Snarky Behavior

That’s a Whole Lot of Money

April 9, 2008 · 1 Comment

Joseph Stiglitz has estimated the cost of the Iraq war to be $3 trillion dollars by 2017.

These cost estimates include:

  1. disability and compensation for veterans (1.7 million troops have been deployed to date, with 70,000 wounded or diseased and 120,000 having already sought mental health care);
  2. replenishing the military to its normal level of soldiers and equipment; and,
  3. repaying the debt (with interest) that was raised to pay for this war, which has been fully funded by borrowing.
  4. lost economic contributions of those who went to war
  5. the withdrawal from the economy of family members who quit work to care for loved ones injured in the war
  6. the cost to allies and to Iraq

Now, projecting cost estimates for a destructive exercise like war over long-term periods (including well into the future) can prove to be a debatable task, especially when you’re accounting for opportunity costs (i.e. the lost economic contributions of those who went to war) and significant unknown variables (price of oil, nature of military commitment).  We can’t even agree on civilian death tolls in that country, which should be a far easier task in simple accounting.   So it’s no surprise when such attempts are dismissed or attacked for their methodologies in arriving at such an absurdly large figure.

Most importantly– and this is where journalism tends to do the public a great disservice, I think– is that the figure of a trillion dollars (let alone three trillion) is an entirely unrelatable figure for our democratic republic, which is financing the operation.  (Note:  credit the New York Times for their efforts… although presenting the figure as “what else could we have spent this money on?”, while useful in explaining scale, widens the scope of the issue beyond “why are we spending this much on this particular effort?”)

$3 trillion may not be an “accurate” figure, but I’m willing to give the former chief economist of the World Bank the benefit of the doubt in his estimates. I haven’t read the report and am not sure if the valuation is in present dollar terms (although I assume it is, including future interest payments).  Keep in mind then, that the following calculations are going to be (very) fast and loose… it’s not intended as an exercise in social science, only one in wrapping your arms around the scale of what has transpired:

Our government spends $16 billion per month on military operations in Iraq and Afghanistan (excluding incurred interest), putting the annual figure at something around $200 billion.  The IMF estimated the nominal GDP of the World’s Economy in 2007 to be $53.35 trillion, $13.8 trillion of which is generated by the United States.  This means that as a share of the world’s economy, government spending on Iraq and Afghanistan amounted to 1.5% of the US’ GDP.  And for what?

Some might argue that Keynesian deficit spending is necessary during a recession, but what percentage of the spending are we recapturing in our economy?  How much of that $16.6 billion per month can we actually count toward our own GDP?

What about the premium costs that war and instability have created in the pricing of oil?

What about the costs to our sluggish economy of higher energy prices?  Higher priced commodities (including food), all around?

The Bush administration initially estimated the reconstruction costs of Iraq in the $50-$100 billion dollar range, with only $1.6 billion required to rehabilitate the oil industry.  Oil revenues would help the reconstruction “pay for itself.”  Now projections suggest that this estimate was off by a scale of over 30 to 60 times the actual cost?

Can you imagine investing in a company where the CEO took on an extremely risky project, estimating tremendous (and long-term) returns, and then misses the capital expenditure by 30 to 60 times the projection?  And not only that, but the business model on which he hopes to rely on for future revenues is extremely volatile, and universally accepted as out of date and in dire need of overhaul within the next 10 years?

Now we find ourselves in a situation where on the one hand,  our country should be trying to develop new utility-scale energy sources (other than fossil fuels), and on the other hand, we’re entirely dependent on a global market for oil to recuperate the massive expenditures for the invasion, occupation, and reconstruction of Iraq.

I believe that’s what’s called “between Iraq and a hard place.”

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