Iraq War Will Cost More-than-$2-Trillion
Two scholars, one a Nobel Prize winner, revisit their estimate of the true cost of the Iraq war – and find that $2 trillion was too low. They consider not only the current and future budgetary costs, but the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East.
By Linda Bilmes
linda_bilmes@harvard.edu
and Joseph E. Stiglitz
jes322@columbia.edu
11/03/06 "Milken Institute Review" -- -- In January, we estimated that the true cost of the Iraq war could reach $2 trillion, a figure that seemed shockingly high. But since that time, the cost of the war – in both blood and money – has risen even faster than our projections anticipated. More than 2,500 American troops have died and close to 20,000 have been wounded since Operation Iraqi Freedom began. And the $2 trillion number – the sum of the current and future budgetary costs along with the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East – now seems low.
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Budget Reallocation
The macroeconomic costs associated with the increased expenditure on the war are more difficult to estimate. If we were not spending the money on Iraq, would we be spending it on something else? Would we have had the same deficit, but just more tax cuts? Would the Federal Reserve have stopped raising interest rates sooner if it wasn’t worried about the inflationary effects of higher oil prices – and thereby made recession in 2006 less likely?
Here, we offer a very conservative estimate of these macroeconomic effects using an “expenditure-switching” model. Spending money to hire, say, Nepalese workers in Iraq provides little indirect stimulation to the American economy – far less than would have been provided if the money had been spent on investments in schools or roads (or, for that matter, on houses and cars) in the United States. In estimates presented last January, we put the cost of budgetary impacts (including expenditure switching and the impact on future productivity) at $450 billion.
$2 Trillion and Counting
The total costs of the war, including the budgetary, social and macroeconomic costs, are likely to exceed $2 trillion. As large as these costs are, an equally large set of costs have been omitted. We have not included the costs borne by other countries, either directly (as a result of military expenditures) or indirectly (as a result of the increase in the price of oil.) Then there are the intangible costs – the cost of our reduced capability to respond to national security threats elsewhere in the world, and the cost of rising anti-American sentiment in Europe and the Middle East. Americans have long taken pride in fighting for human rights. But our credentials have been badly tarnished by the Iraq war, leading to a sharp decline in America’s “soft power.” On issues from trade negotiations to global warming to the international criminal justice system, this decline will have a continuing impact on the United States’ ability to have its point of view prevail.
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