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Unformatted text preview: 76 The Milken Institute Review b y l i n da b i l m e s a n d j o s e p h e . st i g l i t z In January, we estimated that the true cost of the Iraq war could reach $2 trillion, a fi gure that seemed shockingly high. But since that time, the cost of the war in both blood and money has risen even faster than our pro- jections anticipated. More than 2,500 Ameri- can troops have died and close to 20,000 have been wounded since Operation Iraqi Free- dom began. And the $2 trillion number the sum of the current and future budgetary costs along with the economic impact of lives lost, jobs interrupted and oil prices driven higher by political uncertainty in the Middle East now seems low. One source of diffi culty in getting an accu- rate picture of the direct cost of prosecuting the war is the way the government does its ac- counting. 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 ac- crual 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 tini- est 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, re- pairs 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. our debt to veterans A major contributor to this long-term cost is the medical care and disability benefi ts pro- vided to veterans. More than one million U.S. troops have now served in Iraq. And once they leave, each is entitled to a long list of benefi ts for the remainder of his or her life. Veterans can apply for compensation for any LINDA BILMES, an assistant secretary of commerce in the Clinton Administration, is a lecturer in public fi nance at Harvards Kennedy School of Government. JOSEPH STIGLITZ, a former chairman of the Council of Economic Advisors and chief economist at the World Bank, teaches at Columbia University. He was awarded the Nobel Prize in economics in 2001. In the last issue of the Milken Institute Review , Scott Wallsten and Katrina Kosec calculated that the real cost of the Iraq war would total $1 trillion. Here, two other distinguished scholars offer a far higher estimate one that focuses on the long-term costs of injuries and economic dislocation created by the war....
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- Spring '08