Authors of ‘Three Trillion Dollar War’ Answer Questions About Cost of Iraq Conflict

McClatchy News

When the United States invaded Iraq in March 2003, Americans were told Iraqi oil would cover the costs of the war and rebuilding. Defense Secretary Donald Rumsfeld scoffed at estimates of $100 billion. Nobel Prize-winning economist Joseph Stiglitz of Columbia University and Harvard University professor Linda Bilmes raised a stir in 2006 by estimating the real cost of the war to be $1 trillion. That estimate has been tripled and the title of their new book is “The Three Trillion Dollar War.”

Q1: The invasion caused about a million deaths and many disabilities to the invaded people. The material losses included important archeological artifacts. Someday, hopefully, the invaders will be held legally responsible for it all. Reparations. Justly, death benefits should be based on the larger of standard benefits for invader and invaded. $4 trillion war?  Submitted by Dennis Couzin from Berlin, Germany

A1: When you look at the destruction of art and priceless artifacts, it is clear that many costs of this war simply cannot be quantified. But they are costs, nonetheless. Of course the loss of life cannot be really quantified either. We do address this issue in chapter 6 of the book. Answered 04/16/08 12:05:58 by Linda Bilmes

Q2: While I understand your tabulation and overall methodology, aren’t you getting a lot of shock value from simply stating the cost at $3T? After all, over the 70+ years these costs will hit the Treasury, the average annual cost is about $43B–hardly as shocking. I realize these cost are front loaded, but there are other long-term Federal costs that are far larger. BTW: I’m not a war supporter. I just can’t stand sensationalized stories. Submitted by Dave from Washington, DC

A2: We actually tried to be very conservative. You can easily support a number that is much higher and we decided not to do that. The $3 trillion is really simple: it is just the sum of the $800bn we will have spent by the end of 2008, the present value of a conservative estimate of health care and disability compensation for the veterans, plus the cost of ongoing fighting, replacing military equipment, and paying interest on the money we borrowed. This reaches $3 Trillion. For example, oil prices have gone up from $25 before the war to over $100 barrel now. The war changed the supply&demand equation and put upward pressure on oil prices. But in our book we only attribute $5-$10 of this increase to Iraq, because we don’t want to be sensationalist. Answered 04/16/08 12:03:11 by Linda Bilmes

Q3: As an American living in London, it’s easy to see that the war in Iraq has badly damaged the American “brand”. This has to be affecting the bottom line at corporations associated with the US (McDonald’s, Nike, Ford, United Airlines, etc.). Is there reason to believe that these corporations are concerned about this issue and are lobbying for a saner foreign policy? I’m especially interested because I’m skeptical that the grass roots has much influence on foreign policy decisions made in DC. Submitted by Brad Duchaine from London, UK

A3: I lived in London for 12 years and so I understand your question very well. Anecdotally we know that US businesses are concerned about rising anti-Americanism, but it is difficult to quantify the impact on business. What the corporate world is beginning to realize is that the war is having a negative effect on the US and global economy, and of course this is something they do care about. The best way to get them involved in to draw the link between the war and the economy, which is one of the reasons we wrote the book. Answered 04/16/08 11:59:26 by Linda Bilmes

Q4: You’d also have to put $3T into context. Over the 70 or so years these costs will be incurred, the cumulative US GDP will be roughly $2,000 – 4,000 trillion (quadrillions!). The Federal budget is usually about 20% of GDP. So that’s $400 – 800 trillion in Federal revenue. Entitlements (Social Security, Medicaid, Medicare, etc.) will consume over 50% of the budget. That’s $200 – 400 trillion. So, next to that, $3T isn’t so shocking—especially when the majority of this money is recirculated into the US economy. Again, I’m not advocating the war or spending $3T to “win” it. I’m just questioning, given the proper context, if the amount is so over the top. Submitted by Dave from Washington DC

A4: No, the money is not recirculated into the economy. It mostly goes to pay Filipino and Nepali contractors in Iraq to do laundry, cook meals, drive trucks and buses, clean dormitories, repair the 42,000 light vehicles stationed there and of course to pay world oil prices for fuel to keep our vehcicles,tanks, humvees, MRAPs, helicopters and aircraft fueled. The US is a wealthy country, but even we cannot afford to squander $3 trillion into a war that has very little benefit for the US economy. If we were spending that money in the US – building our infrastructure, for example, then it would have a net positive multiplier for the US. Answered 04/16/08 11:56:04 by Linda Bilmes

Q5: what are we trying to achieve? this has changed over time. Is this a war over oil? And, is the method we are using the correct. Submitted by gary siu from honolulu, hawaii

A5: There are many theories, of course. Many believe it had to do with oil. Personally I think it was a combination of hubris and then appalling lack of planning, coordination and inability to accept that it was a mistake. Answered 04/16/08 11:53:00 by Linda Bilmes

Q6: If the Iraq and Afghanistan wars continue for another five or even ten years, and if the number of our service members deployed to the two war zones increases from 1.7 million to as high as 2.5 million, what do you estimate the the number of new veteran patients treated at VA will be? What about the number of new veteran disability claims filed against VA? And what about the costs to taxpayers for VA disability claims and VA healthcare? And, finally, why doesn’t the press report the existing 75,000 battlefield casualties and the 300,000 VA patients already caused by the Iraq and Afghanistan wars? Thank you. Submitted by Paul Sullivan from Washington, DC

A6: In our book, we estimate 2 scenarios, one for 1.8 million servicemen and the other for 2.1 million — you can read the difference it makes in terms of claims and costs in chapter 3 of the book. I dont know why the media doesn’t report the true number of casualties. The veterans groups have sent letters to the media explaining this situation. Several people (including Senator John Edwards who just recently sent a letter to the New York Times about this issue) have spoken out about it. And some intelligent reporters have understood and reported the true numbers. But many still take the Pentagon’s numbers without questioning them. Answered 04/16/08 11:51:22 by Linda Bilmes

Q7: What was the cost of the Vietnam war in today’s dollars? Submitted by Arsalan Ziazie from Los Angles, CA

A7: The estimate from Amy Belasco of the Congressional Research Service, in her testimony to Congress, October 2007 was $670 billion. Answered 04/16/08 11:42:48 by Linda Bilmes

Q8: I am truly grateful to you both for this very impressive investigation and analysis. I am an actuary engaged in a first quick attempt to assess the overall reasonableness of your analysis, before I continue to broadcast to my family and friends that the war will cost them at least $10,000 – and maybe $20,000 – each. (I am also briefly reviewing the book as an elementary writing exercise for a college class.) Questions on the Inflation and Discount Rates: 1. I am confused about the assumption for the future inflation rate and its interaction with the discount rate in converting all future costs to 2007 dollars. Can you elaborate? 2. Presumably, past costs were accumulated to 2007 dollars at 1.5%? 3. If the government could pay for disabled veterans’ benefits by purchasing, at some point, single premium annuities with an implicit interest rate higher than 1.5%, would this not be the best rate to discount these costs at?  Submitted by mary from columbus, oh

A8: We assume a real discount rate of 1.5 per cent. That is equivalent to assuming a nominal discount rate of 4.5 per cent if future inflation is 3 per cent, if future inflation is 4 per cent, it is equivalent to 5.5 per cent. Past cots zere accumulated to 2007 dollars by first adjusting for inflation, and then accumulating at 1.5 per cent. if the government could purchase an annuity that adjusted payments for inflation, and carried an implicit interest rate on these real payments higher than 1.5 percent, that would be an appropriate rate to use. Let us know if you find such an annuity.  Answered 04/16/08 09:57:03 by Joseph Stiglitz

Q9: How much money could we have saved if we did not have “contractors” doing the jobs that used to be done by our military? (i.e. security, food & laundry services, construction, etc.) Submitted by dave from anaheim, ca

A9: It is hard to get a precise number. It appears that, at least in many case, using contractors at least doubles the cost. Part of the reason that it is difficult to get a precise number is explained in the book: the government appears to be financing both the insurance premia for death and disability and much of the benefits (as strange as that may seem.) There is no full accounting. The overall cost of using the contractors is, however, far greater. We have created competition for our military–contractors doing the same work as soldiers are paid far more. This is bad for morale, but it also means that when their service time is over, many leave to work for the better paying contractors. In response, the military is force to pay big re-enlistment bonuses. But the contractors have cost us in other ways: they focus on minimizing costs and maximizing profits, and those objectives are often not consistent with our broader strategic objectives, as we explain in our book. Answered 04/09/08 19:23:19 by Joseph Stiglitz

Q10: Before the war started, US polls 82% of Americans against war, 78% of British against war is this our democracy or does this constitute dictatorships. Submitted by arloughlin from glasgow

A10: We have a republican form of government, in which we delegate responsibility for most decisions to Congress and the President. If we don’t like the decisions they make–if they make decisions that are flawed, or decisions that go against the wishes of the vast majority of Americans–they will face the consequences in elections. But information is imperfect. Citizens are not fully informed of what has happened–especially when you have a President who has deliberately tried to keep key information from the American people. Special interests make large campaign contributions, and help shape public perceptions. As a result, our elected representatives are not as “accountable” as they should be. Answered 04/09/08 19:18:19 by Joseph Stiglitz

Q11: dear sirs,did u ever estimate the cost of continouus lies spoken by bush administration in the context of iraq war? Submitted by aqeel ahmad from pakistan

A11: One of the big costs of the “deceptions” (not sure what else to call them) of the Bush Administration is that it has lost its credibility. It said there were weapons of mass destruction, and there none. It was there as a connection between Iraq and 9/1l, and there wasn’t. It said the war would cost between $50 to $60 billion; now we are spending that amount up front every three to four months. It has hidden from the American people the total costs of the war, even the total number who have been injured. it has repeately told the American people that victory is just around the corner. We keep turning corners, trying new strategies, and victory–whatever that means–remains as elusive as ever, even as we have lowered our expectations. If Americans lack confidence in the most recent assertions, is it a surprise? Answered 04/09/08 19:14:12 by Joseph Stiglitz

Q12: The Iraq War has removed a significant amount of oil from the world market. How much has the absence of this oil contributed to the rise in prices? How great is the negative impact of the oil price increase on the American economy, especially now that we are in a recession. Submitted by John Reinke from Redmond, WA

A12: In response to several earlier questions, I explained how the war contributed to the rising oil prices. In our book, we attributed only $5 to $10 of the $75 to $85 rise in the price of oil to the war, but I actually think the war was responsible for a far larger part of the increase in the price of oil. As we explain in the book, the high oil prices have had a very, very negative effect ont he economy–the effects of which were covered up by the Fed. Money spent on Saudi Arabian or Kuwait oil (or oil pruchased from any other oil exporter) is money that is not available to be spent here at home. That means the economy is weaker than it otherwise would be. As I mentioned, the Fed covered up these effects through a flood of liquidity and lax regulations. It fueled a housing bubble and a consumption boom. But it can’t do it any more. So in the coming years, we’ll be feeling the bite of the high oil prices much more. Answered 04/09/08 19:10:30 by Joseph Stiglitz

Q13: The price of crude oil has increased dramatically since the Iraq invasion. How much of this price increase can be attributed to the Iraq operation and is it due primarily to speculation in commodities (“the terror premium”), demand for fuel by the US military, or inflationary effects of war spending? Submitted by Mitch Friend from Springfield, MO

A13: Before the war, the price of oil was around $25 a barrel. Now it is $100 to $110 a barrel. In our book, we attribute a mere $5 to $10 to the war. We believe that number is very conservative–and so our total number is very conservative. Futures markets predicted that the price would remain around $25 for at least the next decade. The realized that there would be increased demand from China and other emerging mrkets. But they expected supply to increase in tandem with demand–mainly increased supplies from the low cost providers, those in the middle east. The war changed that equation. Thus, the war can be given “credit” for most of the price increase. It set forth an adverse price dynamic. At the high prices, oil exporting countries didn’t need to sell as much oil to meet their budgetary needs. Indeed, with prices quadrupling, they face a big problem of knowing what to do with the money that is literally pouring in. To many, it seems the best strategy is to keep more of the oil below the ground. The US military does use up huge amounts of fuel–it is a big factor in the cost of the war. But from a global perspective, the demand is relatively small.  Answered 04/09/08 19:06:32 by Joseph Stiglitz

Q14: This success of this so-called “surge” is based basically on the fact that the U.S. is throwing money at anyone who will take it. Millions and millions of dollars…now that this policy is unraveling why do you think that the main stream media has totally ignored the real reasons for the administrations false claims that the “surge” has been a success? Submitted by William R. Waitkus from Phoenix,AZ

A14: I find it difficult to understand fully media coverage of the war. Even before the war, protests marches got little coverage. The New York Times coverage of scandals are well known. I think there is a certain fear of being labelel unpatriotic. Interestingly, when our earlier paper on the cost of the war came out in early 2006, it received far more extensive coverage in Europe than in the United States. Our new book has, from most quarters, received very good coverage–but there are some glaring omissions. While on the op-ed page, there has been extensive discussion of our book, reportedly, the New York Times Book Review has decided not to review the book! The surge is clearly a complicated story. We should put the claimed success in perspective: the level of violence is still high. Such levels of violence anywhere else in the world would be viewed with alarm. We have just reduced the level of violence to the intolerable level that it was earlier. No one is sure about why the violence has been reduced, and therefore whether the lower levels will be sustained. The increased troops probably played a role; so too may have decisions in Iran about the extent and kind of support they are providing a variety of groups in Iraq. This in turn may have played a role in the unilateral truce by Sadr. What we do know is that the strategy of “buying” militia to our side is a risky one. it is similar to the strategy that the British used in the south, in Basra. Events of the past couple of weeks have shown some of the problems with that strategy. Answered 04/09/08 19:01:02 by Joseph Stiglitz

 

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