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The $2 Trillion Dollar War

A leading economist says the true cost of Iraq is far higher than President Bush claims -- and America will pay the price for decades to come.

By Charles M. Young

12/20/06 "Rolling Stone" --- - When America invaded Iraq in 2003, the Bush administration predicted that the war would turn a profit, paying for itself with increased oil revenues. So far, though, Congress has spent more than $350 billion on the conflict, including the $50 billion appropriated for 2007.

But according to one of the world's leading economists, that is just a fraction of what Iraq will actually wind up costing American taxpayers. Joseph Stiglitz, winner of the Nobel Prize for economics, estimates the true cost of the war at$2.267 trillion. That includes the government's past and future spending for the war itself ($725 billion), health care and disability benefits for veterans ($127 billion), and hidden increases in defense spending ($160 billion). It also includes losses the economy will suffer from injured vets ($355 billion) and higher oil prices ($450 billion).

Stiglitz, a professor of economics at Columbia University, is just the guy to size up the war's financial consequences. He served as chief economist at the World Bank and chairman of the Council of Economic Advisors under President Clinton, and his book Globalization and Its Discontents has sold more than a million copies. Stiglitz sat down with Rolling Stone in New York to discuss the costs of Bush's misadventure in Iraq.

What's wrong with dropping a lot of money on the Iraq War? Didn't World War II pull America out of the Great Depression?
War is a lousy form of economic stimulus. The bang you get for the buck is very low. If we hadn't had to fight during the Depression, we would have become a much richer country by investing the money we spent on the war. Think of the Nepalese contractors doing work in Iraq. They spend their money in Iraq or Nepal -- not in America.

Because the war drove up oil prices, we are also giving more money to Saudi Arabia, Iran and Venezuela. It follows that we are not investing that money. And instead of spending the money we have left on things that will make us wealthier, we are spending it in ways that have just the opposite effect. I don't want to reduce this to cold, hard economics, but when you educate young people for twelve to eighteen years, you're investing a lot of money in them. If you then have them killed, maimed and debilitated, you destroy capital.

How did you arrive at the $2 trillion figure?
There were three parts to the calculations that I made with Linda Bilmes, a professor of public finance at Harvard. The first part is based on actual expenditures -- the impact on the federal budget. But the budget doesn't include a lot of expenditures we will be making in the future as a result of the war today, like paying for the health care and disability benefits of all the people who have been injured. These are lifetime expenditures, but they aren't included in the $600 million a year the Defense Department expects to spend on Iraq. They're just talking about the hardware of war.

The second part of our calculations estimates future expenditures to replace what we lose in the war. The budget includes spending for new ammunition, but not the wear and tear on weapons systems. Eventually the weapons must be replaced, but the administration doesn't count that as part of the projected cost of the war.

A third important category is a little more hidden. The defense budget has gone way up, beyond the money earmarked for Iraq. You have to ask why. It's not like the Cold War has broken out again. We infer that they are hiding a lot of the Iraq expenditures in the defense budget. We only attribute a small fraction of the increase to Iraq, but it would be hard to explain them any other way than the war.

You also examine the cost beyond the impact on the federal budget.
Yes. We look at where the budget underestimates the social cost of the war. Take disability pay. If you're wounded, the government pays you only twenty percent of what you would have earned if you could work. The disability payment is a budget cost, but the economy misses the salary you would have been making now that you're not able to do anything.

At least they saved taxpayers money on body armor.
Not really. Rumsfeld made the defense budget a little lower in the short term by not providing the troops with adequate body armor. But the government now has to pay for the care of vets with disabling brain and spine injuries -- and society loses what their contribution would have been had they been gainfully employed. It's a good illustration of how looking at the short-run number leads you to think the war isn't costing all that much. It's costing the government more, our society more and our veterans enormously more.

Another example of Rumsfeld's budgeting is the huge bonuses we're paying to get soldiers to re-enlist. He wanted to lessen the impact of the war on the military, so he used private contractors, who are more expensive. What he didn't realize was that he was setting up a competition that has driven up the price of a soldier. If someone who has served his enlistment has a choice of working as a contractor for $100,000 or in the military for $25,000, what's he going to do? Wages and bonuses had to go up. Maybe that's a good thing -- the regular military was being cheated, in a way. But it's another cost of the war that isn't figured into the budget.

So Bush's budget for the war is as out of touch with reality as his justifications for invading Iraq in the first place.
The administration is trying to sell the notion that they have repealed the laws of economics. They want us to believe that we don't have to choose between guns and butter -- that we can have them both. The reality is, the money spent on the war could have been spent on other things.

Such as?
One quarter of the war budget would have fixed Social Security for the next seventy-five years. George Bush says that Social Security is a major economic problem. If you believe him -- although there are many reasons not to believe him -- the war is four times worse as an economic problem.

With $2 trillion, we could have funded the entire world's commitment to foreign aid to poor countries for the next twenty years. Or just think what we could have done to stop global warming if we had spent that two trillion developing cheaper photovoltaic cells to convert solar energy into electricity. With our technological advantages, we could have had some real breakthroughs. We have the resources -- we just need to redirect them from destroying another country.

Will average Americans notice any economic fallout from the war?
We'll have a lower living standard than we otherwise would have achieved. The median American income is going down. Most of us are worse off than we were five or six years ago. Why are we getting poorer? This big pot of money we spent on the war obviously has something to do with it. Americans have a hard time seeing it when the numbers come out in dribs and drabs. But when it's $2 trillion? Did we really want to spend it like this? It's hard to think how we could have spent it worse.

Has Bush responded to your calculations?
To my knowledge, nobody in the administration has challenged our numbers. All they've said is that we didn't include the benefits of the war, which is true. There is no way to assess the benefits. There are some little savings we subtracted out, such as the no-fly zone over Iraq: We don't have to pay to patrol it any more, because there is nothing to enforce with Saddam out of power. But the administration can't exactly claim that they have brought peace, stability and democracy to the Middle East.

They also argue that they didn't go to war on the basis of green-eyeshade calculations. That's true, but they did do a calculation of the cost. They were just off. Like every other aspect of their analysis of this war, they were either deliberately misleading or incompetent.

Paul Wolfowitz actually claimed that the war would pay for itself with oil revenue.
You have to wonder: What reward should he receive for such acumen? Bush made him president of the World Bank.

ęCopyright 2006 Rolling Stone

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