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

  • Bilmes, Linda

    (Harvard U)

  • Stiglitz, Joseph E.

    (Columbia U)

Three years ago, as America was preparing to go to war in Iraq, there were few discussions of the likely costs. When Larry Lindsey, President Bush’s economic adviser, suggested that they might reach $200 billion, there was a quick response from the White House: that number was a gross overestimation. Deputy Defense Secretary Paul Wolfowitz claimed that Iraq could “really finance its own reconstruction,” apparently both underestimating what was required and the debt burden facing the country. Lindsey went on to say that “The successful prosecution of the war would be good for the economy.” Many aspects of the Iraq venture have turned out differently from what was purported before the war: there were no weapons of mass destruction, no clear link between Al Qaeda and Iraq, no imminent danger that would warrant a pre-emptive war. Whether Americans were greeted as liberators or not, there is evidence that that they are now viewed as occupiers. Stability has not been established. Clearly, the benefits of the War have been markedly different from those claimed. So too for the costs. It now appears that Lindsey was indeed wrong—by grossly underestimating the costs.... The Congressional Budget Office has now estimated that in their central, mid-range scenario, the Iraq war will cost over $266 billion more in the next decade, putting the direct costs of the war in the range of $500 billion. These estimates, however, underestimate the War’s true costs to America by a wide margin. In this paper, we attempt to provide a range of estimates for what those costs have been, and are likely to be. Even taking a conservative approach, we have been surprised at how large they are. We can state, with some degree of confidence, that they exceed a trillion dollars.

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Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp06-002.

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Date of creation: Jan 2006
Date of revision:
Handle: RePEc:ecl:harjfk:rwp06-002
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  1. Jiménez-Rodríguez, Rebeca & Sánchez, Marcelo, 2004. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Working Paper Series 0362, European Central Bank.
  2. 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.
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