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The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict

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  • Linda Bilmes
  • Joseph Stiglitz

Abstract

This paper attempts to provide a more complete reckoning of the costs of the Iraq War, using standard economic and accounting/ budgetary frameworks. As of December 30, 2005, total spending for combat and support operations in Iraq is $251bn, and the CBO's estimates put the projected total direct costs at around $500bn. These figures, however, greatly underestimate the War's true costs. We estimate a range of present and future costs, by including expenditures not in the $500bn CBO projection, such as lifetime healthcare and disability payments to returning veterans, replenishment of military hardware, and increased recruitment costs. We then make adjustments to reflect the social costs of the resources deployed, (e.g. reserve pay is less than the opportunity wage and disability pay is less than forgone earnings). Finally, we estimate the effects of the war on the overall performance of the economy. Even taking a conservative approach and assuming all US troops return by 2010, we believe the true costs exceed a trillion dollars. Using the CBO's projection of maintaining troops in Iraq through 2015, the true costs may exceed $2 trillion. In either case, the cost is much larger than the administration's original estimate of $50-$60bn. The costs estimated do not include those borne by other countries, either directly (military expenditures) or indirectly (the increased price of oil). Most importantly, we have not included the costs to Iraq, either in terms of destruction of infrastructure or the loss of lives. These would all clearly raise the costs significantly.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12054.

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Date of creation: Feb 2006
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Handle: RePEc:nbr:nberwo:12054

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  1. Thomas J. Kniesner & W. Kip Viscusi & Christopher Woock & James P. Ziliak, 2005. "How Unobservable Productivity Biases the Value of a Statistical Life," NBER Working Papers 11659, National Bureau of Economic Research, Inc.
  2. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
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Cited by:
  1. Stergios Skaperdas, 2011. "The costs of organized violence: a review of the evidence," Economics of Governance, Springer, vol. 12(1), pages 1-23, March.
  2. Patricia Justino, 2009. "The Impact of Armed Civil Conflict on Household Welfare and Policy Responses," HiCN Working Papers 61, Households in Conflict Network.
  3. Ryan D. Edwards, 2010. "A Review of War Costs in Iraq and Afghanistan," NBER Working Papers 16163, National Bureau of Economic Research, Inc.
  4. Riccardo Natoli & Segu Zuhair, 2011. "Measuring Progress: A Comparison of the GDP, HDI, GS and the RIE," Social Indicators Research, Springer, vol. 103(1), pages 33-56, August.
  5. Chad R. Wilkerson & Megan D. Williams, 2008. "How is the rise in national defense spending affecting the Tenth District economy?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 49-79.
  6. Sofronis Clerides & Peter Davis & Antonis Michis, 2010. "The Impact of the Iraq War on US Consumer Goods Sales in Arab Countries," Working Paper Series 25_10, The Rimini Centre for Economic Analysis.
  7. Gardeazabal, Javier, 2010. "Methods for Measuring Aggregate Costs of Conflict," DFAEII Working Papers 2010-09, University of the Basque Country - Department of Foundations of Economic Analysis II.

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