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| Property Boom | |
It is normal to see panic buying before a war. People are uncertain about
supplies of food, water, clothes and other necessities of life. It might come
as no surprise to see the prices for these basic items skyrocketing in Baghdad
as demand grows before the US led attack which would decimate the entire
country. However a different pattern is emerging in the Iraqi capital. Reports
are that property prices have doubled over the last year, and are continuing
skyrocket in the lead up to war. Have the Iraqis gone mad? Why buy top dollar for something which is going
to be reduced to rubble in a few short weeks? What is the point if you are dead? Shouldn't they be
spending money on milk-powder and blankets? Shouldn't they be fleeing Baghdad
in their thousands to board leaky boats bound for Nauru? Is this proof that markets are fundamentally
irrational? Is this an
example of market-failure? Not even close. The behavior is quite rational, and gives an insight into what
is actually happening in Iraq. The Iraqi people lived through the previous Gulf War 12 years ago, and know
what the US war machine will
do. They know about the precision smart bombs, and know they will be used
against public property - not private property. Why would the
Americans waste precision smart-bombs on residential properties? The US will
bomb Baghdad at the rate of one smart bomb every four minutes in the first days
of the war - but the targets will not be private houses. They will be military installations,
electricity stations, water supplies, and government offices in that
order. So that explains why property prices have not dropped, but why should
they have increased? It's because people are getting more when they buy the same property. Would
you prefer to buy something which is likely to be taken away from you at the
whim of government or criminal elements, or something
which you can actually retain and control? Which would you be willing to pay
more for? Iraqis are anticipating the economic conditions after the war, and taking
positions based on those expectations. Clearly their expectations are of more
secure private ownership,
and a booming economy - once Saddam is gone. Informed Iraqis (ie the ones wealthy enough to buy
real-estate) may expect the war to bring hardship, but are expecting a much
brighter future after the bombs stop. And they are expecting their houses to be
not only still standing, but actually belong to them after the war. This suggests that the Iraqis are looking forward to the war - or at least
looking forward to it being over. Dubya, Dubya, the markets have spoken! Bring
it forward! The Iraqis want it to happen as soon as possible! Of course, some taxpayers in the US, UK and Australia have expressed
resentment at having to fund the coming Gulf War through their taxes - maybe the war could be
funded through property speculation in Baghdad?
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