Chief economics correspondent
03/17/06 "MSNBC"
-- -- One thing is certain about the Iraq war: It has cost a
lot more than advertised. In fact, the tab grows by at least
$200 million each and every day.
In the months leading up to the launch of the war three years
ago, few Bush administration officials were willing to comment
publicly on the potential costs to the United States. After all,
no cost would have been too high if the United States faced an
imminent threat from an Iraq armed with weapons of mass
destruction, the war's stated justification.
In fact, the economic ramifications are rarely included in
the debate over whether to go to war, although some economists
argue it is quite possible and useful to assess potential costs
and benefits.
In any event, most estimates put forward by White House
officials in 2002 and 2003 were relatively low compared with the
nation's gross domestic product, the size of the federal budget
or the cost of past wars.
White House economic adviser Lawrence Lindsey was the
exception to the rule, offering an "upper bound" estimate of
$100 billion to $200 billion in a September 2002 interview with
The Wall Street Journal. That figure raised eyebrows at the
time, although Lindsey argued the cost was small, adding, "The
successful prosecution of the war would be good for the
economy.”
U.S. direct spending on the war in Iraq already has surpassed
the upper bound of Lindsey's upper bound, and most economists
attribute billions more in indirect costs to the war effort.
Even if the U.S. exits Iraq within another three years, total
direct and indirect costs to U.S. taxpayers will likely by more
than $400 billion, and one estimate puts the total economic
impact at up to $2 trillion.
Back in 2002, the White House was quick to distance itself
from Lindsey's view. Mitch Daniels, director of the White House
budget office, quickly called the estimate "very, very high."
Lindsey himself was dismissed in a shake-up of the White House
economic team later that year, and in January 2003, Defense
Secretary Donald Rumsfeld said the budget office had come up
with "a number that's something under $50 billion." He and other
officials expressed optimism that Iraq itself would help
shoulder the cost once the world market was reopened to its rich
supply of oil.
Those early estimates struck some economists as
unrealistically low. William Nordhaus, a Yale economist who
published perhaps the most extensive independent estimate of the
potential costs before the war began, suggested a war and
occupation could cost anywhere from $100 billion to $1.9
trillion in 2002 dollars, depending on the difficulty of the
conflict, the length of occupation and the impact on oil costs.
The most current estimates of the war's cost generally start
with figures from the non-partisan Congressional Budget Office,
which as of January 2006 counted $323 billion in expenditures
for the war on terrorism, including military action in Iraq and
Afghanistan. Just this week the
House approved
another $68 billion for military operations in Iraq and
Afghanistan, which would bring the total allocated to date to
about $400 billion. The Pentagon is spending about $6 billion a
month on the war in Iraq, or about $200 million a day, according
to the CBO. That is about the same as the gross domestic product
of Nigeria.
Scott Wallsten, a resident scholar at the conservative
American Enterprise Institute, put the direct cost to the United
States at $212 billion as of last September and estimates a
"global cost" of $500 billion to date with another $500 billion
possible, with most of the total borne by the United States.
That figure is in line with an estimate published last month
by University of Chicago economist Steven Davis and colleagues,
who put the likely U.S. cost at $410 billion to $630 billion in
2003 dollars.
Joseph Stiglitz, a Nobel Prize-winning economist and
self-described opponent of the war, puts the final figure at a
staggering $1 trillion to $2 trillion, including $500 billion
for the war and occupation and up to $300 billion in future
health care costs for wounded troops. Additional costs include a
negative impact from the rising cost of oil and added interest
on the national debt.
In the buildup to any war, financial costs rarely play a big
role in the debate, especially for a superpower like the United
States, which is presumed to have virtually limitless resources.
But economists like Wallsten and Davis say there is no reason
wars cannot be subjected to the same type of cost-benefit
analysis as other government activities.
After all, even a society as rich as ours has finite
resources, and the public has a limited appetite for absorbing
the costs of war, whether human or economic.
"I come at this from a background in regulation," said
Wallsten, who served in the Clinton White House but said his
analysis is not rooted in any particular perspective on the war.
"When the government proposes a new regulation they have to
by law do a cost-benefit analysis," he noted. "So we have this
framework, but it's never been applied to this kind of policy
decision."
Wallsten said some people might look at his estimate of up to
$1 trillion in costs and conclude that the war was worth it
given its benefits, such as the removal of Saddam Hussein from
power and the possible installation of a democratic government
in the heart of the Middle East.
"I wasn’t trying to say whether the war was worth it or not.
There are lots of benefits that could arise, and I don't know
how to place a probability on whether they would occur. I was
interested more than in coming up with a number, coming up with
a framework that people might want to have in coming up with
such decisions in the future," Wallsten said.
Wallsten also offers amateur and professional policy-makers
the chance to come up with their own cost estimates by plugging
in values for variables like the length of the occupation (up to
nine more years) the number of annual deaths and injuries and
the statistical "value" of a life. (To
try your own assumptions, click here.)
In addition to the economic costs, any military conflict can
also have financial benefits, although in this age of more
limited wars and a service-oriented economy, war is not the
economic pump-primer it once was.
Davis and his colleagues at the University of Chicago
recently updated a paper to make the point that the cost of the
war alone is not necessarily an iron-clad argument against it.
They estimate that continuing the previous policy of
containment with a deployment of 28,000 troops in Turkey, the
Middle East and the Persian Gulf would have cost $14.5 billion a
year for many years to come. And they say containment eventually
could have failed, meaning a more costly armed conflict might
have broken out anyway. Factoring in those possibilities, they
say containment could have cost $350 billion to $700 billion
over the long term, possibly as much as the war option.
They also point to potential net economic benefits to Iraqis,
concluding that the war is likely to lead to "large improvements
in the economic well-being of most Iraqis relative to their
prospects under the policy of containment."
And, Davis and his colleagues argue, even though the war has
led to thousands of Iraqi deaths, tens of thousands were dying
prematurely each year under Saddam's regime, due to repression,
economic failure or UN sanctions.
"If, over the course of a generation, Iraqis recover even
half of the economic losses they suffered under Saddam Hussein,
then they will be significantly better off in material terms as
a consequence of forcible regime change," they say.
