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Unformatted text preview: -1-Economists Voicewww.bepress.com/ev January, 2006expected costs and that societys scarce resources could not be better deployed elsewhere. While justifcation For war is rarely couched in purely economic terms, the tools oF cost-beneft analysis apply, just as they can to any policy decision. Granted, some oF the tools may be too crude, and the data too spotty to reach frm conclusions. And we may dispute how to monetize some benefts and costs. Nonetheless, the debate about the war should be inFormed by estimateseven iF impreciseoF its actual economic costs.I estimate that through the summer oF 2005, the direct economic costs oF the war in Iraq to the U.S. have been about $300 billion. Including costs to Iraq and coalition partners, the global cost comes closer to $500 billion. Looking Forward, the total net present value oF the costs could double beFore this war is done.The conict, however, has also led to some benefts. I estimate that the avoided costs oF no longer enForcing U.N. sanctions and oF Saddam Hussein no longer murdering people are about $120 billion to date, and could total around $430 billion by 2015.THEMISTAKEOFEQUATINGBUDGETALLOCA-TIONSWITHECONOMICCOSTSBeFore the war, several economists weighed in on its likely costs. In 2002, William Nordhaus, a prominent Yale economist, noted that politicians throughout history have under-estimated the costs oF war, and estimated that the economic costs could be anywhere From $100 billion to $2 trillion. Then, in 2003, economists Steven Davis, Kevin Murphy, and Robert Topel compared the costs oF continuing with the then-status quo oF sanctions and in-spections with the costs and benefts oF a war. In 2002, Lawrence Lindsey, then director oF the White House National Economic Council, surprised the Bush administra-tion by saying that a war in Iraq could cost $100 to $200 billion. Some then considered his estimate to be exaggerated, but it now looks Far too low. Taking into account many, but not all costs, my tally is closer to a halF trillion dollars, with another halF trillion likely still to come.Since the war in Iraq began, economists havent been heavily involved in the public debate regarding the conict. That absence is a mistake. Choosing to go to war reects a belieF that the expected benefts oF the conict exceed the Scott Wallsten is a Senior Fellow at the AEI-Brookings Joint Center for Regulatory Studies anda Resident Scholar at the American Enterprise Institute. He previously served at the Presidents Council of Economic Advisers during 1995-96....
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This note was uploaded on 03/08/2011 for the course ECON 220 taught by Professor Cai during the Spring '08 term at Rutgers.
- Spring '08