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Iraq War Could Cost US Over $2 Trillion, Says Nobel Prize-Winning Economist Economists Say Official Estimates Are Far Too Low; New Calculation Takes In Dead And Injured Soldiers Jamie Wilson Guardian January 7, 2006

Ultimate Cost of Iraq War Could Reach $2 Trillion, Research Suggests Kevin G. Hall Knight Ridder Newspapers January 13, 2006

 
 
 
 

[Note: This material is copyright by the Guardian, and is reproduced here as a matter of "fair use" for non-commercial, educational purposes only. Any other use may require the prior approval of the Guardian.]

The report came during one of the most deadly periods in Iraq since the invasion, with the US military yesterday revising upwards to 11 the number of its troops killed during a wave of insurgent attacks on Thursday. More than 130 civilians were also killed when suicide bombers struck Shia pilgrims in Karbala and a police recruiting station in Ramadi.

The paper on the real cost of the war, written by Joseph Stiglitz, a Columbia University professor who won the Nobel prize for economics in 2001, and Linda Bilmes, a Harvard budget expert, is likely to add to the pressure on the White House on the war. It also followed the revelation this week that the White House had scaled back ambitions to rebuild Iraq and did not intend to seek funds for reconstruction.

Mr Stiglitz told the Guardian that despite the staggering costs laid out in their paper the economists had erred on the side of caution. "Our estimates are very conservative, and it could be that the final costs will be much higher. And it should be noted they do not include the costs of the conflict to either Iraq or the UK." In 2003, as US and British troops were massing on the Iraq border, Larry Lindsey, George Bush's economic adviser, suggested the costs might reach $200bn. The White House said the figure was far too high, and the deputy defence secretary, Paul Wolfowitz, said Iraq could finance its own reconstruction.

Three years later, with more than 140,000 US soldiers on the ground in Iraq, even the $200bn figure was very low, according to the two economists.

Congress has appropriated $251bn for military operations, and the Congressional budget office has now estimated that under one plausible scenario the Iraq war will cost over $230bn more in the next 10 years. According to Mr Stiglitz and Ms Bilmes, whose paper is due to be presented to the Allied Social Sciences Association in Boston tomorrow, there are substantial future costs not included in the Congressional calculations.

For instance, the latest Pentagon figures show that more than 16,000 military personnel have been wounded in Iraq. Due to improvements in body armour, there has been an unusually high number of soldiers who have survived major wounds such as brain damage, spinal injuries and amputations. The economists predict the cost of lifetime care for the thousands of troops who have suffered brain injuries alone could run to $35bn. Taking in increased defence spending as a result of the war, veterans' disability payments and demobilisation costs, the economists predict the budgetary costs of the war alone could approach $1 trillion.

The paper also came amid the first indications from the Pentagon that it intended to scale down its costly presence in Iraq this year.

Last night, Ayman al-Zawahiri, al-Qaida's number two, said in a video that hints of the American withdrawal amounted to a "victory for Islam".

The unforeseen costs of the war have been blamed on poor planning and vision by the architects of the invasion. In a frank admission yesterday, Paul Bremer, the first US administrator of postwar Iraq, said the Americans did not anticipate the uprising that has persisted since flaring in 2004. "We really didn't see the insurgency coming," he told NBC television.

But the economists' costings went much further than the economic value of lives lost. They factored in items such as the higher oil prices which could partly be attributed to the war. They also calculated the effect if a proportion of the money spent on the Iraq war was allocated to other causes. These factors could add tens of billions of dollars.

Mr Stiglitz, a former World Bank chief economist, said the paper, which will be available on josephstiglitz.com, did not attempt to explain whether Americans were deliberately misled or whether the underestimate was due to incompetence.

But in terms of the total cost of the war "there may have been alternative ways of spending a fraction of that amount that would have enhanced America's security more, and done a better job in winning the hearts and minds of those in the Middle East and promoting democracy".

Before the March 2003 invasion . . . Lawrence Lindsey, the director of the White House's National Economic Council, was shown the door after suggesting that it could cost $100 billion to $200 billion.

Congress appropriated $357 billion from 2002 through the end of 2005 for the wars in Afghanistan and Iraq and related security issues, according to the nonpartisan Congressional Research Service.

But two research papers suggest that those numbers don't tell the whole story. When nonbudget economic factors are added, the true cost to the U.S. economy over the next decade could be anywhere from $657 billion to $2 trillion for the Iraq war alone, these studies estimate.

That's a lot of money; $2 trillion is enough to buy General Motors Corp. about 175 times at current stock prices.

The researchers include what they estimate continued military operations in Iraq will cost over the next decade - as much as $266 billion, according to the nonpartisan Congressional Budget Office.

Both papers also place a dollar value on a number of war-related consequences that are hard to measure. For instance, they try to gauge the lost productive capacity of soldiers killed in Iraq or National Guard members taken away from home for protracted tours of duty.

The papers also try to gauge where today's sky-high oil prices would be had there been no war and if Iraq had been allowed to produce more oil under U.N. supervision. They conclude that oil prices are 20 percent higher because of the war and the uncertainty about future supplies that it created in the global marketplace.

Attracting the most attention is a study co-authored by Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University and former chief economist at the World Bank, who's an outspoken critic of the war. In a 36-page paper released this week, Stiglitz and Harvard University lecturer Linda Bilmes argue that the total economic costs of the war dwarf government spending on it.

"Even taking a conservative approach, we have been surprised at how large they are," the two wrote. "We can state, with some degree of confidence, that they exceed a trillion dollars."

The total could rise to $2 trillion under the less conservative of Stiglitz's two models.

Government agencies often conduct such cost analyses when weighing policy options, but the Bush administration did no such analysis before it decided to invade Iraq. Before the March 2003 invasion, the Bush administration didn't offer an official estimate for what the war might cost. Lawrence Lindsey, the director of the White House's National Economic Council, was shown the door after suggesting that it could cost $100 billion to $200 billion. Events have proved that estimate low. Other officials said they believed that increased sales of Iraqi oil would pay for much of the cost of rebuilding the country.

Maybe they should have thought harder, Scott Wallsten suggested. He's a scholar at the American Enterprise Institute, a conservative research center, who published a war-costs analysis last September that was just updated. Wallsten concludes that the cost of the Iraq war to the U.S. economy, beyond spending by Congress, will exceed $300 billion.

"The point of the paper wasn't to take a position on the war. I am hoping to create a framework for evaluation," Wallsten said in an interview.

The White House bristled at that.

"The president doesn't approach defending America as an accountant," said spokesman Trent Duffy, adding that there are economic benefits from preventing terrorism. The war on terrorism, he said, "is not something to approach with a calculator or slide rule, but as a war against a determined enemy."

Some analysts, however, argue that the Iraq war is inspiring more Muslim extremists to pursue jihad against America.

The methodology that Stiglitz uses is similar to others who are reaching similar conclusions. One of them was Yale University economist William Nordhaus, who published a detailed paper in December 2002 about what the pending war in Iraq might cost the U.S. economy over the following decade.

His high-end conclusion? About $1.9 trillion.

The Stiglitz study is available online at www2.gsb.columbia.edu/faculty/jstiglitz/Cost_of_War_in_Iraq.pdf

The Wallsten study is at www.aei-brookings.org/admin/authorpdfs/page.php?id=1188