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Last Updated: Wednesday, 19 March 2008, 11:57 GMT
The Iraq war: Counting the cost
Analysis
By Steve Schifferes
Economics reporter, BBC News

US medics in Iraq try to save a soldier's life
Critics include costs official estimates do not

The Iraq war has proved far more costly than the US government thought when it went to war five years ago.

But controversy still rages over the ultimate size of the bill for the war, with some suggesting the cost could reach $3 trillion ($3,000bn, or 1,500bn).

According to the non-partisan Congressional Budget Office, the direct costs of the war on terror, which include operations in both Iraq and Afghanistan, have so far have reached $752bn, if the current year's appropriation of $188bn is included.

War critics can no longer credibly argue that we are losing in Iraq - so now they argue the war costs too much
President George W Bush

About 80% of that cost has been spent in Iraq.

By the end of next year, the direct cost to US Treasury will be over $1 trillion.

The war has been far more costly than planned because it has gone on so long.

That has led to growing spending on procurement, to replace ammunition and vehicles, as well as higher costs for the large numbers of troops on the ground.

In fact, the yearly cost has doubled since the 2003 appropriation of $74bn - which the Bush administration expected to be the total cost of the war.

'Necessary costs'

According to President George W Bush, speaking at the Pentagon on 19 March, it has been a cost worth paying.

IRAQ WAR COST ESTIMATES
Direct costs: $750bn
Future direct costs: c$500bn
Cost of US casualties: $600bn
Losses to economy: $400bn
Added interest: $600bn
Macro-economic impact:
$1-$2 trillion
sources: CBO, OMB, Stiglitz and Blimes

"No one would argue that this war has not come at a high cost in lives and treasure - but those costs are necessary when we consider the cost of a strategic victory for our enemies in Iraq."

Others, mainly Democrats, say the money would have been better spent at home.

Hillary Clinton said on Tuesday that the trillion dollar cost "is enough to provide health care for all 47 million uninsured Americans and quality pre-kindergarten for every American child, solve the housing crisis once and for all, and make college affordable for every American student".

The higher cost of the war has also contributed to the US budget deficit, which could rise further if the economy slows down, and has reduced the fiscal headroom to put in place a bigger economic stimulus package.

The Bush Administration insisted on funding the war as a "emergency appropriation" each year, which means it has not been included in the official calculation of future budget deficits.

Economic impact

Many economists argue that the indirect costs of the war are even greater.

A study by the Nobel Prize economist Joseph Stiglitz of Columbia University and Linda Bilmes, a budget expert from Harvard, concludes the cost could be at least $3 trillion.

The figure is so large because, Professor Stiglitz says, it includes costs that official estimates do not, such as the cost of the lifetime medical care for 65,000 injured American personnel.

And he says that 100,000 of the 750,000 combat troops who have been discharged so far have been diagnosed with mental health problems.

On the strength of evidence from previous conflicts, he said, still others will have various health and mental problems in the future.

There will be disability pay and health care costs to the US budget that will continue for several decades.

He estimates these costs could add another $600bn to the price of the war.

Health costs

His figures also include the loss to the economy from injured people being unable to contribute as productively as they might otherwise would have done, and the cost of sending hundreds of thousands of National Guard troops who would otherwise have had worked at their civilian jobs - which he says amounts to around $400bn.

More controversial are the attempts to add up other economic costs of the war.

Professor Stiglitz - who served in the Clinton administration and is a former World Bank chief economist - says it is right to add the interest that the government will have to pay on its borrowing to his cost calculation, which will amount to another $600bn.

He also brings in the cost of higher oil prices, which he says are partly due to the conflict.

He argues that by financing the war by deficit financing, the long-term macro-economic cost to the economy could be as high as $1.9 trillion.

And he says the overall cost of the Iraq war is approaching that of World War II, which cost the US $5 trillion in today's money.

His calculations on the broader impact of the war are similar to those in 2002 by Yale economics professor William Nordhaus.

And they also echo the concerns expressed by Lawrence Lindsey, President Bush's first economic adviser, who was sacked in December 2002 for warning that the Iraq war could cost $200bn.

Controversy continues

However, the war's supporters say that many of these arguments are hypothetical and being made on political grounds.

President Bush argues that war critics are rounding on the cost of the war because of the very success of the "surge."

"War critics can no longer credibly argue that we are losing in Iraq - so now they argue the war costs too much. In recent months we have heard exaggerated estimates of the costs of this war."

However, with the US involvement in Iraq likely to carry on for some time, whatever happens in the November election, the controversy over the costs of the war is likely to intensify.



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