Wednesday, September 01, 2010

How much did the Iraq war cost?

Before I get going, remember my last post about all the negative news? Well, I was correct: August 22nd was the near term swing low in the market, and materials have outperformed, up over 6%. See, even a blind squirrel finds a nut once in a while. Never underestimate the power of negative sentiment.

Iraq War, what did it cost?

Past tense? Well, it's still going on despite the recent milestone announced by President Obama. Regardless, Christopher has broached this topic in his recent blog post about Obama's speech. Chris noted that the president said that the Iraq War had "contributed" to the current debt, but how much and how are those numbers conjured?

Low estimate by American Thinker: $709 billion

High estimate by Joseph Stiglitz: $3 trillion

My take: First, I'll throw out a term that I'll discuss later: economic utility. Now, back to the discussion.

1. American Thinker looks at the CBO bottom line for upfront military costs from a couple years ago and says "The Iraq War cost $709 billion." Period. Paragraph. End of discussion. Well, let's pretend just for a minute that it's more nuanced than Mr. Thinker thinks.

2. Stiglitz considered that the entire cost was borrowed. I don't have his numbers, but I'll use American Thinker's low ball figures for argument's sake. $709 billion amortized over 20 years (conservative estimate) at 5% (average 30-yr T-bill rate), the total cost for just the upfront military expenditures with interest would be $1.12 trillion. Likely, the costs will not be paid off in 20 years, so consider this a conservative estimate.

3. Stiglitz wrote an entire book (which I didn't read, although I have read several articles he has written) on the subject and his arithmetic considered not only the upfront military costs plus interest, but also the expense of caring for wounded and brain injured soldiers, the death benefits paid to families, and the economic costs to families and our society as a whole. Since soldiers today are more educated and better trained, the replacement cost is greater.

4. Some of Stiglitz' numbers in his various article include Afghanistan, so be careful when interpreting his premises, but his bottom line is $3 trillion.

5. Of course, the military adventure is ongoing and estimates published today are that another $274 billion to $588 billion (borrowed at 5% over 20-30 years) will be needed in upfront military costs. You can add the VA expenditures, and amortize those too if you please.

6. These estimates do not include several other tangible items such as the cost of re-building Iraq's infrastructure that was not destroyed directly by military action.

7. I'll throw out a few intangible factors as well: How much did the Iraq war divert us from Afghanistan, thus making that war more prolonged and costly? How much did the Iraq war dissuade our allies from helping us militarily, diplomatically and financially in Afghanistan and elsewhere in the GWOT? (Remember Gulf war I was paid for) How much did the Iraq war aid al Qaeda in recruiting new members, thus making the GWOT more difficult and costly? How much did Iraq's instability benefit Iran, it's Shia neighbor, and how much will that cost us?

8. Also to be considered but not on any balance sheet: the costs of the loss of 100K Iraqi civilians, the 500,000 refugees who are in other countries, the loss of goodwill from our allies and Iraqis, the cost imparted in the future by the lack of confidence our allies will have in us for the next war. We should add that Iraq is producing oil and stands to increase that production yearly, of course it's still below the pre-War Saddam Hussein production. To be fair, there is likely a benefit to having an Iraqi style democracy, but that's very intangible, bordering on specious.

So, when Obama says that the Iraq war contributed to our national debt, I'll accept it. By my tally, the American Thinker is way off and Stiglitz is pretty close-- merely on the upfront military costs amortized over a couple decades, not even including the other expenses.

Iraq war versus Obamacare

Another growing theme among the right-wing is that "Obamacare cost more than the Iraq war", so as silly as this topic may be, I'll address it briefly.

This is where utility comes in. Obama's health care reform adds some utility since it pays for health care that is currently unfunded and citizens will benefit. By requiring workers to purchase coverage, this ensures that nearly nobody will arrive at the emergency room without a way to pay for their care. Ideally they will avoid the expensive ER altogether since they can go to a physician's office, which at present they cannot or will not do.

The cost-- which, unlike the Iraq war, is not borrowed-- will in effect cover 32 million people who currently are uncovered, and the cost to taxpayers will be pretty close to what their care costs now through uncovered emergency visits. Plus, it adds an element of personal responsibility, not to mention a healthier citizenry.

Also, the health care reform package has funding for medical education, new technologies and free standing clinics, which will benefit everyone.

While the health care reform is clearly suboptimal as it is written, it adds a large chunk of utility by just covering uninsured folks. Then there is the value added benefit of providing educational funds for more doctors (which the US sorely needs), clinics and nurses.

I would argue that not only does the Iraq war add no utility, it actually provide negative utility since we have to pay more to make up for all problems it has created. Of course, neoconservatives will scream that we are "safer" because Saddam is gone,and there cannot be a price put on safety. To that I say, pffft.

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