Iraq War Hits U.S. Economy: Nobel Winner
New York, 04 March 2008 (Reuters)
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The Iraq war has contributed to the U.S. economic slowdown and is impeding an economic recovery, Nobel-winning economist Joseph Stiglitz says.
Meanwhile, the U.S. government is severely underestimating the cost of the war, Stiglitz and co-author Linda Bilmes write in their book, "The Three Trillion Dollar War" (W.W. Norton), due to be published on Monday.
The nearly 5-year-old war, once billed as virtually paying for itself through increased Iraqi oil exports, has cost the U.S. Treasury $845 billion directly.
"It used to be thought that wars are good for the economy. No economist really believes that anymore," Stiglitz said in an interview.
Stiglitz and Bilmes argue the true costs are at least $3 trillion under what they call an ultraconservative estimate, and could surpass the cost of World War Two, which they put at $5 trillion after adjusting for inflation.
The direct costs exclude interest on the debt raised to fund the war, health care costs for veterans coming home, and replacing the destroyed hardware and degraded operational capacity caused by the war.
In addition, there are costs not accounted for in the budget such as rising oil prices and social and macroeconomic costs, which the book details.
To illustrate how the money could be spent elsewhere, Bilmes cited the annual U.S. budget for autism research -- $108 million -- which is spent every four hours in Iraq. A trillion dollars could have hired 15 million additional public school teachers for a year or provided 43 million students with four-year scholarships to public universities, the book says.
Stiglitz and Bilmes say they were excessively conservative in calculating the $3 trillion figure, overcompensating for their bias in having opposed the war.
Asked if the war has contributed to the U.S. slowdown, Stiglitz said, "Very much so."
"To offset that depressing effect, the Fed has flooded the economy with liquidity and the regulators looked the other way when very imprudent lending was going up," Stiglitz said. "We were living on borrowed money and borrowed time and eventually a day of reckoning had to come, and it has now come."
The war has also altered how the United States has reacted to its current economic troubles, he said.
"When America's financial institutions had a problem, they had to turn to the sovereign wealth funds in the Middle East for recapitalization, for the bailout," he said.
"The reason was obvious. The war had led to high oil prices. The war had meant that America had to borrow more money. There weren't sources of liquid funds in the United States. The sources of the liquid funds were in the Middle East," he said.
Bilmes, a former assistant secretary and chief financial officer of the U.S. Customs Department, said the war also limited options for the $168 billion stimulus package signed into law by President George W. Bush on February 13.
"We really had very little wiggle room in order to pass this because of the fact that we're spending $16 billion a month on Iraq and Afghanistan," Bilmes said. "Actually the country could have used a larger fiscal stimulus but there is (no) cash to accommodate it."
The authors said they were surprised by the hidden costs their research found, citing, for example, what they called the underreporting of casualty figures by the Pentagon.
The official Pentagon figure of nearly 30,000 wounded in action fails to account for an addition 40,000 service members who have required medical attention for non-combat injuries or illness, Bilmes said. She based her conclusion on official Defense Department data from a restricted Web site.
War is emptying Britain's wallets
By Michael Glackin
04 March 2008 (The Daily Star)
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How much does a war cost? Not just the cost of military firepower, but the cost of compensating the families of dead soldiers, looking after injured soldiers and the war's wider impact on a country's economy? In the case of the war in Iraq the figure for the United States alone is a minimum of $3 trillion if you take the word of Nobel Prize-winning economist Joseph Stiglitz. In his book "The Three Trillion Dollar War: The True Cost of the Iraq Conflict," co-written with Harvard lecturer Linda Bilmes, Stiglitz forensically dissects America's war costs. Unusually for an economist, Stiglitz's prose is crisp and clear, but the title undersells things a bit, since Stiglitz believes the ultimate cost to the US will be nearer $5 trillion. That's a lot of money, particularly compared with current White House estimates of $645 billion - a figure itself way above Washington's initial estimate of $50-60 billion.
When I spoke to Stiglitz during his visit to London last week he insisted he had been conservative in his estimates. "We were aware people would say 'he's a Democrat and against the war.' There are a few minor quibbles but the general judgment is we've been conservative," he says.
Stiglitz factors just about everything into his estimates, from troop pay and equipment to more hidden costs, including long-term veterans' healthcare benefits, replacing military equipment, interest on money borrowed to pay for the war (the Iraq war has been paid for largely through deficit spending), and the impact of the war on the price of oil. He also throws in his view that there is a direct correlation between the current crisis in global financial markets and the cost of the conflict.
For good measure Stiglitz also has a stab at crunching the United Kingdom's numbers, estimating the cost of British participation in Iraq and Afghanistan through to 2010 to be at least $40 billion, more than two-thirds of which is attributable to the Iraq war.
Is he correct? I've no idea. But at least he's come up with a figure. When I asked the UK Treasury, the government's finance department, for an overall estimate, I was tersely informed they did not have one. Instead they referred me to the Ministry of Defense, which in turn, and quite correctly, referred me back to the Treasury. When I explained the Treasury had referred me to them, they suggested I contact Number 10 Downing Street. The prime minister's office, you've guessed it, referred me back to Defense and Treasury. Mindful of my phone bill, I gave up.
It seems bizarre that the Treasury, the government department that holds the purse strings of all government spending, has no idea of how much money has been spent in Britain's two wars. Even more bizarrely, they refused to comment on Stiglitz's estimates.
Stiglitz is amused and surprised by the Treasury's ignorance. "Parts [of the costs] are relatively easy to account for and are really part of good government, such as costs of operations and injured people. Other parts, the ones based on economic assumptions, are harder to quantify but really should still be tracked by someone in the Treasury," he says.
Stiglitz calls the British system of funding the war "opaque," which partly explains why he was unable to separate spending in Afghanistan from Iraq. In his book he states that before the war, when Gordon Brown was in charge of Britain's finances, he set aside 1 billion pounds (about $2 billion) for war spending. Brown also allocated cash to a Special Reserve fund, a cash pot that allows the Defense Ministry to supplement its regular budget. Stiglitz makes the point that because funds from the Special Reserve are drawn down by the ministry when required, without approval by Parliament, it makes it harder to quantify how much is being spent. But Stiglitz estimates the UK has so far spent almost $19 billion on military operations alone in Iraq and Afghanistan. In crude terms that's the price of a lot of hospitals and schools at a time when the government is under fire for failing to adequately fund healthcare and education.
Considering the scandals that have erupted over the government's failure to properly equip soldiers in the field - last month an inquest found that a soldier in Afghanistan was "unlawfully killed" because the Defense Ministry failed to provide him with proper equipment during Brown's tenure as chancellor of the exchequer - you could be forgiven for wondering where all the money has gone.
But $40 billion is paltry when compared with the $200 billion worth of debt that Brown has taken onto the government's books by nationalizing Northern Rock, an inept high street bank plunged into crisis by the global credit crunch and whose plight last year caused the first run on a bank in Britain in more than a century.
The fact is Iraq has slipped down the political agenda in the UK. Notwithstanding last weekend's killing of a British airman in Basra, the war in Iraq is over as far as Brown is concerned. Afghanistan still looms large of course, but tough as the fighting there is, it's a war most people still largely back. Even Prince Harry has done a tour of duty there.
Brown at the moment is more concerned with the issue of banning plastic bags in supermarkets to help reduce global warming. He even took time to write a column on the issue for The Daily Mail, middle England's favorite newspaper. Oddly enough the government's marketing department used more than 1 million plastic bags last year in the cause of promoting itself. The Treasury couldn't tell me how much that cost either.
Michael Glackin is a writer living in London and a former managing editor of THE DAILY STAR, for which this commentary was written.
Addy, good articles. Apparently the U.S. is not alone when it comes to the cost of this war. Which makes me even more positive that the U.S. and the U.K. most likely underestimated what it would cost ( both financially and troop loss) to turn this thing around. But, they both will benefit in the longterm. It may take awhile to recoup their expenditures, but after thats done everything after that is money (oil) in the bank, plus the security of knowing where their oil will come from in the next 30 years. (Its just a shame so many had to die. that is the only thing that is unexcusable) Just my opinion
Iraq War Hits U.S. Economy: Nobel Winner
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