The true cost of the Iraq war by Nick Ferguson

The true cost of the Iraq war
By Nick Ferguson | 14 April 2008
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http://www.financeasia.com/article.aspx?CIID=107831

We review The Three Trillion Dollar War: The True Cost of the Iraq Conflict by Joseph E Stiglitz and Linda J Bilmes.
History will not be kind to President George W Bush and the architects of the Iraq war. It is hard to know what they really hoped to achieve, but by any reasonable measure they have failed spectacularly so far – and at an extraordinary cost.

According to a conservative estimate by economist Joseph Stiglitz and public policy expert Linda Bilmes, US taxpayers are facing a bill of about $3 trillion for the war, which they have not yet even started to pay back thanks to the Bush tax cut and the IOUs written to fund the escapade.

In totting up the headline number, Stiglitz and Bilmes focus only on the budgetary costs: the military operation so far and an estimate of future operations; taking care of injured and disabled veterans; other costs such as restoring the military to its pre-war strength, demobilising the troops and the hidden costs implied by the huge rise in defence spending during the past six years; plus budgetary spill-over to other government departments such as social security.

Three trillion dollars is a staggering amount of money, especially when compared to early estimates of the cost of the war – which assumed that it would practically pay for itself through oil revenues and the sale of state assets to private bidders. Larry Lindsey, Bush’s former economic adviser and head of the National Economic Council, argued that the war would be good for the economy.

Stiglitz and Bilmes show how he could hardly have been more wrong. The hike in the oil price alone could cost the US economy more than $3 trillion, even assuming that the war has contributed to less than half the rise. Worse, the cash spent in Iraq is not just money down the drain. It has crowded out other investments that would have added to America’s economic growth – the US has waged its war in Iraq during a period that should have yielded a powerful bull market, according to Robert Wescott, an independent economist. He reckons that the US stockmarket is worth $4 trillion less than it should be based on past performance.

Worse still, argue the authors, the war has achieved so little. As troops searched in vain for weapons of mass destruction in the Iraqi desert, North Korea developed a much more worrying capability. Saddam Hussein is dead, but the focus on Iraq has over-extended the military, leaving Osama bin Laden and the real masterminds behind the attacks of September 11, 2001, to roam free. Far from liberating Iraq, the war has turned a secular Muslim country with no ties to international terrorism into a breeding ground for Islamic extremists and terrorists. At the same time, the ballooning cost of oil has bolstered dictators in the oil-exporting countries and hurt America’s allies.

So much of the literature that covers this conflict is the kind of polemic that rarely changes anyone’s mind, but one of the most powerful sections of this book deals with how the failure to plan properly for the war has affected injured and disabled veterans. There are many facts here that supporters of the war – self-styled patriots – will find difficult to read.

In weighing all of these costs – not just those that can be tallied on a ledger – Stiglitz and Bilmes deliver a sober yet devastating critique of the Iraq war.

This review first appeared in the April issue of FinanceAsia magazine.