A Cost-Benefit
Analysis of the Iraq War
By Ahmad Faruqui, PhD
Dansville, CA
The
Bush administration has discovered that defeating
Saddam Hussain’s army was the easy part
of the Iraq War. Stabilizing post-Saddam Iraq
has been much harder. Looking at the future, it
is not clear whether the worst is over or yet
to come. As the last British Lion, Winston Churchill,
famously observed: “The future, though imminent,
is obscure.”
The American people were never told what the Iraq
War would cost, since they were told that America’s
very survival was at stake. As the years have
passed, it has become clear that Saddam never
posed a threat to American security interests.
Americans have begun to question the cost of the
war, in part because it seems to be spiraling
out of control and in part because the war seems
to have unleashed more terrorism, not less.
Economics Professor William Nordhaus of Yale University
prepared one of the first estimates of the cost
of the war in 2002, a year before the American
invasion. His study stimulated a debate on the
merits of the war. Nordhaus suggested the war
and consequent occupation would cost the US anywhere
from $100 billion to $1.9 trillion, depending
on the difficulty of the conflict, the length
of occupation and the impact of the war on the
US economy.
Among the officials of the Bush administration,
White House economic adviser Lawrence Lindsey
was the only one who provided an estimate of the
cost of the war. He offered an “upper bound”
estimate of $100 billion to $200 billion in a
September 2002 interview with The Wall Street
Journal. Lindsey was essentially fired for going
public with such a high assessment, even though
he had argued the cost was small in comparison
to the benefits, saying, “The successful
prosecution of the war would be good for the economy”
because it would lower oil prices.
Just prior to the war, Donald Rumsfeld, the US
Secretary of Defense, told Congress that the war
would cost under $60 billion. He expected that
other countries would pay off the bulk of the
expenditure, like they had done during the Gulf
War of 1991. His deputy, Paul Wolfowitz, told
Congress that Iraqi oil revenues would fund post-war
reconstruction. In other words, it would be a
cakewalk.
In contrast to these rosy scenarios laid out by
Rumsfeld and Wolfowitz, just the direct cost of
the war to US taxpayers to date has been $273
billion. This translates into a spending rate
of $5.75 billion per month or $8 million per hour.
Scott Wallsten and Katrina Kosec, in a study jointly
conducted for the American Enterprise Institute
and the Brookings Institution, have put forward
a new estimate of costs. Through August 2005,
the direct costs amounted to $212 billion. The
authors argue that several costs have been incurred,
including those associated with lives lost, injuries
sustained and productivity losses caused by the
induction of civilians into the military. To value
lives lost in the conflict, they use an estimate
of $6 million for American lives drawn from domestic
studies conducted by US government agencies. They
adjust this figure downwards for coalition countries
and Iraq, to reflect their living standards.
They also estimate the financial benefits of the
war, as represented by the reduction in costs
associated with enforcing UN sanctions and no
fly zones. By subtracting the costs from the benefits,
we can figure out the net gain or loss from the
war. Through August 2005, the total costs of the
war have been $428 billion, of which 60 percent
have accrued to the US, 9 percent to its coalition
partners and 31 percent to Iraq. The benefits
have been $116 billion, yielding a net loss of
$312 billion.
Costs are expected to rise in the future, since
the US has made a long-term commitment to Iraq.
One indicator is the decision to build a $1 billion
complex for the American embassy, housed in 21
buildings and spread over a 104-acre complex.
This will rival Vatican City in size and vastly
exceed the size of the White House complex that
stands on 18 acres. Through the year 2015, the
authors project that total global costs will reach
$1 trillion and benefits will reach $429 billion,
yielding a net global loss of $571 billion.
Building on this study, Columbia University’s
Joseph Stiglitz and Harvard University’s
Linda Bilmes have conducted the most comprehensive
examination of Iraq war costs to the US. Stiglitz
is a world-renowned economist, being a Nobel Prize
winner and former chief economist of the World
Bank.
Stiglitz and Bilmes find that the direct costs
of the war for the US range from $839-1,189 billion.
Indirect costs of the war, including the impact
of higher oil prices on US GDP, range from $187-1,050
billion. Together, they add up to $1,026-2,239
billion.
Of course, these are just the US costs. By estimating
costs for the coalition countries and Iraq using
the Wallsten-Kosec approach, the total global
costs work out to $1,710-3,732 billion. Subtracting
the benefits of $429 billion, we obtain a global
loss of $1,281-$3,303 billion. By anyone’s
yardstick, this is an astronomical sum of money.
There can be no doubt that the American victory
over Iraq was a Pyrrhic one. Opponents of the
war blame these largely unforeseen costs on poor
planning and vision. But even some of the architects
of the invasion have now conceded that point.
In an unusually frank interview with NBC television,
Paul Bremer, America’s second US proconsul
in Iraq, said, “We really didn’t see
the insurgency coming.”
The Iraq War was fought to enhance America’s
national security by winning the hearts and minds
of people living in the Arab world. By using a
blunt military instrument, the Bush administration
failed to accomplish its goal and squandered precious
human and economic resources in the process.
Historians will long debate the costs and benefits
of the war and whether it was in any one’s
interests to pursue it. But in the near term,
it falls on the shoulders of the Bush administration
to fix the mess. In the months to come, the administration
would be well advised to try out peaceful ways
of bringing stability to that war-ravaged nation.
Instead, it seems to be focused yet again on achieving
a military solution. There is talk of a second
round of “shock and awe” tactics to
retake Baghdad. And there is even more disconcerting
talk of opening another front, directed at Iran,
involving tactical nuclear weapons. No wonder
more and more retired US generals are calling
for the resignation of Donald Rumsfeld.
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