Cost of Iraq War - The $3 Trillion Fantasy

It is amazing how smart economists take political sides in order to misinform.

Joseph Stiglitz was a economist with the NEC during the Clinton years and won the Nobel Memorial Prize in Economics in 2001.

He has published a book and testified in front of a congressional committee about the cost of war in Iraq. He asserts that the war costs $3 Trillion dollars.

Here is a critique from a NYTimes story:

'Another study of Iraq war costs, by Linda J. Bilmes of Harvard and Joseph E. Stiglitz of Columbia, comes up with an eye-catching estimate of $2.2 trillion, assuming the United States is no longer in Iraq in 2015. This is arguably too high for several reasons. First, it counts future interest payments on the debt created by military spending as well as the direct expenditures. (This is analogous to counting both the sale price of a house and the cost of future mortgage payments as the cost of buying the house.)

Second, it counts elevated military recruitment costs that incorporate a premium for higher risk of death or injury because of the war as well as the predicted direct cost of the deaths and injuries; this is double counting if the risk premium is adequate. Finally, it ascribes a big increase in the price of oil to the war, and, as a result, a loss to the American economy of almost half a trillion dollars.

A menu of cost estimates is thus available, depending on the counterfactual situation that one chooses.

"The question of whether the war was worth it hinges not on budget costs or economic costs," said Douglas Holtz-Eakin, who until recently was director of the Congressional Budget Office, "but on what do we gain in the way of genuine security and international standing." The costs, he said, were manageable.'

Here is a NBER research paper from Kevin Murphy of the University of Chicago and his fellow economists:

' We consider three questions related to the choice between war in Iraq and a continuation of the pre-war containment policy. First, in terms of military resources, casualties and expenditures for humanitarian assistance and reconstruction, is war more or less costly for the United States than containment? Second, compared to war and forcible regime change, would a continuation of the containment policy have saved Iraqi lives? Third, is war likely to bring about an improvement or deterioration in the economic well-being of Iraqis? We address these questions from an ex ante perspective as of early 2003. According to our analysis, pre-invasion views about the likely course of the Iraq intervention imply present value costs for the United States in the range of $100 to $870 billion. Our estimated present value cost for the containment policy is nearly $300 billion and ranges upward to $700 billion when we account for several risks stressed by national security analysts. Our analysis also indicates that war and forcible regime change will yield large improvements in the economic well-being of most Iraqis relative to their prospects under the containment policy, and that the Iraqi death toll would likely be greater under containment.'