Thursday, January 19, 2006

Trillion Dollar War?

How's this for the essay question on your next econ exam: What's the total cost of toppling Saddam Hussein and battling insurgents in Iraq? Round your answer to the nearest billion dollars and explain your tabulation.

Two recent economic research papers set out to answer this question. One study, authored by scholars from the American Enterprise Institute, estimates the cost at a minimum of $657 billion. Another study, authored by Joseph Stiglitz of Columbia and Linda Bilmes of Harvard, puts the total cost of war at upwards of $2 trillion. These estimates dwarf the initial White House projections of $200 billion, and even the $357 billion appropriated by Congress in 2002 for fighting in Afghanistan and Iraq. Why are the estimates so different?

To interpret the estimates we need to understand that the cost of war exceeds the government expenditures on fighting it. Fighting a war presents a host of opportunity costs and disruptions that do not show up in the government budget reports. Initial White House projections attempted to account for explicit costs associated with military operations in Iraq. The economic studies attempt to account for both the explicit costs and the opportunity costs that the war will generate for years to come.

War cost accounting is an inexact but informative science. Read on to see what types of questions economists try to answer when estimating the costs of war.

1. What is the Congressional Budget Office's estimate for explicit costs associated with military operations in Iraq over the next decade?

2. What are the opportunity costs of sending National Guardsmen or reservists to Iraq for extended tours of duty? What types of health care costs will the United States incur after the war? What are the opportunity costs associated with an injured soldier who cannot return to normal work after the war?

3. According to the researchers, what effect did the war in Iraq have on oil prices?

4. The high costs of the Iraq war do not necessarily mean it was a bad idea. What are the benefits associated with the war in Iraq? Are the costs of withdrawing troops from Iraq greater than the costs of keeping the troops there?

See the studies for yourself:

Stiglitz and Bilmes
Wallsten and Kosec

Topics: War, Opportunity cost, Cost-benefit analysis, Implicit costs, Explicit costs



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