Articles
Washington Post: The Iraq War Will Cost Us $3 Trillion, and Much More
03/09/2008
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.