FOREIGNID: 82836
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AUTHOR: tristero
DATE: 01/12/2006 07:09:17 AM

Whatever the exact cost of the Iraq war, the main point is that the war was (and continues to be) very, very expensive.

I have long been arguing that the Democrats should be making the link between the amount of money we are spending to bring democracy to the Iraqi people and the amount we are therefore not spending here in America for programs that support our own civilians: Social Security, health care, and rebuilding New Orleans, for instance.  

Do the American people support this tradeoff? It's nice to help out people like the Iraqis--but at what cost when we have so many people struggling here at home?

As Paul Wolfowitz would say, these estimates are "wildly of the mark".  For example, my taxes have gone down every year since the Iraq war started, so I'm thinking the Iraq war must be a money-making enterprise.

But Matthew, Iraq no longer has WMDs...

I do not understand why Cowen does not want to include Interest costs.

Also, can some one give me an estimate of the value of the US's soft power. My guess is the cost of the damage to our soft power and readiness would dwarf the 1T number.

Really, how can you put a price tag on the kind of freedom spreading we're doing in Iraq?

Look at it as if it were manure spreading in Iraq. First, you figure out how much the manure is costing you to produce or otherwise acquire it. Then, there is the cost of the manure spreaders, unless you happen to have a whole bunch of them with nothing else to do. After that we have to add in the human toll - manure really does stink, you know, plus it takes a real toll of ones ordinary senses. Then......well, the rest is just adding machine work. Now, add a good profit - aren't all such enterprises about making a profit for someone? Voila! We have a price tag.

Without studying the report or its critique as you summarized, my bet is that Tyler Cowen failied to account for indirect costs such as lost earning power from the dead and the maimed

methinks our friends Otter was probably being flippant/snide.  certainly mehopes that's the case :)

Let's not forget the cost in terms of the quality of our Army.

Kevin Drum has some thoughts on this. 

By the way, is TAPPED censoring Matt?

The otter was attempting a joke, but also trying to make the point that no matter what the price tag of the war, American taxpayers haven't been asked to pay for anything yet.  It's all borrowed money, and the average person has no concept that the war has cost anything.

I've actually reqad Joe's paper & it is quite good. I want to share the intro:

Three years ago, as America was preparing to go to war in Iraq, there were few discussions of the likely costs.  When Larry Lindsey, President Bush's economic adviser, suggested that they might reach $200 billion, there was a quick response from the White House:  that number was a gross overestimation.[2]   Deputy Defense Secretary Paul Wolfowitz claimed that Iraq could "really finance its own reconstruction," apparently both underestimating what was required and the debt burden facing the country.  Lindsey went on to say that "The successful prosecution of the war would be good for the economy."[3]

Many aspects of the Iraq venture have turned out differently from what was purported before the war:  there were no weapons of mass destruction, no clear link between Al Qaeda and Iraq, no imminent danger that would warrant a pre-emptive war.  Whether Americans were greeted as liberators or not, there is evidence that they are now viewed as occupiers.  Stability has not been established.  Clearly, the benefits of the War have been markedly different from those claimed.  

So too for the costs.  It now appears that Lindsey was indeed  wrong--by grossly underestimating the costs.  Congress has already appropriated approximately $357 billion for military operations, reconstruction, embassy costs, enhanced security at US bases and foreign aid programs in Iraq and Afghanistan.  This total, which covers costs through the end of November 2005, includes $251bn for military operations in Iraq, $82bn for Afghanistan and $24bn for related foreign operations, such as reconstruction, embassy safety and base security. [4]  These costs have been rising throughout the war. Since FY 2003, the monthly average cost of operations has risen from $4.4bn to $7.1 bn - the costs of operations in Iraq have grown by nearly 20% since last year (whereas Afghanistan was 8% lower than last year).[5]   The Congressional Budget Office has now estimated that in their central, mid-range scenario, the Iraq war will cost over $266 billion more in the next decade, putting the direct costs of the war in the range of $500 billion[6].  

These estimates, however, underestimate the War's true costs to America by a wide margin.  In this paper, we attempt to provide a range of estimates for what those costs have been, and are likely to be.  Even taking a conservative approach, we have been surprised at how large they are.  We can state, with some degree of confidence, that they exceed a trillion dollars.  

Providing even rough order of magnitude estimates of the costs turns out to be very difficult, for a number of reasons.  There are standard problems in cost allocation; there are future costs associated with the Iraq war that are not included in the current calculations; there are marked differences between social costs and prices paid by the government (and it is only the latter which traditionally get reflected in the cost estimates); and there are macro-economic costs, associated both with the increase in the price of oil and the Iraq war expenditures.  

Consider, as an example, accounting for the value of the more than two thousand American soldiers who have died since the beginning of the war, and the more than sixteen thousand who have been wounded.  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 that the cost of the American soldiers who have already lost their lives adds up to around $12 billion[7].  

The standard estimates of the death costs also omit the cost of the nearly one hundred American civilian contractors[8] and the four American journalists that have been killed in Iraq, as well as the cost of coalition soldiers, and non-American contractors working for US firms.

The military values the cost of those injured by what their medical treatment costs and disability pay; and current accounting only reflects current payments in disability, not the present discounted value of (expected) future payments; a full cost analysis includes both the present discounted value of all future payments, as well as the difference between the disability pay and what the individual might have earned--and even this ignores the enormous compensation that would have been paid for pain and suffering had this been a private injury.  

Costs of recruiting have increased enormously--and even after the war ends, there is reason to believe that compensation will have to be increased, including for Reserves and National Guard.   Many Reservists, particularly those who are older, supporting families and established in their careers, underestimated the risks of being called to fight a war abroad and the ability of the government to force them to extend their tours of duty and even to serve second and third tours.  The majority of these Reservists have suffered a significant loss in wages due to serving in Iraq. By the same token, wages currently paid the military almost surely represent an underestimation of a fair market wage, given what individuals would have needed to make them willingly undertake the job in Iraq.  In fact, we know from the wages being paid by contractors performing similar work what the free market wage for such services are, and they are a multiple of what the American military get paid[9].  

Even determining the current "direct" expenditures turns out to be a difficult task.[10]  The Administration has provided a number, based on the current costs of operations   in Iraq. We are interested here in finding the total economic cost, the value of the resources used, and it is not always clear that standard accounting and budgetary figures reflect that.  For instance, the faster depreciation or destruction of equipment already owned by the government is clearly part of the cost of the war.  Standard cost allocation procedures would attribute a substantial fraction of the overhead in the Pentagon to the War; by devoting its attention to Iraq, it has less time to work on other issues, to prepare for other problems.  

A true costing of the war would focus, of course, on the incremental cost; to the extent that the actual War substitutes for expensive "war games," the incremental cost is less than the actual money spent. In our analysis we have subtracted the direct savings, such as policing the "no-fly" zone in Iraq, from the cost of the war.

This paper attempts to provide a more complete reckoning of the costs of the Iraq War than have previously been provided, using standard economic and accounting/budgetary frameworks.    Of course, a final tally will have to wait the end, and even the President has made it clear that there is no clear end in sight.  And even then, it will be years before we can be sure about whether our estimates of future costs--increased costs of recruiting or payments for disability or the health care costs of the injured veterans--were accurate.  

Of necessity, the numbers, especially of future expenditures, are estimates, and we have tried to avoid a false sense of accuracy by rounding our numbers from the more precise estimates provided by econometric and statistical studies, when those are employed.  We provide several sets of numbers.  A "conservative" estimate that we think is excessively conservative. We realize that the numbers provided here may be controversial.  They provide a picture of costs that is much larger than that which has been provided by the Administration, especially before the War.  We also provide a second estimate, which, while still conservative, is more reasonable.  We refer to this as our "moderate" estimate.  

Our estimates, for instance, assume that we have 136,000 troops stationed in Iraq in 2006.  The Administration has recently announced a troop reduction, from 160,000 due to the pre-election build-up, to 140,000, a number which is still larger than the numbers employed in our analysis.  

We have not been able to quantify many of what may turn out to be the most important costs of the Iraq venture.   There is a value in military preparedness, and it is the reason for investing so heavily in defense.  By most accounts, America's ability to engage in a second front at the current time is greatly diminished.  At the beginning of the War, there was a great deal of talk about winning the hearts and minds of those in the Middle East.  Recent opinion polls reflecting public opinion in the Arab world show that exactly the opposite has happened.  Some American businesses have even claimed that anti-Americanism spawned by the Iraq War has had an effect on their sales and profits.  America's credibility has been diminished:  if some time in the future another American President were to claim that he had solid evidence based on intelligence that there was a threat, that evidence is more likely to be treated with skepticism.  America has always prided itself in fighting for human rights; but America's credentials have been tarnished by Abu Ghraib and Guantanamo.  These are among the many costs of the Iraq War that we do not attempt to quantify, but which should clearly be counted in any assessment of the Iraq War.

John Stuart Blackton