990-91. Back then,
the war pulled 40,000 military personnel, including
four aircraft carrier battle groups, from the huge port.
After they left sales of just about everything, from
cars to clothing nose-dived, as did service purchases.
This
time, a war would be a negative, but less of one, the
ODU study predicts. Regional retail sales could drop
by $175 million. But two new developments would temper
the bad effects. Fewer military might be needed from
Hampton Roads — perhaps only two battle groups
— if a new war comes. And, the region’s economy
has become more diverse in the past decade. “Back
in 1990, roughly 42 percent of the region’s economy
was dependent upon defense,” says professor Yochum.
“Now
maybe 28-29 percent is dependent.” He can’t
point to one business or sector that is responsible
for the diversity. Still, it’s a small bright spot
during these days when bad news just won’t go away.
Return
to Virginia Business - November 2002
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