Paying The Iraq Bill

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http://www.tompaine.com/articles/20060206/paying_the_iraq_bill.php

 

 

 

Paying The Iraq Bill

Joseph E. Stiglitz

February 06, 2006

 

oseph E. Stiglitz, a Nobel laureate in economics, is professor of

economics at Columbia University and was chairman of the Council of

Economic Advisers to President Clinton and chief economist and senior

vice president at the World Bank.

 

The most important things in life, like life itself, =ADare priceless.

But that doesn't mean that issues involving the preservation of life

(or a way of life), like defense, should not be subjected to cool,

hard economic analysis.

 

Shortly before the current Iraq war, when Bush administration

economist Larry Lindsey suggested that the costs might range between

$100 and $200 billion, other officials quickly demurred. For example,

Office of Management and Budget Director Mitch Daniels put the number

at $60 billion. It now appears that Lindsey's numbers were a gross

underestimate.

 

Concerned that the Bush administration might be misleading everyone

about the Iraq war's costs, just as it had about Iraq's weapons of

mass destruction and connection with Al Qaeda, I teamed up with Linda

Bilmes, a budget expert at Harvard, to examine the issue. Even

we=97opponents of the war=97were staggered by what we found, with

conservative to moderate estimates ranging from slightly less than a

trillion dollars to more than $2 trillion.

 

Our analysis starts with the $500 billion that the Congressional

Budget Office openly talks about, which is still 10 times higher than

what the administration said the war would cost. Its estimate falls so

far short because the reported numbers do not even include the full

budgetary costs to the government. And the budgetary costs are but a

fraction of the costs to the economy as a whole.

 

For example, the Bush administration has been doing everything it can

to hide the huge number of returning veterans who are severely

wounded=9716,000 so far, including roughly 20 percent with serious brain

and head injuries. So it is no surprise that its figure of $500

billion ignores the lifetime disability and health care costs that the

government will have to pay for years to come.

 

Nor does the administration want to face up to the military's

recruiting and retention problems. The result is large re-enlistment

bonuses, improved benefits and higher recruiting costs=97up 20 percent

just from 2003 to 2005. Moreover, the war is wearing extremely hard on

equipment, some of which will have to be replaced.

 

These budgetary costs (exclusive of interest) amount to $652 billion

in our conservative estimate and $799 billion in our moderate

estimate. Arguably, since the government has not reined in other

expenditures or increased taxes, the expenditures have been debt

financed, and the interest costs on this debt add another $98 billion

(conservative) to $385 billion (moderate) to the budgetary costs.

 

Of course, the brunt of the costs of injury and death is borne by

soldiers and their families. But the military pays disability benefits

that are markedly lower than the value of lost earnings. Similarly,

payments for those who are killed amount to only $500,000, which is

far less than standard estimates of the lifetime economic cost of a

death, sometimes referred to as the statistical value of a life ($6.1

to $6.5 million).

 

But the costs don't stop there. The Bush administration once claimed

that the Iraq war would be good for the economy, with one spokesperson

even suggesting that it was the best way to ensure low oil prices. As

in so many other ways, things have turned out differently: The oil

companies are the big winners, while the American and global economies

are losers. Being extremely conservative, we estimate the overall

effect on the economy if only $5 or $10 of the increase is attributed

to the war.

 

At the same time, money spent on the war could have been spent

elsewhere. We estimate that if a proportion of that money had been

allocated to domestic investment in roads, schools, and research, the

American economy would have been stimulated more in the short run, and

its growth would have been enhanced in the long run.

 

There are a number of other costs, some potentially quite large,

although quantifying them is problematic. For instance, Americans pay

some $300 billion annually for the " option value " of military

preparedness=97being able to fight wherever needed. That Americans are

willing to pay this suggests that the option value exceeds the costs.

But there is little doubt that the option value has been greatly

impaired and will likely remain so for several years.

 

In short, even our " moderate " estimate may significantly underestimate

the cost of America's involvement in Iraq. And our estimate does not

include any of the costs implied by the enormous loss of life and

property in Iraq itself.

 

We do not attempt to explain whether the American people were

deliberately misled regarding the war's costs, or whether the Bush

administration's gross underestimate should be attributed to

incompetence, as it vehemently argues is true in the case of weapons

of mass destruction.

 

Nor do we attempt to assess whether there were more cost-effective

ways of waging the war. Recent evidence that deaths and injuries would

have been greatly reduced had better body armor been provided to

troops suggests how short-run frugality can lead to long-run costs.

Certainly, when a war's timing is a matter of choice, as in this case,

inadequate preparation is even less justifiable.

 

But such considerations appear to be beyond the Bush administration's

reckoning. Elaborate cost-benefit analyses of major projects have been

standard practice in the defense department and elsewhere in

government for almost a half century. The Iraq war was an immense

" project. " Yet it now appears that the analysis of its benefits was

greatly flawed and that of its costs virtually absent.

 

One cannot help but wonder: Were there alternative ways of spending a

fraction of the war's $1 to $2 trillion in costs that would have

better strengthened security, boosted prosperity and promoted democracy?

 

Copyright: Project Syndicate, 2006.