War With Iran Would Be Costly

A blog about business and economics.
Nov. 25 2013 10:24 AM

War With Iran Would Be Costly

451650667
And now Americans will have to learn our names!

Photo by Fabrice Coffrini/AFP/Getty Images

As people continue to debate the merits of the preliminary deal to halt Iranian nuclear weapons research (I agree with Fred Kaplan as usual), let me note something I wrote back in March 2012—a war with Iran could be an economic disaster.

The economic policy and foreign policy streams don't normally cross in this way, but if you try to just bracket all the international relations issues and imagine what would follow from a "large and sudden disruption of Gulf oil supplies" (imagine a freak typhoon or whatever), you'll see that you're looking at something fairly disastrous. I am a strong proponent of targeting higher gasoline prices via a higher gasoline tax, but the idea would be to phase the new policy in over time so that as people buy new vehicles they shift to less oil-intensive transportation options. In the event of a sudden disruption of oil supplies leading to suddenly higher prices, there's a limited amount people can do to reduce the quantity of gasoline they consume.

Advertisement

That means two things will happen. One is that people will have to reduce the quantity of everything else that they consume (fewer meals out, fewer Black Friday apparel purchases, delay replacing that coffee table you hate), and the other is that the prices of many consumer goods will rise due to increased transportation costs.

In other words, people will lose jobs, while at the same time central banks will face increased pressure for tighter money.

How bad would the damage be? It's very difficult to say. The consequences of launching a war would be unpredictable. But we can say for sure what the direction of the change would be. A military strike would definitely disrupt supplies of a key commodity and definitive have a negative impact on the labor market. Much less clear is what the impact of a war would be on Iran's nuclear program. On the one hand, you could blow up some stuff that's used in the nuclear program. On the other hand, getting bombed by a great power is exactly the kind of thing that's likely to persuade a government and a population that a go-for-broke effort to obtain a nuclear deterrent makes sense as national policy.

Since the deal's been announced, I've heard a number of skeptics proclaim that the problem with it is basically that you can't trust the Iranians. Well if you can't trust the Iranians, you can't make any deal with them. That means either an Iranian nuclear weapon or a war, which means you need to give serious thought to what that war might mean for the world.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Medical Examiner

Here’s Where We Stand With Ebola

Even experienced international disaster responders are shocked at how bad it’s gotten.

Why Are Lighter-Skinned Latinos and Asians More Likely to Vote Republican?

A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

The XX Factor
Sept. 22 2014 12:29 PM A Woman Who Escaped the Extreme Babymaking Christian Fundamentalism of Quiverfull

Subprime Loans Are Back

And believe it or not, that’s a good thing.

It Is Very Stupid to Compare Hope Solo to Ray Rice

Building a Better Workplace

In Defense of HR

Startups and small businesses shouldn’t skip over a human resources department.

How Ted Cruz and Scott Brown Misunderstand What It Means to Be an American Citizen

Divestment Is Fine but Mostly Symbolic. There’s a Better Way for Universities to Fight Climate Change.

  News & Politics
Politics
Sept. 22 2014 6:30 PM What Does It Mean to Be an American? Ted Cruz and Scott Brown think it’s about ideology. It’s really about culture.
  Business
Moneybox
Sept. 22 2014 5:38 PM Apple Won't Shut Down Beats Music After All (But Will Probably Rename It)
  Life
Atlas Obscura
Sept. 23 2014 9:01 AM Tristan Da Cunha: Life on the World's Most Remote Island
  Double X
The XX Factor
Sept. 22 2014 7:43 PM Emma Watson Threatened With Nude Photo Leak for Speaking Out About Women's Equality
  Slate Plus
Slate Plus
Sept. 22 2014 1:52 PM Tell Us What You Think About Slate Plus Help us improve our new membership program.
  Arts
Brow Beat
Sept. 23 2014 8:46 AM How Men Talk About Relationships in Rom-Coms: While Playing Sports
  Technology
Future Tense
Sept. 22 2014 6:27 PM Should We All Be Learning How to Type in Virtual Reality?
  Health & Science
Bad Astronomy
Sept. 23 2014 7:00 AM I Stand with Emma Watson
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.