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There Is No Such
Thing As A War For Free
By J. E. Stiglitz and Linda Bilmes
20/03/08 "Chicago
Tribune" -- -- Five years ago, as the Bush administration was
preparing to attack Iraq, it claimed that the war would cost $50
billion to $60 billion. We are now spending for military
operations alone that amount every three months—and that sum
does not even include future costs, such as disability and
health benefits for returning troops. We estimate conservatively
that by the time the war is over, it will have cost America in
excess of $3 trillion, an amount so vast it is hard to fathom.
The only way to grasp such numbers is to translate them into
what a day or an hour of fighting costs, what economists refer
to as the opportunity costs, what else we might have purchased.
Many are worried about China's growing influence in Africa. But
what we spend in aid to Africa amounts to but 10 days of upfront
costs of fighting in Iraq. President Bush talked about the
enormous financial problems facing Social Security, saying that
drastic reforms—even privatization—were needed. Well, for
one-sixth of the cost of an Iraq war, one could put Social
Security on firm financial footing for at least the next 50 to
75 years.
War is always expensive, but this war is particularly expensive.
It is now the nation's second longest (after Vietnam) and the
second costliest (after the all-encompassing World War II). The
cost per troop, even adjusted for inflation, is some eight times
greater than earlier wars. Many of these costs arise because the
administration tried to persuade the American people that they
could have a war for free. The government kept upfront costs
down, not spending money on, for instance, vehicles that would
have protected our troops against improvised explosive devices,
or IEDs, which have led to so many deaths and disabilities, even
after they were urgently requested. This war is distinctive in
the huge number of injuries, some 15 times the number of
fatalities—a tribute to modern medicine, but an unfunded
liability in excess of $600 billion, costs that we will be
paying for decades. (The administration has done all it can to
hide these numbers; working through veterans groups, we had to
use the Freedom of Information Act to get the full scope of the
injuries.)
This war relied more on National Guards, which are intended to
protect us against domestic emergencies like Hurricane Katrina,
not to fight foreign ventures. This war has been privatized more
than any other war. The contractors have done well—just look at
Halliburton Co.'s share prices, which almost tripled in value.
But these strategies, too, have been penny-wise and
pound-foolish.
Going from $50 billion to $3 trillion is mostly a matter of
simple arithmetic. We first added up the budgetary
costs—beginning with some $600 billion that goes to actual
operations, requested in dribs and drabs, still five years into
the war funded with emergency appropriations, which itself is
more than 10 times what the administration said. But there are
huge costs to come. Most important of these are the veterans'
costs. Our armed forces have been drained: America is less
prepared to meet a new challenge than it was five years ago
(this is part of the security opportunity cost of the war). It
will be expensive to restore the military to its pre-war
strength.
But then there are huge costs to our economy and society that go
beyond the budget. Many are not quantifiable—the loss of
America's standing in the world may be among the greatest. But
some can be quantified. The death benefit for a soldier is at
$500,000 far less than any economic measure of the value of life
(including those used by the Bush administration itself in
determining whether an environmental regulation is worth the
cost). Disability pay, too, does not cover the economic
loss—including the cost of care. In one of five families with a
seriously disabled military person, someone has to give up a job
to care for the returning veteran. And finally, there is the
cost to the macroeconomy—a cost that is just now becoming fully
apparent.
From an economic perspective, most striking is that this is the
first war in America's history that ordinary citizens have not
been asked to make an economic sacrifice as their sons and
daughters risked their lives; as we went to war, there was a
huge deficit, but in spite of this, we actually cut taxes on
upper-income Americans, meaning the costs are being passed on to
future generations.
Even Fed Chairman Ben Bernanke (former chairman of President
Bush's Council of Economic Advisers) has pointed out that the
deficits reduce our room to maneuver as the economy faces the
worst downturn in a quarter-century, perhaps the worst since the
Great Depression. The war, indirectly, is in fact more than a
little responsible for our current problems. The war set off the
rise in oil prices. Oil cost $25 a barrel before the war, and
the futures markets—which already took into account the
projected growth in demand by China and other emerging
markets—nonetheless expected prices to remain at this level for
another decade. The invasion of Iraq changed the equation, and
supply did not grow to meet demand. To be conservative, we have
only attributed $5 to $10 of the more than $85-a-barrel increase
in the price of oil to the Iraq war.
However, even this has a major impact on the U.S. economy. It
has transferred money out of the pockets of consumers and
businesses into the coffers of oil exporters like Saudi Arabia,
Venezuela, Kuwait and Russia. This money does not stimulate the
U.S. economy. Indeed, most of the money we have spent on Iraq
has not stimulated the U.S. economy because so much has been
spent on things that have no economic benefit to us—like paying
contractors from Nepal, the Philippines and elsewhere to cook
food, wash laundry, construct barracks and drive trucks in Iraq.
Clearly this is less beneficial to the U.S. economy than if we
had spent the money on schools or roads in America.
The Fed, in effect, covered up this downdraft on the American
economy with a flood of liquidity, which together with lax
regulations led to a housing bubble and a consumption boom. More
than $1.5 trillion was taken out of houses in mortgage equity
withdrawals. Household savings plummeted to zero. But we were
living on borrowed money and borrowed time; a day of reckoning
had to come. It has now come—a little too soon for the
politicians who hoped that this problem, like the war, could be
passed on to the next administration.
Economists say that there is no such thing as a free lunch. And
there is no such thing as a free war. America will be paying
dearly for this war, partly because this administration tried to
persuade the American people that they could repeal the laws of
economics and have a war for free. We will be paying for these
mistakes, with interest, for years to come.
Joseph E. Stiglitz, recipient of the 2001 Nobel Memorial
Prize in Economics, is a professor at Columbia University and
was chief economist and senior vice president of the World Bank
from 1997 to 2000. Linda Bilmes teaches at Harvard University's
Kennedy School of Government. She was an assistant secretary and
chief financial officer of the Department of Commerce. They are
the co-authors of "The Three Trillion Dollar War: The True Costs
of the Iraq Conflict."
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