Dead Terrorist Bounce

My NARN homie King Banaian from SCSU Scholars isn't as sanguine as I came across this morning in re the Iraqi economy:

First, even if the 52% number was hit for 2004 -- a figure over which there should be some skepticism -- it is a bounce off of a very low number. The war reduced GDP in Iraq by 35% according to the interim government's letter to the IMF (in which it sought aid), so hitting that number puts us at the end of 2004 at 98.8% of the level at the end of 2002. This in a country with a population growth rate of 3% and per capita GDP around $800/year, is not a good thing. The growth ahead depends largely on Iraq bouncing back to production levels around 3 million barrels per day, from the 1 mbpd after the war ended. So far, that doesn't appear to be happening.

And there has to be some sense that the people are sharing in the new wealth. Suppose we had an investment boom in Iraq in 2001 induced by Saddam building 10,000 new statues of his own likeness. Would the average Iraqi feel better? Certainly not. So there's an investment boom today, but where's the money coming from, and who is guiding its use in rebuilding the Iraqi economy -- workers and businesspeople? The interim government? The Americans? That's a key question, and not one for which we have a very good answer right now.

There are, of course, a paragraph's worth of asterisks to be added to the news I blogged about earlier.

However, I have to ask; where does a Dead Cat Bounce end, and recovery begin? As King himself notes, the story didn't answer a lot of the questions about the nature of the investment or the recovery; so while we don't know that the news is good, we also would be mistaken in insisting it's not.

King is right; the economies of Eastern Europe all showed healthy growth immediately after the fall of the USSR; most truly had noplace to go but up. After that, some implemented more command-oriented, socialist (or kleptocratic) economies, while others (Poland, Hungary, the Czech Republic) embraced something more market-y and are relatively prosperous today.

So is Iraq seeing a Dead Skunk bounce, or more of a Dead Terrorist bounce? I'm not sure we know yet.

Posted by Mitch at January 17, 2005 05:27 PM | TrackBack