New calculations suggest economic cost of Iraq war much larger than previously recognized

A paper presented to the annual Allied Social Sciences Association meeting in Boston, in a session jointly sponsored by the American Economic Association and the Economists for Peace and Security, suggests that the costs of the Iraq war are much higher than previously reckoned, with conservative to moderate estimates ranging from slightly less than a trillion dollars to more than $2 trillion.

The joint paper, prepared by Harvard Universitys Kennedy School of Government budget expert Linda Bilmes and Columbia University professor and Nobel Prize winner Joseph E. Stiglitz, recalculates both the budgetary and economic costs of the war.

The price tag calculated by Bilmes and Stiglitz varies significantly from the $50 billion to $60 billion figure estimated by former Office of Management and Budget (OMB) director Mitch Daniels shortly before the war began.

The paper estimates the costs on two different scenarios for Americas involvement in Iraq, both of which predict that U.S. troops deployed in Iraq will drop from the current 160,000 to 136,000 in 2006. It expands on traditional estimates first by including long-term budgetary costs of Americas involvement in Iraq. For instance, it provides an estimate of the life-time disability and health care costs of the 16,000 injured (some 20 percent with serious brain injuries), and the increased costs of recruitment into both the National Guard and the armed forces.

The paper goes on to analyze the social costs to the economy, recognizing that, for instance, payments for those killed are only $500,000, far less than standard government estimates of the life-time economic cost of a death ($6.1 million to $6.5 million). Similarly, disability payments are markedly lower than the value of lost earnings. Finally, the paper provides a range of estimates of the macro-economic costs. While arguing that much of the increase in the price of oil can be attributed to the Iraq war, it estimates the overall effect on the economy if only $5 per barrel of the increase is due to the war. It also calculates the impact on the economy in the short run and in the long run if a proportion of the money spent on the Iraq war were spent in other ways, including on investments in the United States.

The paper identifies a number of other costs, some potentially quite large, but the quantification of which is more problematic. The implication, however, is that even the moderate estimate may significantly underestimate the cost of Americas involvement in Iraq.