Inflated Costs of War

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The Three Trillion Dollar War attempts to calculate the accurate total cost of the war in Iraq, covering factors not included in the government’s official $800 billion figure. Authors Joseph Stiglitz and Linda Bilmes estimate Iraq’s three trillion dollar tab by combining the budgetary costs of the war with their interpreted macroeconomic and social economic consequences of the conflict.

When computing the budgetary costs of the war, the award-winning economists focus on four factors: current costs, predicted future costs, hypothesized “hidden” costs, and approximated interest.

These scenarios are utilized to predict future operational expenditures, the total cost of veterans’ disability and health care, and the potential price tag covered by various departments of the government.

With these theoretical situations in place, Bilmes of Harvard and Stiglitz of Columbia combine the current budgetary costs of the war with their predicted estimates for future costs of the conflict. Elements of the future costs include disability compensation and medical benefits for veterans, as well as the cost of rebuilding the exhausted postwar military.

Also discussed are the “hidden” costs of the war, a term used to describe the unreported costs of Iraq absorbed by governmental departments such as the Department of Defense, the State Department, and the Department of Veterans’ Affairs.

SOCIAL ECONOMIC COSTS

In discussing the social economic costs of the war, the authors hesitantly place a dollar value on the life of a soldier killed in combat. They elaborate that while “the official military payout when one dies amounts to only $500,000,” they choose to use the dollar estimation on life set by the Environmental Protection Agency of $7.2 million, because “those killed in Iraq were young men and women in peak physical condition, at the beginning of their working lives. The true economic loss from their deaths could be much higher.”

Stiglitz, winner of the Nobel Prize in Economics, uses the same approach to quantify serious injuries and mental health disabilities among the veterans, as well as the strain they place on their postwar families. He states, “For serious injuries, we calculate the value of economic loss due to injury, less the amount paid in disability compensation.”

MACROECONOMIC COSTS

The authors’ interpretations of the macroeconomic effects of the war vary in dubiousness by topic. Their discussion on the war’s effect on oil prices and their resulting calculations are thoughtful. However, the authors’ assertion of the war as a causal factor in the sub-prime mortgage crisis is tenuous at best. They write the following:

“The Federal Reserve sought, of course, to offset the adverse effects of the war… It kept interest rates lower than they otherwise might have been and looked the other way as lending standards were lowered—thereby encouraging household to borrow more— and spend more… The low initial interest rates allowed households to borrow more against their houses, enabling America to consume well beyond its means.”

They go on to describe the mortgage crisis, painting a dire picture of the decrepit state of the economy as attributable to the war in Iraq.

CONCLUSION

The following table shows the authors’ bill, in billions of dollars, of the overall price of the war:

Cost of Iraq and Afghanistan War	“Best Case”	“Realistic-Moderate”
Budgetary Costs
Total Operations To Date	$646	$646
Future Operations	$521	$913
Future Veterans’ Costs	$422	$717
Other Military Costs/Adjustments	$132	$404
Interest	$613	$816
Subtotal	$2,334	$3,496
Social Economic Costs
Value of Statistical Life-Death	$56	$64
Value of Statistical Injury-all other injuries	$180	$273
Societal, Family, and other medical expenses	$55	$78
Less applicable disability benefits	-$12	-$16
Other social costs	$16	$16
Subtotal	$295	$415
Macroeconomic Costs
Oil price impact	$187	$800
Budgetary impact	$0	$1,100
Subtotal	$187	$1,900
Total	$2,816	$5,811