The Costs of the Iraq War

The Congressional Research Service has issued a new estimate of the costs of the Iraq War:

The cost of the war in Iraq will reach $320 billion after the expected passage next month of an emergency spending bill currently before the Senate, and that total is likely to more than double before the war ends, the Congressional Research Service estimated this week.

Note, however, that the concept of “cost” used to produce these numbers is far from ideal; it is based on budgetary allocations, not opportunity cost.  One problem with the budgetary approach is that if the US moved troops from other parts of the world to Iraq, but Congress did not allocate any money explicitly to fight the war in Iraq,  the budgetary cost would be zero.  Nevertheless, the war would obviously have “opportunity costs,”  namely, the value of whatever those troops had been providing elsewhere in terms of U.S. security.   A second problem with the budgetary approach is that it does not include the value of any lives lost or injuries incurred by US troops.

Two sets of economists have tried to estimate the opportunity costs of the Iraq war.  Steve Davis, Kevin Murphy, and Robert Topel (DMT), all of the University of Chicago, provide a range of estimates based on the duration of the war, and they compare these costs to continuing the pre-existing containment policy:

According to our analysis, pre-invasion views about the likely course of the Iraq intervention imply present value costs for the United States in the range of $100 to $870 billion. Our estimated present value cost for the containment policy is nearly $300 billion and ranges upward to $700 billion when we account for several risks stressed by national security analysts. Our analysis also indicates that war and forcible regime change will yield large improvements in the economic well-being of most Iraqis relative to their prospects under the containment policy, and that the Iraqi death toll would likely be greater under containment.

Bilmes and Stiglitz, economists at Columbia University, obtain a much higher estimate:

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.

My evaluation is that DMT is the far more convincing of the two papers; Bilmes and Stiglitz double count and include highly speculative cost components.   I share the Bilmes-Stiglitz opposition to the war, but that is no reason for bad economics.

The implications of the DMT estimates are unclear given the broad range of estimates they report.  If one assumes an invasion at the short end of the range they consider, then invasion is less costly than containment.   But at the higher end, which appears more and more plausible, continued containment would have been the less costly option by far.  And if the eventual outcome in Iraq is Civil War, then invasion looks like a disastrous choice.

One other issue relevant to the DMT analysis is that containment was not the only alternative to invasion.  A third option, which would have had zero direct costs, was to discontinue the containment policy and do nothing at all.

Comments

[Bruce Bartlett]

Here's a link to the full CRS report:

http://www.fas.org/sgp/crs/natsec/RL33110.pdf