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.
Even the president would have to admit that the $50 to $60 billion estimate given by the administration before the war was wildly off the mark; there is little reason to have confidence in their arithmetic. They admit to a cost so far of $600 billion.
Our numbers differ from theirs for three reasons: first, we are estimating the total cost of the war, under alternative conservative scenarios... We are not looking at McCain's 100-year scenario - we assume that we are there, in diminished strength, only through to 2017. But neither are we looking at a scenario that sees our troops pulled out within six months. With operational spending going on at $12 billion a month, and with every year costing more than the last, it is easy to come to a total operational cost that is double the $600 billon already spent.
Second, we include war expenditures hidden elsewhere in the budget, and budgetary expenditures that we would have to incur in the future even if we left tomorrow. Most important of these are future costs of caring for the 40% of returning veterans that are likely to suffer from disabilities (in excess of $600 billion; second world war veterans' costs didn't peak until 1993), and restoring the military to its prewar strength. If you include interest, and interest on the interest - with all of the war debt financed - the budgetary costs quickly mount.
Finally, our $3 trillion dollars estimate also includes costs to the economy that go beyond the budget, for instance the cost of caring for the huge number of returning disabled veterans that go beyond the costs borne by the federal government - in one out of five families with a serious disability, someone has to give up a job. The macro-economic costs are even larger. Almost every expert we have talked to agrees that the war has had something to do with the rise in the price of oil; it was not just an accident that oil prices began to soar at the same time as the war began. We have been criticised, but for being excessively conservative, for including only $5 to $10 of the $75 to $85 increase in the price of oil since then. ...
Deficits matter... They help crowd out private investment that would have stimulated the economy far more than the war expenditures; and the reduced investments reduce long-run productivity. With 40% of the funds borrowed from abroad, Americans will be sending interest payments abroad - lowering living standards at home. Finally, even Fed Chair Bernanke ... admits that the deficits have reduced ... the ability of the government to respond to the looming economic crisis.
Spending so much on the war has economic consequences, even if you don't think there is any connection between the war and the economy's current woes.
In adding up the quantifiable costs of the war, it is hard not to come up with a number in excess of $3 trillion. In putting a $3 trillion price tag on the war, we believe we have been excessively conservative - a $4 or $5 trillion tag would be more reasonable. And remember - this is just the cost for America.