Up to the Brink Jude Wanniski March 6, 2003

It has been my premise for the past two months as Decision Day on Iraq approaches for President Bush that Secretary of State Colin Powell has matters under control and that diplomacy will trump war. As war is the failure of diplomacy, if Mr. Bush pulls the trigger sometime this month, it will mean resounding failure for Powell. This is the only way to explain his increasingly hawkish statements, using the threat of war with or without the United Nations as a diplomatic tool to push Baghdad into the kind of pro-active effort it has been making to satisfy the weapons inspectors. He sounded downright silly Wednesday in accusing Baghdad of trying to divide the allies by its compliance with the inspectors, when of course that is exactly how Saddam has gotten the world on his side. He is doing everything the UN Security Council has asked him to do -- and when UNMOVIK`s Hans Blix and IAEA`s Mohammad al-Baradei present him with a new list of demands he will comply with those as well. Then again, if Powell has signed on to the real agenda of the hawks -- to build an American empire with Iraq as its Middle East outpost -- we will soon be at war and Wall Street will look down a long black hole. I really don`t think this is the case.

Powell says Saddam has not yet made the "strategic decision" to disarm, but it is becoming increasingly obvious that Baghdad  had done just that a long time ago. The latest "revelations" of Newsweek's John Barry in the Feb. 24 issue indicate Saddam in 1991 did order the complete destruction of all traces of the nuclear, chemical and biological weapons programs initiated prior to the Gulf War. This of course was what the UN Security Council demanded of Iraq in 1991, giving it six months to wipe out these weapons and programs as a prerequisite for having the sanctions lifted. What the hawks in the administration have used to argue the opposite is primarily based on the story that Saddam`s son-in-law, Hussein Kamel, who defected in 1995, revealed the presence of many thousands of documents on his own chicken farm outside Baghdad. The documents supposedly proved Baghdad`s deception, but Newsweek found the defector told his UNSCOM and IAEA interviewers the opposite. A CIA spokesman on Feb. 24 called the Newsweek story "bogus," but a transcript of the defector's 1995 interview has since been published in London and it clearly supports the essence of the Newsweek story.

I didn`t need to read the interview in 1996 to realize it was no smoking gun, as the Iraqi UN Ambassador told me at the time that the chicken-farm papers only served to prove that all the weapons programs had been destroyed by November 1991. When I passed this assertion on to an incredulous Jack Kemp at Empower America, he dispatched an associate to the UNSCOM records who reported back that no weapons had been found or destroyed since 1991. If the chicken-farm papers were pregnant with incriminating evidence, they would have led the inspectors to weapons or programs not yet known. In fact, it becomes clearer all the time that Iraq tried its best to develop weapons of mass destruction, but in each instance failed miserably.

The bellicose war rhetoric out of Washington -- with not much of an outcry from the Democrats -- is almost certainly explained by the universal assumption that the best chance for avoiding war is to go along with the Powell stratagem. For all the disappointment I`m hearing directed at him from dovish acquaintances, it remains a fact that it was his energetic arguments with Mr. Bush that put the Iraqi crisis into the UN. We recall it was the President`s use of the word "diplomacy" at his Crawford Ranch that turned the Dow Jones Industrials around last October after bumping 7200. It may well be the President felt sure Saddam Hussein would thumb his nose at the UN and he would be able to assemble the kind of coalition his father put together in 1990. He now knows he will not get more than four votes of the 15 members of the UNSC because of Saddam`s clever ploy of being agreeable. The White House is still pretending it might be able to get a fresh resolution out of the UN Security Council to put a cloak of legitimacy over a military campaign. British Prime Minister Tony Blair is floating a "compromise" resolution at the UN that sets a "deadline" for Iraq. This would close the loophole left in UNSCR #1441 -- which Hans Blix is using to ask for more time to complete the inspection process. If President Bush is to report to the Congress that "diplomacy has failed," he can`t really do it with a straight face if there is no hard deadline which would be impossible for Baghdad to meet in a way that Blix could certify.

In his comments Wednesday, Blix did say he could not for sure say four months would be enough time to certify complete and total disarmament by Iraq because he does not know if Baghdad`s current pro-active cooperation would continue. On the other hand, he did say that because of a previous UNSCR #1284, he could say March 27 would be the last possible date on which the inspectors could present a final list to Iraq of items that would need compliance. Blix noted there had been concerns about "moving the goal posts" on Baghdad so it could never fully "comply."

I'm not sure what President Bush hopes to accomplish in his news conference this evening, but we should be looking for some new "word" or "concept" or "phrase" that will constitute a move on the international chessboard. One would hope he would make it clear in some way that Saddam has not "run out of time," and that he still hopes diplomacy can succeed. With the exception of Defense Secretary Donald Rumsfeld, who will push for war whatever happens, the Bush Cabinet will keep its fingers crossed for peace, I think, because war would quickly bring stacks of insoluble problems to every executive department of government.

I`ve noted some studies of market movements that suggest war has been mostly discounted into current prices, with perhaps only another 5% on the downside when the balloon goes up. The problem with that analysis is that it does not incorporate any "blowback" (i.e., acts of political terrorism directed at U.S. commerce). The DJIA might quickly run to 7000 without any blowback, but it would be reasonable to expect it to accelerate with warnings from Homeland Security Secretary Tom Ridge -- who is already predicting blowback on the heels of war. (I`m reminded about why the GOP warhawks vigorously opposed Ridge as the President`s running mate in 2000.) Finally, I`m counting on the wise men in the Bush political family -- the former President especially -- counseling caution at the brink.

It really is hard to think back through the history of the Republic and find a similar moment of truth faced by the President, with the whole world holding its breath. The closest I can come is Herbert Hoover in June 1930, wavering back and forth on whether to sign the Smoot-Hawley Tariff Act. There was a moment of hope when 1,000 economists signed a letter urging him to veto it, but he cheerfully signed it. The DJIA only fell to 220 on the news - having been at 370 the previous September -- but the "blowback" of retaliation persisted and it finally hit bottom at 41 in the summer of 1932. The unintended consequences were the Great Depression, World War II, and the Holocaust. I`m sure the Pentagon intellectuals do not see any parallel.