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The Three Trillion-Dollar War
By Joseph Stiglitz and Linda Bilmes
The Times of London UK
Saturday 23 February 2008
The cost of the Iraq and Afghanistan conflicts
have grown to staggering proportions.
The Bush Administration was wrong about the benefits of the war and it was
wrong about the costs of the war. The president and his advisers expected a
quick, inexpensive conflict. Instead, we have a war that is costing more than
anyone could have imagined.
The cost of direct US military operations - not even including long-term costs
such as taking care of wounded veterans - already exceeds the cost of the 12-year
war in Vietnam and is more than double the cost of the Korean War.
And, even in the best case scenario, these costs are projected to be almost
ten times the cost of the first Gulf War, almost a third more than the cost
of the Vietnam War, and twice that of the First World War. The only war in our
history which cost more was the Second World War, when 16.3 million U.S. troops
fought in a campaign lasting four years, at a total cost (in 2007 dollars, after
adjusting for inflation) of about $5 trillion. With virtually the entire armed
forces committed to fighting the Germans and Japanese, the cost per troop (in
today's dollars) was less than $100,000 in 2007 dollars. By contrast, the Iraq
war is costing upward of $400,000 per troop.
Most Americans have yet to feel these costs. The price in blood has been paid
by our voluntary military and by hired contractors. The price in treasure has,
in a sense, been financed entirely by borrowing. Taxes have not been raised
to pay for it - in fact, taxes on the rich have actually fallen. Deficit spending
gives the illusion that the laws of economics can be repealed, that we can have
both guns and butter. But of course the laws are not repealed. The costs of
the war are real even if they have been deferred, possibly to another generation.
On the eve of war, there were discussions of the likely costs. Larry Lindsey,
President Bush's economic adviser and head of the National Economic Council,
suggested that they might reach $200 billion. But this estimate was dismissed
as "baloney" by the Defense Secretary, Donald Rumsfeld. His deputy,
Paul Wolfowitz, suggested that postwar reconstruction could pay for itself through
increased oil revenues. Mitch Daniels, the Office of Management and Budget director,
and Secretary Rumsfeld estimated the costs in the range of $50 to $60 billion,
a portion of which they believed would be financed by other countries. (Adjusting
for inflation, in 2007 dollars, they were projecting costs of between $57 and
$69 billion.) The tone of the entire administration was cavalier, as if the
sums involved were minimal.
Even Lindsey, after noting that the war could cost $200 billion, went on to
say: "The successful prosecution of the war would be good for the economy."
In retrospect, Lindsey grossly underestimated both the costs of the war itself
and the costs to the economy. Assuming that Congress approves the rest of the
$200 billion war supplemental requested for fiscal year 2008, as this book goes
to press Congress will have appropriated a total of over $845 billion for military
operations, reconstruction, embassy costs, enhanced security at US bases, and
foreign aid programs in Iraq and Afghanistan.
As the fifth year of the war draws to a close, operating costs (spending on
the war itself, what you might call "running expenses") for 2008 are
projected to exceed $12.5 billion a month for Iraq alone, up from $4.4 billion
in 2003, and with Afghanistan the total is $16 billion a month. Sixteen billion
dollars is equal to the annual budget of the United Nations, or of all but 13
of the US states. Even so, it does not include the $500 billion we already spend
per year on the regular expenses of the Defense Department. Nor does it include
other hidden expenditures, such as intelligence gathering, or funds mixed in
with the budgets of other departments.
Because there are so many costs that the Administration does not count, the
total cost of the war is higher than the official number. For example, government
officials frequently talk about the lives of our soldiers as priceless. But
from a cost perspective, these "priceless" lives show up on the Pentagon
ledger simply as $500,000 - the amount paid out to survivors in death benefits
and life insurance. After the war began, these were increased from $12,240 to
$100,000 (death benefit) and from $250,000 to $400,000 (life insurance). Even
these increased amounts are a fraction of what the survivors might have received
had these individuals lost their lives in a senseless automobile accident. In
areas such as health and safety regulation, the US Government values a life
of a young man at the peak of his future earnings capacity in excess of
$7 million - far greater than the amount that the military pays in death benefits.
Using this figure, the cost of the nearly 4,000 American troops killed in Iraq
adds up to some $28 billion.
The costs to society are obviously far larger than the numbers that show up
on the government's budget. Another example of hidden costs is the understating
of US military casualties. The Defense Department's casualty statistics focus
on casualties that result from hostile (combat) action - as determined by the
military. Yet if a soldier is injured or dies in a night-time vehicle accident,
this is officially dubbed "non combat related" - even though it may
be too unsafe for soldiers to travel during daytime.
In fact, the Pentagon keeps two sets of books. The first is the official casualty
list posted on the DOD website. The second, hard-to-find, set of data is available
only on a different website and can be obtained under the Freedom of Information
Act. This data shows that the total number of soldiers who have been wounded,
injured, or suffered from disease is double the number wounded in combat. Some
will argue that a percentage of these non-combat injuries might have happened
even if the soldiers were not in Iraq. Our new research shows that the majority
of these injuries and illnesses can be tied directly to service in the war.
From the unhealthy brew of emergency funding, multiple sets of books, and chronic
underestimates of the resources required to prosecute the war, we have attempted
to identify how much we have been spending - and how much we will, in the end,
likely have to spend. The figure we arrive at is more than $3 trillion. Our
calculations are based on conservative assumptions. They are conceptually simple,
even if occasionally technically complicated. A $3 trillion figure for the total
cost strikes us as judicious, and probably errs on the low side. Needless to
say, this number represents the cost only to the United States. It does not
reflect the enormous cost to the rest of the world, or to Iraq.
From the beginning, the United Kingdom has played a pivotal role - strategic,
military, and political - in the Iraq conflict. Militarily, the UK contributed
46,000 troops, 10 per cent of the total. Unsurprisingly, then, the British experience
in Iraq has paralleled that of America: rising casualties, increasing operating
costs, poor transparency over where the money is going, overstretched military
resources, and scandals over the squalid conditions and inadequate medical care
for some severely wounded veterans.
Before the war, Gordon Brown set aside £1 billion for war spending. As
of late 2007, the UK had spent an estimated £7 billion in direct operating
expenditures in Iraq and Afghanistan (76 percent of it in Iraq). This includes
money from a supplemental "special reserve", plus additional spending
from the Ministry of Defense.
The special reserve comes on top of the UK's regular defense budget. The British
system is particularly opaque: funds from the special reserve are "drawn
down" by the Ministry of Defense when required, without specific approval
by Parliament. As a result, British citizens have little clarity about how much
is actually being spent.
In addition, the social costs in the UK are similar to those in the US - families
who leave jobs to care for wounded soldiers, and diminished quality of life
for those thousands left with disabilities.
By the same token, there are macroeconomic costs to the UK as there have been
to America, though the long-term costs may be less, for two reasons. First,
Britain did not have the same policy of fiscal profligacy; and second, until
2005, the United Kingdom was a net oil exporter.
We have assumed that British forces in Iraq are reduced to 2,500 this year
and remain at that level until 2010. We expect that British forces in Afghanistan
will increase slightly, from 7,000 to 8,000 in 2008, and remain stable for three
years. The House of Commons Defense Committee has recently found that despite
the cut in troop levels, Iraq war costs will increase by 2 percent this year
and personnel costs will decrease by only 5 percent. Meanwhile, the cost of
military operations in Afghanistan is due to rise by 39 per ent. The estimates
in our model may be significantly too low if these patterns continue.
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Joseph Stiglitz was chief economist at the World Bank and won the
Nobel Memorial Prize for Economics in 2001. Linda Bilmes is a lecturer in public
policy at the Kennedy School of Government at Harvard University.
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