The Blog Department – April 23, 2008

War’s Price Tag    (An op-ed by Linda Bilmes and Joseph Stiglitz, Los Angeles Times, 3/16/08, as condensed)

As we have just entered the sixth year of war in Iraq, it is becoming increasingly evident that it may be the most expensive conflict since World War II. By the end of 2008, the federal government will have spent more than $800 billion on what government accounts make an ambiguous combination of combat operations in both Iraq and Afghanistan. Further, the U.S. will be presented with precipitous future costs: caring for war veterans (to date, more than 1.6 million troops have been deployed), replacing the military hardware that is being used and worn out in Iraq and paying interest on the enormous sums of money we’ve borrowed to finance the war. Assuming the U.S. begins a pullback from Iraq after the November election and retains a small presence there for the next decade, the past and future total cost of the war will easily reach $3 trillion in today’s money. The following table breaks down this cost:

An immediate financial concern not in the federal war budget is the standard of living of car-dependent Americans. They are being hit especially hard by a steep increase in the cost of oil that is partly the result of the war in Iraq, as prices were at only $25 a barrel when the war began in March 2003. It is true that much of the increase has been driven by sharply higher demand from Asia and by a chronic shortage of refining capacity. However, futures markets had predicted oil prices would remain stable despite rising demand. Most experts blame at least some portion of the skyrocketing price of oil on the drop in supply caused by the instability in the Middle East.

Just $5 to $10 of the increase in the cost of a barrel of oil can be attributed directly to the Iraq war. But even this modest price increase transfers an additional $300 billion to $800 billion from the pockets of U.S. consumers to the oil-producing countries (the table above places the amount at $600 billion).

As suggested by the table, predictions of future financial costs of the Iraq war are staggering. Further, the current fiscal policy of borrowing money to pay for the war in progress while simultaneously cutting taxes for the rich is irresponsibly leaving the burden of paying for this costly adventure on America’s youth. Not since Revolutionary War colonists borrowed from France have we depended on overseas funding to finance war spending. The next generation will be expected to pay for all of the interest on the money we have borrowed, including the 40% of it that comes from Middle Eastern countries, China, and other foreign lenders. It will also be forced to simultaneously confront the $9 trillion national debt, which has consequently risen by 12% since the beginning of the war, plus the looming problems funding Social Security and Medicare.

Beyond servicing huge war debts, America’s children will also be left with a sizable bill for the rising cost of veteran’s care. The intensifying combat and high injury rates over the last five years mean that nearly half the current service personnel in Iraq and Afghanistan are likely to qualify for long-term disability compensation. The cost generally peaks many years after combat has ended. For example, claims from World War II veterans peaked in 1993.

A lifetime of medical care will also be required for many of the 70,000 men and women in the armed services who have been wounded in combat, injured in accidents or airlifted out of the region for emergency medical care, plus temporary care for an additional 250,000 returning troops who are seeking treatment for hearing loss, joint pain, post-traumatic stress disorder, or other conditions at veterans medical facilities. We can expect that the next generation of Americans will eventually spend $600 billion to look after the Iraq and Afghanistan veterans.

We will also be paying for a decline in the quality and effectiveness of our military. According to a recent survey of 3,000 active and retired military officers, 42% of officers above the rank of major agree that the war in Iraq “has broken the U.S. military.” In a struggle to meet basic recruiting targets, the war has forced the Army to lower standards for physical fitness, health, and education and to turn a blind eye to criminal records. It may take decades for the military to recover to its prewar state of readiness, and once again, the next generation of Americans will be paying a big share of this effort.

Beyond that, the ongoing cost of the war has made it more difficult for the federal government to pay for roads, schools, medical research, and aid to local communities. And then there is the opportunity cost: the money spent on the war could have fixed Social Security for the next 75 years or provided health insurance to all U.S. children.

As we enter the sixth year of combat, the “burn rate” for each month we continue in Iraq is $12 billion – with the full cost (including paying for veterans and replenishing equipment) easily double that. We are already committed to a tremendous amount of spending in the decades ahead to pay for this war, and there’s little we can do to avoid those costs except keep them from rising further by withdrawing our troops from Iraq as soon as is reasonably possible.