Excerpt from Rolling Stone of Stiglitz interview: The True Cost of Iraq

Last year Nobel Prize-winning economist Stiglitz and Harvard budget expert Bilmes estimated the total price tag for Bush’s misadventure in Mesopotamia at $2.267 trillion—a tad higher than the $350 billion to $500 billion so often discussed.

According to Stiglitz, our current thinking on the cost of the war leaves out hidden Pentagon spending, long-term budget obligations—like disability pay for the wounded, the heightened cost of oil and losses sustained by not investing the same money back into our own economy.

Below is an excerpt from a recent Rolling Stone interview with Joseph Stiglitz, and other related links.

Rolling Stone:

What’s wrong with dropping a lot of money on the Iraq war? Didn’t World War II pull America out of the Great Depression?

War is a lousy form of economic stimulus. The bang you get for the buck is very low. If we hadn’t had to fight during the Depression, we would have become a much richer country by investing the money we spent on the war. Think of the Nepalese contractors doing work in Iraq. They spend their money in Iraq or Nepal—not in America.

Because the war drove up oil prices, we are also giving more money to Saudi Arabia, Iran and Venezuela. It follows that we are not investing that money. And instead of spending the money we have left on things that will make us wealthier, we are spending it in ways that have just the opposite effect. I don’t want to reduce this to cold, hard economics, but when you educate young people for 12 to 18 years, you’re investing a lot of money in them. If you then have them killed, maimed and debilitated, you destroy capital.

How did you arrive at the $2-trillion figure?

There were three parts to the calculations that I made with Linda Bilmes, a professor of public finance at Harvard. The first part is based on actual expenditures—the impact on the federal budget. But the budget doesn’t include a lot of expenditures we will be making in the future as a result of the war today, like paying for the health care and disability benefits of all the people who have been injured. These are lifetime expenditures, but they aren’t included in the $600 million a year the Defense Department expects to spend on Iraq. They’re just talking about the hardware of war.

The second part of our calculations estimates future expenditures to replace what we lose in the war. The budget includes spending for new ammunition, but not the wear and tear on weapons systems. Eventually the weapons must be replaced, but the administration doesn’t count that as part of the projected cost of the war.

A third important category is a little more hidden. The defense budget has gone way up, beyond the money earmarked for Iraq. You have to ask why. It’s not like the Cold War has broken out again. We infer that they are hiding a lot of the Iraq expenditures in the defense budget. We only attribute a small fraction of the increase to Iraq, but it would be hard to explain them any other way than the war.

You also examine the cost beyond the impact on the federal budget.

Yes. We look at where the budget underestimates the social cost of the war. Take disability pay. If you’re wounded, the government pays you only 20 percent of what you would have earned if you could work. The disability payment is a budget cost, but the economy misses the salary you would have been making now that you’re not able to do anything.

At least they saved taxpayers money on body armor.

Not really. Rumsfeld made the defense budget a little lower in the short term by not providing the troops with adequate body armor. But the government now has to pay for the care of vets with disabling brain and spine injuries—and society loses what their contribution would have been had they been gainfully employed. It’s a good illustration of how looking at the short-run number leads you to think the war isn’t costing all that much. It’s costing the government more, our society more and our veterans enormously more.

Another example of Rumsfeld’s budgeting is the huge bonuses we’re paying to get soldiers to re-enlist. He wanted to lessen the impact of the war on the military, so he used private contractors, who are more expensive. What he didn’t realize was that he was setting up a competition that has driven up the price of a soldier. If someone who has served his enlistment has a choice of working as a contractor for $100,000 or in the military for $25,000, what’s he going to do? Wages and bonuses had to go up. Maybe that’s a good thing—the regular military was being cheated, in a way. But it’s another cost of the war that isn’t figured into the budget.

Full interview: http://www.rollingstone.com/news/story/12855294/national_affairs_the_2_trillion_dollar_war