The 9/11 Reading List: The $3 Trillion War

Keith Hartley reviews
The Three Trillion Dollar War: The True Cost of the Iraq Conflict
By Joseph Stiglitz and Linda Bilmes
Allen Lane, 2008

Wars are costly and the Iraq conflict is no exception. This is a fascinating, important and timely book showing that there is no such thing as a cost-free war. The authors argue that the decision to go to war was based on a number of false premises and that the Iraq war was an expensive and terrible mistake which resulted in the weakening of the US economy. It is estimated that the costs to the USA will be some $3 trillion, with the costs to the rest of the world probably doubling that number. These are truly staggering figures, especially when faced with the economists’ standard opportunity cost question: what else could have been done with $3 trillion? The authors assert that there are myriad ways in which the money could have been spent better, leaving the USA more secure, more prosperous and better prepared for future threats.

An interesting theme which recurred in the UK was of how costs to the USA were grossly underestimated, characterised by ‘bad budgeting and misleading accounting’ which misled ordinary citizens and contributed to major mistakes in resource allocation. The book focuses primarily on costs, although some expenses are not included in the $3 trillion estimate and the approach is ‘excessively conservative.’ Benefits are more elusive but the authors believe that it is unlikely that they will be significant. In their view, it is hard to find any winners apart from the US oil and defence industries: ‘For students of government failure, the Iraq War is a case study.’ 

Considering that by 2008 US military costs had exceeded $845 billion and were continuing to rise, it is clear that early predictions as to the cost of the Iraq War were wildly overestimated, with the initial projection of $50-200 billion clearly demonstrating this.

There are, however, difficulties in separating the costs of Iraq from those for Afghanistan. Various reasons are given for the increasing US costs of the Iraq War. These include rising fuel prices; the replacement of equipment and new equipment requirements and the extensive use of costly private contractors, with the potential for profiteering and corruption. Often contracts were awarded not by competition but by sole source bidding, leading to cost-plus contracts. The authors also identify other outlays not included in the official costings, such as the understating of US casualties and a ‘proper’ valuation of human life at $7.2 million per life of a soldier, and similar appropriate valuations for the economic loss due to injury. 

Throughout, the authors carefully explain their assumptions and costing methodology. Whatever the disputes about the details of the assumptions, the key point remains: the Iraq war is costly to both the USA and the rest of the world. For Iraq, US costs are estimated at an optimistic low of $1.8 trillion to an upper bound of over $4 trillion in true economic costs. By including Afghanistan this figure increases to a range of between $2.2 trillion to some $5 trillion.

For the rest of the world, the most direct global cost results from the rise in oil prices. The authors assume that the Iraq war resulted in a $5-10 per barrel price rise for a period of seven to eight years which they suggest as a ‘conservative’ estimate. For the UK, they value the costs for Iraq and Afghanistan at approximately £20 billion. Furthermore, the estimate of future UK military costs in Iraq until 2010 seems high (at some £7 billion whereas a figure of less than £3 billion is more likely). The data table for the UK is somewhat confusing and would have been better presented in US dollar billions rather than pounds sterling thousands. Additionally, the UK costs are based on the US valuation of life at $7.2 million per man whereas UK figures are lower at some $2.8 million (current prices and exchange rates based on UK Department of Transport estimates).

 The authors estimate that the current costs to the US of its presence in Iraq range from over $12 billion to some $25 billion per month. They argue strongly for a rapid US withdrawal. In light of this, they also suggest some guidelines to be considered before the US commits itself to future conflicts. These include rules that war should not be financed by emergency funds; there should be regular estimates of the economic costs of a military conflict; Congress should review the heavy reliance on the use of contractors in wartime; and the costs of a conflict lasting over one year should be borne by current taxpayers via a special war tax. The conclusion is fitting: the costs of conflict ‘live on long after the last shot has been fired.’

Inevitably, a book discussing such an issue is going to be controversial. There will be disputes about the ‘counter-factual’ assumptions, including allowances for the numbers of military casualties in peacetime and what would have happened to oil prices had the war not taken place. Nor is it obvious that governments will seek to restore their military forces to pre-war positions; and there are further costs in the form of the possible effect of the war in increasing the terrorist threat and the associated costs of homeland security. Care is needed in recognising a distinction between plans and outcomes: choices are made on the basis of plans whilst hindsight is a wonderful thing. Finally, critics might place more emphasis on the potential future benefits of the war. However, the authors carefully explain their methodology in a separate appendix.

The authors are to be congratulated for such an important addition to knowledge and for their focus on costs as a relatively neglected aspect of the economics of conflict. Unlike much of modern economics, they write in a non-technical but readable style addressing an important and policy-relevant issue. This book is essential reading for taxpayers and the military-industrial-political complex.  

Keith Hartley
Centre for Defence Economics, University of York

This book review was first published in the RUSI Journal (Vol. 153, No. 2, April 2008).