Iraq war costs inspire shock and awe

Iraq war costs inspire shock and awe

By Stephen Fidler in London

Published: March 17 2008 17:18 | Last updated: March 17 2008 20:03

Six months before the start of the US led-invasion, Larry Lindsey, then White House economic adviser, estimated that the war in Iraq could cost as much as $200bn.

The claim, which cost Mr Lindsey his job, was dismissed as baloney by Donald Rumsfeld, the then defence secretary whose own estimate was $50bn to $60bn. Andrew Natsios, head of the Agency for International Development, estimated the reconstruction of Iraq would cost the US $1.7bn (€1.1bn, £849m).

These estimates have proved to be what the war's critics say is just one of many grievous miscalculations. The Iraq war will be five years old on Tuesday, and serious estimates suggest it will be, with the exception of the second world war, the most costly in US history. Two academics estimate the government is spending $12bn a month in Iraq, while the Joint Economic Committee of Congress says the war has so far cost a US family of four $16,900, a bill that could rise to $37,000 by 2017.

The most conservative estimate of the war's cost comes from the nonpartisan Congressional Budget Office, whose remit limits its analysis to US government spending. Up to September 30, the end of the 2007 fiscal year, it says $413bn was spent on Iraq. From then until the end of 2017, it calculates overall spending on Iraq and Afghanistan at $570bn-$1,055bn, depending on how quickly troop numbers are reduced. If three-quarters of the budget is spent on Iraq, the ratio of recent years, future direct budgetary costs would be a further $428bn to $788bn.

Interest payments on debt raised so far and attributable to the Iraq war would cost $290bn up to 2017, with a ­further $131bn to $218bn ­covering spending over the next 10 years. This would bring the US government bill until 2017 for Iraq to $1,300bn-$2,000bn.

The JEC, chaired by Democratic senator Charles Schumer of New York, attempts to add economic costs to the US, including the displacement of productive investment, interest paid to foreigners, and oil price increases, which add a further $700bn so far. Until 2017, assuming US troop numbers in Iraq fall to 55,000 by 2013 and stay at that level, the cost grows to $2,800bn in 2007 dollars.

A higher estimate comes in a new book, The Three Trillion Dollar War, by Joseph Stiglitz, Nobel Prize winning economist, and Linda Bilmes, a Harvard University lecturer who was a senior official during the Clinton presidency in the 1990s.

Stiglitz and Bilmes note more soldiers are surviving than in past wars because of better armour and medical care. Some 4,000 soldiers have been killed but another 60,000 have been airlifted home, wounded, injured, or seriously ill. The ratio of combat injuries to combat deaths was 2.6:1 in Vietnam; in Iraq and Afghanistan it is 7:1 and, including non-combat injuries, it rises to 15:1.

The authors project that 791,000 troops from Iraq and Afghanistan will claim disability compensation and benefits, noting that 39 per cent of the 700,000 troops who fought in the (brief) 1991 Gulf war claim disability. They estimate these costs from Iraq alone will be $371bn to $630bn. The extra costs to the defence budget – they estimate from $66bn to $267bn – come from the need to reset and replenish a military in which equipment has been used up at six to 10 times normal rates and human capital has been exhausted.

Their government spending estimate for the war comes to $1,292bn-$2,039bn, rising to $1,754bn-$2,655bn if interest is added.

To this, Stiglitz and Bilmes add social costs not paid by the government, including the loss of productive capacity of those killed or wounded and quality of life impairments. These, they estimate, would amount to $295bn-$415bn for Iraq and Afghanistan

Finally, they add macro-economic costs deriving from higher oil prices and other effects including the impact on the economy of higher interest costs. For both Iraq and Afghanistan, they calculate this would come to between $187bn and $1,900bn. Yet, these estimates do not cover the cost outside the US (including the £20.1bn of budgetary and social costs they estimate will have fallen to the UK up until 2010).

Ms Bilmes, who says the book leaves others to estimate the war's benefits, describes the book's 'three trillion' headline number as very conservative. She notes that the US federal government spent $108m last year on research into autism, a condition affecting one in 150 children. "We spend that in 4½ hours in Iraq. I'm sure, if they knew that, people would say it was wrong."

Copyright The Financial Times Limited 2008