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At the annual meeting of the American Economic Association in January, we presented a new estimate for the likely cost of the war in Iraq. (On April 3, Stiglitz presented his findings to a Columbia University audience. Click to view the video of his campus presentation.) We suggested that the final bill will be much higher than previously reckoned -- between $1 trillion and $2 trillion, depending primarily on how much longer our troops stay. Putting that into perspective, the highest-grossing movie of all time, Titanic, earned $1.8 billion worldwide -- about half the cost the United States incurs in Iraq every week.
Like the iceberg that hit the Titanic, the full costs of the war are still largely hidden below the surface. Our calculations include not just the money for combat operations but also the costs the government will have to pay for years to come. These include lifetime healthcare and disability benefits for returning veterans and special round-the-clock medical attention for many of the 16,300 Americans who already have been seriously wounded. We also count the increased cost of replacing military hardware because the war is using up equipment at three to five times the peacetime rate. In addition, the military must pay large re-enlistment bonuses and offer higher benefits to re-enlist reluctant soldiers. On top of this, because we finance the war by borrowing more money (mostly from abroad), there is a rising interest cost on the extra debt.
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Our study also goes beyond the budget of the federal government to estimate the war's cost to the economy and our society. It includes, for instance, the true economic costs of injury and death. For example, if an individual is killed in an auto or work-related accident, his family will typically receive compensation for lost earnings. Standard
government estimates of the lifetime economic cost of a death are about $6 million. But the military pays out far less -- about $500,000. Another cost to the economy comes from the fact that 40 percent of our troops are taken from the National Guard and Reserve units. These troops often earn lower wages than in their civilian jobs. Finally, there are
macroeconomic costs such as the effect of higher oil prices -- partly a result of the instability in Iraq.
We conclude that the economy would have been much stronger if we had invested the money in the United States instead of in Iraq.
Could we have fought the war in ways that would have protected our troops better and cost the country less? A Pentagon study apparently concludes that better body armor would have prevented many deaths and injuries. Penny-pinching in such matters during the rush to war has led to steep long-run costs for the nation and, tragically, for the
individuals involved.
Even more fundamental is the question of whether we needed to spend the money at all. Thinking back to the months before the war, there were few reasons to invade quickly, and many to go slow.
Had we waited for the outcome of the UN weapons inspections, the value of the information would arguably have saved the nation at least $1 trillion -- enough to fix Social Security for the next 75 years twice over.
Linda Bilmes, a former assistant secretary of Commerce, teaches public finance at the Kennedy School of Government at Harvard. Joseph Stiglitz is University Professor at Columbia. He won the Nobel Prize in economics in 2001. The above is an abridged version of their op-ed that appeared in the Los Angeles Times (January 17, 2006), reprinted with their permission. It reflects the findings of Bilmes and Stiglitz's
recent paper, "The Economic Costs of the Iraq War," which can be downloaded at
www2.gsb.columbia.edu/faculty/jstiglitz/cost_of_war_in_iraq.pdf
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