By Linda Bilmes
linda_bilmes@harvard.edu

In our study, The Economic Costs of the Iraq War, Columbia University Professor Joseph E. Stiglitz and I estimated that the war in Iraq will ultimately cost Americans as much as $2 trillion dollars. That’s including direct costs to the taxpayer and other costs to the economy.

Q. What is the total cost of the Iraq War to U.S. taxpayers -- including current operating costs and the long-term costs of taking care of veterans when they come home, restoring the military to its former strength (including replacing weapons and other equipment) and returning reservists and Guardsmen to their home bases?

We calculated that the total budgetary cost to the US taxpayer is around $1 trillion. This assumes the US maintains a small (38,000 person) force in the region through 2016, which is the working government assumption.  The Congressional Budget Office has estimated this cost at around $850 billion.

Q.    What are the other costs of the war? 

There are many other costs, some of them quantifiable and some not. We attempted to quantify some of the economic costs – those borne by society but not by the government – such as the cost of providing 24-hour care to the soldiers who have disabling brain or spinal injuries.  There are costs which are difficult to quantify – such as the impact on homeland preparedness due to the fact that so many first responders are in Iraq. For example, when Katrina hit, 7,000 Mississippi and Louisiana National Guardsmen were stationed in Iraq).  Another cost is the interest we have to pay on the money we have borrowed to finance the war.

Q. Why is this war so expensive?

One reason is the huge reliance on private contractors to do basic military tasks. Another is that 40% of the active duty forces are reservists. Contractors charge many times more than it would cost to have the military do the work. For example Blackwater Security, which provided security to the Coalition Provisional Authority, paid some of its security guards over $10,000 per week. Reservists are much more expensive to deploy than regular troops. Because we pay the regular troops anyway, we only pay combat supplements, transportation, etc. when they ship out. We normally pay reservists only for one weekend per month. Plus, we have to pay several supplements, such as family assistance, etc.  And as they are older and have families and dependents, the cost of caring for their dependents if they are killed is much higher.

Q. How does the cost of the war compare to other things we spend money on?

It is difficult to imagine a trillion dollars.  People have difficulty with the scale of it.  I explain to my students that one billion seconds = 32 years; one trillion seconds = 300 centuries. We spend $10 billion a month in Iraq – which is the same amount as the total annual United Nations budget (of which the US pays only about one-fifth). We spend about $5 billion per year on cancer research

Q. Who votes to approve spending all this money? How does it get appropriated?

This is one of the most troubling aspects of the war: The lack of accountability for taxpayer dollars.  The money already spent, in cash terms, is more than $400 billion.  This has been approved through a series of “emergency supplemental” requests by the Administration.  This is a technical but really important point: Normally, the Defense Department requests money through the traditional channels, which means that it gets vetted and analyzed by the Office of Management and Budget and the congressional committees. But for Iraq, there has been what I call an “accounting conspiracy” -- all the money has been requested through 13 emergency supplemental requests which receive minimal scrutiny.  This has resulted in a lot of fraud, corruption, overpayments to contractors like Halliburton, etc.  

The legal purpose of the emergency supplemental is supposed to be an actual unexpected emergency, like Hurricane Katrina. By contrast, the administration has known for the past 3 years about its approximate financial needs for Iraq. It just chooses to fund the war this way so it does not need to request – nor does Congress need to vote – on the huge sums involved. Instead, Congress can vote on bite-sized chunks that don’t attract much attention.

Q. How much will it cost to care for the veterans of the Iraq war?

The veterans issue deserves a lot more attention than the media has given it.  To date, over 1.3 million soldiers have fought in Operation Iraqi Freedom and Enduring Freedom (Afghanistan), many of them for 18 months under grueling conditions.  The costs of caring for these soldiers on their return are enormous and the Veterans Administration is woefully under funded and ill-prepared to cope with the influx.

One way of thinking about this is to remember that the first Gulf War involved 550,000 soldiers for 5 weeks.  That war was widely considered to have been paid by our allies. However, about one-third of those soldiers claimed for disability payments on their return (for various reasons, some related to exposure to depleted uranium but many other ailments), nearly all of which were granted. So the U.S. pays over $2 billion per year in payments to those veterans.

This time around, things will be much more complicated and expensive. The key point is that all veterans can be eligible to receive disability payments – not just those who are injured. Veterans qualify (on a 10-100% scale) for any medical or mental health problem that occurs while they are on active duty, or any pre-existing problem that is worsened during their tour of duty.  Many of these problems do not surface immediately so veterans can claim long after they return (10, 15 years later), if they develop arthritis, diabetes, insomnia, backache, joint problems, migraine, neuralgia, asthma, or anything else.  The mission of the Veterans Administration is to help veterans claim for these problems so nearly all claims are granted eventually (veterans organizations help get the paperwork done). 

Already more than one-third of returning Iraq vets have sought mental health treatment. More vets sought medical treatment in the first quarter of 2006 than was budgeted for the entire year.  The VA is desperately short of funds – it ran out of money completely in each of the last 2 fiscal years and had to go back to Congress, cup in hand. The VA is also in a disadvantageous position compared with the Pentagon – the Pentagon budget is in its own orbit, but the VA has to compete for scarce discretionary funds.

Q. What would things be like if we had not invaded Iraq?

Obviously this question is asked a lot in the geopolitical arena: What would the Middle East look like had we not gone to war?  But it is also important to ask this about economic and budgetary issues.

Our work in this area shows that the economy would be better off because the money we are spending in Iraq has a low multiplier. Spending it here would have increased the wealth of the US by much more than, for example, spending it on Nepali contractors. 

Alan Sinai, the leading econometric forecaster, did a comprehensive analysis showing that the U.S. would have had a higher stock market, stronger economic growth, lower interest rates, lower unemployment (as well as lower debt and deficits) had we not gone to war.

Another enormous factor: oil prices. The price of oil prior to March 2003 was under $30 per barrel, and close to $25 per barrel in 2002, before the invasion was imminent.  Although several factors  influence the price of oil, (such as rising demand from China, India, refining capacity, etc.), this information was widely known and anticipated by the futures markets before the war. The only significant information that was not anticipated in the futures market for oil was the outcome of the Iraq war.  (And Hurricane Katrina, which caused a temporary blip). Those markets had predicted a flat price of oil. So we feel that we have been excessively conservative by attributing only $5-$10 of the per-barrel increase to Iraq.  But that alone translates into $150-$300 billion of economic impact to the US economy. 

Linda Bilmes teaches public finance at the Kennedy School of Government at Harvard. E-mail: linda_bilmes@harvard.edu

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Accuracy is Appreciated Posted by Paul Sullivan - Director of Programs, Veterans for America 09/23/2006, 04:18 PM Dr. Bilmes does Americans an enormous service by detailing both the enormous short-term and the unreported long-term costs of the Iraq War. One great economic loss is the evaporation of opportunity. This means that money spent on the war could have been used for other items, including retiring the national debt, schools, roads, alternative energy, and a long list of important items. There is also the unknown lost opportunities for our veterans, especially those wounded, injured, or mentally ill from the war. Thanks again to Dr. Bilmes for her superb work.

!! Posted by Dawood Mamedoff 07/13/2009, 07:00 AM This war is the second expensive for U.S. after the World War II. Here I've tried to summarize all costs of the Iraq war for Americans: http://www.myhowtoos.com/en/red-hot/86-all-costs-o ... Submit a comment - Jump to top of list