Assessing the Total Cost of War

March 27, 2008

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The war in Iraq is the “first war, ever, in U.S. history, that we have cut taxes and raised spending as we went to war,” a major cause for concern according to Linda Bilmes, professor at Harvard’s Kennedy School of Government. Combined with “irresponsible spending mechanisms,” lost economic contributions of young people, and flow of U.S. dollars to foreign contractors, Bilmes and Joseph Stiglitz, in a new book, estimate that the war in Iraq will end up costing the American people more than $3 trillion dollars.

At a Center for American Progress event today about the fiscal implications of the war, Bilmes said that official government estimates ignore long-term indirect costs and deferred liabilities resulting from operations in Iraq and Afghanistan. In the past year, 300,000 veterans were treated in the veteran’s administration system for injuries, illness, and mental health issues linked to the Iraq war, a number that is expected to rise in coming years. Of those, 70,000 seriously wounded or injured veterans will require care for the rest of their lives.

Disability benefits often peak close to 50 years after a war, Bilmes said, meaning that the cost of caring for veterans will be a significant portion of ongoing costs to taxpayers. The interest associated with war-related debt and additional expenditures will dramatically increase this cost over time. Bilmes also said that the “war contributes to the weakening of our economy,” and the impact on the American people is significant, enduring, and worthy of intense public scrutiny.

The $3 trillion figure estimated by Stiglitz and Bilmes is both “humbling and overwhelming” according to Steve Kosiak, Vice President for Budget Studies at the Center for Strategic and Budgetary Assessments. That figure encompasses reset costs for the armed forces after the conflict, and may include significant modernization of the fleet. The armed services are in fact adequately funded on a macro budget level, said Kosiak.

However, the “Army is still facing serious readiness problems,” including officer retention and recruitment, which aren’t dependent on finances. Kosiak said that recruitment and retention will likely be significantly higher after the war ends. The base budget will also be increased to pay for modernization and reset costs, though without supplemental funding, expenditures will be greatly decreased. Overall, what is “pushing long-term costs is really the cost of [the Defense Department’s] long-term plans, not the cost of the war,” Kosiak said, as plans for expensive technological improvements are likely to continue driving the Department of Defense budget upward in the coming decade.

Ultimately, “long-term costs that we really are required to pay even if we pull out of Iraq tomorrow” will in many ways determine the final cost of the war, said Lawrence Korb, a Senior Fellow at CAP. Although Bilmes’ figure of $3 trillion is staggering, the costs of veterans’ disabilities, mental health care, and nation rebuilding will determine the final cost of the war to the American people, a cost which will be left to the younger generations to pay off.