Galloping All-round Costs of the Iraq War

The following article was written on the fifth anniversary of the US invasion of Iraq (known as Bushfire II) that began on March 20, 2003.

Karl Marx once remarked: “War in direct economic terms is just the same as if a nation cast part of its capital into water.” After many decades, once again, the validity of this statement has been underlined by the invasion and occupation of Iraq by the US-led coalition. A period of more than five years has elapsed, yet there is no sign of freedom, democracy and prosperity as promised to the Iraqi people. In fact, the invasion and continued occupation has brought enormous devastation of this ancient country; nor has it done any good even to the people of America and its coalition partners. This has been analysed at length in a recently published book, The Three Trillion Dollar War, by Joseph Stiglitz and Linda Bilmes.

No way can this book be ignored by terming it as mere propaganda. Among its authors is Joseph Stiglitz, a Nobel Laureate in Economics, who once headed the team of economic advisers to President Clinton and then became the Chief Economist at the World Bank. His books have been widely read and discussed all over the world. Linda Bilmes teaches at the Harvard University and was once a high ranking official in the Clinton Administration looking after financial and commercial affairs.

At the time of the American invasion of Iraq, the Bush Administration gave out that its aim was to liberate the Iraqi people from the clutches of Saddam Hussein, giving them freedom and democracy and putting them onto the path of happiness and prosperity and that this mission would cost just $ 50-$ 60 billion. Lawrence B. Lindsey, the then Economic Adviser to Bush, dared challenge this figure as an underestimation and he was thrown out of his job. He had predicted that the cost might be somewhere between $ 100 and $ 200 billion. To quote Lindsey, “My hypothetical estimate got the annual cost about right. But I misjudged an important factor: how long we would be involved?” Five years after his ouster, he believes that “one of the reasons the Administration’s efforts are so unpopular is that they chose not to engage in an open public discussion of what the consequences might be, including the economic cost”.

Just two months after the invasion, the Carnegie Endowment for International Peace came out with its Policy Brief (no. 24, May 2003), “Lessons from the Past: The American Record on Nation Building”. The very opening paragraph said:

The real test for the success of the US pre-emptive war against the regime of Saddam Hussein is whether or not Iraq can now be rebuilt after the war. Few national undertakings are as complex, costly, and time consuming as reconstructing the governing institutions of foreign societies. Even a combination of unsurpassed military power and abundant wealth does not guarantee success, let alone quick results. Historically, nation-building attempts by outside powers are notably mainly for their bitter disappointments, not their triumphs.

The authors of the Policy Brief—Minxin Pei and Sara Kasper—pointed out that the United States, till then, had used its armed forces in foreign lands on more than 200 occasions and its nation-building record had been utterly dismal. What they said has proved to be prophetic:

The internal characteristics of Iraqi society will severely test Washington’s resolve, skill, and patience in pursuing its declared goal of political transformation. With a population of 24 million, Iraq is larger than any of the Latin American countries where the United States has attempted nation building.

With its deep ethnic divisions, the internal situation would be too complicated for the Americans to deal with. “Outside efforts to bridge such ethnic and religious divisions through reconciliation have a poor track record—as has been demonstrated in the former Yugoslavia.” It would be extremely difficult “to align US strategic interests with those of the Iraqi elite and public”.

Warning the hawks in the Bush Administration, the authors said:
They should reconsider their position in light of the sobering lessons from American nation building during the past century. Aside from an overall low rate of success, such unilateral undertakings have led to the creation and maintenance surrogate regimes that have eventually mutated into military dictatorships and corrupt autocracies. Repeating these mistakes in Iraq, especially after President Bush’s declaration of American resolve to build democracy there, would be a tragedy for the Iraqi people and a travesty of American democratic ideals.

STIGLITZ and Bilmes have come out with a mass of data in their three hundred and odd page book, underlining that Pei and Kasper were perfectly right and Bush and his team completely wrong in going ahead with their criminal act of invading and devastating Iraq. In the process, they have harmed the very American people that entrusted them with the reins of the state. Stiglitz and Bilmes correctly assert:

By now it is clear that the US invasion of Iraq was a terrible mistake. Nearly 4000 US troops have been killed, and more than 58,000 have been wounded, injured, or fallen seriously ill… One hundred thousand US soldiers have returned from the war suffering from mental health disorders, a significant fraction of which will be chronic afflictions. Miserable though Saddam Hussein’s regime was, life is actually worse for the Iraqi people now. The country’s roads, schools, hospitals, homes, and museums have been destroyed and its citizens have less access to electricity and water than before the war. Sectarian violence is rife. Iraq’s chaos has made the country a magnet for terrorists of all stripes. The notion that invading Iraq would bring democracy and catalyse change in the Middle East now seems like a fantasy. When the full price of the war has been paid, trillions of dollars will have been added to our national debt. Invading Iraq has also driven up oil prices. In these and other ways, the war has weakened our economy.

Till now, America has spent $ 600 billion on Iraq war. Stiglitz and Bilmes have calculated, after taking into account both direct and indirect, open and hidden expenses and assuming that the war is going to last a bit longer, that it will cost $ 3 trillion or, maybe, $ 4 trillion. Countering the argument that this is a very small sum for the largest economy in the world, they say:
The issue is not whether America can afford three trillion dollars. With a typical American household income in 2006 just short of $ 70,000, we have far more than we need to get by. Even if we threw 10 per cent of that away, we would still be no worse off than we were in 1995—when we were a prosperous and well-off country. There is no risk that a trillion dollars or two or three will bankrupt the country. The relevant question is a rather different one: What could we have done with a trillion dollars or two or three? What have we had to sacrifice? What is, to use the economists’ jargon, the opportunity cost?

The opportunity cost of the Iraq war has been enormous. With the money being spent on the Iraq war, America could have easily solved its social security problem at least for the next half a century. With one trillion dollars, it could have constructed as many as eight million new dwelling units, employed 13 million more school teachers, provided elementary education to 120 million kids or health insurance to 530 million children for one year or granted scholarships to 43 million students for four years. Multiply these figures by three and you get the opportunity cost of $ 3 trillion to be gobbled up by the Iraq war. In a recent article in The Guardian (April 6), Stiglitz and Bilmes, while refuting Bush’s claim that the $ 3 trillion dollar estimate of the total cost may be exaggerated, assert that it is “in fact, conservative. Even the President would have to admit that the $ 50 to $ 60 billion estimate given by the Administration before the war was wildly off the mark; there is little reason to have confidence in their arithmetic. They admit to a cost so far of $ 600 billion.”

Explaining why their estimates are different, they state:

Our numbers differ from theirs for three reasons: first, we are estimating the total cost of the war, under alternative conservative scenarios, derived from the Defence Department and Congressional Budget Office. We are not looking at McCain’s 100-year scenario—we assume that we are there, in the diminished strength, only through to 2017. But neither are we looking at a scenario that sees our troops pulled out within six months. With operational spending going on at $ 12 billion a month, and with every year costing more than the last, it is easy to come to a total operational cost that is double the $ 600 billion already spent.

Second, we include war expenditures hidden elsewhere in the budget, and budgetary expenditures that we would have to incur in the future even if we left tomorrow. Most important of these are future costs of caring for the 40 per cent of returning veterans that are likely to suffer from disabilities (in excess of $ 600 billion; second world war veterans’ costs didn’t peak until 1993), and restoring the military to its prewar strength. If you include interest, and interest on the interest—with all of the war debt financed—the budgetary costs quickly mount.

Finally, our $ 3 trillion dollars estimate also includes costs to the economy that go beyond the budget, for instance, the cost of caring for the huge number of returning disabled veterans that go beyond the costs borne by the federal government—in one out of five families with a serious disability, someone has to give up a job. The macro-economic costs are even larger. Almost every expert we have talked to agrees that the war has had something to do with the rise in the price of oil; it was not just an accident that oil prices began to soar at the same time as the war began.

THE Iraq war has adversely impacted not only the two sides involved in it but also the world at large, especially the developing nations. As a result of the war, while the demand for oil has increased, its supply has declined as the production in Iraq has declined. At the time of the invasion of Iraq, oil was selling $ 25 a barrel but now it can be had for around $ 100 a barrel. In the years to come, it may go up to $ 125 a barrel. The increasing price of oil has strengthened inflationary pressures around the world. Besides, the production of ethanol and other bio-fuels is being undertaken by diverting corn, sugarcane, soybeans and other crops to it. This, in turn, contributes to the worldwide growing shortage of food grains and pushes up the prices. The higher oil prices have inflicted a direct cost to the world economy to the tune of roughly $ 1.1 trillion.

Since the beginning of the Iraq war, America’s national debt has gone up by $ 2.5 trillion, out of which $1 trillion has been due to the Iraq war. Bush, after coming to power, reduced the tax liabilities of the upper income group people. It means the burden of meeting the war expenditures has fallen more on the people at large. By 2017, it is estimated that the national debt will increase by $ 2 trillion.

There are other adverse consequences that defy quantification. For example, the morale of the troops is very low, there is a shortage of wherewithal and there is a nationwide discontent because of insufficient attention to the wounded soldiers. So far as the Iraqis are concerned, more than a million people have perished. There is no law and order worth the name. Anarchy reins supreme. As many as 45 per cent of the families in Baghdad have lost their one or more members. There is a large-scale displacement of the population. To quote Stiglitz and Bilmes,
In human terms, it is the loss of life and the destruction of Iraqi society that is the most egregious…

For most Iraqis, daily life has become unbearable—to the point that those who can afford to leave their country have done so. By September 2007, a stunning 4.6 million people—one of every seven Iraqis—had been uprooted from their homes. This is the largest migration of people in the Middle East since the creation of Israel in 1948.

As many as 2.4 million Iraqis have migrated to foreign lands, especially Syria and Jordan, and they too are feeling the strain. In all 20 per cent of the pre-war population is displaced. Those who are left behind have neither drinking water nor electricity. Schools and colleges do not function because most of the teachers have either fled or been killed. Hospitals suffer from lack of beds, doctors, nursing staff and medicines.

Iraq’s museums have been looted and historical treasures have been taken away. Valuable manuscripts have been lost, stolen or destroyed. Christopher Hitchens says of Baghdad: “This is one of the greatest centres of learning and culture in history. It was here that some of the lost works of Aristotle and other Greeks… were preserved, retranslated, and transmitted via Andalusia back to the the ignorant ‘Christian’ West.” Naomi Klein, in her “The Shock Doctrine”, has given the details of the plunder and has also narrated how Iraqi economy has been destroyed to make it pasture for the MNCs.

The author, a well-known economist, used to teach Economics in Kirorimal College, University of Delhi before his retirement a few years ago. He can be contacted at: gmishra@girishmishra.com