Apil 12, 2008 – What’s the true cost of the war in Iraq? The total, long-term cost of everything from tanks and jet fuel and the interest on the money Washington is borrowing to the cost of caring for a double amputee for 40 years? It’s probably a lot higher than you think, but try about $3 trillion. That’s the round, stunning figure economist Joseph Stiglitz and Harvard public finance professor Linda Bilmes came up with after several years of digging up and crunching the official government numbers, which were buried or scattered in the Pentagon’s impossibly sloppy accounting books. The gruesome details can be found in their new book, “The Three Trillion Dollar War.” I talked to Professor Bilmes on Wednesday, April 9, by phone from Boston:
Q: What is your 60-second synopsis of your book and why did you write it?
A: We basically wrote the book for two reasons. First was to explain the full costs of the war, including the costs that are yet to come. Secondly, we wrote the book to show how the veterans have been shortchanged and to offer recommendations that would fix that. We really go through in the book the major cost categories and show how the war is affecting the economy. This is a book about the budgetary and economic costs of the war. But we also have three chapters about veterans’ issues, which I have been deeply involved in. We are donating 10 percent of the proceeds to veterans’ organizations. One of the purposes of the book was to really call attention to the veterans’ issues. The veterans’ issues in particular are fixable. When you think about the problems of Iraq, and some of them seem somewhat intractable and out of our control, that is a source of frustration for many Americans. But when you look at some of the situations of the returning veterans, that is something that is entirely within our ability to fix. So we were trying to call attention to those issues and how we could fix them.
Q: What does that $3 trillion price tag include?
A: It includes the cash costs of the war, which is the $600 billion that people are familiar with, which is basically the cost that we have spent to date of operations, as well as the long-term cost that we would have to spend even if we were to withdraw quickly; those include the cost of taking care of veterans, both the medical care and disability compensation over their lives; the cost of military reset, which includes both the cost of replacing all of the military and National Guard equipment and the cost of restoring the personnel forces to their prewar strength; and the cost of the interest on all of the money which we have borrowed, which is all the money paying interest on the debt. The way that we look at it to reach $3 trillion, there are two approaches: There is a budgetary approach or an economic approach. If you look at it from a budgetary approach you would count the operating costs, as well as future operating costs, as well as the veterans long-term costs, the military reset cost and the interest cost. If you look at it from an economic perspective, we don’t count the interest costs because those are considered transfer payments. But we do include the social costs, which are the costs to the economy that the government doesn’t pay, and the macroeconomic costs, which are overall economic loses to the economy. Either way, you quickly get to $3 trillion.
Q: This also includes Afghanistan?
A: We include Afghanistan in some areas and in some areas we don’t. It’s very difficult to separate out the accounts between Iraq and Afghanistan. We have tried to estimate how much is Iraq and how much is Afghanistan. But particularly on the veterans cost, the VA doesn’t actually break out the Iraq vs. Afghan veterans. The way the military allocates its accounts, it’s difficult to follow exactly where the money is being spent.
Q: Where did you go to dig up this information?
A: It was a huge amount of work, a really, really huge amount of work to write this book and to dig up the information. We used all government sources, some of which were publicly available and much of which we needed to secure under the Freedom of Information Act, which the veterans groups did on our behalf. Basically, through a combination of information from the Congressional Research Service, the GAO, the Congressional Budget Office, the budget accounts, the Inspector General reports, congressional testimonies, audit reports — all kinds of government records, as well as some other kinds of established, reputable studies from medical sources.
Q: What are some of the big-ticket items that particularly surprised, shocked or enraged you?
A: Well, I’d say that pretty much every week we were working on this book we had one of those kinds of moments where there would be something unbelievable. Some of them were big-ticket items; some of them were small-ticket items. Some of the things that stunned us, in no particular order, were the fact that we now pay enlistment bonuses of $25,000 to $40,000 for new recruits and up to $150,000 for re-enlistment bonuses. We found that if you were injured during your enlistment period, you were asked to repay your enlistment bonus on a prorated basis. So somebody who comes back without a leg is then asked to repay their bonus.
Another thing that stunned us was the fact that KBR, which is the largest contractor in Iraq, has been evading hundreds of millions of dollars a year in payroll taxes — Social Security and Medicare taxes — by employing its contractors through shell companies in the Cayman Islands. Another thing that stunned us was when we looked at the cost outside of the Defense department and the Veterans department. We found a number of significant costs. For example, the very significant cost of Social Security disability compensation, which is another big chunk that typically doesn’t get included. Another cost is the fact that the Department of Labor actually pays the insurance cost for contractors who are employing contractors in Iraq, both for the U.S. and foreign nationals.
If you are Halliburton, in order to do business anywhere, you have to have worker compensation insurance. Because that insurance is considered too risky and the cost would be too high, the government pays for it. The contractor doesn’t have to pay any insurance costs. But then the insurance company also doesn’t want to provide the insurance or the benefits, because they say it would be too risky for an act of war. So if someone is injured, the Department of Labor also pays the benefits. When we found this out, we thought, “This cannot be true.” But it is true. There is a GAO report on it where they were also stunned. There are many lawsuits that are going on now because the whole issue about whether the government is paying out to these contractors or not has to do with whether or not they were injured in an act of war.
But overall, the thing that really struck me was simply the scale of the war. There have already been 1.7 million service men and women deployed, which I think is not really understood, because people tend to think about the 140,000 who are serving at this point in time. And the scale of the injuries and the survival rates are much higher now than in previous wars. In Vietnam and Korea, there were about 2.3 or 2.5 injuries per fatality. Now if you look at just the in-combat injuries, it’s 7-1. The number of people who have actually been treated already in VA hospitals and clinics is already 300,000. The number of wounded, if you include the battlefield and the non-battlefield, is over 70,000 people who have been evacuated from the theater for medical problems.
So simply understanding just how much larger the scale is than we had realized was I think the thing that surprised me the most — and the fact that the government has really tried very hard to conceal this scale of injuries by suppressing the availability of the information about how many injuries there are and by making it very difficult to get hold of the information to basically understand all of this.
Q: Have the media — the mainstream media, mainly — been asleep on this issue of the true cost of the war?
A: Overall, I think, the media have been asleep at the wheel in terms of the cost of the war. They have unblinkingly reported the $600 billion figure of the cost of the war. They have unblinkingly reported the wounded in combat without looking beyond that. They have unblinkingly reported on the veterans’ problems. But there are major exceptions to that. In addition to the most well-known one, The Washington Post expose on the Walter Reed Hospital scandal, there also has been some really excellent reporting done in various places. Here in Boston … and in Charlotte…. Early on, there was an excellent piece done in U.S. News & World Report by Linda Robinson on the discrepancy between disability ratings in the military and the VA. There has been a lot of excellent reporting done by individuals. But despite that, overall, you keep seeing again and again some of the same mistakes repeated in the mainstream media.
Q: There’s no chance that the total cost of the war was unknown merely because the Pentagon is a big dumb bureaucracy and it never put a rope around the total cost — as opposed to the cost being deliberately hidden for political reasons?
A: A lot of what we talk about in the book is that the government accounting system does not allow you to look at the full long-term cost of anything. The government uses cash accounting. That’s like saying if you buy a car — and it cost $25,000 and you spend $5,000 on a down payment — that your car cost $5,000. But actually you still owe the $20,000 and if you took out a loan, you still owe the interest. If you are looking at how much your car is actually going to cost you, it’s going to cost you a lot more than the $5,000. Now businesses are not allowed to do that kind of accounting if they are bigger than the corner grocery store.
But amazingly enough, the federal government uses cash accounting, which means that the cost of things that take a long time — huge weapons systems that are purchased over many, many years — are essentially hidden from view. The government budgeting is done very inappropriately. What happens is that if you are looking at a program that is year-to-year funding — funding a grant or a transfer payment or whatever — what you fund in a year is what is paid out. But if you are looking at the cost of the F-22 bomber, which incidentally has not flown a single sortie in Afghanistan or Iraq, the cost over many years looks different than the cost which was estimated up front. So with many long-term projects, it’s very difficult to understand up front what the costs are — particularly when you have a war like this, where we’ve borrowed all the money. So we’ve deferred a lot of the cost. All the $600 billion that we have spent has been borrowed, so it’s not like we’ve put any down payment down. This is the first time in our entire history that we’ve done this. We have not raised taxes or cut spending to pay for the war; we’ve actually cut taxes and raised spending. This is the first time since the Revolutionary War that we have borrowed from overseas for a war.
Q: What recommendations do you make in your book?
A: Many of the recommendations are about improving the government accounting system. Some of the reason why it is so difficult to understand the war is because of the way the government keeps its books. But — and there’s a very big but — in every area there have been particular shortcomings in the way the budgeting has been done. On the veterans side, even in 2005 and 2006 you had the budgeting for the VA being done on the basis of projections made in 2001, before the war even started. You really had an unsurprising outcome that for three years in a row the VA completely ran out of money.
Now in the Pentagon you have the fact that this is an utterly dysfunctional financial system which has flunked its financial audit every year for the last 10 years; where no one has any idea where money is going and where the fact that you have tens of billions of dollars of which — in Pentagon-speak — they’ve “lost visibility,” is a direct result of the fact that they are incapable of tracking and imposing financial discipline.
The government in the CFO Act of 1990 required all government agencies to have clean financial accounts. Everybody else in the government, with a huge amount of effort, has managed to do this. So the only other department apart from the Pentagon that doesn’t is the Homeland Security Department, and that’s because they are a consolidation of 22 agencies and they haven’t been able to harmonize all the systems yet. But the Pentagon has never taken this seriously. It’s not just me, but the Controller General and the Inspector General for the Pentagon and the auditors — every year a chorus of all of us complain about the fact that it is not possible to execute the Pentagon budget, and that’s one of the reasons it is so difficult to track where the money is being spent.
Q: Can you describe what your politics are and whether you were for or against the war in Iraq?
A: I was against the war in Iraq, and Joe Stiglitz, my co-author, was against the war in Iraq at the outset, which we state clearly in the book. But I am also a professor of public finance. I teach budgeting and budget-accountability. I worked in the department of Commerce. I worked for many years around these issues. I really do believe this is a good-government issue. I really, really believe there should be accountability for where our tax dollars are spent and that it has been highly irresponsible — not only the war in and of itself but the way that the war has been financed; the way that funding for the war has been concealed; the way that the money has not been available in a timely fashion to take care of the veterans’ needs and so forth. I honestly feel this is a good-government issue.
Q: Has your book had an impact on anybody important?
A: I think it has. Sen. Obama has quoted from it. Sen. Clinton is now talking about the trillions of dollars spent on the war. Sen. Edwards just yesterday wrote a letter to the Washington Post complaining about the two sets of books in the Pentagon. A recent poll taken last week showed that 71 percent of Americans now believe that the war is contributing to the economic downturn, which is one of the major premises of our book. I do believe people are looking at this war and thinking, “This is costing a lot” and that they are concerned about it and our book has sort of put a number around that. We hope that some of our recommendations are adopted and make it less likely that we are embroiled in such a financial fiasco in the future.
Q: Beyond the staggering human and financial cost of the war, what did you learn from doing your book that you did not already know about war?
A: What we really learned is that there is no such thing as a free war. Contrary to the conventional wisdom, wars are not good for the economy. And this war in particular has had a seriously weakening effect on the economy.