Are Iraq war costs spinning out of control?

The tab is $423 billion and rising, prompting economists to reassess US military and homeland security costs.

from the May 7, 2007 edition

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Professors Bilmes and Stiglitz put the long-term budgetary costs, assuming the US maintains a small presence in Iraq through 2016, in the $1.4 trillion range. If all troops are home by 2010, the Iraq operations would cost $1 trillion.

These numbers include veterans' healthcare and disability compensation. In addition, there are demobilization costs. And the military will have to replace or refurbish much worn-out equipment. For instance, the Army's tanks were not built for sandy desert conditions and deteriorate rapidly in Iraq.

On top of budgetary costs, Bilmes and Stiglitz (a top economic adviser to President Clinton) add costs borne by individuals and families, or by nonfederal government agencies. These, for instance, involve the loss of productive capacity of American soldiers and contractors killed or seriously wounded in Iraq – an amount put at $16.9 billion. Economists and private insurance firms commonly refer to this as the "value of a statistical life."

Bilmes and Stiglitz further assume the war has boosted the cost of oil. The extra cost, if that increase is $10 a barrel, reaches $125 billion over five years.

Last week another liberal economist, Dean Baker, codirector of the Center for Economic and Policy Research in Washington, found that the jump in US military spending associated with the GWOT (a jump that amounts to 1 percent of our gross domestic product) stimulates the US economy at first. But starting around the sixth year from the start of the war, the impact turns negative. After 10 years, there would be 464,000 fewer jobs than otherwise, he estimates.

To make federal spending on defense and security more effective and cost efficient, a task force managed by the Institute for Foreign Policy last month recommended a unified security budget that would pull together spending on offense (military forces), defense (homeland security), and prevention (nonmilitary international engagement). As it is, the proposed $623 billion military budget for fiscal 2008 will mean a higher military bill (in inflation-adjusted dollars) than at any time since World War II.

The task force report holds that such a unified budget would support a less militarized, less unilateral approach to US security, with greater emphasis on diplomacy. But as one author, Lawrence Korb, senior fellow at the Center for American Progress, notes, this change has been suggested for a few years – to no effect.

Robert Hormats, author of "The Price of Liberty: Paying for America's Wars," released last week, complains that the Iraq war has been paid for by adding to US foreign debt, not by national sacrifices as has usually happened in the past. He warns that rising entitlement program costs, such as those for Social Security and Medicare, will make it more difficult for the US to pay for the GWOT in the future, even after the Iraq war has ended.

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