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Date: Wed, 17 Sep 2008 22:05:18 -0400
From: moderator@PORTSIDE.ORG
To: PORTSIDE@LISTS.PORTSIDE.ORG
Subject: The Iraq War Will Cost Us $3 Trillion, and Much More

Note:  We missed this piece when it was published in
March, 2008, but thought it was even more relevant
today.  The moderators]

The Reckoning

The Iraq War Will Cost Us $3 Trillion, and Much More

By Linda J. Bilmes and Joseph E. Stiglitz

Washington Post Sunday, March 9, 2008; B01
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030702846.html

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.

linda_bilmes@harvard.edu

jes322@columbia.edu

Linda J. Bilmes, a former chief financial officer at
the Commerce Department, teaches at Harvard
University's Kennedy School of Government. Joseph E.
Stiglitz, a professor at Columbia University, served as
chairman of the Council of Economic Advisers under
President Bill Clinton. They are co-authors of "The
Three Trillion Dollar War: The True Cost of the Iraq
Conflict."

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