Iraq, the mother of all budget
busters By David Isenberg
"If Bush had come to the American
people with a request to spend several hundred
billion dollars and several thousand American
lives in order to bring democracy to Iraq, he
would have been laughed out of court." -
noted political scientist Francis Fukuyama
It turns out the eventual cost of the war
in Iraq will not be several hundred billion, but
according to a new study at least a thousand
billion dollars - US$1
trillion, in other words. This figure dwarfs any
previous estimate by orders of magnitude.
Given the projected cost of $1 trillion to
$2 trillion, one might imagine that American
taxpayers are now rolling on the floor in
hysterical laughter while gasping for air.
To get an idea of the economic black hole
the Iraq war could become, it is useful to
remember some of the past estimates given by the
administration of President George W Bush. Recall,
for example, when then-White House economic
adviser Lawrence Lindsey suggested in 2002, six
months before the war, that the mission could cost
$100 billion to $200 billion, Bush fired him
because his estimate was up to three times the $70
billion the administration estimated.
Conservative columnist Paul Craig Robert
wrote after the latest estimate: "Americans need
to ask themselves if the White House is in
competent hands when a $70 billion war becomes a
$2 trillion war. Bush sold his war by understating
its cost by a factor of 28.57. Any financial
officer anywhere in the world whose project was
2,857% over budget would instantly be fired for
utter incompetence."
The latest study was
done by US economist and Nobel Prize winner Joseph
Stiglitz, who teaches at Columbia University, and
Linda Bilmes of Harvard University.
For
the sake of comparison, consider that late last
summer the Pentagon was spending $5.6 billion per
month on operations in Iraq, an amount that
exceeds the average cost of $5.1 billion per month
(in real 2004 dollars) for US operations in
Vietnam between 1964 and 1972. Currently, the
Pentagon is spending about $6 billion per month in
Iraq. The total direct cost of the decade-plus
Vietnam War to the United States was estimated to
be $600 billion. And not even three years after
its start, Iraq has already cost 42% of what the
Vietnam war did.
While the economic costs
are staggering, they are not a total surprise.
Lawrence Korb, a former assistant secretary of
defense during the Ronald Reagan administration
and now a senior fellow at the Center for American
Progress, recalled: "I said at least $500 billion
or a trillion before the war."
Economically, he said, "it's a tremendous
shock". He notes that the costs of the war come at
a time when other governmental expenditures are
scheduled to increase. "From 2007 to 2011, [baby]
boomers start sucking up money, plus the Medicare
drug benefits. It makes budget planning more
difficult." He predicts the defense budget will be
flat for at least the next five years.
Currently, according to Steve Kosiak,
director of budget studies at the Center for
Strategic and Budgetary Assessments, the
Pentagon's direct costs of military operations and
foreign assistance in Iraq are about $250 billion.
He notes that the government does not include many
important costs.
"There are clearly
additional costs. We are financing the war through
deficit financing. That will be at least $100
billion over the next decade." He added that
government figures do "not include overall
economic impact, such as the rise in oil prices
generated by the war".
Stiglitz and Bilmes
agree with Kosiak. They note: "Given that at the
onset of the war, the [US] was already running a
deficit, and no new taxes have been levied, it is
not unreasonable to assume, for purposes of
budgeting, that all of the funding for the war to
date has been borrowed, adding to the
already-existing federal budget deficit. In the
conservative scenario we assume that these funds
are borrowed at 4% and repaid in full within five
years. The moderate scenario assumes that the
country continues to have a deficit over the next
20 years and therefore interest continues to
accrue."
This presents political
difficulties for the Bush administration.
According to Korb, "Possible actions the
administration will have to take include keeping
the [military] budget flat, rescinding tax cuts
and rescind drug benefits."
But some of
the most interesting revelations of the new study
have not been noted. For example, despite the
political rhetoric one hears from all politicians,
it turns out that America's fighting men and women
are not worth that much.
The authors
wrote: "The military may quantify the value of a
life lost as the amount it pays in death benefits
and life insurance to survivors - which has
recently been increased from $12,240 to $100,000
[death benefit] and from $250,000 to $500,000
[life insurance]. But in other areas, such as
safety and environmental regulation, the
government values a life of a prime age male at
around $6 million."
So a civilian death is
worth at least $5.4 million or about 11 times that
of a serviceman or woman. The economic cost for
civilian deaths also applies to private
contractors. According to the study, the cost of
the American soldiers who have already lost their
lives adds up to about $12 billion.
It is
reminiscent of the old military cliche, "Nothing
is too good for our boys, so that's what we'll
give them - nothing."
The report also
reveals that caring for wounded military personnel
is going to be a far bigger and more expensive job
than previously thought. The study notes that the
Veterans Benefits Administration had originally
projected that 23,553 veterans returning from Iraq
would seek medical care last year, but in June it
revised this number to 103,000. It also is now
responsible for providing care to an estimated
90,000 National Guard personnel, who previously
were not eligible for its services. To meet these
unforeseen demands, the administration appealed to
Congress for an emergency $1.5 billion in funding
for fiscal 2005. It is likely to face a shortfall
of $2.6 billion in 2006.
It is unclear,
though, how much of a difference to the policy
debate the study will make. According to Korb:
"Had the study come out before we went to war, it
might have made a difference. But now its impact
will only be incremental. It might influence the
administration to withdraw troops more quickly
than previously planned.
"I wish we had
thought about this before we got into this mess."
David Isenberg, a senior analyst
with the Washington-based British American
Security Information Council (BASIC), has a wide
background in arms control and national security
issues. The views expressed are his own.
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