Stiglitz & Bilmes - The Three Trillion Dollar War (2008) - Synopsis

UFPPC (www.ufppc.org) Digging Deeper XLIV: March 31, 2008, 7:00 p.m. Joseph E. Stiglitz and Linda J. Bilmes, The Three Trillion Dollar War: The True Cost of the Iraq Conflict (New York & London: W.W. Norton, [March] 2008). Preface. It is clear the U.S. invasion of Iraq was “a terrible mistake” (ix). Examining costs increases our understanding of war’s implications (x). The Gulf War’s costs go on (xi). U.S. accounting methods are bad (xii). Planning for veterans has been inadequate (xiii-xiv). For the U.S., the issue is not bankruptcy, but priorities (xvxvii). This book is based on an earlier paper (xvii-xviii). As ardent opponents of the war since the start, the authors have been conservative in their estimates, excessively so (xviii-xix). Rejection of the argument that the war had “benefits” (xix-xxi). Acknowledgments. 3 pp. Jumbled listing. Ch. 1: Is It Really Three Trillion? The Iraq war is a failure (3-5; “a humiliating failure” [169]). Costs have been chronically underestimated (5-7). A variety of factors has raised the cost of the war by 130% since 2003 (10-16). Many costs are hidden through undervaluation (17-18). The DoD’s faulty “cash” rather than “accrual” accounting methods disguise the true costs (18-21). Budgetary oversight has been subverted (21-24). Explanation of steps in estimating costs (24-31). Even “a ‘bestcase’ scenario in which the United States would withdraw all its combat troops by 2012” yields a cost of over $2 trillion (31). $3 trillion “represents the cost only to the United States” (31, emphasis in original). Ch. 2: The Costs to the Nation’s Budget. So far, $645 billion has been spent (34-35). Two scenarios: “best case,” with decline to 55,000 non-combat by 2012 and a total of 18 million “unique

troops” deployed to the conflict by 2017, and a “realistic-moderate” scenario, with a slower decline to 75,000 in 2012 and 2.1 million troops by 2017 (35-37). The claims rates used take 1991 Gulf War as a benchmark, which is “extremely conservative” (37-40). Disability claims estimate 850,000 will file (40-41). Equipment (41-43). Restoring the military “to its full strength” (43-44). Demobilization (44-45). Defense spending was 4.2% of GDP in 2008 (3% in 2001) and 51% of government discretionary spending (48% in 2000) (45). The military hides war spending in its “normal” defense budget (45-46). Recruitment (47-48). Other difficulties in calculations (48-50). Privatizing war means costs appear as workman’s comp (50-52). Oil and macroeconomic costs (52-53). Interest costs (53-55). No free lunch—we’ll pay one way or another (5556). Tables of costs (57-59). Ch. 3: The True Cost of Caring for Our Veterans. Historically high 7 to 1 ratio of wounded to dead in Iraq and Afghanistan (15 to 1 if non-combat injuries are included) (61). Disease (62). Government obfuscation of statistics (6265). Injuries, focusing on traumatic brain injury (TBI) (65-67). Returning troops find themselves in a “limbo” between the DoD and the VA (67-71). The scandal of disability compensation inefficiencies (71-76), showing the urgent need to anticipate costs (76-78). Staffing problem at the Veterans Benefits Administration (VBA) (78-81). VA system overstretched (81-82). PTSD “highly prevalent” (82-84). The Bush administration is underfunding the VA (84-88). Estimates here are “very conservative” (88). There is a need to recognize veterans’ benefits as “an

additional major entitlement program” (89, emphasis in original). Ch. 4: Costs of War That the Government Doesn’t Pay. Nature of social and economic costs (91-93). DoD values lives lost at $500,000, instead of a more accurate $7.2 million in VSL (“value of statistical life,” which peaks at 29) (9396). The difficulty of estimating the cost of injuries (96-98). Iraq erases the traditional combat/support distinction re: injuries (98-99). The cost of mental health injuries (99-101). In Oct. 2007 the Veterans Benefits Disability Commission report found a high disparity between lost compensation and benefits (100). Quality of life impairment (i.e. pain) goes uncompensated (101-02). The strain and costs to families (102-05). The authors have been “excessively conservative” in estimate of social costs (107-11). Total in estimate: $300-400 billion (111-13). Ch. 5: The Macroeconomic Effects of the Conflicts. [Shortest chapter.] It is a myth that war is good for the economy (114-15). The effect on the price of oil is estimated at $5-10 per barrel (116-20). The macroeconomic effects of government war spending (120-25). The impact on stock prices and the “legacy of household debt” are not calculated in the estimate (125-27). The macroeconomic costs are estimated at $1.9 billion in the “realistic-moderate” scenario (127-31). Ch. 6: Global Consequences. Global costs (132). The cost of Iraqi deaths and injuries, using this methodology: $8.6 trillion (138; 133-39). The cost to Iraq’s economy (139-44). The cost to the rest of the world, including the “clash of civilizations” (144-45). The cost to Afghanistan (145-47). The costs to the U.K., about $30.6 billion, budgetarily (147-56). The effect of higher oil prices on the world (156-59). Squandering of the U.S.’s leadership role as a cost (15963).

Ch. 7: Exiting Iraq. The prospect of withdrawal, given failure (164-67). The U.S. is building bases and a huge embassy, preparing for a “long-term presence” (167-68). Costs must be considered in deciding the U.S.’s future role (168-70). That we can’t leave until the “mission is accomplished” is a delusion (170-73). It is a mistake to think we can define some modest, realizable goal (173-75). Bush has extended the U.S. commitment when he should have cut losses (175-76). Unless there is some marked change before Nov. 2008, “there should be a rapid withdrawal” (176). There is good reason to think our presence in Iraq is making things worse (177-84). Ch. 8: Learning from Our Mistakes: Reforms for the Future. The U.N. should provide an international check on U.S. actions (185-87). Recommended reforms: Wars should not be funded through “emergency” supplementals (189). War funding should be linked to strategy reviews (189). Accurate accounting measures should be instituted for defense (189-90). The secretary of defense and chief financial officer should be personally accountable for them (190-92). The administration and the Congressional Budget Office should provide regular estimates of micro- and macroeconomic costs of war (192-93). Mechanisms of freer information (193). Reliance on private contractors should be reviewed by Congress (193-96). The National Guard should be limited to one year’s use by the military (196-97). There should be a presumption that wars are paid for with a surtax (197-98). Nine reforms favoring veterans (199-205). Such reforms would help avoid another Iraq (205-06). APPENDICES President’s Letter to the Speaker of the House of Representatives on the

Emergency Appropriations Act, Oct. 17, 2001 (207-09). Evolving DoD Web Sites for Operation Iraqi Freedom (210-15). On Methodologies. Discussion of “technical” issues (216-31). List of Commonly Used Acronyms (232-34). Notes. 61 pp. Index. 15 pp. [About the Authors. Joseph E. Stiglitz was born in 1943 in Gary, Indiana. After three years at Amherst, he completed his undergraduate degree at M.I.T. (his degree was awarded at Amherst). He did graduate work at the Univ. of Chicago, then completed his Ph.D. at M.I.T. in 1966-1967 while simultaneously holding an assistant professorship. He was a Fulbright research fellow at the University of Cambridge, then held academic positions at Yale, Duke, Stanford, Oxford University, and Princeton. He is currently at Columbia, with appointments in the Business School, the Dept. of Economics, and the School of International and Public Affairs. Stiglitz is generally considered a New-Keynesian, recognizing market imperfections and debunking the notion of an “invisible hand” guiding markets to efficient outcomes. His 2001 Nobel Prize in Economics was awarded for research on screening (a technique used by one economic agent to extract private information from another). Stiglitz joined the Clinton administration in 1992 as a member, then chair, of the Council of Economic Advisers. He served on the Intergovernmental Panel on Climate Change and advanced a “third way”

economic philosophy emphasizing the important, but sometimes limited, role the government can play in the economy. In 1997 he joined the World Bank as senior vice president for development policy and chief economist. His difficult relationship with Treasury Secretary Lawrence Summers led to his resignation from the World Bank in January 2000. He criticized the World Bank and the International Monetary Fund for being dominated by market fundamentalists in his 2002 book, Globalization and Its Discontents, in which he said that the Seattle WTO protests were justified and that the U.S. was an obstacle to just reform, and argued that as a result globalization has made many worse off, giving rise to a backlash which would be “a tragedy for all of us, and especially for the billions who might otherwise have benefited” if it prevails. In 2006 he published Making Globalization Work. He has been married three times; his third wife is Anya Schiffrin of the School of International and Public Affairs at Columbia University. Linda J. Bilmes is widely considered a leading expert in U.S. government finance and budgeting. She holds a B.A. and M.B.A. from Harvard, has published widely in the mainstream press, and teaches budgeting, applied budgeting, and public finance at the Kennedy School of Government at Harvard. She has also served as assistant secretary and chief financial officer of the U.S. Dept. of Commerce, deputy assistant secretary of commerce for administration, and on a number of U.S. commissions. For eight years she worked for The Boston Consulting Group, advising Eastern European nations and Russia on industrial strategy and the transition to market based democracy, according to her faculty web site.]