What will war cost? Studies weigh oil prices, lost productivity, more

WASHINGTON — Academic research released this week has stirred debate over the ultimate cost of the Iraq war, beyond what has been budgeted.

Congress appropriated $357 billion from 2002 through the end of 2005 for the wars in Afghanistan and Iraq and related security issues, according to the nonpartisan Congressional Research Service.

But two research papers — one authored by an Iraq war critic, the other by a scholar at a conservative research center — sparked controversy by suggesting that when economic factors not included in the budget are added, the true cost to the U.S. economy over the next decade could be anywhere from $657 billion to $2 trillion for the Iraq war alone.

That's a lot of money; $2 trillion is enough to buy General Motors about 175 times at current stock prices.

The researchers include what continued military operations in Iraq could cost over the next decade — as much as $266 billion, according to the nonpartisan Congressional Budget Office.

Both papers also place a dollar value on war-related consequences that are hard to measure. For instance, they try to gauge the lost productive capacity of soldiers killed in Iraq or National Guard members taken away from home for protracted tours of duty.

Both estimate the costs of lifetime disability benefits and care for injured service members, assuming, based on past conflicts, that 20 percent have brain injuries and 6 percent amputations. As of Friday — according to icasualties.org, a Web site that tracks coalition casualties in Iraq from military news releases — 16,337 U.S. troops had been wounded in Iraq, more than 7,600 so seriously that they couldn't return to duty within 72 hours.

It isn't clear how they arrived at cost estimates of treating the wounded, given the war's uncertain duration and varying intensity.

The studies also try to gauge where today's sky-high oil prices would be if there had been no war and if Iraq had been allowed to produce more oil under U.N. supervision. The researchers conclude that oil prices are 20 percent higher because of the war and the uncertainty about future supplies that it created in the global marketplace.

The papers add the cost of interest on government debt run up by the war and attempt to measure opportunity cost, an economic term for the cost of doing one thing instead of another. An example: the difference between what an Army reservist would earn in civilian life and the lower pay he or she must accept in Iraq.

They try to measure over time variables such as higher military-recruitment costs, the value of falling applications to military academies, even the "value of statistical life." That sounds morbid, but actuaries routinely translate the value of human life into dollar terms.

Attracting the most attention is a study co-authored by Joseph Stiglitz, a Nobel Prize-winning Columbia University economist, former chief economist at the World Bank and outspoken critic of the war. In a 36-page paper released this week, Stiglitz and Harvard University lecturer Linda Bilmes argue that the total economic costs of the war dwarf government spending on it.

"Even taking a conservative approach, we have been surprised at how large they are," the two wrote. "We can state, with some degree of confidence, that they exceed a trillion dollars."

The total could rise to $2 trillion under the less conservative of Stiglitz's two models.

Government agencies often conduct such cost analyses when weighing policy options, but the Bush administration did no such analysis before it decided to invade Iraq. Before the March 2003 invasion, the administration didn't offer an official estimate for what the war might cost.

Lawrence Lindsey, director of the White House's National Economic Council, was shown the door after suggesting that it could cost $100 billion to $200 billion. Events have proved that estimate low. Other officials had said they believed that increased sales of Iraqi oil would pay for much of the cost of rebuilding the country.

Maybe they should have thought harder, Scott Wallsten suggested. He's a scholar at the American Enterprise Institute, a conservative research center, who published a war-costs analysis in September that was updated recently. Wallsten concludes that the cost of the Iraq war to the U.S. economy, beyond the $357 billion appropriated by Congress, will exceed $300 billion.

"The point of the paper wasn't to take a position on the war," Wallsten said. "I am hoping to create a framework for evaluation."

The White House bristled at that.

"The president doesn't approach defending America as an accountant," spokesman Trent Duffy said, adding that there are economic benefits to preventing terrorism. The war on terrorism, he said, "is not something to approach with a calculator or slide rule, but as a war against a determined enemy."

Some analysts, however, argue that the Iraq war is inspiring more Muslim extremists to pursue jihad against America.

Both new studies tried to factor in benefits from the war, such as no longer having to enforce a no-fly zone in Iraq. Wallsten also put the benefits from Saddam Hussein no longer terrorizing his people at $116 billion.

Richard Walker, a spokesman for the White House Office of Management and Budget, declined to comment on the estimates of nonbudgeted economic war costs, dismissing them as speculation.

The methodology that Stiglitz uses is similar to others who are reaching similar conclusions. One was Yale University economist William Nordhaus, who in December 2002 published a detailed paper about what the pending war in Iraq might cost the U.S. economy over the next decade.

His high-end conclusion? About $1.9 trillion.