The Cost Of Conflict

Before America invaded Iraq, officials in the Bush administration estimated that the war might cost tens, at most hundreds, of billions of dollars. Nobel Prize-winning economist Joseph E. Stiglitz and Linda J. Bilmes of Harvard's Kennedy School lay out very different figures in their new book, "The Three Trillion Dollar War: The True Cost of the Iraq Conflict." In it, they tally data on everything from troop pay to equipment to veteran's entitlements to larger social and economic costs, and examine how mismanagement, opaque accounting, and the privatization of conflict have resulted in a megabill that Americans could be paying back for the next half-century. Stiglitz recently spoke with NEWSWEEK's Rana Foroohar. Excerpts:

NEWSWEEK: How much is $3 trillion over the course of 50 years? What else could the U.S. have done with that money?
Stiglitz: You can look at it and say, "This is a small percentage of a rich economy," or you can look at things like the proposed children's health-insurance program that was recently vetoed as too expensive—that can be measured in the cost of days of fighting in Iraq. Funding for a major autism research effort is equal to hours of fighting. Bush has said there's a "giant hole" in our Social Security program, but for one sixth the cost of the war in Iraq, we could have fixed Social Security for the next 50 to 75 years.

Why are your numbers so much higher, not only than what the administration came up with, but than your own initial 2006 estimates of $1 trillion to $2 trillion?
The war has gone worse than people thought it would, and it has gone on for much longer. Things like the cost of recruitment have gone up because the war has gone so badly. There's more use of private contractors—there are security guards that get $1,000 per day, and we also pay for the insurance on these people. There are also ambiguities in accounting. For example, if the first tank in a convoy is blown up, that counts as a military loss, but if the second one crashes into the first, it's called something else, and doesn't get tallied in the defense budget. But taxpayers still foot the bill.

How expensive is the war from a historical perspective?
Iraq is now America's most expensive conflict since World War II. The cost to keep a soldier in Iraq for one year is about $400,000, versus $50,000 in inflation adjusted terms for WWII. This is due in part to the fact that the ratio of injuries to fatalities has grown from 2 to 1, to 15 to 1. It's a miracle of modern medicine. But there is a cost to that. The last of the payments of veteran's benefits from WWII has only just ended (and those payments peaked only in 1993). This war has created a huge, unfunded entitlement for veterans—they've worked for it, but it's unfunded. Already, 260,000 veterans from Iraq and Afghanistan have been treated in VA hospitals. That's crowding out other veterans. At the same time, life-saving equipment like MRAP armored vehicles that Marines asked for in early 2005 didn't get ordered until after Rumsfeld left—I believe this was because the government was trying to keep down the most obvious costs of the war.

What are the macroeconomic costs of Iraq for the U.S.?
We looked at things like the increase in the price of oil, the increased deficit, interest on debt, the diversion of resources from other investments. Given all these things, you'd actually think the economy would be in worse shape than it is now. So, why isn't it? Our explanation is that loose monetary policy and lax financial regulation covered up the problem; $900 billion worth of mortgage equity withdrawals per year helped finance all this. But it was only a matter of time before the day of reckoning came—and now it has. We didn't pay [for the war] up front; now we're going to pay a higher price because of macroeconomic turmoil.

What will the key global economic fallout be?
Oil prices were $25 before the war. They are $100 now. That shift moves wealth away from the U.S. and towards places like, say, Abu Dhabi. So, it's no surprise that when we have financial problems in this country we have to turn to sovereign wealth funds to bail us out. That's a predictable consequence of this war.