[R-G] The Iraq War Will Cost Us $3 Trillion, and Much More

[Richard Menec]

<http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030702846.html>

Washington Post             Sunday, March 9, 2008; B01

The Reckoning

The Iraq War Will Cost Us $3 Trillion, and Much More

By Linda J. Bilmes and Joseph E. Stiglitz

There is no such thing as a free lunch, and there is no such thing as a free 
war. The Iraq adventure has seriously weakened the U.S. economy, whose woes 
now go far beyond loose mortgage lending. You can't spend $3 trillion --  
yes, $3 trillion -- on a failed war abroad and not feel the pain at home.

Some people will scoff at that number, but we've done the math. Senior Bush 
administration aides certainly pooh-poohed worrisome estimates in the run-up 
to the war. Former White House economic adviser Lawrence Lindsey reckoned 
that the conflict would cost $100 billion to $200 billion; Defense Secretary 
Donald H. Rumsfeld later called his estimate "baloney." Administration 
officials insisted that the costs would be more like $50 billion to $60 
billion. In April 2003, Andrew S. Natsios, the thoughtful head of the U.S. 
Agency for International Development, said on "Nightline" that 
reconstructing Iraq would cost the American taxpayer just $1.7 billion. Ted 
Koppel, in disbelief, pressed Natsios on the question, but Natsios stuck to 
his guns. Others in the administration, such as Deputy Defense Secretary 
Paul D. Wolfowitz, hoped that U.S. partners would chip in, as they had in 
the 1991 Persian Gulf War, or that Iraq's oil would pay for the damages.

The end result of all this wishful thinking? As we approach the fifth 
anniversary of the invasion, Iraq is not only the second longest war in U.S. 
history (after Vietnam), it is also the second most costly -- surpassed only 
by World War II.

Why doesn't the public understand the staggering scale of our expenditures? 
In part because the administration talks only about the upfront costs, which 
are mostly handled by emergency appropriations. (Iraq funding is apparently 
still an emergency five years after the war began.) These costs, by our 
calculations, are now running at $12 billion a month -- $16 billion if you 
include Afghanistan. By the time you add in the costs hidden in the defense 
budget, the money we'll have to spend to help future veterans, and money to 
refurbish a military whose equipment and materiel have been greatly 
depleted, the total tab to the federal government will almost surely exceed 
$1.5 trillion.

But the costs to our society and economy are far greater. When a young 
soldier is killed in Iraq or Afghanistan, his or her family will receive a 
U.S. government check for just $500,000 (combining life insurance with a 
"death gratuity") -- far less than the typical amount paid by insurance 
companies for the death of a young person in a car accident. The stark 
"budgetary cost" of $500,000 is clearly only a fraction of the total cost 
society pays for the loss of life -- and no one can ever really compensate 
the families. Moreover, disability pay seldom provides adequate compensation 
for wounded troops or their families. Indeed, in one out of five cases of 
seriously injured soldiers, someone in their family has to give up a job to 
take care of them.

But beyond this is the cost to the already sputtering U.S. economy. All 
told, the bill for the Iraq war is likely to top $3 trillion. And that's a 
conservative estimate.

President Bush tried to sell the American people on the idea that we could 
have a war with little or no economic sacrifice. Even after the United 
States went to war, Bush and Congress cut taxes, especially on the rich --  
even though the United States already had a massive deficit. So the war had 
to be funded by more borrowing. By the end of the Bush administration, the 
cost of the wars in Iraq and Afghanistan, plus the cumulative interest on 
the increased borrowing used to fund them, will have added about $1 trillion 
to the national debt.

The long-term burden of paying for the conflicts will curtail the country's 
ability to tackle other urgent problems, no matter who wins the presidency 
in November. Our vast and growing indebtedness inevitably makes it harder to 
afford new health-care plans, make large-scale repairs to crumbling roads 
and bridges, or build better-equipped schools. Already, the escalating cost 
of the wars has crowded out spending on virtually all other discretionary 
federal programs, including the National Institutes of Health, the Food and 
Drug Administration, the Environmental Protection Agency, and federal aid to 
states and cities, all of which have been scaled back significantly since 
the invasion of Iraq.

To make matters worse, the U.S. economy is facing a recession. But our 
ability to implement a truly effective economic-stimulus package is crimped 
by expenditures of close to $200 billion on the two wars this year alone and 
by a skyrocketing national debt.

The United States is a rich and strong country, but even rich and strong 
countries squander trillions of dollars at their peril. Think what a 
difference $3 trillion could make for so many of the United States' -- or 
the world's -- problems. We could have had a Marshall Plan to help 
desperately poor countries, winning the hearts and maybe the minds of Muslim 
nations now gripped by anti-Americanism. In a world with millions of 
illiterate children, we could have achieved literacy for all -- for less 
than the price of a month's combat in Iraq. We worry about China's growing 
influence in Africa, but the upfront cost of a month of fighting in Iraq 
would pay for more than doubling our annual current aid spending on Africa.

Closer to home, we could have funded countless schools to give children 
locked in the underclass a shot at decent lives. Or we could have tackled 
the massive problem of Social Security, which Bush began his second term 
hoping to address; for far, far less than the cost of the war, we could have 
ensured the solvency of Social Security for the next half a century or more.

Economists used to think that wars were good for the economy, a notion born 
out of memories of how the massive spending of World War II helped bring the 
United States and the world out of the Great Depression. But we now know far 
better ways to stimulate an economy -- ways that quickly improve citizens' 
well-being and lay the foundations for future growth. But money spent paying 
Nepalese workers in Iraq (or even Iraqi ones) doesn't stimulate the U.S. 
economy the way that money spent at home would -- and it certainly doesn't 
provide the basis for long-term growth the way investments in research, 
education or infrastructure would.

Another worry: This war has been particularly hard on the economy because it 
led to a spike in oil prices. Before the 2003 invasion, oil cost less than 
$25 a barrel, and futures markets expected it to remain around there. (Yes, 
China and India were growing by leaps and bounds, but cheap supplies from 
the Middle East were expected to meet their demands.) The war changed that 
equation, and oil prices recently topped $100 per barrel.

While Washington has been spending well beyond its means, others have been 
saving -- including the oil- rich countries that, like the oil companies, 
have been among the few winners of this war. No wonder, then, that China, 
Singapore and many Persian Gulf emirates have become lenders of last resort 
for troubled Wall Street banks, plowing in billions of dollars to shore up 
Citigroup, Merrill Lynch and other firms that burned their fingers on 
subprime mortgages. How long will it be before the huge sovereign wealth 
funds controlled by these countries begin buying up large shares of other 
U.S. assets?

The Bush team, then, is not merely handing over the war to the next 
administration; it is also bequeathing deep economic problems that have been 
seriously exacerbated by reckless war financing. We face an economic 
downturn that's likely to be the worst in more than a quarter- century.

Until recently, many marveled at the way the United States could spend 
hundreds of billions of dollars on oil and blow through hundreds of billions 
more in Iraq with what seemed to be strikingly little short-run impact on 
the economy. But there's no great mystery here. The economy's weaknesses 
were concealed by the Federal Reserve, which pumped in liquidity, and by 
regulators that looked away as loans were handed out well beyond borrowers' 
ability to repay them. Meanwhile, banks and credit-rating agencies pretended 
that financial alchemy could convert bad mortgages into AAA assets, and the 
Fed looked the other way as the U.S. household-savings rate plummeted to 
zero.

It's a bleak picture. The total loss from this economic downturn -- measured 
by the disparity between the economy's actual output and its potential 
output -- is likely to be the greatest since the Great Depression. That 
total, itself well in excess of $1 trillion, is not included in our 
estimated $3 trillion cost of the war.

Others will have to work out the geopolitics, but the economics here are 
clear. Ending the war, or at least moving rapidly to wind it down, would 
yield major economic dividends.

As we head toward November, opinion polls say that voters' main worry is now 
the economy, not the war. But there's no way to disentangle the two. The 
United States will be paying the price of Iraq for decades to come. The 
price tag will be all the greater because we tried to ignore the laws of 
economics -- and the cost will grow the longer we remain.

linda_bilmes at harvard.edu

jes322 at columbia.edu

Linda J. Bilmes, a former chief financial officer at the Commerce 
Department, teaches at Harvard University's Kennedy School of Government. 
Joseph E. Stiglitz, a professor at Columbia University, served as chairman 
of the Council of Economic Advisers under President Bill Clinton. They are 
co-authors of "The Three Trillion Dollar War: The True Cost of the Iraq 
Conflict."

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