By Joseph Stiglitz and Linda Bilmes

Times (UK)

February 22, 2007

http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/a...

The Bush Administration was wrong about the benefits of the war and it was wrong about the costs of the war. he president and his advisers expected a quick, inexpensive conflict. Instead, we have a war that is osting more than anyone could have imagined.he cost of direct US military operations - not even
including long-term costs such as taking care of ounded veterans - already exceeds the cost of the 12-
year war in Vietnam and is more than double the cost of the Korean War.
And, even in the best case scenario, these costs are projected to be almost ten times the cost of the first
Gulf War, almost a third more than the cost of the Vietnam War, and twice that of the First World War. The only war in our history which cost more was the Second World War, when 16.3 million U.S. troops fought in a campaign lasting four years, at a total cost (in 2007 bollars, after adjusting for inflation) of about $5 rillion (that's $5 million million, or £2.5 million
million). With virtually the entire armed forces
committed to fighting the Germans and Japanese, the
cost per troop (in today's dollars) was less than
$100,000 in 2007 dollars. By contrast, the Iraq war is
costing upward of $400,000 per troop.
Most Americans have yet to feel these costs. The price
in blood has been paid by our voluntary military and by
hired contractors. The price in treasure has, in a
sense, been financed entirely by borrowing. Taxes have
not been raised to pay for it - in fact, taxes on the
rich have actually fallen. Deficit spending gives the
illusion that the laws of economics can be repealed,
that we can have both guns and butter. But of course
the laws are not repealed. The costs of the war are
real even if they have been deferred, possibly to
another generation.
On the eve of war, there were discussions of the likely
costs. Larry Lindsey, President Bush's economic adviser
and head of the National Economic Council, suggested
that they might reach $200 billion. But this estimate
was dismissed as 'baloney' by the Defence Secretary,
Donald Rumsfeld. His deputy, Paul Wolfowitz, suggested
that postwar reconstruction could pay for itself
through increased oil revenues. Mitch Daniels, the
Office of Management and Budget director, and Secretary
Rumsfeld estimated the costs in the range of $50 to $60
billion, a portion of which they believed would be
financed by other countries. (Adjusting for inflation,
in 2007 dollars, they were projecting costs of between
$57 and $69 billion.) The tone of the entire
administration was cavalier, as if the sums involved
were minimal.
Even Lindsey, after noting that the war could cost $200
billion, went on to say: 'The successful prosecution of
the war would be good for the economy.' In retrospect,
Lindsey grossly underestimated both the costs of the
war itself and the costs to the economy. Assuming that
Congress approves the rest of the $200 billion war
supplemental requested for fiscal year 2008, as this
book goes to press Congress will have appropriated a
total of over $845 billion for military operations,
reconstruction, embassy costs, enhanced security at US
bases, and foreign aid programmes in Iraq and
Afghanistan.
As the fifth year of the war draws to a close,
operating costs (spending on the war itself, what you
might call 'running expenses') for 2008 are projected
to exceed $12.5 billion a month for Iraq alone, up from
$4.4 billion in 2003, and with Afghanistan the total is
$16 billion a month. Sixteen billion dollars is equal
to the annual budget of the United Nations, or of all
but 13 of the US states. Even so, it does not include
the $500 billion we already spend per year on the
regular expenses of the Defence Department. Nor does it
include other hidden expenditures, such as intelligence
gathering, or funds mixed in with the budgets of other
departments.
Because there are so many costs that the Administration
does not count, the total cost of the war is higher
than the official number. For example, government
officials frequently talk about the lives of our
soldiers as priceless. But from a cost perspective,
these 'priceless' lives show up on the Pentagon ledger

simply as $500,000 - the amount paid out to survivors in death benefits and life insurance. After the war began, these were increased from $12,240 to $100,000 (death benefit) and from $250,000 to $400,000 (life insurance). Even these increased amounts are a fraction of what the survivors might have received had these individuals lost their lives in a senseless automobile accident. In areas such as health and safety

regulation, the US Government values a life of a young

man at the peak of his future earnings capacity in

excess of

$7 million - far greater than the amount that the

military pays in death benefits. Using this figure, the

cost of the nearly 4,000 American troops killed in Iraq

adds up to some $28 billion.

The costs to society are obviously far larger than the

numbers that show up on the government's budget.

Another example of hidden costs is the understating of

US military casualties. The Defence Department's

casualty statistics focus on casualties that result

from hostile (combat) action - as determined by the

military. Yet if a soldier is injured or dies in a

night-time vehicle accident, this is officially dubbed

'non combat related' - even though it may be too unsafe

for soldiers to travel during daytime.

In fact, the Pentagon keeps two sets of books. The

first is the official casualty list posted on the DOD

website. The second, hard-to-find, set of data is

available only on a different website and can be

obtained under the Freedom of Information Act. This

data shows that the total number of soldiers who have

been wounded, injured, or suffered from disease is

double the number wounded in combat. Some will argue

that a percentage of these non-combat injuries might

have happened even if the soldiers were not in Iraq.

Our new research shows that the majority of these

injuries and illnesses can be tied directly to service

in the war.

From the unhealthy brew of emergency funding, multiple

sets of books, and chronic underestimates of the

resources required to prosecute the war, we have

attempted to identify how much we have been spending -

and how much we will, in the end, likely have to spend.

The figure we arrive at is more than $3 trillion. Our

calculations are based on conservative assumptions.

They are conceptually simple, even if occasionally

technically complicated. A $3 trillion figure for the

total cost strikes us as judicious, and probably errs

on the low side. Needless to say, this number

represents the cost only to the United States. It does

not reflect the enormous cost to the rest of the world,

or to Iraq.

From the beginning, the United Kingdom has played a

pivotal role - strategic, military, and political - in

the Iraq conflict. Militarily, the UK contributed

46,000 troops, 10 per cent of the total.

Unsurprisingly, then, the British experience in Iraq

has paralleled that of America: rising casualties,

increasing operating costs, poor transparency over

where the money is going, overstretched military

resources, and scandals over the squalid conditions and

inadequate medical care for some severely wounded

veterans.

Before the war, Gordon Brown set aside £1 billion for

war spending. As of late 2007, the UK had spent an

estimated £7 billion in direct operating expenditures

in Iraq and Afghanistan (76 per cent of it in Iraq).

This includes money from a supplemental 'special

reserve', plus additional spending from the Ministry of

Defence.

The special reserve comes on top of the UK's regular

defence budget. The British system is particularly

opaque: funds from the special reserve are 'drawn down'

by the Ministry of Defence when required, without

specific approval by Parliament. As a result, British

citizens have little clarity about how much is actually

being spent.

In addition, the social costs in the UK are similar to

those in the US - families who leave jobs to care for

wounded soldiers, and diminished quality of life for

those thousands left with disabilities.

By the same token, there are macroeconomic costs to the

UK as there have been to America, though the long-term

costs may be less, for two reasons. First, Britain did

not have the same policy of fiscal profligacy; and

second, until 2005, the United Kingdom was a net oil

exporter.

We have assumed that British forces in Iraq are reduced

to 2,500 this year and remain at that level until 2010.

We expect that British forces in Afghanistan will

increase slightly, from 7,000 to 8,000 in 2008, and

remain stable for three years. The House of Commons

Defence Committee has recently found that despite the

cut in troop levels, Iraq war costs will increase by 2

per cent this year and personnel costs will decrease by

only 5 per cent. Meanwhile, the cost of military

operations in Afghanistan is due to rise by 39 per

cent. The estimates in our model may be significantly

too low if these patterns continue.

Based on assumptions set out in our book, the budgetary

cost to the UK of the wars in Iraq and Afghanistan

through 2010 will total more than £18 billion. If we

include the social costs, the total impact on the UK

will exceed £20 billion.

______

(c) Joseph Stiglitz and Linda Bilmes, 2008. Extracted

from The Three Trillion Dollar War, to be published by

Allen Lane on February 28 (£20). Copies can be ordered

for £18 with free delivery from The Times BooksFirst

0870 1608080.

Joseph Stiglitz was chief economist at the World Bank

and won the Nobel Memorial Prize for Economics in 2001.

Linda Bilmes is a lecturer in public policy at the

Kennedy School of Government at Harvard University