The Costs of the Iraqi Conflict: 2008 update

1. The Costs of the Iraqi Conflict: 2008 update Security Policy Working Group Press Briefing National Press Club Linda Bilmes Harvard University Kennedy School of Government February 13, 2008

2. One of the Longest Wars March 19 marks the 5th anniversary of the US invasion of Iraq US in World War II: 3 years, 8 months World War I: 2 years, 2 months Korea: 3 years, 1 month

3. Iraq and Afghanistan War Casualties *Plus an estimated 1000 US contractors

4. Already one of the most expensive wars The only war in our history which cost more is the Second World War, • armed forces of 16.3 million, • fighting for nearly four years, • at a total cost (adjusted for inflation) of about $3.3 trillion dollars • the cost per soldier (in today’s dollars) was some $50,000. • This war is costing (directly) upwards of $400,000 per soldier: the direct military costs alone are likely to be • at least 50% higher than those of the Vietnam War, • twice those of the Korean War, • four times those of World War I.

5. Before the war…. • Larry Lindsey said war might cost $100-200 billion • He was fired • Defense Donald Rumsfeld dismissed his estimate as “baloney.” • Paul Wolfowitz suggested that postwar reconstruction would pay for itself through increased oil revenues. • Rumsfeld and OMB Director Mitch Daniels estimated total cost of the war to be $50-60 billion, partially financed by other countries

6. We now spend $50-$60 bn every 4 months in operating costs alone • $196 billion requested for FY 2008 • ¾ for Iraq • Burn rate of $12 billion a month (Iraq only) • Will bring total operating costs to $845 billion • In 25+ separate appropriations bills • Funded through “emergency supplementals” which bypass normal scrutiny But even this doesn’t include any long-term costs

7. January 2006 predictions Bilmes-Stiglitz predicted cost of the war would exceed $1 trillion, likely to reach $2 trillion Administration reply: “We don’t go to war on basis of “green eye shaded” calculations • and its defenders said we hadn’t included benefits • “…..the war will lead to large improvements in the economic well-being of most Iraqis relative to their prospects under the policy of containment [the previous policy].” -- Steven Davis, Kevin Murphy, and Robert Topel, “War in Iraq versus Containment,” American Enterprise Institute, Washington, DC, February 15, 2006

8. Since… • Consensus now that our 2006 numbers were conservative • Joint Economic Committee ($3.5 trillion) • CBO ($1.2 - $1.7 trillion, not including interest) • Revised estimates (to be published on occasion of 5th anniversary) confirm these conclusions

9. Estimating the True Costs Direct operational costs to date: Assuming $196 of 2008 request is funded in full: $845 billion + Costs hidden in the defense budget: • Huge cumulative increase in DOD funding since 2001 beyond the costs of the wars themselves • DOD can use regular funds to pay for the war because Congress appropriates money for DOD’s regular budget and for war activities into the same accounts. • DOD can also shift money around by“cash-flowing” • Higher costs of recruiting, retention, concurrent receipt, pay increases (37% since 2001), housing, family, quality of life at bases, maintenance, defense health programs, health care for mobilized reservists and families; hard to separate war vs. non-war + Hidden costs to other departments: • Social Security disability pay; Department of labor pays for defense contractors insurance and for combat benefits

10. Future Costs: military Even in the best of circumstances, will take time to disengage • Huge expenditures on “permanent” bases • Future combat and/or peacekeeping operations • Reset costs • Equipment wearing out, destroyed faster than being replaced • 6-10x peacetime rate; harsh conditions taking a toll • Including equipment of national guards • Demobilization costs • Costs of expanding the armed forces by 2012

11. Veterans Costs Future disability and health care benefits • In first Gulf War, 700,000 fought for a few weeks • But we now pay $4.3 billion a year for disability compensation and benefits • 39% of Gulf War vets receiving disability These numbers increase over time • We pay >$26 bn/year to Vietnam veterans for disability benefits; new claims filed every year • WWII benefits peaked in 1993

12. Estimating the True costs: Veterans 1.64 million deployed to Iraq and Afghanistan • 265,000 currently deployed • Of which: 155,846 US military personnel in Iraq + 23,000 in Kuwait +approx 40,000 naval personnel on ships (vs. 137,000 in January of 2006, 2007) 750,000 discharged to date • 264,000 treated at VA medical facilities already • 100,000 mental health disorders, 52,000 PTSD diagnosed • Incidence of mild-moderate TBI, vision, hearing loss • VA expects to treat 333,000 in 2009

13. Veterans costs • Prospects of huge demand for disability benefits • 224,000 filed disability claims to date • Projected 791,000 eventual claims • 35% have served 2 or more deployments • >60,000 wounded, injured or ill (OIF)+ 8500 in Afghanistan • High level of non-battle injuries, exotic diseases • More than 2 million likely to be deployed • Government ill-prepared for disability claims • Already a backlog of >400,000 pending claims • Plans to hire thousands more claims analysts, make major investments in IT systems

14. Financing the war with debt War has been funded by borrowing Must be repaid with interest 3 categories: • Interest on money already borrowed • Interest still due on $ already borrowed • Interest on future borrowings Plus: effect on total US national debt; Iraq war will add > $1 trillion to debt pile

15. Social/economic costs beyond budgetary costs Amounts government pays do not represent full economic costs • Death benefits of $500,000 vs. VSL in civilian agencies of >$7 million • Disability benefits do not compensate for full loss of economic participation; no compensation for impairment to quality of life Costs are shifted on to others • States and localities • Including opportunity costs of Guards (Katrina) • Veterans and Families • Pay excess cost of caring for seriously injured, • In 20% of those with serious injuries, family member has had to give up employment This adds between $300 - $400 billion in economic costs

16. Macroeconomic Costs • Macro-economic costs of oil price increases • Prices have increased $70 from before the war • Futures markets had anticipated increase in demand from China, elsewhere – but had also anticipated supply response • Projected that prices would remain around $25 a barrel • War the major “unanticipated” event • IMPACT: Transfer to oil exporting countries • Expenditure effects • Marginal deficit crowded out private investment • Iraq war expenditures have low multipliers • Long run growth effects of higher deficits • Long run effects on national income of higher deficits

17. Will be released on February 28…