Economist's View

"Iraq Leader Maliki Supports Obama's Withdrawal Plans"

Iraqi Prime Minister Nouri al-Maliki doesn't say so directly, well not quite, but he makes it clear that he thinks Barack Obama's plans for Iraq are superior to John McCain's:

Iraq Leader Maliki Supports Obama's Withdrawal Plans, Speigel: Iraqi Prime Minister Nouri al-Maliki supports US presidential candidate Barack Obama's plan to withdraw US troops from Iraq within 16 months. When asked in and interview with Speigel when he thinks US troops should leave Iraq, Maliki responded "as soon as possible, as far as we are concerned." He then continued: "US presidential candidate Barack Obama talks about 16 months. That, we think, would be the right timeframe for a withdrawal, with the possibility of slight changes."

Obama: It’s Time to End this War

Barack Obama says "on my first day in office, I would give the military a new mission: ending this war." He believes that we can "safely redeploy our combat brigades at a pace that would remove them in 16 months. That would be the summer of 2010":

My Plan for Iraq, by Barack Obama, Commentary, NY Times: The call by Prime Minister Nuri Kamal al-Maliki for a timetable for the removal of American troops from Iraq presents an enormous opportunity. We should seize this moment to begin the phased redeployment of combat troops...

Unlike Senator John McCain, I opposed the war in Iraq before it began, and would end it as president. ...

Obama Should Agree to Go to Iraq with McCain

McCain keeps asking Obama to go to Iraq with him. Even though the people responsible for security have said they would not allow them to go to Iraq together, and Obama has declined, I think it's a good idea. It would be a great opportunity for Obama to straighten out McCain on all the things he has wrong about Iraq. In the past, McCain has had Joe Lieberman around to whisper in his ear when he makes great big mistakes. But Lieberman has his own problems and his own misperceptions, and he can't always be there, and Barack is a much better choice if the goal is to gain a clearer understanding of the political, economic, social, military, and other issues that make Iraq and the greater area such a complicated and difficult problem to solve.

Let's start with an easy one. If the two of them were there today, Obama could point to troops and say see those people in uniform? There's 155,000 of them - more than the pre surge levels. I know you have trouble with technical stuff, economics, that sort of thing, but this is easy John - 155,000 is a bigger number than 130,000 so we are not back down to pre surge levels like you have claimed. And if the numbers have changed by the time they get there, it will still be worthwhile for Obama to explain why it's important for someone wanting to be the Commander in Chief to keep track of how many soldiers we have deployed.

He could point to Mosul and say, I know you said that things are quiet there, but on a day when there were three suicide bombings, it's probably best to describe it some other way.

He could, and this is important for McCain to learn because he's made this mistake more than once, set up meetings with Sunnis and Shi'as. Then, - very slowly because as, as just noted, McCain has trouble on this one - explain how they differ and why it's important to understand the difference.

And as a follow up to the previous point, once McCain does finally get this distinction, Obama could point out that understanding this will help him to avoid saying it's common knowledge that Iran is training Al Qaida when it's not true (though this is one case where, when he said this, the ear whispering Lieberman did cause him to correct his obvious lack of knowledge).

Speaking of Iran, though they wouldn't actually be in Iran, it's bound to come up, and when it does it would be a great opportunity to explain to McCain how Iran's government is structured. McCain has been confused about who leads Iran, so once again, Barack could help McCain with this. And he could, yet again, also explain why it's important to get this right.

If they are walking through a market under very heavy military guard, if there's no other way to enter the area other than with armed escorts, Barack could explain how it's probably not quite correct to say the market is safe.

And, while they are strolling through the streets of Iraq protected by hordes of military personnel who could be doing more important things than setting up TV shots for campaigns, maybe Obama can talk about other things too, educate McCain on the economy, explain that tax cuts don't increase revenue, that sort of thing. It's a bit unrelated, but not completely given how poorly the Bush administration has handled economic development issues in Iraq.

So I can see why John McCain wants Barack Obama to come along to Iraq with him, he needs somebody with him who actually understands how the politics, economics, relations with nearby countries, military presence, and so on affects Iraq, he needs to hear from someone who had Iraq policy right from day one.

Why should Barack help McCain? Aren't they political opponents? Yes, but McCain, along with the noise machine that supports whatever he says no matter how daffy or gaffey, has been confusing the public about these issues. There are considerable misperceptions as a result of McCain's confusion and lack of knowledge. When Obama does win the presidency this fall, that confusion will make it much, much harder to do what needs to be done to get things back on the right track, so whatever he can do now to help to overcome those misperceptions will help to pave a smoother road to the future.

So go ahead, agree to accompany McCain to Iraq, he really needs you there. McCain has been there several times already, and his lack of knowledge shows he really needed to take those trips, but it hasn't been enough, he still gets key things wrong. You'd think he'd have figured it all out by now, if he could, that he would have had someone explain it again and again until he gets it, but maybe you can help him, and yourself, and all of us, by going along.

Taxes During Wars

What do you think of this? It's the Introduction to a book from the Urban Institute, War and Taxes. The argument is that in criticizing the Bush administration for its policies regarding financing the war, "we should be careful not to compare today’s policies to some cardboard cutout version of an imagined past."

About Those TV Generals...

This is about the "effort to dupe the American public with propaganda dressed as independent military analysis."

War and the Economy

Are wars good for the economy?

America’s War-Torn Economy, by Joseph E. Stiglitz, Project Syndicate: ...It used to be thought that wars were good for the economy. After all, World War II is widely thought to have helped lift the global economy out of the Great Depression. But, at least since Keynes, we know how to stimulate the economy more effectively, and in ways that increase long-term productivity and enhance living standards.

This war, in particular, has not been good for the economy, for three reasons. First, it has contributed to rising oil prices. ... Higher oil prices mean that Americans (and Europeans and Japanese) are paying hundreds of millions of dollars to Middle East oil dictators and oil exporters elsewhere in the world rather than spending it at home.

Moreover, money spent on the Iraq war does not stimulate the economy today as much as money spent at home on roads, hospitals, or schools, and it doesn’t contribute as much to long-term growth. Economists talk about “bang for the buck” – how much economic stimulus is provided by each dollar of spending. It’s hard to imagine less bang than from bucks spent on a Nepalese contractor working in Iraq.

With so many dollars going abroad, the American economy should have been in a much weaker shape than it appeared. But, much as the Bush administration tried to hide the true costs of the war by incomplete and misleading accounting, the economy’s flaws were covered up by a flood of liquidity from the Federal Reserve and by lax financial regulation. ...

In a sense, the strategy worked: a housing bubble fed a consumption boom, as savings rates plummeted to zero. The economic weaknesses were simply being postponed to some future date; the Bush administration hoped that the day of reckoning would come after November 2008. Instead, things began to unravel in August 2007.

Now it has responded, with a stimulus package that is too little, too late, and badly designed. ...

With home prices falling (and set to continue to fall), and with banks uncertain of their financial position, lenders will not lend and households will not borrow. So, while the additional liquidity injected into the financial system by the Fed may have prevented a meltdown, it won’t stimulate much consumption or investment. Instead, much of it will find its way abroad. China, for example, is worried that the Fed’s stimulus will increase its domestic inflation.

There is a third reason that this war is economically bad for America. Not only has America already spent a great deal on this war – $12 billion a month, and counting – but much of the bill remains to be paid, such as compensation and health care for the 40% of veterans who are returning with disabilities, many of which are very serious.

Moreover, this war has been funded differently from any other war in America’s history... Normally, countries ask for shared sacrifice, as they ask their young men and women to risk their lives. Taxes are raised. There is a discussion of how much of the burden to pass on to future generations. In this war, there was no such discussion. When America went to war, there was a deficit. Yet remarkably, Bush asked for, and got, a reckless tax cut for the rich. That means that every dollar of war spending has in effect been borrowed.

For the first time since the Revolutionary War, two centuries ago, America has had to turn to foreigners for financing, because US households have been saving nothing . The numbers are hard to believe. The national debt has increased by 50% in eight years, with almost $1 trillion of this increase due to the war – an amount likely to more than double within ten years.

Who would have believed that one administration could do so much damage so quickly? America, and the world, will be paying to repair it for decades to come.

Recall that an increase in government spending can be paid for in one of three ways, we can raise taxes, we can borrow the money, or we can print the money needed to finance the spending. (In a given year, the government budget constraint is Government spending + Interest on debt- Taxes = Change in money supply plus Change in bond supply). This administration didn't raise taxes to pay for the war - taxes were lowered - so that means that changes in the money supply and changes in borrowing needed to make up the $1 trillion spent on the war plus the hundreds of billions of revenue lost due to the tax cuts.

Normally, an increase in borrowing (government debt) has two costs, First, it raises interest rates because the government competes with private investors and other governments for available funds, and that increases the price of borrowing. The increase in interest rates causes investment to be lower, that in turn lowers growth, and that means output will be lower in future time periods. In effect, output has been shifted from the future to the present through borrowing. Second, the interest payments themselves are a cost to the US if they are made to people living outside the US (payments made within the US redistribute income, but they are not a net cost to US citizens). Since recent borrowing was from foreigners, all the interest paid on the debt will flow out of the US and represent a cost to US citizens.

One of these costs, interest payments flowing outside of the US, has occurred and will continue to occur, but the other, an increase in interest rates brought about by competition from the government for saving has not. Why? One reason is the "savings glut" in the world that allowed us to borrow money from the foreign sector without pushing up interest rates. But a second reason is Federal Reserve interest rate targeting. With a constant interest rate target, deficit spending that puts upward pressure on interest rates is automatically "monetized," i.e. the Fed buys up the debt and replaces it with money to keep the interest rate on target, and the increase in the money supply holds down interest rates. But there is a cost here too, by increasing the money supply to hold down interest rates, inflation pressure is created, and inflation acts as a hidden tax by lowering the value of money.

I think the spending on the war and low-interest rates that have been brought about by Fed policy and the savings glut have helped to keep our economy from sputtering, but it has not been costless. First, as noted above, spending on the war may have some had stimulative effect, but if that is the goal, there are much better ways to do this. So, relative to spending the money domestically on, say, infrastructure, we have not gotten as much for our money as we might have otherwise.

Second, increases in the money supply and the influx of funds from foreigners to finance debt kept interest rates low and financed a housing bubble, but the result was a misallocation of resources to the housing sector. We stimulated the economy with low interest rates and a housing bubble, but we built things that didn't need to be built and are now sitting idle wasting resources. That is a cost to the economy, and we'd be better off now if some of that spending had been in other sectors.

Third, the interest costs. As noted above, we have borrowed from foreigners to pay for the war, so the interest on the debt will be a net drain to the US economy.

Fourth, inflation. Keeping interest rates low is inflationary, and inflation imposes a cost. I'm not sure how much of the $1 trillion has been financed by printing money, but to the extent that it has been financed in this way, the consequence is potentially higher inflation in the future.

Fifth, the increase in the price of oil as detailed above.

There are also the human costs, and the costs to the Iraqis, which are not included in these figures.

Because we have paid for the war by borrowing and printing money, and because of delays in the appearance of many of the costs associated with the war, e.g. the cost of paying for permanently disabled soldiers will come largely in the future, inflation only appears with a long lag, interest payment to foreigners will be ongoing, etc., many of the costs are not evident yet. But the costs are there and they will need to be paid.

Are there any costs that I've overlooked, misstated, or forgotten?

"The Economic Costs of the Endless War"

Robert Reich on the cost of the war:

The Economic Costs of the Endless War, by Robert Reich: Attention turns back to Iraq tomorrow when General Petraeus reports on the endless war in Iraq. In recent months the bad news from there ... has been eclipsed by the bad news on the economy. The two are closely related -- but not in the way some contend.

Let’s be clear. The cost of the War in Iraq – so far estimated to total somewhere between 1 and 3 trillion dollars – is not directly responsible for the economic mess we’re in. Wars can cause inflation when a nation’s resources are already fully committed... But when a nation’s resources are underutilized wars have been known to get economies back on track, as we learned when Franklin D. Roosevelt took the nation to war in 1941.

The US economic expansion that began in 2001 was anemic as expansions go, so the American economy has had enough capacity to support a war in Iraq without igniting inflation. ...

With the US economy falling into recession, we have even more unused capacity. That’s not in itself a reason for continuing to spend billions of dollars for the Iraqi War, of course. The war is a terribly inefficient stimulus to the US economy. A dollar spent on repairing a bridge in Iraq doesn’t have nearly the multiplier effect on our economy as a dollar spent repairing a bridge here in the United States.

More to the point – and here’s what Americans need to understand – a dollar spent in Iraq is a dollar we do not have to spend here, not only repairing our own bridges, roads, and water and sewage systems, but also giving Americans access to health insurance and children access to good schools, fully funding Social Security and Medicare, investing adequately in non-carbon based energy sources and green technologies, and borrowing less from abroad.

In other words, the real economic cost of the Iraqi War doesn’t show up in the business cycle, and it's not responsible for the current recession. The real economic cost will show up years from now in a standard of living that for most Americans will be significantly lower than we might otherwise have enjoyed.

I was doing a radio interview and made a similar point, that the real cost of the war is the opportunity cost, the things we could have spent the money on if we weren't spending it in Iraq - roads, bridges, schools, health care, etc. The host then asked something like, "With this administration, if we weren't spending the money in Iraq, do you believe we'd be spending any of it on the domestic programs you listed? Without the war, would the money have been spent at all?"

We didn't give up much because of the war, taxes were cut so the private sector was not asked to sacrifice - instead those near the top of the income distribution enjoyed large gains - and for the most part the war was paid for through deficit spending, so domestic programs were not reduced either. It's unlikely domestic initiatives would have received much attention from this administration in any case, so I'm not sure we've given up many roads, bridges, etc. - yet - to pay for the war. Instead, we pushed most of the costs forward, a game of budgetary kick-the-can.

We have not sacrificed much for this war, we haven't reduced either public or private spending, instead we've paid for the war by borrowing from the future. There will be a cost to this war, and for the most part it will be paid in the future when the bills come due. When they do, we will have to make choices, we can increase taxes or we can decrease government spending on infrastructure, health care, or other areas of the budget, we could even print money and hide the tax as inflation, but somehow the bills will have to be paid.

"$3 Trillion May Be Too Low"

Joseph Stiglitz and Linda Bilmes say they may have been wrong about how much the war in Iraq will cost - the estimate may be too low:

$3 trillion may be too low, by Joseph Stiglitz and Linda Bilmes, Commentary, Comment is Free: President Bush has tried to give the impression that the $3 trillion dollar estimate of the total cost of the war that we provide in our new book may be exaggerated.

We believe that it is in fact conservative.

"The Smart Way Out of a Foolish War"

The war. When will it end?:

The Smart Way Out of a Foolish War, by Zbigniew Brzezinski, Commentary, Washington Post: Both Democratic presidential candidates agree that the United States should end its combat mission in Iraq within 12 to 16 months of their possible inauguration. The Republican candidate has spoken of continuing the war, even for a hundred years, until "victory." The core issue of this campaign is thus a basic disagreement over the merits of the war and the benefits and costs of continuing it. ...

"War Costs and Costs and Costs"

Joseph Stiglitz on the cost of the war:

War costs and costs and costs, by Joseph Stiglitz,Project Syndicate: ...In our new book The Three Trillion Dollar War, Harvard's Linda Bilmes and I conservatively estimate the economic cost of the war to the US to be $3 trillion, and the costs to the rest of the world to be another $3tn - far higher than the Bush administration's estimates before the war. The Bush team not only misled the world about the war's possible costs, but has also sought to obscure the costs as the war has gone on.

This is not surprising. After all, the Bush administration lied about everything else, from Saddam Hussein's weapons of mass destruction to his supposed link with al-Qaida. Indeed, only after the US-led invasion did Iraq become a breeding ground for terrorists.

The Bush administration said the war would cost $50bn. The US now spends that amount in Iraq every three months. To put that number in context: for one-sixth of the cost of the war, the US could put its social security system on a sound footing for more than a half-century, without cutting benefits or raising contributions.

Moreover, the Bush administration cut taxes for the rich as it went to war, despite running a budget deficit. As a result, it has had to use deficit spending - much of it financed from abroad - to pay for the war. This is the first war in American history that has not demanded some sacrifice from citizens through higher taxes; instead, the entire cost is being passed onto future generations. Unless things change, the US national debt ... will be $2tn higher because of the war (in addition to the $800bn increase under Bush before the war).

Was this incompetence or dishonesty? Almost surely both. ...

The war has had only two winners: oil companies and defence contractors. The stock price of Halliburton, vice-president Dick Cheney's old company, has soared. But even as the government turned increasingly to contractors, it reduced its oversight.

The largest cost of this mismanaged war has been borne by Iraq. Half of Iraq's doctors have been killed or have left the country, unemployment stands at 25%, and, five years after the war's start, Baghdad still has less than eight hours of electricity a day. Out of Iraq's total population of around 28 million, 4 million are displaced and 2 million have fled the country.

The thousands of violent deaths have inured most westerners to what is going on: a bomb blast that kills 25 hardly seems newsworthy anymore. But statistical studies of death rates before and after the invasion tell some of the grim reality. They suggest additional deaths from a low of around 450,000 in the first 40 months of the war (150,000 of them violent deaths) to 600,000.

With so many people in Iraq suffering so much in so many ways, it may seem callous to discuss the economic costs. And it may seem particularly self-absorbed to focus on the economic costs to America, which embarked on this war in violation of international law. But the economic costs are enormous, and they go well beyond budgetary outlays. Americans like to say that there is no such thing as a free lunch. Nor is there such a thing as a free war. The US - and the world - will be paying the price for decades to come.

Linda Bilmes and Joseph Stiglitz on the Cost of the War

Linda Bilmes and Joseph Stiglitz argue that the costs of the war are far greater than most people realize, something they are trying to change:

The Iraq War Will Cost Us $3 Trillion, and Much More, by Linda J. Bilmes and Joseph E. Stiglitz, Commentary, Washington post: ...All told, the bill for the Iraq war is likely to top $3 trillion. And that's a conservative estimate.

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, especially on the rich -- even though the United States already had a massive deficit. So the war had to be funded by more borrowing. By the end of the Bush administration, the cost of the wars in Iraq and Afghanistan, plus the cumulative interest..., 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 wins the presidency in November. Our vast and growing indebtedness inevitably makes it harder to afford new health-care plans, make large-scale repairs to crumbling roads and bridges, or build better-equipped schools. Already, the escalating cost of the wars has crowded out spending on virtually all other discretionary federal programs...

To make matters worse, the U.S. economy is facing a recession. But our ability to implement a truly effective economic-stimulus package is crimped by expenditures of close to $200 billion on the two wars this year alone and by a skyrocketing national debt. ...

Think what a difference $3 trillion could make for so many of the United States' -- or the world's -- problems. We could have had a Marshall Plan to help desperately poor countries, winning the hearts and maybe the minds of Muslim nations now gripped by anti-Americanism. ... 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 doubling 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. ...

The Bush team, then, is not merely handing over the war to the next administration; it is also bequeathing deep economic problems that have been seriously exacerbated by reckless war financing. We face an economic downturn that's likely to be the worst in more than a quarter-century.

Until recently, many marveled at the way the United States could spend hundreds of billions of dollars on oil and blow through hundreds of billions more in Iraq with what seemed to be strikingly little short-run impact on the economy. But there's no great mystery here. The economy's weaknesses were concealed by the Federal Reserve, which pumped in liquidity, and by regulators that looked away as loans were handed out well beyond borrowers' ability to repay them. Meanwhile, 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 U.S. household-savings rate plummeted to zero.

It's a bleak picture. The total loss from this economic downturn ... is likely to be the greatest since the Great Depression. ...

Others will have to work out the geopolitics, but the economics here are clear. Ending the war, or at least moving rapidly to wind it down, would yield major economic dividends.

As we head toward November, opinion polls say that 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. ... [full article]

"The Three Trillion Dollar War"

Good question:

Keynesian trillions, Editorial, LA Times: President Bush['s]... final State of the Union speech made clear that he intends ... to ... spend whatever it takes to secure Iraq and Afghanistan -- and his legacy.

While the president's speechwriters were tweaking his address Monday, the White House announced that Bush would ask for $70 billion more for the two wars this year. A Pentagon spokesman said combat operations were costing $12 billion a month, with $9.2 billion spent in Iraq. That's just for combat operations. Including replacing equipment that's being used up and providing medical care and disability benefits for the wounded, Iraq has already cost well over $1 trillion. Back in early 2006, when war spending was running about $5 billion a month, economists Joseph Stiglitz and Linda Bilmes were sharply criticized for a study that predicted the Iraq war would cost up to $2 trillion. Their sequel, to be released next month, is titled "The Three Trillion Dollar War."

The interesting question is why the U.S. economy, beneficiary since 9/11 of the largest military spending binge in history, now requires $150 billion more in the form of a short-term stimulus package. Why hasn't the $1 trillion in defense spending, in addition to the 2001 and 2003 tax cuts, been sufficient to keep the economic boom going? ... Does that mean the fundamentals of our economy are weaker than we thought, and a deeper slump might have occurred without all that spending? ...

The economist John Maynard Keynes taught us in the 1930s that money spent on guns -- or butter, or even digging ditches and filling them up again -- had the same stimulative effects on a slumping economy. We've developed a more nuanced view of government spending since then, but it's still worth asking: What would Keynes say about a $3-trillion war?

Update: Paul Krugman:

An Iraq recession?, Paul Krugman Blog: One thing I get asked fairly often is whether the Iraq war is responsible for our economic difficulties. The answer (with slight qualifications) is no.

Just to be clear: I yield to nobody in my outrage over the way we were lied into a disastrous, unnecessary war. But economics isn’t a morality play, in which evil deeds are always punished and good deeds rewarded.

The fact is that war is, in general, expansionary for the economy, at least in the short run. World War II, remember, ended the Great Depression. The $10 billion or so we’re spending each month in Iraq mainly goes to US-produced goods and services, which means that the war is actually supporting demand. Yes, there would be infinitely better ways to spend the money. But at a time when a shortfall of demand is the problem, the Iraq war nonetheless acts as a sort of WPA, supporting employment directly and indirectly.

There is one caveat: high oil prices are a drag on the economy, and the war has some — but probably not too much — responsibility for pricey oil. Mainly high-priced oil is the result of rising demand from China and other emerging economies, colliding with sluggish supply as the world gradually runs out of the stuff. But Iraq would be exporting more oil now if we hadn’t invaded — a million barrels a day? — and that would have kept prices down somewhat.

Overall, though, the story of America’s economic difficulties is about the bursting housing bubble, not the war.

Keeping Darth Alive

Darth Vader and his evil twin:

Darth Vader blogging, by Paul Krugman: Back when Hillary Clinton described Dick Cheney as Darth Vader, a number of people pointed out that this was an unfair comparison. For example, Darth Vader once served in the military.

Here’s another reason the comparison is invalid: the contractors Darth Vader hired to build the Death Star actually got the job done.

Multiply by Ten

A reminder about opportunity costs:

Now and Forever, by Bob Herbert, Commentary, NY Times: Most of the time we pretend it’s not there: The staggering financial cost of the war in Iraq, which continues to soar, unchecked...

A report prepared for ,,, the Joint Economic Committee of the House and Senate warns that without a significant change of course in Iraq, the long-term cost of the wars in Iraq and Afghanistan could head into the vicinity of $3.5 trillion. The vast majority of those expenses would be for Iraq.

Priorities don’t get much more twisted. A country that can’t find the money to provide health coverage for its children, or to rebuild the city of New Orleans, or to create a first-class public school system, is flushing whole generations worth of cash into the bottomless pit of a failed and endless war. ...

Make Livelihoods, Not War

Jeffrey Sachs says our militarized foreign policy has been a disaster. Here's the short version:

America’s Failed Militarized Foreign Policy, by Jeffrey D. Sachs, Project Syndicate: Many of today’s war zones – including Afghanistan, Ethiopia, Iran, Iraq, Pakistan, Somalia, and Sudan – share basic problems that lie at the root of their conflicts. They are all poor, buffeted by natural disasters – especially floods, droughts, and earthquakes – and have rapidly growing populations that are pressing on the capacity of the land to feed them. And the proportion of youth is very high, with a bulging population of young men of military age (15-24 years).

All of these problems can be solved only through long-term sustainable economic development. Yet the United States persists in responding to symptoms rather than to underlying conditions by trying to address every conflict by military means. It backs the Ethiopian army in Somalia. It occupies Iraq and Afghanistan. It threatens to bomb Iran. It supports the military dictatorship in Pakistan.

None of these military actions addresses the problems that led to conflict in the first place. On the contrary, American policies typically inflame the situation rather than solve it.

Time and again, this military approach comes back to haunt the US. The US embraced the Shah of Iran by sending massive armaments, which fell into the hands of Iran’s Revolutionary Government after 1979. The US then backed Saddam Hussein in his attack on Iran, until the US ended up attacking Saddam himself. The US backed Osama bin Laden in Afghanistan against the Soviets, until the US ended up fighting bin Laden. Since 2001 the US has supported Pervez Musharraf in Pakistan with more than $10 billion in aid, and now faces an unstable regime that just barely survives.

US foreign policy is so ineffective because it has been taken over by the military. Even postwar reconstruction in Iraq under the US-led occupation was run by the Pentagon rather than by civilian agencies. The US military budget dominates everything about foreign policy. Adding up the budgets of the Pentagon, the Iraq and Afghanistan wars, the Department of Homeland Security, nuclear weapons programs, and the State Department’s military assistance operations, the US will spend around $800 billion this year on security, compared with less than $20 billion for economic development. ...

A more peaceful world will be possible only when Americans and others ... realize that today’s conflicts, having resulted from desperation and despair, can be solved through economic development rather than war. ...

The Iraq War Costs More than You Think

Tyler Cowen writes a letter "To: President George W. Bush" with the subject identified as "The Hidden Costs of Iraq":

What Does Iraq Cost? Even More Than You Think, by Tyler Cowen, Commentary. Washington Post: ...One commonly cited estimate of Iraq's cost, based on an August analysis by the nonpartisan Congressional Budget Office, is $1 trillion, and that's probably on the low side. A report released last week by the Democratic staff of Congress's Joint Economic Committee put the war's 2002-08 tab at $1.3 trillion.

But all these figures don't quite get at Iraq's real cost. ... We often think of cost simply in terms of dollars spent, but the real cost of a choice -- what economists call its "opportunity cost" -- consists of the forgone alternatives, of the things we could have had instead. ... This idea sounds simple, but if applied consistently, it requires us to rethink and, yes, raise the costs of the Iraq war.

Set aside the question of what we could have accomplished at home with the energy and resources we've devoted to Iraq and concentrate just on national security. Here, the hidden cost of the war, above all, is that the United States has lost much of its ability to halt nuclear proliferation.

Mr. President, when the war started, I was convinced by your arguments that we had to stop Iraq's dictatorship from getting the bomb. No longer. Let's look at some of the opportunity costs the United States has incurred so far:

1. We still haven't secured our ports against nuclear terrorism. The

$1 trillion we've probably spent on the war could have funded the annual budget of the Department of Homeland Security 28 times over.

2. The human toll of the war is dreadful: more than 3,800 U.S. soldiers dead and more than 28,000 wounded, plus more than 1,000 private contractors killed and many more injured. It's harder to know how many Iraqis have died; some estimates claim that the war has caused a million or more Iraqi deaths, and even if that's an overstatement, the toll is still very high. But it's not just the lives that are gone; we've also lost the contributions that these people would have made to their families and to humanity at large.

3. Another major hidden cost: Many of the wounded have severe brain injuries or other traumas and will never return to "normal" life. Furthermore, Washington will find it far harder to recruit and retain quality troops and National Guardsmen in the future.

4. Don't forget the small statistics, which are often the most striking. ...[A]n estimated 250,000 bullets have been fired for every insurgent killed in Iraq. That's not just a waste of ammunition; it's also a reflection of how badly the country has been damaged and how indiscriminate some of the fighting has been. Or take another straw in the wind: The cost of a coffin in Baghdad has risen to $50-75, up from just $5-10 before the war, according to the Nation magazine.

5. Above all, governing Iraq has, so far, been a fruitless investment. According to 2006 figures, U.S. war spending came out to $3,749 per Iraqi -- almost as much as the per capita income of Egypt. That staggering sum hasn't bought a lot of leadership from Iraq, or much of a democratic model for its Arab neighbors.

In fact, Mr. President, your initial pro-war arguments offer the best path toward understanding why the conflict has been such a disaster...

Following your lead, Iraq hawks argued that, in a post-9/11 world, we needed to take out rogue regimes lest they give nuclear or biological weapons to al-Qaeda-linked terrorist groups. But each time the United States tries to do so and fails to restore order, it incurs a high -- albeit unseen -- opportunity cost in the future. Falling short makes it harder to take out, threaten or pressure a dangerous regime next time around.

Foreign governments, of course, drew the obvious lesson from our debacle -- and from our choice of target. The United States invaded hapless Iraq, not nuclear-armed North Korea. To the real rogues, the fall of Baghdad was proof positive that it's more important than ever to acquire nuclear weapons... Iran, among others, has taken this lesson to heart. The ironic legacy of the war to end all proliferation will be more proliferation.

The bottom line is clear, Mr. President: ... you must now realize that the costs of a failed war are far higher than you've acknowledged.

Ironically, it's probably the doves who should lower their mental estimate of the war's long-haul cost: By fighting a botched war today, the United States has lowered the chance that it will fight another preventive war in the near future. The American public simply does not have the stomach for fighting a costly, potentially futile war every few years. U.S. voters have already lost patience with the pace of reconstruction in Iraq, and that frustration will linger; remember, it took the country 15 years or more to "get over" Vietnam. The projection of American power and influence in the future requires that an impatient public feel good about American muscle-flexing in the past.

Even if the wisest way forward is sticking to our guns, the constraints of politics and public opinion mean that we cannot always see U.S. military commitments through. Since turning tail hurts our credibility so badly and leaves such a mess behind, we should be extremely cautious about military intervention in the first place. The case for hawkish behavior often assumes that the public has more political will than it actually has, so we need to save up that resolve for cases when it really counts.  ...

"Billions for Guns, Vetoes for Butter"

Is the war worth the cost?

Billions for Guns, Vetoes for Butter, by E. J. Dionne, Commentary, Washington Post:

It's time that we subject the Iraq war to the same cost-benefit analysis that we are called upon to impose on other government endeavors. We are supposed to repeal or revise domestic programs that don't work. Shouldn't a troubled war policy be treated the same way?

The ruling assumption of the moment is that we can't afford to withdraw our troops from Iraq because of the chaos that would ensue. The idea seems to be that somehow -- against the evidence of the past 4 1/2 years -- good things will happen if we just keep the war going.

This upside-down debate puts the burden of proof in the wrong place. We should be asking whether keeping our forces in Iraq over an extended period is worth the cost in lives, injuries, money, lost opportunities and strain on our military. How will a prolonged stay in Iraq enhance our security? Is Iraq distracting us from foreign policy questions that will matter far more to our national interest in the long run?

President Bush regularly brags about the accomplishments of the troop surge. ... The question to which the administration has no answer is how this ... will produce a decent outcome down the road.

From Thomas E. Ricks, The Post's military correspondent, comes a disturbing answer.

Strategic Drift in Iraq

A call to reopen the debate over the mission in Iraq and for progressives to "offer a clear challenge" that represents a "a real change in course":

Strategic Drift Where's the Pushback Against the Surge?, by John Podesta, Lawrence J. Korb and Brian Katulis, Commentary, Washington Post: With apparent disregard for the opinion of the American people, the debate over whether the large U.S. military presence in Iraq threatens our national security has been put on hold. Both political parties seem resigned to allowing the Bush administration to run out the clock ... and bequeath this quagmire to the next president. The result is best described as strategic drift, and stopping it won't be easy.

President Bush claims that his strategy is having some success, but toward what end? He argued that the surge would provide the political breathing space needed to achieve a unified, peaceful Iraq. But its successes, which Bush says come from a reduction of casualties in certain areas, have been accompanied by massive sectarian cleansing. The surge has not moved us closer to national reconciliation. ...

Progressives must be careful not to repeat the mistakes made in 2002 and 2004, when they failed to offer a clear challenge or choice on Iraq. Splitting the difference and hedging on positions helped get America into this quagmire. ... Progressive candidates should be offering clarity on Iraq and pushing for a real change in course. ...

Rather than push for a realistic end to U.S. engagement, the Bush administration claims doomsday scenarios would become reality if a phased U.S. withdrawal began. Iraq, it says, would become a terrorist sanctuary, incite regional war or be the scene of sectarian genocide. These arguments are as faulty as those that led us into Iraq, and progressive leaders must push back. ...

The real security problem in Iraq is a vicious power struggle among competing militias and factions. Foreign terrorists are mainly Sunni and represent only a small percentage of the problem. ... [I]n Anbar province, Sunni tribal leaders rose up against the pro-al-Qaeda Sunni elements well before the surge began. Drifting along the current path actually enhances the al-Qaeda narrative of America as an occupier of Muslim nations.

Similarly, the presence of a large U.S. combat force contributes to regional instability. Since the surge began, the number of internally displaced Iraqis has more than doubled. The U.N. ... has said that more than 2 million Iraqis have left the country, and tens of thousands flee every day, often to squalid camps in Syria and Jordan.

As long as U.S. forces remain in Iraq in significant numbers, regional powers feel free to meddle, knowing that America must bear the consequences. If we clearly state our intent to leave, these states will have incentive to intervene constructively; it would endanger their own security if Iraq were to become a failed state or a launching pad for international terrorism. Even Shiite-dominated Iran, which has become the region's largest power as a result of the war, would not want an Iraqi haven for Sunni-controlled al-Qaeda.

There is one sure way to stop this drift. The United States must set a firm withdrawal date. It is the only way Iraqis and regional leaders will make the compromises necessary to stabilize Iraq and the entire Middle East. This withdrawal can be completed safely in 12 to 18 months and should be started immediately.

President Bush seems content to let Iraq drift until he leaves office, but America can ill afford this policy...

"The Hidden Costs of the Iraq War"

New estimates for the cost of the Iraq and Afghanistan wars:

'Hidden Costs' Double Price Of Two Wars, Democrats Say, by Josh White, Washington Post: The economic costs ... of the wars in Iraq and Afghanistan so far total approximately $1.5 trillion, according to a new study by congressional Democrats that estimates the conflicts' "hidden costs"-- including higher oil prices, the expense of treating wounded veterans and interest payments on the money borrowed to pay for the wars. That amount is nearly double the $804 billion the White House has spent or requested ... through 2008... [The] report, titled "The Hidden Costs of the Iraq War," estimates that the wars ... have thus far cost the average U.S. family of four more than $20,000...

Forward Looking Markets See Trouble in Iraq

Austan Goolsbee on what the Iraqi bond market is telling us about the chance of success in Iraq (this has come up previously, see "Is The 'Surge' Working? Some New Facts" and Jim Hamilton: Economic Indicators of Success in Iraq):

In the Bond Market, a Bleak Prognosis for Iraq, by Austan Goolsbee, Commentary, NY Times: President Bush's surge of troops in Iraq has done little to resolve the political debate over the Iraq war. But global financial markets have been monitoring the war for months, and with remarkable consistency, they have concluded that the long-term prospects for a stable Iraq are very bleak.

That is the picture that emerges from a study by Michael Greenstone, an economics professor at the Massachusetts Institute of Technology... Professor Greenstone started by reviewing basic statistics on the Iraqi economy and on the battle for security within Iraq since February. This data provided a murky view, at best. ... Sifting through these facts was time-consuming, but it provided little real guidance on the state of affairs in Iraq.

It wasn’t until Professor Greenstone began examining the financial markets’ pricing of Iraqi government debt that he had his eureka moment. It was immediately clear that the bond market — which, historically, has often been an early indicator of the demise of a political system — was pessimistic about the Iraqi government’s chances for survival. ...

"Should We Use Mercenaries at All?"

Tyler Cowen responds to a comment:

Should we use mercenaries at all?, by Tyler Cowen: Over at Mark Thoma's, Bernard Yomtov asks a very good question:

Why should there be mercenaries at all, given the existence of a large and well-trained Army? The mercenaries are former soldiers. Their functions are military and could be carried out by regular soldiers. The only reason I can see for using them is precisely to have people doing military jobs who are outside the normal chain of command, and not subject to normal laws, rules, and regulations governing the conduct of soldiers. In other words, it is to have people who do not work for government in the way that they should.

Most private contractors today do not serve in the function of soldiers but rather they deliver, ensure, and guard supplies. This should be evaluated on a case-by-case basis, but often the private sector does a better job and without major legal problems. 

Security guards, however, are often "mercenaries." A general or top Iraqi official for instance might be guarded by Blackwater employees. The critics have not shown that Blackwater employees misbehave at a higher rate than do U.S. soldiers, so the comparative case against Blackwater -- as opposed to the more general case against the war -- is mostly shrill rhetoric. It is possible to pay Blackwater employees bonuses for good performance rather than just give medals, plus they are on a higher pay scale in the first place. Nonetheless my judgment call is that issues of perception and accountability are important enough in contemporary Iraq that we should be using contractors less in these capacities (as the column indicated), but the temptation to use them is based on more than just sheer political abuse.

Contractors lower the cost of good operations, contractors lower the operational (but not social) cost of bad operations, contractors magnify the costs of mistaken Executive preferences, and contractors can raise new problems of monitoring. If you don't think the first item on this list is at work, there is good reason to cut back on contractors in Iraq.

But if you view the scope and use of contractors as a more general decision, rather than something which can be fine-tuned for each war, it is no longer such a simple choice.

I do not believe contractors should be used as combatants. Supply and support missions are another matter, and if by chance private contractors come under unexpected attack they should defend themselves, but they should not be put into such situations intentionally. Killing, if it has to be done at all, should not be done by contract, government or otherwise. Death is not just another good to be traded in the marketplace and I refuse to treat it that way even if, somehow, we do manage to save a few bucks along the way (and the economics can cut both ways, i.e., there are arguments about externalities that undercut the argument for contractors, e.g. who paid to train the people that Blackwater now uses and how much of the saving comes from taxpayers footing the bill for the training, but that just scratches the surface of externalities such as contractors not fully internalizing the cost of killing civilians or harming Iraqi property).

If I thought that using mercenaries would save lives overall, including the lives of innocent Iraqi bystanders, then I would consider the option even if it costs more, not less - as it does. These are lives we are talking about, not widgets produced by xyz. If pay for soldiers is the problem, if we get better service from Blackwater because they are paid more, then fix it - we're paying the Blackwater employees with tax dollars already and I have no problem at all with paying people willing to enter into combat as U.S. soldiers very, very well for that risk. But it's hard for me to believe that money is the motivating factor in combat when one's life is, very literally, on the line.

For me, it's akin to executions. If we have to have them (and we don't, and shouldn't), it should be the government who does the killing. Period. We might save money by contracting the executions out to the private sector, and probably would, but is that how you want it to be done? If not, how is war different? Again, for me, killing should never be part of an economic transaction between government and the private sector. If we must defend ourselves, if killing must be done, it should not be carried out as a for profit activity. I understand and support the use of contractors in support roles - providing for the needs of people in combat - but war zones are not a place where economic incentives much matter. The institutions that support markets are completely absent for one thing, staying alive trumps all, and the discipline of the military, not the discipline of the market, is what provides incentives to curtail behavior such as shooting anything that moves in order to stay alive. Markets have their places, but war zones are not among them.

Private Contractors and War

Tyler Cowen:

To Know Contractors, Know Government, by Tyler Cowen, Economic Scene, NY Times: Allegations of misbehavior by employees of Blackwater USA in the shooting deaths of 17 Iraqis have brought the military’s use of private contractors into question. But whatever the possible sins of the Blackwater firm, the overall problem is not private contracting in itself; ... but rather ... the sins and virtues of their customers, namely their sponsoring governments.

It is easy to rail against contractors for holding money above loyalty to country; Halliburton, for instance, has been a target of this criticism. But... private ships licensed to carry out warfare, helped win the American Revolution and the War of 1812. ... Today, many of our allies receive payment, either implicitly or explicitly, to support American efforts. War is, among other things, an economic undertaking, so the profit motive in military affairs isn’t always bad or ignoble.

When it comes to supplying troops, or protecting high-ranking officials, private military contractors often offer greater flexibility and rapidity of response. The employees, many of whom are former soldiers or operatives, tend to have more experience than current, mostly younger soldiers.

The recent comeback of private contracting suggests that central governments have become weaker again, at least relative to the tasks they are undertaking. Alexander Tabarrok ... traced the history of private contractors in a study, “The Rise, Fall, and Rise Again of Privateers” (The Independent Review, spring 2007 ). He showed that public navies and armies began to displace private contractors in the 19th century, as governments became more powerful and better funded.

Today, America no longer has a draft, its military bureaucracy can be inflexible and the public wishes to be insulated from the direct impact of war. Contractors are a symptom of government weakness, but are not the problem itself. The first Persian Gulf War, which enjoyed greater international support, was not reliant on contractors to nearly the same degree.

Among many Iraqis, Blackwater and other companies have a reputation for getting the job done without much caring about Iraqis who get in the way. But part of the problem may stem from economic incentives. If Blackwater is assigned to protect a top American official, who is later assassinated, Blackwater may lose future business. A private contractor doesn’t have a financial incentive to protect Iraqi citizens, who are not paying customers. Ultimately, this reflects the priorities of the United States military itself. American casualties are carefully recorded and memorialized, but there is no count of Iraqi civilian deaths.

It is harder to recognize when private contractors are being underemployed. During the Rwandan civil war in the 1990s, the United Nations debated using two private contractors, Executive Outcomes or Sandline International, to intervene. The U.N. rejected the notion and instead turned to a poorly trained Zairean police contingent. We’ll never know how private contractors would have fared, but the Zaireans were ineffective; some 800,000 Rwandans were murdered.

Yet the use of contractors is not a free lunch.

Compared with the military, contractors are not subject to direct scrutiny by Congress and they are not covered by international law with the same clarity. Excessive use of private contractors erodes checks and balances, and it substitutes market transactions, controlled by the executive branch, for traditional political mechanisms of accountability. When it comes to Iraq, we’ve yet to see the evidence of a large practical gain...

When private contractors are combined with government troops, the contractors usually can’t do much better than the setting in which they are asked to perform.

When things are going well and the “good guys” are in control, the flexibility and experience of military contractors can make things go even better. But when the environment is hostile and events are spiraling out of control, the incentives of private contractors may lead to many mistakes.

Note that a serious issue for Blackwater — the allegations about needless deaths of innocent civilians — has also been an issue for United States government forces from the beginning of the conflict.

Most of all, contractors are appealing when a victory is possible in relatively quick order. The potential accountability problems won’t linger for long; conversely, few contractors will look good when a conflict runs on for years.

Currently, the chances of establishing a stable Iraqi government appear quite low. ... If so, we should be cutting back on private contractors, as the critics are suggesting, because there is no desirable end in sight. Of course, those same reasons suggest troop cutbacks as well.

In the next conflict, however, the temptation to use contractors may again be strong. What if private contractors offer a real chance of making a positive difference? ...

Private contractors may not respect virtue for its own sake, but like most businesses, they will respect the wishes of their most powerful customers, in this case governments. What is wrong with Blackwater may, most of all, mirror what is wrong with Uncle Sam.

"Where Does the Right-Wing End and the Media Begin?"

This is part of an interview with Paul Krugman on the relationship between the right-wing and the media, and other matters:

Where Does the Right-Wing End and the Media Begin? By Rory O'Connor, AlterNet: I had the opportunity to sit down this week with ... Paul Krugman... He certainly pulled no punches during our conversation...

Rory O' Connor: ...What role if any do the media play in movement conservatism?

Paul Krugman: The media are a very important force... They shape perceptions, and they conceal issues. Look at the 2000 presidential campaign, for example, where the media were so heavily biased against Al Gore. That's what brought Bush to within a Supreme Court decision of the White House. ...[T]he role of the media in not telling you reasons why you should be skeptical about the course of the war, for example, it's enormously important. ...

[T]here are several major parts of the news media that are for all practical purposes part of "movement conservatism" -- Fox News, the New York Post, the Washington Times -- and in which other news organizations are intimidated, at least to some extent. I sometimes talk about ... "asymmetrical intimidation." If you say a true but unflattering thing about Bush or in fact about any other prominent conservative, oh, boy! People are going to go after you. I mean, I've got people working full-time going after me, right? But if you say a false, unflattering thing about a Democrat or a progressive, no risk ... And that shapes coverage, no question about it. It's better now, but it's still very asymmetric. The other thing ... about the media is their addiction to the trivial. We've got the most substantive election coming up, I think, ever. ... And what are we seeing news stories about? John Edwards' hair and Hillary Clinton's laugh ... this is horrifying! And again -- it's asymmetric. ...

ROC: It sounds like you're saying there's a bias in the media. If you are, what is the bias?

PK: The media's bias, a large part of it is in fact right-wing bias, because they are effectively part of the right wing. Fox News ... there's ... no liberal equivalent..., there is no network that, if a conservative got the Nobel Peace Prize, would have responded the way Fox News did to Al Gore's Peace Prize...

Beyond that, there's two things at least; first, the hatred of substance -- they really want to talk about all that trivia -- and there's also the fetish of evenhandedness. ... Way back in the 2000 campaign, I wrote ... that if Bush said the earth was flat, the headline would read: "Opinions Differ on Shape of the Planet." I was thinking specifically about what Bush was saying about taxes and Social Security, which were just out and out lies! But no one would say that, and they still won't. It's better now, a little, but they still won't say it... [T]he Big Lies are all on the right right now. So it works much more to their advantage.

ROC: Do you think it's possible that economics is driving politics in the media?

Robert Reich's Postscript on Fair Taxes

Robert Reich says "the case for substantially raising marginal income tax rates on the rich" is clear:

Who Pays the Dollars that Finance Bush's War? More on a Fair Tax Burden, by Robert Reich: President Bush has just sent Congress an “emergency” request for an extra $46 billion in expedited funds for Iraq, Afghanistan and other national security needs. That’s in addition to the $145 billion in war-related spending included in Bush’s original 2008 budget. Which brings me back to the subject of who’s gonna pay for all this. ...

[T]he principle for who’s gonna pay should be equal sacrifice. Equal sacrifice means that in paying taxes, people ought to feel about the same degree of pain – regardless of whether they’re wealthy or poor. This means that someone earning $2 million a year ought to pay a larger portion of her income in taxes than someone earning $20,000 a year. Even Adam Smith saw the wisdom of a graduated tax. “The rich should contribute to the public expense, not only in proportion to their revenue, but something more in proportion,” he wrote. (Wealth of Nations, vol. 2, ed. Campbell, Oxford U Press, 1976, p. 840.)

Traditionally during wartime, taxes have been raised substantially on top incomes to help pay the extra costs of war. The estate tax was imposed by wartime Republican presidents Lincoln and McKinley. It was maintained through World War I, World War II, the Korean War, and the Cold War. Now, under Bush, with Bush's war costing more and more, it's being phased out.

During World War I the marginal income tax on the richest Americans rose to 77 percent; during World War II it was over 90 percent. In 1953, with the Cold War raging, Republican president Dwight Eisenhower refused to support a Republican bill to reduce the top rate, then 91 percent. By 1980, the top marginal rate was still at 70 percent.

Combine this logic with the facts I shared with you two blogs ago – about how large a share of national income and wealth the super-rich now claim – and the case for substantially raising marginal income tax rates on the rich should be even clearer.*
_____________
* Postscript: The blogger who asserts that 84.6 percent of all federal taxes are paid by the top 25 percent of income earners, and over a third are paid by the top 1 percent, advances a specious argument. First, most Americans pay more in payroll taxes than in income taxes; in addition, state sales taxes have grown faster than almost any other form of taxation. Both payroll taxes and sales taxes take a much bigger portion of the paychecks of lower-income Americans than of higher-income. Viewed as a whole, the current tax system is quite regressive.

Second, and more to the point, it’s irrelevant how much of the total income tax burden is paid by the top 25 percent, or even the top 1 percent. The ethical and logical issue is what sort of sacrifice individuals are making, or should be expected to make, rather than what sacrifice an economic “class” is making as a whole. The rich have become so wealthy that even if each wealthy American paid a very small share of his or her incomes in taxes, the rich would still, as a group, account for a large share of total income taxes. I find it ironic that conservatives who extol the virtues of individualism and abhor so-called “class warfare” would resort to such a deceptive argument.

And, though I think Reich has in mind a net increase in taxes rather than revenue neutral offsets that increase progressivity, along these lines:

A Tax Plan as Trial Run for ’09 Law, by Edmund L. Andrews, NY Times: The House’s leading Democratic tax writer will propose a sweeping overhaul of the tax code on Thursday that would increase taxes on many people with incomes above $200,000 but cut them for most others.

The bill, [is] to be introduced by Representative Charles B. Rangel of New York ... Mr. Rangel has acknowledged that he does not expect to enact such a bill this year, and President Bush would almost certainly veto legislation that raises taxes on the wealthy. ...

The Cost of the War

The CBO has estimated the cost of the war based upon two scenarios:

Summary At the request of Chairman Spratt, the Congressional Budget Office (CBO) has totaled the funding provided through fiscal year 2007 for military and diplomatic operations in Iraq and Afghanistan and other activities associated with the war on terrorism, as well as for related costs incurred by the Department of Veterans Affairs (VA) for medical care, disability compensation, and survivors’ benefits. In addition to totaling the funding provided to date, CBO has projected the total cost over the next 10 years of funding operations in support of the war on terrorism under two scenarios specified by the Chairman. Those scenarios are meant to serve as an illustration of the budgetary impact of two different courses in the war on terrorism but are not intended to be a prediction of what will occur.

Appropriations for U.S. Operations in Iraq and Afghanistan and for the War on Terrorism (Billions of dollars)

Including both funding provided through 2007 and projected funding under the two illustrative scenarios, total spending for U.S. operations in Iraq and Afghanistan and other activities related to the war on terrorism would amount to between $1.2 trillion and $1.7 trillion for fiscal years 2001 through 2017 (see Table 1). A final section of this testimony briefly compares parts of CBO’s estimate to a frequently cited estimate prepared by two academic researchers, Linda Bilmes and Joseph Stiglitz. ...

According to this, there is an additional $700 billion in interest expenses bringing the total (under the $1.7 trillion dollar scenario) to $2.4 trillion. There is more to say but, unfortunately, I am short on time, so I will leave it to you to add more detail in comments. [Update: More here.]

War on the Cheap

Since we're talking about who pays the costs of the war, here's a way the costs are being reduced: by making sure soldiers who served in Iraq are not eligible for education benefits after they return. This is not how we should be saving money or treating our soldiers. This is from George Borjas:

Kinked Constraints, by George Borjas: Every microeconomics student learns that sudden changes in opportunities--which are usually represented by kinks in the constraints facing decision makers--generate outcomes that cluster on those kinks.

Examples abound: Workers retire at age 65 (and not at age 64 years and 364 days) because of the substantial change in retirement benefits that kicks precisely when the worker turns 65; employers recall workers from temporary layoffs just before the government-provided unemployment benefits expire; and so on.

Well, here is one particularly pathetic example of the behavioral impact of kinked constraints:

When they came home from Iraq, 2,600 members of the Minnesota National Guard had been deployed longer than any other ground combat unit. The tour lasted 22 months and had been extended as part of President Bush's surge.

1st Lt. Jon Anderson said he never expected to come home to this: A government refusing to pay education benefits he says he should have earned under the GI bill...

Anderson's orders, and the orders of 1,161 other Minnesota guard members, were written for 729 days.

Had they been written for 730 days, just one day more, the soldiers would receive those benefits to pay for school. "Which would be allowing the soldiers an extra $500 to $800 a month," Anderson said.

I no longer believe in coincidences when it comes to stuff like this. Whoever wrote the order for 729 days knew precisely what he or she was doing.

While sticks and stones are breaking bones, we're more interested in whether words have hurt us. I'd rather see the press focus on issues such as who wrote this policy and under whose direction, how widespread the practice is, and so on, than to hear another word about what Rush or anyone else said that might have hurt someone's feelings. Rush is a buffoon who deserves to be ignored, not catered to when he craves attention and makes the latest outlandish statement. Writing a policy to avoid paying education benefits under the GI bill (and other things such as providing access to needed health care when soldiers return from duty in Iraq) says more about support for soldiers who have served than anything he might say and all of the attention devoted to Rush et. al. crowds out more important discussions from the public dialogue.

Who Should Pay for the War?

Thomas Friedman says we are through the looking glass:

Charge It to My Kids, by Thomas Friedman, Commentary, NY Times: Every so often a quote comes out of the Bush administration that leaves you asking: Am I crazy or are they? I had one of those moments last week when Dana Perino, the White House press secretary, was asked about a proposal by some Congressional Democrats to levy a surtax to pay for the Iraq war, and she responded, “We’ve always known that Democrats seem to revert to type, and they are willing to raise taxes on just about anything.”

Yes, those silly Democrats. They’ll raise taxes for anything, even — get this — to pay for a war!

And if we did raise taxes to pay for our war ..., “does anyone seriously believe that the Democrats are going to end these new taxes that they’re asking the American people to pay at a time when it’s not necessary to pay them?” added Ms. Perino. “I just think it’s completely fiscally irresponsible.”

Friends, we are through the looking glass. It is now “fiscally irresponsible” to want to pay for a war with a tax. These democrats just don’t understand: the tooth fairy pays for wars. Of course she does — the tooth fairy leaves the money at the end of every month under Treasury Secretary Hank Paulson’s pillow. And what a big pillow it is! My God, what will the Democrats come up with next? Taxes to rebuild bridges or schools or high-speed rail or our lagging broadband networks? No, no, the tooth fairy covers all that. She borrows the money from China and leaves it under Paulson’s pillow. ...

Of course, the chairman of the House Appropriations Committee, the Democrat David Obey, in proposing an Iraq war tax to help balance the budget was expressing his displeasure with the war. But he was also making a very important point when he said, “If this war is important enough to fight, then it ought to be important enough to pay for.” ...

Previous American generations connected with our troops by making sacrifices at home — we’ve never passed on the entire cost of a war to the next generation, said Robert Hormats, vice chairman of Goldman Sachs International, who has written a history — “The Price of Liberty” — about how America has paid for its wars since 1776.

“In every major war we have fought in the 19th and 20th centuries,” said Mr. Hormats, “Americans have been asked to pay higher taxes — and nonessential programs have been cut — to support the military effort. Yet during this Iraq war, taxes have been lowered and domestic spending has climbed. In contrast to World War I, World War II, the Korean War and Vietnam, for most Americans this conflict has entailed no economic sacrifice. The only people really sacrificing for this war are the troops and their families.”

In his celebrated Farewell Address, Mr. Hormats noted, George Washington warned against “ungenerously throwing upon posterity the burdens we ourselves ought to bear.”

I don't think that now is the right time to raise taxes given the weakness in the economy, and to the extent that spending on the war has crowded out other types of spending there has been a cost for the war, but in general the idea that we need to bear the consequences of our decisions is hard to argue against. Once the nation's decision-making apparatus, such as it is, decided to go to war, what if the rich and powerful had been told that their tax cuts would have to wait until the war ended, that paying for the war would not allow tax-cuts so long as the war was still going on? Might that have changed the support for the war the president received from this powerful coalition? The tax-cuts are hard to justify in any case, and a tax-cut on hold may not have been enough to change the outcome, but requiring sacrifice of some sort from those of power and influence is at least a step toward bringing the costs of the war into the decision making process. Being forced to pay for a war I don't support would tick me off, but that's the point -- by making the public fully internalize the cost of the nation's decision to go to war (including the human cost), it will motivate more pressure to bring this war to an end.

America is Not at War, America is at the Mall

A proposal to raise taxes to help to pay for the war:

The Iraq money pit, by James P. McGovern, Boston Globe: I recently came across a photo of a handwritten sign in a US military facility in Ramadi, Iraq. The sign read, "America is not at war. The Marine Corps is at war; America is at the mall."

The sign reflects a perception among many US soldiers and their families that the American people are not sharing in their sacrifice. It is a perception grounded in reality..., who is really sacrificing? Certainly not members of Congress. We will not wake up tomorrow in harm's way in Baghdad or Fallujah. ...

I propose we change this dynamic by raising taxes on nearly every American in order to pay for the war in Iraq. ...

It is reasonable to assume that the cost will approach $800 billion by the time Bush leaves office. I will soon introduce legislation to impose a "surtax" to begin paying for future war costs that have not been budgeted and paid for by existing federal revenues. This war surtax is modeled on similar surtaxes imposed during World War II and the Vietnam War to cover war costs. ...

My surtax proposal is not an additional tax on income; rather, it is a tax on tax liability.

For example, if a low-income taxpayer owes $100 in taxes, he would be subject to an additional 2 percent surtax of $2. Wealthy taxpayers would pay a higher percentage. Corporations, trusts, and estates would also be subject to the surtax.

Needless to say, this idea of a surtax makes my colleagues - Democrat and Republican - exceedingly nervous. No politician likes to talk about raising taxes. But somebody, someday, somewhere will pay the hundreds of billions we have borrowed so far for this war.

My conservative colleagues will argue that we should cut spending to cover the costs. That's nice rhetoric, but it's not real. Are we going to eliminate the entire departments of Labor, Education, and Health and Human Services? Or how about eliminating all funding for the departments of Agriculture, Commerce, Justice, Energy, Interior, Treasury, the EPA, and NASA combined? That's what it would take to fund just one year of the Iraq war.

Some of my fellow antiwar liberals believe that since the war in Iraq is wrong, they do not want to pay for it. But isn't it also wrong to force future generations to pay for it?

I voted against the war in Iraq. I have consistently fought to bring the war to an immediate end and to bring our troops home. I believe it is the worst political, military, and diplomatic tragedy in our history.

But to force our children to pay for that tragedy would only compound it. The war in Iraq has been this generation's mistake. It should not be the next generation's burden.

We have an opportunity to say to our soldiers and their families that we are in this together; that their fellow citizens are also sacrificing just a little bit.

That's a message worth sending.

While it's certainly true that someone will have to pay for the war at some point - somebody, someday, somewhere will have to give up something to pay the bills - raising taxes right now is not good short-run economic policy given the current weakness in the economy. Driving the economy into a recession would show sacrifice, but that's not the best way to show our support.

It's not good politics either. If a bill was passed raising taxes, and George Bush actually signed it only to have the economy then sink into a recession due to the housing slump or other causes, the political fallout would be large (The WSJ is already claiming that the belief that Democrats will raise taxes is making businesses hesitant to invest and contributing to the current weakness). Thus, while good long-run budget policy does require a plan to pay for expenditures, the political gain from raising taxes now seems small relative to the potential political and economic downside.

I am not objecting to implementing reality-based long-run budget policy, but the mistake was cutting taxes with a war on and the economy relatively strong. We shouldn't compound that error by now raising taxes just as the economy is showing signs of weakness. We will need to pay for this war, and I understand the underlying political point being made through a proposal which has no realistic chance of passage. But even if it did have a chance to pass, now is not the time to put the brakes on the economy.

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And please drop this argument:

My surtax proposal is not an additional tax on income; rather, it is a tax on tax liability. For example, if a low-income taxpayer owes $100 in taxes, he would be subject to an additional 2 percent surtax of $2.

That's just an accounting gimmick that invites ridicule from the opposition. This raises taxes, so just say that directly. If the person earns $1,000 and the tax is 10% (=$100), then with the surcharge the tax on income is 10.2% or $102. The $2 comes out of income one way or the other and calling it a tax on a tax doesn't change that.

"Trust Us"

"Wartime economist" and libertarian David Henderson:

War and the Constitution, by David R. Henderson: ...The U.S. Constitution is there to protect our rights, to tell the government the only things it can do. If the federal government does not have a specific power granted to it within the Constitution, then it does not have that power. Period. ...

[O]ur rights... [are also protected by] the carefully thought-out division of powers within the U.S. Constitution. Why such a division of powers? Because no one is to be trusted with too much power. Incidentally, when Alberto Gonzales gave a talk at the Naval Postgraduate School in 2002 defending many of President Bush's unconstitutional actions, a colleague and I challenged him afterward. He tried to reassure us, saying, "Condi and others and I are looking out for how the president will play in history. We don't want him to look like some monster who destroyed our freedom. Trust us." I answered, "The Constitution is not based on trust, but on distrust."

One of the most important things the government does is engage in war. For that reason, the Constitution gives the power to declare war solely to Congress. ...

Consider why this matters. Think back to all the discussion before the U.S. government invaded Iraq in March 2003. One of the biggest issues was whether, and to what extent, Saddam Hussein had weapons of mass destruction. We now know that he didn't have such weapons – even many of Bush's defenders will admit his error. We don't even need to get into the issue of whether Bush was lying. Even if we assume the best – that Bush was saying what he thought to be true – the point is that we could have had a much better discussion of the issue if Bush had followed the Constitution. If Congress had actually decided to vote on whether or not to declare war on Iraq, they would have had a debate. If they had had a debate, there would have been multiple sources of information about the weapons of mass destruction. But by violating his oath to uphold the Constitution, Bush made sure that there wasn't an extensive debate. ...