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War's Stunning Price Tag
By Linda Bilmes and Joseph Stiglitz
01/17/06 "Los
Angeles Times " -- -- Last week, at the annual
meeting of the American Economic Assn., we presented a new
estimate for the likely cost of the war in Iraq. We suggested
that the final bill will be much higher than previously reckoned
— between $1 trillion and $2 trillion, depending primarily on
how much longer our troops stay. Putting that into perspective,
the highest-grossing movie of all time, "Titanic," earned $1.8
billion worldwide — about half the cost the U.S. incurs in Iraq
every week.
Like the iceberg that hit the Titanic, the full costs of the war
are still largely hidden below the surface. Our calculations
include not just the money for combat operations but also the
costs the government will have to pay for years to come. These
include lifetime healthcare and disability benefits for
returning veterans and special round-the-clock medical attention
for many of the 16,300 Americans who already have been seriously
wounded. We also count the increased cost of replacing military
hardware because the war is using up equipment at three to five
times the peacetime rate. In addition, the military must pay
large reenlistment bonuses and offer higher benefits to reenlist
reluctant soldiers. On top of this, because we finance the war
by borrowing more money (mostly from abroad), there is a rising
interest cost on the extra debt.
Our study also goes beyond the budget of the federal government
to estimate the war's cost to the economy and our society. It
includes, for instance, the true economic costs of injury and
death. For example, if an individual is killed in an auto or
work-related accident, his family will typically receive
compensation for lost earnings. Standard government estimates of
the lifetime economic cost of a death are about $6 million. But
the military pays out far less — about $500,000. Another cost to
the economy comes from the fact that 40% of our troops are taken
from the National Guard and Reserve units. These troops often
earn lower wages than in their civilian jobs. Finally, there are
macro-economic costs such as the effect of higher oil prices —
partly a result of the instability in Iraq.
We conclude that the economy would have been much stronger if we
had invested the money in the United States instead of in Iraq.
Spending up to $2 trillion should make us ask some questions.
First, these figures are far higher than what the administration
predicted before the war. At that time, White House economic
advisor Lawrence Lindsey was effectively fired for suggesting
that the war might cost up to $200 billion, rather than the $60
billion claimed by the president's budget office. Why were the
costs so vastly underestimated? Elsewhere in the government, it
is standard practice to engage in an elaborate cost-benefit
analysis for major projects. The war in Iraq was a war of
choice, an immense "project," and yet it now appears that there
was virtually no analysis of the likely costs of a prolonged
occupation.
Could we have fought the war in ways that would have protected
our troops better and cost the country less? A Pentagon study
apparently concludes that better body armor would have prevented
many deaths and injuries. Penny-pinching in such matters during
the rush to war has led to steep long-run costs for the nation
and, tragically, for the individuals involved.
Even more fundamentally, there is the question of whether we
needed to spend the money at all. Thinking back to the months
before the war, there were few reasons to invade quickly, and
many to go slow. The Bush policy of threatened force had
pressured Iraq into allowing the U.N. inspectors back into the
country. The inspectors said they required a few months to
complete their work. Several of our closest allies, including
France and Germany, were urging the U.S. to await the outcome of
the inspections. There were, as we now know, conflicting
intelligence reports.
Had we waited, the value of the information we would have
learned from the inspectors would arguably have saved the nation
at least $1 trillion — enough money to fix Social Security for
the next 75 years twice over.
Linda Bilmes, a former assistant secretary of Commerce, teaches
public finance at the Kennedy School of Government at Harvard.
Joseph Stiglitz is a professor at Columbia University. He won
the Nobel Prize in economics in 2001.
© 2006 Los Angeles Times
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