2006_Cost_of_War_in_Iraq_NBER

2006_Cost_of_War_in_Iraq_NBER - NBER WORKING PAPER SERIES...

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NBER WORKING PAPER SERIES THE ECONOMIC COSTS OF THE IRAQ WAR: AN APPRAISAL THREE YEARS AFTER THE BEGINNING OF THE CONFLICT Linda Bilmes Joseph Stiglitz Working Paper 12054 http://www.nber.org/papers/w12054 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 February 2006 Paper prepared for presentation at the ASSA meetings, Boston, January 2006. The views expressed here are solely those of the authors, and do not represent those of any institution with which they are currently affiliate, or with which they have been affiliated in the past. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research. ©2006 by Linda Bilmes and Joseph Stiglitz. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
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The Economic Costs of the Iraq War: An Appraisal Three Years After the Beginning of the Conflict Linda Bilmes and Joseph Stiglitz NBER Working Paper No. 12054 February 2006 JEL No. H5 ABSTRACT This paper attempts to provide a more complete reckoning of the costs of the Iraq War, using standard economic and accounting/ budgetary frameworks. As of December 30, 2005, total spending for combat and support operations in Iraq is $251bn, and the CBO's estimates put the projected total direct costs at around $500bn. These figures, however, greatly underestimate the War's true costs. We estimate a range of present and future costs, by including expenditures not in the $500bn CBO projection, such as lifetime healthcare and disability payments to returning veterans, replenishment of military hardware, and increased recruitment costs. We then make adjustments to reflect the social costs of the resources deployed, (e.g. reserve pay is less than the opportunity wage and disability pay is less than forgone earnings). Finally, we estimate the effects of the war on the overall performance of the economy. Even taking a conservative approach and assuming all US troops return by 2010, we believe the true costs exceed a trillion dollars. Using the CBO's projection of maintaining troops in Iraq through 2015, the true costs may exceed $2 trillion. In either case, the cost is much larger than the administration's original estimate of $50-$60bn. The costs estimated do not include those borne by other countries, either directly (military expenditures) or indirectly (the increased price of oil). Most importantly, we have not included the costs to Iraq, either in terms of destruction of infrastructure or the loss of lives. These would all clearly raise the costs significantly. Linda Bilmes Harvard University linda_bilmes@harvard.edu Joseph E. Stiglitz Uris Hall, Columbia University 3022 Broadway, Room 814 New York, NY 10027 and NBER jes322@columbia.edu
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NOT TO BE QUOTED WITHOUT THE PERMISSION OF THE AUTHORS THE ECONOMIC COSTS OF THE IRAQ WAR: AN APPRAISAL THREE YEARS AFTER THE BEGINNING OF THE CONFLICT 1 Linda Bilmes Kennedy School, Harvard University And Joseph E. Stiglitz
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2006_Cost_of_War_in_Iraq_NBER - NBER WORKING PAPER SERIES...

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