Two scholars, one a Nobel Prize winner, revisit their estimate of the true cost of the Iraq war – and find that $2 trillion was too low. They consider not only the current and future budgetary costs, but the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East.
In January, we estimated that the true cost of the Iraq war could reach $2 trillion, a figure that seemed shockingly high. But since that time, the cost of the war – in both blood and money – has risen even faster than our projections anticipated.
One source of difficulty in getting an accurate picture of the direct cost of prosecuting the war is the way the government does its accounting. With “cash accounting,” income and expenses are recorded when payments are actually made – for example, what you pay off on your credit card today – not the amount outstanding. By contrast, with “accrual accounting,” income and expenses are recorded when the commitment is made. But, as Representative Jim Cooper, Democrat of Tennessee, notes, “The budget of the United States uses cash accounting, and only the tiniest businesses in America are even allowed to use cash accounting. Why? Because it gives you a very distorted picture.”
The distortion is particularly acute in the case of the Iraq war. The cash costs of feeding, housing, transporting and equipping U.S. troops, paying for reconstruction costs, repairs and replacement parts and training Iraqi forces are just the tip of an enormous iceberg. Costs incurred, but not yet paid, dwarf what is being spent now – even when future anticipated outlays are converted back into 2006 dollars.
[Excerpt of article by Linda Bilmes, who teaches public finance at the Kennedy School of Government at Harvard, and Joseph Stiglitz, a former chairman of the Council of Economic Advisors and chief economist at the World Bank, now teaching at Columbia University.]
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