[WCUSP] Cost of the War/ New York Yimes

[Odile Hugonot Haber]

What $1.2 Trillion Can Buy
By DAVID LEONHARDT
NY Times: January 17, 2007

The human mind isn't very well equipped to make sense of a figure
like $1.2 trillion. We don't deal with a trillion of anything in our daily
lives, and so when we come across such a big number, it is hard to
distinguish it from any other big number. Millions, billions, a
trillion — they all start to sound the same.

The way to come to grips with $1.2 trillion is to forget about the
number itself and think instead about what you could buy with the
money. When you do that, a trillion stops sounding anything like
millions or billions.

For starters, $1.2 trillion would pay for an unprecedented public
health campaign — a doubling of cancer research funding, treatment
for every American whose diabetes or heart disease is now going
unmanaged and a global immunization campaign to save millions
of children's lives.

Combined, the cost of running those programs for a decade wouldn't
use up even half our money pot. So we could then turn to poverty
and education, starting with universal preschool for every 3- and
4-year-old child across the country. The city of New Orleans could
also receive a huge increase in reconstruction funds.

The final big chunk of the money could go to national security. The
recommendations of the 9/11 Commission that have not been put in
place— better baggage and cargo screening, stronger measures
against nuclear proliferation — could be enacted. Financing for the
war in Afghanistan could be increased to beat back the Taliban's
recent gains, and a peacekeeping force could put a stop to the
genocide in Darfur.

All that would be one way to spend $1.2 trillion. Here would be
another:

The war in Iraq.

In the days before the war almost five years ago, the Pentagon
estimated that it would cost about $50 billion. Democratic staff
members in Congress largely agreed. Lawrence Lindsey, a White
House economic adviser, was a bit more realistic, predicting that the
cost could go as high as $200 billion, but President Bush fired him in
part for saying so.

These estimates probably would have turned out to be too optimistic
even if the war had gone well. Throughout history, people have
typically underestimated the cost of war, as William Nordhaus, a Yale
economist, has pointed out.

But the deteriorating situation in Iraq has caused the initial
predictions to be off the mark by a scale that is difficult to fathom.
The operation itself — the helicopters, the tanks, the fuel needed to
run them, the combat pay for enlisted troops, the salaries of
reservists and contractors, the rebuilding of Iraq — is costing more
than $300 million a day, estimates Scott Wallsten, an economist in
Washington.

That translates into a couple of billion dollars a week and, over the
full course of the war, an eventual total of $700 billion in direct
spending.

The two best-known analyses of the war's costs agree on this figure,
but they diverge from there. Linda Bilmes, at the Kennedy School of
Government at Harvard, and Joseph Stiglitz, a Nobel laureate and former
Clinton administration adviser, put a total price tag of more than $2
trillion on the war. They include a number of indirect costs, like the
economic stimulus that the war funds would have provided if they had
been spent in this country.

Mr. Wallsten, who worked with Katrina Kosec, another economist, argues
for a figure closer to $1 trillion in today's dollars. My own estimate
falls on the conservative side, largely because it focuses
on the actual money that Americans would have been able to spend
 in the absence of a war. I didn't even attempt to put a monetary
value on the more than 3,000 American deaths in the war.

Besides the direct military spending, I'm including the gas tax that
the war has effectively imposed on American families (to the benefit
of oil-producing countries like Iran, Russia and Saudi Arabia). At the
start of 2003, a barrel of oil was selling for $30. Since then, the
average price has been about $50. Attributing even $5 of this
difference to the conflict adds another $150 billion to the war's
price tag, Ms. Bilmes and Mr. Stiglitz say.

The war has also guaranteed some big future expenses. Replacing the
hardware used in Iraq and otherwise getting the United States military
back into its prewar fighting shape could cost $100 billion. And if
this war's veterans receive disability payments and medical care at
the same rate as veterans of the first gulf war, their health costs will
add up to $250 billion. If the disability rate matches Vietnam's, the
number climbs higher. Either way, Ms. Bilmes says, "It's like a
miniature Medicare."

In economic terms, you can think of these medical costs as the
difference between how productive the soldiers would have been as, say,
computer programmers or firefighters and how productive they will be as
wounded veterans. In human terms, you can think of soldiers like Jason
Poole, a young corporal profiled in The New York Times last year.
Before the war, he had planned to be a teacher. After being hit by a
roadside bomb in 2004, he spent hundreds of hours learning to walk and
talk again, and he now splits his time between a community college and
a hospital in Northern California.

Whatever number you use for the war's total cost, it will tower over
costs that normally seem prohibitive. Right now, including everything,
the war is costing about $200 billion a year.

Treating heart disease and diabetes, by contrast, would probably cost
about $50 billion a year. The remaining 9/11 Commission
recommendations— held up in Congress partly because of their cost
— might cost somewhat less. Universal preschool would be $35 billion.
In Afghanistan, $10 billion could make a real difference. At the
National
Cancer Institute, annual budget is about $6 billion.

"This war has skewed our thinking about resources," said Mr. Wallsten,
a senior fellow at the Progress and Freedom Foundation, a
conservative-leaning research group. "In the context of the war, $20
billion is nothing."

As it happens, $20 billion is not a bad ballpark estimate for the added
cost of Mr. Bush's planned surge in troops. By itself, of course, that
price tag doesn't mean the surge is a bad idea. If it offers the best
chance to stabilize Iraq, then it may well be the right option.

But the standard shouldn't simply be whether a surge is better than the
most popular alternative — a far-less-expensive political strategy that
includes getting tough with the Iraqi government. The standard should
be whether the surge would be better than the political strategy plus
whatever else might be accomplished with the $20 billion.

This time, it would be nice to have that discussion before the troops
reach Iraq.


More on the Economics of the Iraq War (full links at
http://www.nytimes.com/2007/01/17/business/17leonhardt.html):

The analysis by Scott Wallsten and Katrina Kosec is available here.
Since it was published, they have increased some of their cost
estimates.

The analysis by Linda Bilmes and Joseph Stiglitz appeared in the
Milken Institute Review and is available here.

Likewise, some of their cost estimates — like those covering health
care and disability payments for veterans — have risen since the
article appeared.

At the outset of the war, William Nordhaus, an economist at Yale, wrote
an essay examining why countries typically underestimate the cost of
wars.

    * The 9/11 Commission
    * "War With Iraq: Costs, Consequences, and Alternatives" (pdf)
    * Scott Wallsten's Web Site
    * Linda Bilmes's Web Site
    * Joseph Stiglitz's Web Site
    * Article From "The Milken Institute Review" by Bilmes and Stiglitz
(pdf)
    * "Soldiers Returning from Iraq and Afghanistan: The Long-term
Costs of Providing Veterans Medical Care and Disability Benefits" by
Linda Bilmes
    * "Struggling Back From War's Once-Deadly Wounds" (Jan. 22, 2006)
    * The Nation's Investment in Cancer Research

Multimedia
Putting the Annual Cost of War in Perspective