Recently by Michael S. Rozeff: What the FED Should Do Now
Let's look at what the "market" answers by using the Intrade prediction market:
The price of 28.3 is like a 28.3 percent chance that the answer is "yes" and a 71.7 percent chance that the answer is "no". The prediction market's odds against attack before the end of 2012 are 2.53 to 1. Each reader may use this observation to update his own prior probability of attack.
The question is especially pertinent at this time because of a report on August 20 that Prime Minister Benjamin Netanyahu "is determined to attack Iran before the US elections". I assume that the source of the report is an intentional leak for political purposes. It was done to influence political outcomes, including both Netanyahu's position in Israel, the positions of presidential candidates in America, and the voting of Americans. The report had a substantive effect on the market-assessed odds of an attack. Prior to its publication, the odds were 3.35 to 1 against. Two days later, they were 2.04 to 1 against. (Price rose from 23 to 32.9.)
Politicians often play these dangerous games of threats, military buildups, alliances, ship and troop movements, subterfuges, false flag events, and leaked "information". They act like little boys who haven't grown up, except that they have weapons and military forces at their disposal to assist in their irresponsible antics. And, unfortunately for us, what they do has far-reaching effects on the lives of many of us.
Netanyahu is meeting with serious political resistance within Israel to his threats against Iran. Even before the Aug. 20 news report, he had been accused by Israel's Kadima party leader of "creating a panic" for war against Iran. His response via the leak has been to brush off such criticism by a display of his firmness toward his goal of attacking Iran. He may not be the actual source of the leak; it may have come through his Defense Minister Ehud Barak. This is of no great moment.
On Friday, August 23, Netanyahu kept up his effort to diminish his opposition's standing by being quoted by his spokesman of saying "Only yesterday we received additional proof that Iran is continuing accelerated progress towards achieving nuclear weapons and is totally ignoring international demands." This statement cannot be taken as meaning much of anything, given its source. I think that Netanyahu is referring simply to the fact that Iran and the IAEA on the same day reportedly failed to reach an agreement. They have been having discussions for some time.
Netanyahu is trying to smoke Obama out by eliciting pressure from pro-Israel voters in America, but Obama is playing it cool on Netanyahu's overheated rhetoric. What else can Obama do? He has never embraced Netanyahu's position. He has always stood for the sanctions route. If he approved of Netanyahu's stance now, it would be a green light for an aggression on Iran and a brand new war. Obama's not about to do that with an election coming up. If he spoke up against Netanyahu, he'd lose some pro-Israel votes. So he says little. Instead he plays off the remarks of Netanyahu as all smoke and no fire. An unconfirmed report has an unidentified administration official saying "the Israelis feel the need to elevate the urgency on the Iranian timeline. They tend to do this from time to time. It's something we've learned to live with."
The Iranians naturally elevate their counter-threats so as to deter an Israeli attack, which would have to be a nuclear attack in order to achieve its goal. What is that goal? It is here that we enter the theatre of the absurd. Such an attack might delay Iran's legal program of uranium enrichment for only a few years and it might encourage Iran to develop nuclear weaponry. Furthermore, with Israel being the clear aggressor, Iran would occupy the moral high ground. It would be able to counterattack Israel by any and all means of its choosing whenever and wherever it wanted to. It would be able to attack Israel for an open-ended and unlimited period of time. Even if its forces currently are weak and unable to prosecute a conventional war, it would be able over time to mobilize its resources against Israel. Its population would likely rally behind that effort. An Israeli attack might mobilize the more radical elements in Iran and encourage a government that is even less to the liking of Israel than the current one.
Is it worth it to Israelis to be under threat of attack and actual attacks of all sorts and to increase the nuclear threat against their country in return for stopping for a few years what it is legal for Iran to do? Is it worth it for Israel to join the exclusive club of nations that have attacked others with nuclear weapons, consisting at present only of the U.S.? Is it worth it for Israel to provide the very grounds that would make it a pariah among nations and encourage fundamental alterations in the nature of the Jewish state? Is it worth it to the U.S. government to enter a new war and a nuclear war at that when Iran poses no significant threat to U.S. interests? Is it worth it to the U.S. to send the price of oil soaring and to devastate its own and the world's economy?
Netanyahu's goal makes no sense. What he expects to gain by attacking Iran in no way compensates for the prospective consequences. I have to wonder if he is able to think straight about the consequences of attacking Iran. On May 31, 2012, it was reported that "the majority of Israel's defense chiefs are against a military strike in Iran at this time". They surely recognize what the results will be.
I will close by making the observation that politics introduces far more far-reaching instability and uncertainty in our lives that almost anything else I can think of, short of certain large forces such as volcanic eruptions. Politics is surely much more the source of uncertainty and very broad negative effects than economics. Markets and people are remarkably adaptive to changes in costs and prices. But in politics, look what we face. If Janet Yellen were to replace Ben Bernanke on the FOMC, which is a political matter, the entire economic outlook would alter. If our currency's value were determined by market forces rather than by central political control, its stability would immediately rise. If Netanyahu attacked Iran, the world situation would change drastically. All the major powers would become involved, in addition to the changes mentioned above. If Obama died and Biden became president, the whole world would change.
The reason for the difference between politics and economics is that politicians have concentrated and far-reaching power, whereas economic matters are typically widespread and diversified. There exists economic power but it is subject to the check of entry and competition. Economic power is both narrow and significantly constrained. Political power is constrained but not as much constrained. There is still ample scope for a man like Benjamin Netanyahu or George Bush or Barack Obama to start a war that has far-reaching effects. It is only because of this far-reaching power that we are asking such a question as "Will Israel attack Iran this year?".
Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire: Liberty vs. Domination and the free e-book The U.S. Constitution and Money: Corruption and Decline.