[Mb-civic] Paying The Iraq Bill

Mon Feb 6 21:05:09 PST 2006

 http://www.tompaine.com/articles/20060207/paying_the_iraq_bill.php

Paying The Iraq Bill
Joseph E. Stiglitz
February 06, 2006

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 Bank.

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 $2 trillion.

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 the war.

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 Iraq itself.

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?

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"A war of aggression is the supreme international crime." -- Robert Jackson,
 former U.S. Supreme Court Chief Justice and Nuremberg prosecutor

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