The war in Iraq has cost trillions. But the US - and the world - will be paying the price of the conflict for decades to come
Joseph Stiglitz guardian.co.uk, Thursday 13 March 2008 18.00 GMT Article history
With March 20 marking the fifth anniversary of the United States-led invasion of Iraq, it's time to take stock of what has happened. In our new book The Three Trillion Dollar War, Harvard's Linda Bilmes and I conservatively estimate the economic cost of the war to the US to be $3 trillion, and the costs to the rest of the world to be another $3tn - far higher than the Bush administration's estimates before the war. The Bush team not only misled the world about the war's possible costs, but has also sought to obscure the costs as the war has gone on.
This is not surprising. After all, the Bush administration lied about everything else, from Saddam Hussein's weapons of mass destruction to his supposed link with al-Qaida. Indeed, only after the US-led invasion did Iraq become a breeding ground for terrorists.
The Bush administration said the war would cost $50bn. The US now spends that amount in Iraq every three months. To put that number in context: for one-sixth of the cost of the war, the US could put its social security system on a sound footing for more than a half-century, without cutting benefits or raising contributions.
Moreover, the Bush administration cut taxes for the rich as it went to war, despite running a budget deficit. As a result, it has had to use deficit spending - much of it financed from abroad - to pay for the war. This is the first war in American history that has not demanded some sacrifice from citizens through higher taxes; instead, the entire cost is being passed onto future generations. Unless things change, the US national debt - which was $5.7tn when Bush became president - will be $2tn higher because of the war (in addition to the $800bn increase under Bush before the war).
Was this incompetence or dishonesty? Almost surely both. Cash accounting meant that the Bush administration focused on today's costs, not future costs, including disability and health care for returning veterans. Only years after the war began did the administration order the specially armoured vehicles that would have saved the lives of many killed by roadside bombs. Not wanting to reintroduce a draft, and finding it difficult to recruit for an unpopular war, troops have been forced into two, three, or four stress-filled deployments.
The administration has tried to keep the war's costs from the American public. Veterans groups have used the freedom of information act to discover the total number of injured - 15 times the number of fatalities. Already, 52,000 returning veterans have been diagnosed with post-traumatic stress syndrome. America will need to provide disability compensation to an estimated 40% of the 1.65 million troops that have already been deployed. And, of course, the bleeding will continue as long as the war continues, with the healthcare and disability bill amounting to more than $600bn (in present-value terms).
Ideology and profiteering have also played a role in driving up the war's costs. America has relied on private contractors, which have not come cheap. A Blackwater security guard can cost more than $1,000 per day, not including disability and life insurance, which is paid for by the government. When unemployment rates in Iraq soared to 60%, hiring Iraqis would have made sense; but the contractors preferred to import cheap labour from Nepal, Philippines, and other countries.
The war has had only two winners: oil companies and defence contractors. The stock price of Halliburton, vice-president Dick Cheney's old company, has soared. But even as the government turned increasingly to contractors, it reduced its oversight.
The largest cost of this mismanaged war has been borne by Iraq. Half of Iraq's doctors have been killed or have left the country, unemployment stands at 25%, and, five years after the war's start, Baghdad still has less than eight hours of electricity a day. Out of Iraq's total population of around 28 million, 4 million are displaced and 2 million have fled the country.
The thousands of violent deaths have inured most westerners to what is going on: a bomb blast that kills 25 hardly seems newsworthy anymore. But statistical studies of death rates before and after the invasion tell some of the grim reality. They suggest additional deaths from a low of around 450,000 in the first 40 months of the war (150,000 of them violent deaths) to 600,000.
With so many people in Iraq suffering so much in so many ways, it may seem callous to discuss the economic costs. And it may seem particularly self-absorbed to focus on the economic costs to America, which embarked on this war in violation of international law. But the economic costs are enormous, and they go well beyond budgetary outlays. Americans like to say that there is no such thing as a free lunch. Nor is there such a thing as a free war. The US - and the world - will be paying the price for decades to come.
In cooperation with Project Syndicate, 2008.
Notwithstanding President Bush's response, our original estimate of the cost of the Iraq war was too conservative: in reality, it will be much higher
Joseph Stiglitz and Linda Bilmes guardian.co.uk, Sunday 6 April 2008 12.00 BST
President Bush has tried to give the impression that the $3 trillion dollar estimate of the total cost of the war that we provide in our new book may be exaggerated.
We believe that it is, in fact, conservative. Even the president would have to admit that the $50 to $60 billion estimate given by the administration before the war was wildly off the mark; there is little reason to have confidence in their arithmetic. They admit to a cost so far of $600 billion.
Our numbers differ from theirs for three reasons: first, we are estimating the total cost of the war, under alternative conservative scenarios, derived from the defence department and congressional budget office. We are not looking at McCain's 100-year scenario - we assume that we are there, in diminished strength, only through to 2017. But neither are we looking at a scenario that sees our troops pulled out within six months. With operational spending going on at $12 billion a month, and with every year costing more than the last, it is easy to come to a total operational cost that is double the $600 billon already spent.
Second, we include war expenditures hidden elsewhere in the budget, and budgetary expenditures that we would have to incur in the future even if we left tomorrow. Most important of these are future costs of caring for the 40% of returning veterans that are likely to suffer from disabilities (in excess of $600 billion; second world war veterans' costs didn't peak until 1993), and restoring the military to its prewar strength. If you include interest, and interest on the interest - with all of the war debt financed - the budgetary costs quickly mount.
Finally, our $3 trillion dollars estimate also includes costs to the economy that go beyond the budget, for instance the cost of caring for the huge number of returning disabled veterans that go beyond the costs borne by the federal government - in one out of five families with a serious disability, someone has to give up a job. The macro-economic costs are even larger. Almost every expert we have talked to agrees that the war has had something to do with the rise in the price of oil; it was not just an accident that oil prices began to soar at the same time as the war began.
We have been criticised, but for being excessively conservative, for including only $5 to $10 of the $75 to $85 increase in the price of oil since then. Money spent on the war - on a Nepalese contractor working in Iraq - does not stimulate the economy as much as money spent on hospitals or research or schools at home. These contractionary effects were temporarily covered up, hidden, by the flood of liquidity and lax regulations that led to a housing bubble and a consumption boom - with household savings plummeting to zero. But this simply postponed paying these costs - and increased them.
With the exception of a few lonely surviving supply-siders, most economists believe that deficits matter, and the huge deficits to finance the war will have their toll in the long run. Deficits matter in both the short run and the long. They help crowd out private investment that would have stimulated the economy far more than the war expenditures; and the reduced investments reduce long-run productivity. With 40% of the funds borrowed from abroad, Americans will be sending interest payments abroad - lowering living standards at home. Finally, even Fed Chair Bernanke (formerly the president's economic adviser) admits that the deficits have reduced the room to manoeuvre - the ability of the government to respond to the looming economic crisis.
Spending so much on the war has economic consequences, even if you don't think there is any connection between the war and the economy's current woes.
In adding up the quantifiable costs of the war, it is hard not to come up with a number in excess of $3 trillion. In putting a $3 trillion price tag on the war, we believe we have been excessively conservative - a $4 or $5 trillion tag would be more reasonable. And remember - this is just the cost for America.
