The real cost lives on

Three trillion dollars is clearly a startling number. That is what is estimated to be the "true cost" of the Iraq war to the US "" sixty times more than the Bush Administration's original estimate of $50 billion "" according to this book authored by economist and Nobel prize winner Joseph Stiglitz and lecturer and former bureaucrat Linda Bilmes. This estimate takes into account the hidden costs associated with the war, like the costs of caring for thousands of wounded from the war (which will stretch through their lifetime), their lost income, the cost of higher oil prices, the opportunity cost of the money spent in Iraq (which could have been a multiplier for a recession-prone domestic economy) and the costs associated with staying on in Iraq for the next few years.

Such an exercise is bound to involve an elaborate set of assumptions, the rationale for which is painstakingly detailed in the book. However, rationale can also be found for a different set of assumptions which would throw up a different estimate of the cost of the war, and this is the weak point of the book. An example of how numbers can swing from one end to the other depending on the assumptions is seen in this sampler from the book: "We estimate the total cost of the war ranges from $2.7 trillion in strictly budgetary costs to $5 trillion in total economic costs. We also considered a best case scenario in which the US would withdraw all combat troops by 2012 and fewer veterans would need medical care and disability pay. Even under this extremely optimistic scenario, the total cost of the war exceeds $2 trillion. Under the circumstances, a $3 trillion figure for the total cost strikes us as judicious, and in all likelihood errs on the low side." And this is the cost only to the US. There is a cost being paid by the rest of the world, and by Iraq too.

Relying largely on government data, the authors begin with the war-related appropriations, add on the hike in defence expenditure attributable to Iraq, add historical, current and future costs of the conflict (including disability payments and healthcare for returning veterans), the interest rate paid on borrowed funds and discount all numbers to a value in 2007 dollars.

The running cost of the five-year-old Iraq war (which began in March 2003) is over $12.5 billion a month against $4.4 billion in 2003. Add in Afghanistan, and expenses mount to $16 billion a month. This is the annual budget of the United Nations. The cost of the direct US military operations already exceeds the cost of the 12 year war in Vietnam and is more than double the cost of the Korean war.

Was it all for oil? If it was, "...if America went to war in the hope of securing cheap oil, we failed miserably. We did however succeed in making the oil companies richer," say the authors. They estimate that oil prices could have gone up anywhere from $5 to $10 per barrel due to the war putting an extra burden of $25 billion or $50 billion on the US economy per year. If the war is assumed to last seven years, the additional oil bill would be $175 billion at the lower end and $400 billion at the upper end where war is assumed to last for eight years. The numbers would be equally startling for the oil importing countries while "those who have gained are, by and large, dictators in the oil producing countries".

The book is not all about numbers relating to the war, which the authors feel was a "terrible mistake". It covers the nightmarish experiences of injured veterans seeking support from an overstretched Department of Veteran Affairs, the implications of the partial privatisation of the armed forces (through the use of contractors), the value of a statistical life (assumed to be $7.2 million for an American killed in an environmental or workplace incident), the rising incidence of mental health disorders among veterans, the dangers of excessive reliance on National Guard and Reserves ("they are there for emergencies and after five years, the conflict cannot be considered an emergency") and the ideal exit strategy.

The book ends with some very clear pointers to the agenda for reform in the US "" make sure that war cannot be fought on "emergency" appropriations beyond two years; ensure that real costs of the war are reflected in the military accounts; limit the reliance on contracters; limit the use of National Guard and Reserves and, one of the most revolutionary proposals, make current tax payers pay for any conflict which lasts for more than a year through the levying of a war tax. If all of these are implemented, it is fairly certain that the US would not be involved in another conflict for a long, long time.

The broader message, captured in the last few sentences of the book, is that there are no winners in any war (and it does not always stimulate the economy): "Stripped of ...government fanfare...war is about men and women brutally killing and maiming other men and women. The costs live on long after the last shot has been fired."

THE THREE TRILLION DOLLAR WAR
THE TRUE COST OF THE IRAQ CONFLICT

Joseph Stiglitz & Linda Bilmes
Penguin
Rs 595