Trillion Dollar War
"The War Is Bad for the Economy"
Nobel Prize winning economist Joseph Stiglitz, 63, discusses the
true $1 trillion cost of the Iraq conflict, its impact on the
oil market and the questions of whether the West can afford to
impose sanctions on Iran.
By Frank Hornig and Georg Mascolo
04/06/06 "Spiegel" -- -- Professor Stiglitz, at the beginning of
the Iraq war, the United States administration was hoping to
almost break even in terms of the costs ...
Stiglitz: ... they truly believed the Iraqi people could use
their oil revenues to pay for reconstruction.
SPIEGEL: And now you are estimating the cost of war at levels
between $1 trillion and $2 trillion. How do you explain this
Stiglitz: First, the war was much more difficult than President
Bush and his government expected. They thought they were going
to walk in, everybody would say thank you, and they would set up
a democratic government and leave. Now that this war is lasting
so much longer, they constantly have to adapt their budget. It
rose from $50 billion to $250 billion. Today, the Congressional
Budget Office talks about $500 billion or more for this
SPIEGEL: That's still by far lower than your own calculations.
Stiglitz: 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. And
compare this to Gulf War number one, where America almost made a
SPIEGEL: Because Germany paid for it?
Stiglitz: Because Germans paid, because everybody paid. We got
our allies to pay full price for used equipment, and we got to
refurbish our military. This time, most of the other countries
were not willing to do so again.
SPIEGEL: Did Bush just miscalculate, or was he misleading the
public about the true costs of war?
Stiglitz: I think it was both. He wanted to believe it was not
going to be expensive, he wanted to believe it would be easy.
But there's also enormous evidence now that information channels
into the White House were distorted. Bush wanted only certain
information, and that's mostly what they supplied him with.
Larry Lindsey ...
SPIEGEL: ... the White House's former top economic adviser ...
Stiglitz: ... gave -- back in 2002 -- a number of up to $200
billion. I think that was the most accurate inside information
at the time. He was dismissed. They didn't want to hear it.
SPIEGEL: In the US, the financial costs of war are seldom
discussed. It used to be considered a sacrifice to achieve
common goals. Why is it different today?
Stiglitz: This is not like a world war where you're attacked. We
were attacked in Pearl Harbor, we had to respond. This time, we
had a choice, we had to decide how and who we are going to
SPIEGEL: ... and if you can afford it.
Stiglitz: Well, we can afford it, that's not the issue. The
issue is: $1 trillion or $2 trillion is a lot of money. If our
objective is to have stability in the Middle East, secure oil,
or extend democracy, you can do a lot of democracy buying for
this sum. To put it in context: The whole world spends $50
billion a year on foreign aid. So what we're talking about is
multiplying the foreign aid budget 20-fold. Wouldn't you say
this could do more for peace and stability and security?
SPIEGEL: Bush would argue it's worth spending that much to
decrease the probability of a major terrorist attack on the US.
Stiglitz: Nobody takes that seriously. Instead, most people
think the Iraq war has increased the probability of an attack.
However, it's difficult to put this aspect into financial terms.
SPIEGEL: How did you calculate the costs of the war?
Stiglitz: The official figures are only the tip of an enormous
iceberg. For instance, one of the costs of the war is that
soldiers today get very seriously injured but stay alive, and we
can keep them alive but at an enormous price.
SPIEGEL: Is this the biggest item in your calculations?
Stiglitz: It's very important. The Bush administration has been
doing everything it can to hide the huge number of returning
veterans who are severely wounded -- 17,000 so far including
roughly 20 percent with serious brain and head injuries. Even
the estimate of $500 billion ignores the lifetime disability and
healthcare costs that taxpayers will have to spend for years to
come. And the administration isn't even generous with veterans,
widows and their kids.
SPIEGEL: What does that mean?
Stiglitz: If you're injured in an automobile accident, and you
sue the driver, you get much more for your injury than if you're
fighting for your country. There's a double standard here. If
you happen to put your life at risk fighting for your country,
you get a little. If you walk across the street and get injured,
you get a lot more. Similarly, payments for a dead soldier
amount to only $500,000, which is far less than standard
estimates of the lifetime economic cost of a death. This
statistical value of a life in the US amounts to circa $6.5
SPIEGEL: How much will a severely brain-damaged soldier cost the
Stiglitz: My moderate estimate is about $4 million. For this
group alone there will be a total cost of $35 billion that
nobody is talking about. But look at the broader picture: The
Veterans Administration originally projected that roughly 23,000
veterans returning from Iraq would seek medical care last year.
But in June 2005, it revised this number to an estimated
103,000. No wonder the Veterans Administration had to appeal
Congress for emergency funding of $1.5 billion last year.
SPIEGEL: If this is a $1 trillion war, why couldn't the US
provide its soldiers with safer body armor and better protected
STIGLITZ: Obviously, the US can afford to pay for body armor.
Rumsfeld, our Secretary of Defense, said you have to fight with
the armor you have, but that's unconscionable. The military is
focusing only on the short run costs. If they don't provide
appropriate body armor, they save some money today, but the
healthcare cost is going to be the future for some other
president down the line. I view that as both fiscally and
SPIEGEL: This war could have been both safer for the troops and
cheaper for the country?
SPIEGEL: Is war no longer affordable even for countries as rich
as the United States?
Stiglitz: You have to remember we are an economy of $13 trillion
a year. The issue is not whether you can afford it but whether
this is the way you want to spend your money. In using the
limited resources that we have for fighting this war, we have
less resources to do other things. You saw on your TV what
happened in New Orleans after Hurricane Katrina. The Reserves or
National Guard are usually the people we use for those national
emergencies. They weren't here, they were over in Iraq, and so
we were less protected.
SPIEGEL: Before the invasion of Iraq, the US administration said
the best way to keep oil prices in check is a short and
successful war. A barrel was at $25 at that time, and now it's
over $60. What of this increase is due to Iraq?
Stiglitz: In our analysis about the cost of war, we only assumed
a modest $5 to $10 caused by the war. We wanted to keep our
study conservative, so no one would dispute our numbers, and no
one did. But I believe that's a vast underestimation of the true
SPIEGEL: But why? China and India are increasing their demand,
real global growth has been going on. This is driving the
Stiglitz: When demand rises so does supply -- that's how markets
usually work. Now we're seeing that demand for oil is rising but
we're not getting a commensurate increase in supply. And there's
a simple answer, it's Iraq. But it's not just because it
production has been down.
SPIEGEL: Why else?
Stiglitz: The Middle East is the lowest cost producer in the
world. They can produce oil for $10, $15 or $20 a barrel. Now we
have the technology to produce oil elsewhere for $35 to $45. But
who wants to develop fields or invest in new technologies
elsewhere if they know that in five years' time, the Middle East
may be supplying oil at previous prices?
SPIEGEL: In other words, were peace and stability re-established
in the Middle East, the oil price would be back to maybe $25,
despite the huge global hunger for energy?
Stiglitz: Yes. By the way that's the price level oil traders
were speculating on in futures trading before the outbreak of
SPIEGEL: There should be huge economic pressure on Bush to end
Stiglitz: The only people benefiting in this war are Bush's
friends in the oil industry. He has done the American economy
and the global economy an enormous disfavor, but his Texan
friends couldn't be happier. The price of oil is up, and they
make money when the price of oil goes up. Their profits are at
SPIEGEL: You don't like this president very much.
Stiglitz: Oh, it's nothing personal. It's all about his
SPIEGEL: There is an old saying: War is good for the economy.
Stiglitz: Listen, World War II was really unusual, because
America was in the Great Depression before. So the war did help
the US economy to get securely out of this decline. This time,
the war is bad for the economy in both the short and long run.
We could have spent trillions in research or education instead.
This would have led to future productivity increases.
SPIEGEL: So is the economical mess of the Iraq war even bigger
than the political?
Stiglitz: Well, we are so rich, we are able to withstand even
this level. Crowding out other investments, weakening the
economy in the future, that's not a crisis yet. But it's an
erosion. It becomes an issue for our legislators. And don't
forget the serious issues of nuclear proliferation in Iran and
North Korea. We used up our ability to deal with something
serious by dealing with something that was less serious.
SPIEGEL: What's your economic view on Iran?
Stiglitz: We are helping the people that Bush says are evil.
Teheran couldn't be happier about the high oil prices resulting
from the Iraq war.
SPIEGEL: If the UN Security Council votes for sanctions over
Iran and its oil exports, what would that mean for the world
Stiglitz: It would mean an enormous disruption, as oil prices
might rise over $100. You can increase the price from $25 to
$40, and people can absorb it. If the price rises above $60,
they become unhappy. They start to adjust, they move to smaller
cars, drive a little bit less. At $100 or $120, there are major
changes in lifestyle. The sales of cars will plummet. Poor
people will be facing real problems of heat versus food.
SPIEGEL: The world can't afford sanctions at this time?
Stiglitz: We talk about not allowing their officials to get
visas to visit our countries.
SPIEGEL: That's not a harsh measure.
Stiglitz: It's no sanction. So the answer is, yes, we have no
SPIEGEL: Professor Stiglitz, thank you for this interview.
Interview conducted by Frank Hornig and Georg Mascolo.
© SPIEGEL ONLINE 2006
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