Cost of Iraq War – $3 Trillion and Rising

March 28, 2008

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Credit: Timothy Fessier & the Santa Barbara Independent

Like many political science and international studies students, I was first introduced to Nobel Prize winning economist Joseph Stiglitz while discussing globalization. His 2002 book “Globalisation and its Discontents” was the tastiest of textbooks for the aspiring politico and undeclared academic. The critical assessment of globalization Stiglitz put forth cost him a job at the World Bank, but helped stimulate the minds of many who grew up in the midst of the internet and NAFTA.

Now, Stiglitz has struck again. His new book, “The Three Trillion Dollar War”, is an in-depth look at the dollar cost of the Iraq war, and the subsequent consequences (dollar or otherwise) of all the money spent. In an interview given to the Guardian, Stiglitz reveals some shocking conclusions his research uncovered:

money.jpgIn 2005, the Congressional Budget Office estimated the cost of the Iraq war at $500bn. Stiglitz and the book’s co-author, Linda Bilmes, found this number to be surprisingly low. Discrepancies began to unveil themselves. For instance, the listed cost of the 2007 troop surge only accounted for combat troops. No funds were budgeted for the additional support troops needed as well. After years of data mining and number crunching, they’ve found the cost to be between 2 and 3 trillion dollars.

What’s more surprising than an unannounced 3 trillion dollar bill? Stiglitz links the cost of the war to US credit woes, economic recession, dependency on foreign nations, and even the failure of foreign aid in Africa. The war cost has been paid for not by raising taxes, but primarily through borrowed money. This has hidden the true cost of the war from Americans – most of whom have been spending their savings as if they were lottery winnings. We were, as NYT columnist Paul Krugman calls it, “partying like it was 1929”.

Once the lights came back on and the party ended, an economic recession hit. Banks called for a bailout. Problem was, the US didn’t have the money to bail out everyone. Many bailouts are being financed not by the US, but by countries in the Middle East and Asia. Other nations rescued Citibank and Meryl Lynch when they called for help. These companies now depend – as does our economy – on forces other than our own.

Outside of the actual cost, even the war itself has had economic effects. The instability in the Iraq region has sent oil prices souring to new heights. At the start of the war, oil was $25 a barrel. Now it’s over $100. Developing nations are feeling these price hikes like never before. African nations have been amongst the more dire strugglers. Stiglitz estimates that years of foreign aid have been virtually erased simply due to high oil prices.

This is just the tip of the iceberg.

The amount spent on the war so far could have paid for 8 million housing units, 15 million public school teachers, health care for 530 million children for a year, or collage scholarships for 43 million students. Three trillion could have fixed America’s social security problem for half a century. America, says Stiglitz, is currently spending $5bn a year in Africa, and worrying about being outflanked by China there: “Five billion is roughly 10 days’ fighting, so you get a new metric of thinking about everything.”

It appears it is our economy – and not the terrorists – that now sit in the cross hairs.

In figures:

  • $16bn
    The amount the US spends on the monthly running costs of the wars in Iraq and Afghanistan – on top of regular defense spending
  • $138
    The amount paid by every US household every month towards the current operating costs of the war
  • $19.3bn
    The amount Halliburton has received in single-source contracts for work in Iraq
  • $25bn
    The annual cost to the US of the rising price of oil, itself a consequence of the war
  • $3 trillion
    A conservative estimate of the true cost – to America alone – of Bush’s Iraq adventure. The rest of the world, including Britain, will shoulder about the same amount again
  • $5bn
    Cost of 10 days’ fighting in Iraq
  • $1 trillion
    The interest America will have paid by 2017 on the money borrowed to finance the war
  • 3%
    The average drop in income of 13 African countries – a direct result of the rise in oil prices. This drop has more than offset the recent increase in foreign aid to Africa

(Figures and other quotes heisted from the Guardian; read the full article here)

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8 Responses to “Cost of Iraq War – $3 Trillion and Rising”

  1. Jean-Paul Larcheveque said

    It’s an interesting article, but I have a hard time believing that the Iraq war is to be blamed for the current liquidity crisis. In my humble opinion I blame lax lending practices in the US, and the absence of regulation and oversight when it came to re-packaging the loans. Even if the subprime problem is rather small considering the size of our economy, the problem shook wall street and eroded confidence which led us to a liquidity crisis. It is not the cost of the Iraq war that is to blame, but the re-packaging of risk in CDOs, MBS and the like that are then sold to SIV and other alphabet soup acronyms.

    Also you say that Citi and merrill lynch received some sovereign fund as if it were a bad thing. Sovereign wealth fund are smart investors, and like many other investors they invest less than 10% in the companies so as to avoid severe SEC reviews. Considering that less than 10% is by no way a controlling stake in the company, there is nothing to fear. Also should it be the role of the US government to bail out private banks?

    I do agree with you that the Iraq war is a bad thing for the economy, and the dammages are and will be felt in the future. But at the moment if the US had really wanted to bail out Citi and the like they could have kept on borrowing to do it. They are helping JP to rescue BSC at the moment…
    For the oil prices going up because of the Iraq war you are probably right; if you mind me asking, what is the link between the Iraq war and the price of oil? Is the reason just because of instability in the middle east?

  2. Nicholas said

    Hi Jean-Paul
    Thanks for the insightful comment. Full Disclosure – I haven’t had a chance to read Stiglitz’s book yet. Although having me evaluate his research is a gross offense at best, you did ask……

    I tend to agree that the Iraq was is not the sole cause of the US mortgage crisis. I see the banking issues stemming from an environment of deregulation under the administration – an umbrella that the Iraq war and its spending budget also fit under.

    Foreign investment in our firms can create some risk. I’d point to the near-sale of our East coast port systems to Dubai that rattled US security analysts a year or two ago. Having a foreign bail-out can be bad on a financial level too. Should a company create stock to sell to a foreign power, the stock value is deluted on those already invested. It’s inflation on a corporate level.

    As for Iraq and oil – regional destability as a reason was the only thing I found in the interview. Although I have a feeling the supply has experienced some erosion as well.

  3. MC said

    More here:
    http://acropolisreview.com/2008/03/three-trillion-dollar-iraq-war-stiglitz.html

    Hi MC, Good book review. The comparison you made to the mis-budgeting of the Katrina clean-up is especially potent......thanks!

    -Nicholas | Smart Sense

  4. courtney said

    Loved your article, especially the info at the end. It’s a real eye opener. I hope to read Stiglitz’s book sometime soon, it sounds interesting.

    Hi Courtney, Thanks for the comments! I agree, the numbers at the end really help to put Stiglitz’s work into something concrete. Hope you enjoy the blog!

    -Nicholas | Smart Sense

  5. courtney said

    I did indeed enjoy your blog. I recently started blogging myself for a class, and i posted an argument on the iraq war dealing with cost. Ive been responding to people trying to lure them back to my blog, but unfortunately no luck. I’d appreciate it if you took a look at it and tell me what you think (i could use the criticism, or at least the opinion of someone else). thanks!

  6. This war is the second expensive for U.S. after the World War II. Here I’ve tried to summarize all costs of the Iraq war for Americans:

    http://www.myhowtoos.com/en/red-hot/86-all-costs-of-war-in-iraq-for-usa

  7. […] aclarando que no soy yo que dice que la guerra de Irak fue una ruina para sino economistas como Stiglitz. Sigue a Martin Varsavsky en Twitter: […]

  8. […] aclarando que no soy yo que dice que la guerra de Irak fue una ruina para sino economistas como Stiglitz.  No conozco economista que crea que la guerra de Irak no fue un desastre para la economía de USA […]

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