Wednesday, June 18, 2008

The Three Trillion Dollar War by Stiglitz and Bilmes

The Three Trillion Dollar War: The True Cost of the Iraq Conflict
By Joseph E. Stiglitz and Linda J. Bilmes

Joseph Stiglitz, a Columbia University professor and winner of the 2001 Nobel Prize in Economics, and Linda Bilmes, a government finance expert at Harvard’s Kennedy School, are almost defensive about having come together to write this book. Given the human suffering that war causes, they say in their preface, it may seem callous to focus on financial cost. However, financial resources are not infinite, and whether one was or is for this war or against it, it behooves all of us to examine the costs. When making choices between real world options, financial costs need to be one of the factors under consideration.

As of this writing – mid 2008 – the cost of the conflict is often stated as $645 billion, with the likely approval of 2008 war funding raising that to over $800 billion. Stiglitz and Bilmes say that this figure only represents funding for current combat operations. There are three other broad categories: hidden costs, future costs, and interest payments, which they analyze from a “best scenario” perspective (earlier withdrawal) and a “realistic-moderate” scenario. When the cost categories are added together, the total is conservatively estimated at $3 trillion. Adjusting for inflation, the only war that has been more expensive was World War II. And that is just the cost to the United States. The cost to the remainder of the world (primarily Iraq, but also those countries who have taken in refugees, or who have been pressured into forgiving Iraqi debt, so the Iraqis can rebuild) at least doubles that figure.

What are hidden costs? Hidden costs are essentially those which are buried in other budgets but are used to fund the Iraq War. The Department of Defense has an annual budget of roughly $500 billion per year, completely separate from war funding appropriations. Yet part of that budget is used to pay for the costs of current war. For example, the salaries of soldiers come out of the Defense Department budget. Only “extra” pay such as combat pay is taken out of the war appropriations budget. Also, due to difficulties recruiting, the military has hired thousands of new recruiters, increased signing bonuses and re-enlistment bonuses, and increased its national advertising campaign. All this has come out of the regular defense budget. Stiglitz and Bilmes meticulously delve into these and other hidden costs, while reminding us that they are being conservative in their estimates. Many hidden costs are not even included in their calculations, such as the insurance and workmen’s compensation for contractors, an expenditure that comes from the Department of Labor.

What are future costs? They are primarily costs which accrue now and are paid later. Primary among them is the cost of caring for our veterans. Due to advances in medicine and better protection of the torso, the ratio of injuries per fatality has skyrocketed since the second World War. At that time 1.6 soldiers were injured per fatality. Now the ratio is around 15 to 1. The signature wounds from this war are: traumatic brain injury, post-traumatic stress disorder, amputations, and spinal chord injuries. The costs of caring for these wounded veterans will go on for a lifetime, and they are not trivial.

Fully 38% of returning veterans are treated for mental health issues. A lot of those mental health problems stem from the difficulty of the soldier, once in Iraq, in determining who exactly the enemy is. Also, with repeated deployments, there is more likelihood of seeing the death or injury of a comrade. In addition, there are social costs tied to these future costs, like the lost income of the veteran whose disability prevents him from ever working, or the lost income of the caregiver who has given up a job to take care of him.

The fourth broad category is interest payments. This war has been funded on borrowed money. Foreign countries have purchased treasury debt and we pay billions each year in interest alone, on that debt. The longer the war continues, the more these debts will increase, since the current administration is pushing these costs onto future generations, and giving current taxpayers tax rebates. Eventually those debts will have to be paid.

One of the reasons the war has been so very expensive has been the unprecedented use of contractors in a variety of functions from personal services for soldiers to security detail, all of which used to be done by the military itself. These contractors are tremendously expensive. For example, private security guards working for Blackwater can earn as much as $1222 a day. By comparison, an Army sergeant earns $140 to $190 a day in pay and benefits.

Stiglitz and Bilmes anticipate that people will ask about the benefits of the conflict, but they have a hard time finding any. Had our goal been to find weapons of mass destruction, we soon discovered that there were none. Had we thought that Saddam Hussein was linked to those involved in the 9/11 attacks, we now know that is not true. Had our goal been to create a stable, democratic, and secular country that could be a model for the region, we are now far away from that goal. As the country plunged into chaos, the secular, educated middle class has largely fled to other countries and those who remain are more fundamentalist than ever. And finally, had we been after cheap oil, we have failed there, as well. Gasoline prices hovered around $1.60 per gallon at the start of the Bush Administration and are now over $4 per gallon. In fact, the authors argue that part of the rise of the price of oil is because of the war, and that adversely impacts other countries, as well. Only the oil companies, defense contractors, and security firms have benefited. Our international reputation has been tarnished and we have more enemies worldwide than ever. Our National Guard has been unavailable for domestic emergencies, such as Hurricane Katrina. Productive capacity that could have been used to manufacture goods that meet civilian needs instead went into armaments. Money spent on the war could have been spent on repairing our infrastructure, schools, and hospitals.

With regard to the continuation of the war, Stiglitz and Bilmes advocate getting out now. Iraq is not stable, but what makes us think that it will be more so in a year? In three years? In five years? We will only be adding to current and future costs. Adding to the difficulty is that most Iraqis want the Americans out of their country. There is not a lot of incentive for Iraqis to join forces with the Americans. Americans have imprisoned those who are part of the insurgency as well as those who are not. If “good” individuals (from the American viewpoint) are treated badly, there is little incentive to be good. On the other side, the insurgents are far more likely to only punish those complicit with the occupation. Being from Iraq and speaking Arabic, they are in a far better position to judge who is who. Being on the American side turns out to not be a very good bet from the Iraqi perspective.

The authors end their book by saying that war is not a decision to be taken lightly. In the end war is about men and women brutally killing other men, women, and children. But the authors don’t delve into a discussion of alternatives such as diplomacy or a strategy of generosity as embodied in the Marshall Plan in the 1940’s. Rather they make the assumption that our government will at some point take us into war again. Within that framework, they make several recommendations for the future. Some have to do with taking good care of our veterans, and making those benefits an entitlement, as opposed to something that comes up for periodic consideration by our congressmen. They also argue for limiting the use of contractors. Not only do contractors command huge salaries, their primary goal is making money, so they have little concern for the public interest.

Stiglitz and Bilmes also recommend that the costs of any military action, lasting more than one year, should be borne by current taxpayers, through the levying of a war surtax, and that any funding of war – or yearly refunding – should at every turn be linked to strategy. These last two recommendations alone should be enough to compel all of us – average citizens and Congressmen alike – to pay better attention as to what we are doing and why.

Louellyn Lambros