Paying the Iraq Bill
by Joseph E. Stiglitz
www.tompaine.com/, February 7,
[Joseph E. Stiglitz, a Nobel laureate
in economics, is professor of economics at Columbia University
and was chairman of the Council of Economic Advisers to President
Clinton and chief economist and senior vice president at the World
The most important things in life, like
life itself, are priceless. But that doesn't mean that issues
involving the preservation of life (or a way of life), like defense,
should not be subjected to cool, hard economic analysis.
Shortly before the current Iraq war, when
Bush administration economist Larry Lindsey suggested that the
costs might range between $100 and $200 billion, other officials
quickly demurred. For example, Office of Management and Budget
Director Mitch Daniels put the number at $60 billion. It now appears
that Lindsey's numbers were a gross underestimate.
Concerned that the Bush administration
might be misleading everyone about the Iraq war's costs, just
as it had about Iraq's weapons of mass destruction and connection
with Al Qaeda, I teamed up with Linda Bilmes, a budget expert
at Harvard, to examine the issue. Even we-opponents of the war-were
staggered by what we found, with conservative to moderate estimates
ranging from slightly less than a trillion dollars to more than
Our analysis starts with the $500 billion
that the Congressional Budget Office openly talks about, which
is still 10 times higher than what the administration said the
war would cost. Its estimate falls so far short because 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.
For example, the Bush administration has
been doing everything it can to hide the huge number of returning
veterans who are severely wounded-16,000 so far, including roughly
20 percent with serious brain and head injuries. So it is no surprise
that its figure of $500 billion ignores the lifetime disability
and health care costs that the government will have to pay for
years to come.
Nor does the administration want to face
up to the military's recruiting and retention problems. The result
is large re-enlistment bonuses, improved benefits and higher recruiting
costs-up 20 percent just from 2003 to 2005. Moreover, the war
is wearing extremely hard on equipment, some of which will have
to be replaced.
These budgetary costs (exclusive of interest)
amount to $652 billion in our conservative estimate and $799 billion
in our moderate estimate. Arguably, since the government has not
reined in other expenditures or increased taxes, the expenditures
have been debt financed, and the interest costs on this debt add
another $98 billion (conservative) to $385 billion (moderate)
to the budgetary costs.
Of course, the brunt of the costs of injury
and death is borne by soldiers and their families. But the military
pays disability benefits that are markedly lower than the value
of lost earnings. Similarly, payments for those who are killed
amount to only $500,000, which is far less than standard estimates
of the lifetime economic cost of a death, sometimes referred to
as the statistical value of a life ($6.1 to $6.5 million).
But the costs don't stop there. The Bush
administration once claimed that the Iraq war would be good for
the economy, with one spokesperson even suggesting that it was
the best way to ensure low oil prices. As in so many other ways,
things have turned out differently: The oil companies are the
big winners, while the American and global economies are losers.
Being extremely conservative, we estimate the overall effect on
the economy if only $5 or $10 of the increase is attributed to
At the same time, money spent on the war
could have been spent elsewhere. We estimate that if a proportion
of that money had been allocated to domestic investment in roads,
schools, and research, the American economy would have been stimulated
more in the short run, and its growth would have been enhanced
in the long run.
There are a number of other costs, some
potentially quite large, although quantifying them is problematic.
For instance, Americans pay some $300 billion annually for the
"option value" of military preparedness-being able to
fight wherever needed. That Americans are willing to pay this
suggests that the option value exceeds the costs. But there is
little doubt that the option value has been greatly impaired and
will likely remain so for several years.
In short, even our "moderate"
estimate may significantly underestimate the cost of America's
involvement in Iraq. And our estimate does not include any of
the costs implied by the enormous loss of life and property in
We do not attempt to explain whether the
American people were deliberately misled regarding the war's costs,
or whether the Bush administration's gross underestimate should
be attributed to incompetence, as it vehemently argues is true
in the case of weapons of mass destruction.
Nor do we attempt to assess whether there
were more cost-effective ways of waging the war. Recent evidence
that deaths and injuries would have been greatly reduced had better
body armor been provided to troops suggests how short-run frugality
can lead to long-run costs. Certainly, when a war's timing is
a matter of choice, as in this case, inadequate preparation is
even less justifiable.
But such considerations appear to be beyond
the Bush administration's reckoning. Elaborate cost-benefit analyses
of major projects have been standard practice in the defense department
and elsewhere in government for almost a half century. The Iraq
war was an immense "project." Yet it now appears that
the analysis of its benefits was greatly flawed and that of its
costs virtually absent.
One cannot help but wonder: Were there
alternative ways of spending a fraction of the war's $1 to $2
trillion in costs that would have better strengthened security,
boosted prosperity and promoted democracy?