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$3 trillion may be too low (Editor's Note: The book, "The three trillion dollar war" will be a devastating reckoning of the true cost of the Iraq war - quite apart from its tragic human toll - which the Bush administration has estimated at $50 billion, but which Stiglitz and Bilmes will show underestimates the real figure by approximately sixty times. The authors expose the gigantic expenses which have so far not been officially accounted for, including not only big ticket items like replacing military equipment (being used up at six times the peacetime rate) but also the cost of caring for thousands of wounded veterans - for the rest of their lives. Shifting to a global perspective, the authors investigate the cost in lives and damage within Iraq and the Middle East generally. With chilling precision, they calculate what the money spent on the war would have produced had it been further invested in the growth of the economy, in the US and around the world, and in infrastructure building. Stiglitz and Bilmes write in simple language, which makes the details they present, and the sums they add up, all the more disturbing. This book will change forever the way we think about the Iraq war - and about the cost of war generally.) Notwithstanding President Bush's response, our original estimate of the cost of the Iraq war was too conservative: in reality, it will be much higher President Bush has tried to give the impression that the $3 trillion dollar estimate of the total cost of the war that we provide in our new book may be exaggerated. We believe that it is, in fact, conservative. Even the president would have to admit that the $50 to $60 billion estimate given by the administration before the war was wildly off the mark; there is little reason to have confidence in their arithmetic. They admit to a cost so far of $600 billion. Our numbers differ from theirs for three reasons: first, we are estimating the total cost of the war, under alternative conservative scenarios, derived from the defence department and congressional budget office. We are not looking at McCain's 100-year scenario - we assume that we are there, in diminished strength, only through to 2017. But neither are we looking at a scenario that sees our troops pulled out within six months. With operational spending going on at $12 billion a month, and with every year costing more than the last, it is easy to come to a total operational cost that is double the $600 billon already spent. Second, we include war expenditures hidden elsewhere in the budget, and budgetary expenditures that we would have to incur in the future even if we left tomorrow. Most important of these are future costs of caring for the 40% of returning veterans that are likely to suffer from disabilities (in excess of $600 billion; second world war veterans' costs didn't peak until 1993), and restoring the military to its prewar strength. If you include interest, and interest on the interest - with all of the war debt financed - the budgetary costs quickly mount. Finally, our $3 trillion dollars estimate also includes costs to the economy that go beyond the budget, for instance the cost of caring for the huge number of returning disabled veterans that go beyond the costs borne by the federal government - in one out of five families with a serious disability, someone has to give up a job. The macro-economic costs are even larger. Almost every expert we have talked to agrees that the war has had something to do with the rise in the price of oil; it was not just an accident that oil prices began to soar at the same time as the war began. We have been criticised, but for being excessively conservative, for including only $5 to $10 of the $75 to $85 increase in the price of oil since then. Money spent on the war - on a Nepalese contractor working in Iraq - does not stimulate the economy as much as money spent on hospitals or research or schools at home. These contractionary effects were temporarily covered up, hidden, by the flood of liquidity and lax regulations that led to a housing bubble and a consumption boom - with household savings plummeting to zero. But this simply postponed paying these costs - and increased them. With the exception of a few lonely surviving supply-siders, most economists believe that deficits matter, and the huge deficits to finance the war will have their toll in the long run. Deficits matter in both the short run and the long. They help crowd out private investment that would have stimulated the economy far more than the war expenditures; and the reduced investments reduce long-run productivity. With 40% of the funds borrowed from abroad, Americans will be sending interest payments abroad - lowering living standards at home. Finally, even Fed Chair Bernanke (formerly the president's economic adviser) admits that the deficits have reduced the room to manoeuvre - the ability of the government to respond to the looming economic crisis. Spending so much on the war has economic consequences, even if you don't think there is any connection between the war and the economy's current woes. In adding up the quantifiable costs of the war, it is hard not to come up with a number in excess of $3 trillion. In putting a $3 trillion price tag on the war, we believe we have been excessively conservative - a $4 or $5 trillion tag would be more reasonable. And remember - this is just the cost for America.
Stiglitz holds a part-time appointment at the University of Manchester as Chair of the Management Board and Director of Graduate Summer Programs at the Brooks World Poverty Institute. Stiglitz helped create a new branch of economics, "The Economics of Information," exploring the consequences of information asymmetries and pioneering such pivotal concepts as adverse selection and moral hazard, which have now become standard tools not only of theorists, but of policy analysts. He has made major contributions to macro-economics and monetary theory, to development economics and trade theory, to public and corporate finance, to the theories of industrial organization and rural organization, and to the theories of welfare economics and of income and wealth distribution. In the 1980s, he helped revive interest in the economics of R&D. His work has helped explain the circumstances in which markets do not work well, and how selective government intervention can improve their performance. Recognized around the world as a leading economic educator, he has written textbooks that have been translated into more than a dozen languages. He founded one of the leading economics journals, The Journal of Economic Perspectives. His book Globalization and Its Discontents (W.W. Norton June 2001) has been translated into 35 languages and has sold more than one million copies worldwide. Other recent books include The Roaring Nineties (W.W. Norton), Towards a New Paradigm in Monetary Economics (Cambridge University Press) with Bruce Greenwald, Fair Trade for All (Oxford University Press), with Andrew Charlton, and Making Globalization Work, (WW Norton and Penguin/ Allen Lane, September 2006). His most recent book, The Three Trillion Dollar War: The True Cost of the Iraq Conflict, with Linda Bilmes of Harvard University, was published in March 2008 by WW Norton and Penguin/ Allen Lane.
Bilmes is a now a full-time faculty member at the Kennedy School of Government at Harvard University, where she teaches budgeting, applied budgeting, and public finance. She is a faculty affiliate with the Mossavar-Rahmani Center for Business and Government, the Taubman Center for State and Local Government, and the Rappaport Center for Greater Boston. At Harvard, Bilmes runs an innovative program to assist local cities and towns with their financial health, leading teams of graduate student volunteers who work in the communities. She also conducts the Harvard Institute of Politics budgeting workshops for newly-elected Mayors and Members of Congress. Bilmes has written extensively on financial and budgetary issues, including the cost of the Iraq War, veterans' health and disability costs, state and local employee pensions, and federal workforce reform. She is the author of "Soldiers Returning From Iraq and Afghanistan: The Long-term Costs of Providing Veterans Medical Care and Disability Benefits" and co-author (with Joseph Stiglitz) of The Economic Costs of The Iraq War: An Appraisal Three Years After the Beginning of The Conflict. Her book The People Factor: Strengthening America by Investing in Public Service (co-authored with W. Scott Gould) will be published in June, 2008. Bilmes is a regular commentator on financial topics. Her articles have appeared in the New York Times, Washington Post, Financial Times, Los Angeles Times, Boston Globe, and the Atlantic Monthly. She is frequently interviewed on TV and radio programs, including the News Hour with Jim Lehrer, CNN's Lou Dobbs Show, ABC's World News Tonight and NPR's On Point. She recently featured in Charles Ferguson's award-winning documentary film about Iraq, "No End In Sight". Bilmes has testified at several congressional hearings regarding the costs of the Iraq war, including the US House of Representatives Budget Committee, Veterans Affairs Committee, and Veterans Affairs Subcommittee on Disability Assistance and Memorial Affairs. Bilmes holds a BA and MBA from Harvard University. |
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Joseph E. Stiglitz was born in Gary, Indiana in 1943. A graduate of Amherst College, he received his PHD from MIT in 1967, became a full professor at Yale in 1970, and in 1979 was awarded the John Bates Clark Award, given biennially by the American Economic Association to the economist under 40 who has made the most significant contribution to the field. He has taught at Princeton, Stanford, MIT and was the Drummond Professor and a fellow of All Souls College, Oxford. He is now University Professor at Columbia University in New York and Chair of Columbia University's Committee on Global Thought. He is also the co-founder and Executive Director of the Initiative for Policy Dialogue at Columbia. In 2001, he was awarded the Nobel Prize in economics for his analyses of markets with asymmetric information.
Professor Linda J. Bilmes is widely considered one of the leading experts in US budgeting and public finance. She has held several senior positions in government, including Assistant Secretary and Chief Financial Officer of the US Department of Commerce, Deputy Assistant Secretary of Commerce for Administration, and US Representative to several high-ranking commissions, including a Treasury Department commission to examine the viability of the Inter-American Investment Corporation. She was recently appointed to the National Parks Centennial Commission. Previously, Bilmes spent eight years with the global management consulting firm The Boston Consulting Group, where she focused on industrial strategy and transition to market-based democracy in Eastern Europe and Russia.