There is no such thing as a free lunch, and there is no such thing as a free war. The Iraq adventure has seriously weakened the U.S. economy, whose woes now go far beyond loose mortgage lending. You can't spend $3 trillion -- yes, $3 trillion -- on a failed war abroad and not feel the pain at home. Some people will scoff at that number, but we've done the math.
Senior Bush administration aides pooh-poohed worrisome estimates in the run-up to the war. Former White House economic adviser Lawrence Lindsey reckoned the conflict would cost $100 billion to $200 billion; Defense Secretary Donald Rumsfeld called his estimate "baloney." Administration officials insisted the costs would be more like $50 billion to $60 billion. In April 2003, Andrew Natsios, head of the U.S. Agency for International Development, said on "Nightline" that reconstructing Iraq would cost the American taxpayer just $1.7 billion. Deputy Defense Secretary Paul Wolfowitz hoped that U.S. partners would chip in, as they had in the 1991 Persian Gulf War, or that Iraq's oil would pay for the damages.
The end result of all this wishful thinking? As we approach the fifth anniversary of the invasion, Iraq is not only the second longest war in U.S. history (after Vietnam), it is also the second most costly -- trailing only World War II.
Why doesn't the public understand the staggering scale of our expenditures? In part because the administration talks only about the upfront costs, which are mostly handled by emergency appropriations. (Funding is still an emergency five years after the war began.)
These costs, by our calculations, are now running at $12 billion a month --
$16 billion if you include Afghanistan. By the time you add in costs hidden in the defense budget, the money we'll have to spend to help future veterans, and money to refurbish a military whose equipment and materiel have been greatly depleted, the total federal tab will almost surely exceed $1.5 trillion.
But the costs to our society and economy are far greater.
When a young soldier is killed in Iraq or Afghanistan, his or her family will receive a U.S. government check for $500,000 (life insurance and a "death gratuity") -- far less than the typical amount paid by insurance companies for the death of a young person in a car accident. The stark "budgetary cost" of $500,000 is clearly only a fraction of the cost society pays for the loss of life -- and no one can ever really compensate the families. Disability pay is seldom adequate for wounded troops or their families. In one of five cases of seriously injured soldiers, someone in their family has to give up a job to take care of them.
Beyond this is the cost to the already sputtering U.S. economy.
President Bush tried to sell the American people on the idea that we could have a war with little or no economic sacrifice. Even after the United States went to war, Bush and Congress cut taxes, mostly for the rich -- though the nation already had a massive deficit. So the war had to be funded by more borrowing. By the end of Bush's term, the cost of the wars in Iraq and Afghanistan, plus the cumulative interest on the borrowing used to fund them, will have added about $1 trillion to the national debt.
The long-term burden of paying for the conflicts will curtail the country's ability to tackle other urgent problems, no matter who becomes president in 2009. Our vast and growing indebtedness inevitably makes it harder to afford health care plans, make large-scale repairs to crumbling roads and bridges, or build better-equipped schools. The escalating cost of the wars is crowding out spending on virtually all other discretionary federal programs, including the National Institutes of Health, the Food and Drug Administration, the Environmental Protection Agency, and federal aid to states and cities -- all of which have been scaled back significantly since the invasion of Iraq.
Worse, the economy is facing a recession. But our ability to implement
an effective economic stimulus is crimped by expenditures of close to $200 billion this year alone and by a skyrocketing national debt.
The United States is rich and strong, but even rich and strong countries squander trillions of dollars at their peril. Think what a difference $3 trillion could make in solving the United States' -- or the world's -- problems. We worry about China's growing influence in Africa, but the upfront cost of a month of fighting in Iraq would pay for more than double our annual current aid spending on Africa.
Closer to home, we could have funded countless schools to give children locked in the underclass a shot at decent lives. Or we could have tackled the problem of Social Security. For far, far less than the cost of the war, we could have ensured the solvency of Social Security for the next half a century.
People once believed that wars were good for the economy, a notion born of memories of how the massive spending of World War II helped bring the United States and the world out of the Depression. We now know far better ways to stimulate an economy -- ways that quickly improve citizens' well-being and lay the foundations for growth. Money spent paying Nepalese workers in Iraq (or even Iraqi ones) doesn't stimulate the
U.S. economy the way money spent at home would -- and it doesn't provide the basis for long-term growth the way investments in research, education or infrastructure would.
This war has been particularly hard on the economy because it led to a spike in oil prices. Before the 2003 invasion, oil cost less than $25 a barrel, and futures markets expected it to remain around there. (Yes, China and India were growing by leaps and bounds, but cheap supplies from the Middle East were expected to meet their demands.) The war changed that equation. Now oil costs more than $100 per barrel.
While Washington has been spending well beyond its means, others have been saving -- including the oil-rich countries that, like the oil companies, have been among the few winners of this war. No wonder, then, that China, Singapore and many Persian Gulf emirates have become lenders of last resort for Wall Street banks, shoring up Citigroup, Merrill Lynch and other firms that burned their fingers on subprime mortgages. How long will it be before the huge sovereign wealth funds controlled by these countries begin buying up large shares of other U.S. assets?
The Bush team is not merely handing over the war to the next administration; it is bequeathing deep economic problems seriously exacerbated by reckless war financing.
Until recently, many marveled at the way the United States could spend hundreds of billions on oil and blow through hundreds of billions more in Iraq with little short-run impact. But there's no great mystery here. Economic weaknesses were concealed by the Federal Reserve, which pumped in liquidity, and by regulators who looked away as loans were handed out well beyond borrowers' ability to repay. Banks and credit-rating agencies pretended that financial alchemy could convert bad mortgages into AAA assets, and the Fed looked the other way as the household savings rate plummeted to zero.
It's a bleak picture. The total loss from this economic downturn -- measured by the disparity between the economy's actual output and its potential output -- is likely to be the greatest since the Depression. That total, well in excess of $1 trillion, is not included in our estimated $3 trillion cost of the war. Others will have to work out the geopolitics, but the economics are clear. Ending the war, or at least moving rapidly to wind it down, would yield major economic dividends.
Opinion polls say voters' main worry is now the economy, not the war. But there's no way to disentangle the two. The United States will be paying the price of Iraq for decades to come. The price tag will be all the greater because we tried to ignore the laws of economics.
Bilmes, a former chief financial officer at the Commerce Department, teaches at
Harvard University's Kennedy School of Government. Stiglitz, a professor at Columbia University, served as chairman of the Council of Economic Advisers for President Clinton. They wrote "The Three Trillion Dollar War: The True Cost of the Iraq Conflict."
THE WASHINGTON POST