A trillion dollar war (crossposted at CT)
Before the Iraq war began, Yale economist William Nordhaus estimated the likely cost at between $100 billion and $2 trillion. At the time most of the interest lay in the fact that the bottom end of the range was twice as much as the $50 billion estimate being pushed by the Administration. But with a couple of years’ experience to go on, Nordhaus’ upper range is looking pretty accurate. Assuming that Bush ‘stays the course’, it’s safe to estimate that the war will cost the US at least $1 trillion by the time all the bills come in, and it could easily be closer to $2 trillion.
Let’s start with direct military costs. These have been running at about $80 billion a year and are unlikely to decline in the next year or so. Allowing for a gradual withdrawal over the rest of Bush’s term, a rapid withdrawal thereafter and some continuing military aid, it seems reasonable to estimate operational costs totalling $500 billion.
But that’s not the end of the military costs. The war has forced the US military to eat into its capital stocks, literal and metaphorical. The most obvious impact has been on the National Guard, which was never intended for long-term discretionary military operations like the Iraq war. Recruiting for the National Guard, not surprisingly, has collapsed. To quote RedState.orgRegardless of the path chosen, the National Guard, as we know it, cannot survive in this environment and neither should it. Rebuilding or replacing the National Guard will cost big money. The Army and Army Reserve have similar problems, if not quite as drastic, and will be paying the price of the Iraq deployment long after the last troops are withdrawn. Then there are the costs, stretching far into the future, of caring for the thousands of troops badly wounded in the war. Overall an estimate of $250 billion looks conservative.
Nonmilitary aid to Iraq has been grossly inadequate to achieve anything and the chaos on the ground has meant that the amount of aid actually delivered has been tiny. Still, it’s hard to imagine that the eventual total will fall short of Nordhaus’ estimate of $50 billion.
The big unknown in Nordhaus’ estimates was the effect on oil markets. The worst-case scenario, with the entire Middle East being disrupted hasn’t happened. Still, with oil markets stretched tight, even the modest reduction in Iraq’s exports caused by the war has had an impact. I’d estimate about $5/barrel, which implies about $20 billion/year on the US import bill or around $100 billion over five years.
Finally, there’s the impact of the increased debt on US interest rates. So far there hasn’t been any observable impact. There’s a wide range of estimates of the impact of additional deficit spending. A conservative estimate is that the short-run impact of an extra one per cent of GDP added the deficit is a 10 basis point increase in interest rates. On a net foreign debt of $2 trillion, that’s 20 billion per year, or $100 billion over five years. The full cost could easily be many times this amount.
Adding up all these costs, we get a round $1 trillion. As noted, most of these estimates are pretty conservative, and the total could be much more. Feel free to suggest corrections/amendments.
A trillion dollars is a lot, but is it too much to pay for overthrowing a tyrant (let’s suppose for argument’s sake that some sort of stable government emerges in the end)? I’ve hammered the opportunity cost points (spent on US health services, this sum could save around 200 000 American lives, on civilian aid, tens of millions of lives in the Third World) too many times already, so I’ll try another tack. Given a budget of a trillion dollars and almost unlimited military power, does anyone really want to suggest that competent managers couldn’t have achieved a great deal more liberation from oppression than this. I have plenty of ideas, and I’m sure others do too.