The High Costs of War With Iraq:
The Administration Plays "Russian Roulette" With Our Economy
New York, March 14, 2003 - On the eve of a critical UN Security Council vote on a resolution that would authorize the use of force to disarm and displace Saddam Hussein, the Bush administration continues to withhold basic information about what a war in Iraq might cost. Secretary of Defense Donald Rumseld has suggested that it is not "a very useful exercise" to prepare cost estimates in light of the many variables involved, but key lawmakers on Capitol Hill strenuously disagree.
"If President Bush goes to war without UN authorization, or with a coalition of the bullied and the bought, there could be immense long-term costs for our economy and our security," asserts William D. Hartung, a Senior Research Fellow at the World Policy Institute at the author of a recent report on "The Hidden Costs of War".
The Wall Street Journal, Washington Post, and Los Angeles Times all reported recently that the Pentagon told White House budget officials and key members of Congress to expect a supplemental budget request of $60 billion to $95 billion to pay for just the first six months to a year of war with Iraq, covering both the combat phase and initial expenses for peacekeeping and occupation. The figures, which are far higher than the figure of "less than $50 billion" that had been cited in the past by Secretary of Defense Rumsfeld, led to "sticker shock" on the part of some key administration officials. The Los Angeles Times account cited budget officials concerns that "war planners have no firm grip on the conflict's final costs," and quoted a State Department official as saying, "It's like watching the numbers roll higher and higher on a slot machine."
Late last week, the Congressional Budget Office released new, higher estimates of the costs of a war with Iraq which suggested that the cost of mobilizing for the war would reach $14 billion, with actual combat costing $10 billion for the first month and $8 billion for each month thereafter.
The $60 to $95 billion estimate likely is just a down payment on the full costs of the war: it excludes the high price of recruiting allies and the costs of postwar peacekeeping, reconstruction, and humanitarian aid beyond the first six months to a year.
Unlike the first Gulf War, when over 80% of U.S. war costs were picked up by allies like Kuwait, Saudi Arabia, Germany, and Japan, this time around U.S. taxpayers will be footing the bulk of the costs and key allies are asking for substantial assistance to help them deal with the economic and security risks posed by a war with Iraq. In all, allies such as Turkey, Israel, Egypt, Jordan, and Pakistan have made requests for more than $30 billion in U.S. aid to help them cope with the consequences of a war.
The largest package, for Turkey, involves an offer of $6 billion in grant aid, $1 billion of which will be leveraged into $10 billion in U.S.-government guaranteed loans. This package is on hold while the Bush administration presses the Turkish government to submit its request for Turkey to host 62,000 U.S. ground troops to a second vote in the Turkish parliament. The request failed to gain a majority of votes of legislators present the first time around.
Israel is seeking a multi-year package of $4 billion in grant aid and $8 billion in subsidized loans on top of its normal $3 billion in annual U.S. assistance. Jordan is slated for at least $1 billion in additional aid, and both Egypt and Pakistan want hefty increases in their annual aid allotments if the war goes forward. If the Administration is able to win its uphill battle for a second UN resolution authorizing the use of force against Iraq, it is likely to come in exchange for aid and trade deals for "swing states" such as Chile, Mexico, Angola, Guinea, and Cameroon. Bulgaria, a Security Council member, has been promised that the debts Iraq owes it will be honored by a postwar government. This could come from Iraqi oil revenues, leaving less for reconstruction, or potentially from US taxpayer-backed loans.
Press reports last week suggested that the State Department may seek $10 to $18 billion in funding for aid to allies as part of a supplemental request that would be submitted to Congress shortly after hostilities begin. That may just be the beginning of the costs associated with recruiting allies for war with Iraq. Earlier this week a Bush administration official indicated that there is now a "bidding war" going on between the United States and France to win over swing votes in the UN Security Council. This rush for aid has prompted Thomas Friedman of the New York Times to call the Bush administration's anti-Iraq alliance the "coalition of the billing."
In recent testimony before the Senate Armed Services Committee, Army Chief of Staff Gen. Eric K. Shinseki said that it would take "something on the order of several hundred thousand soldiers" to occupy and stabilize Iraq in the wake of a war to oust Saddam Hussein's regime. In a Capitol Hill hearing later that same week, Deputy Secretary of Defense Paul Wolfowitz dismissed Shinseki's estimate as "wildly off the mark," a sentiment echoed by Secretary of Defense Donald Rumsfeld. Gen. Shinseki, who has extensive experience with peacekeeping from a stint as commander of U.S. forces in Bosnia, has stuck by his estimate.
A September 30, 2002 estimate by the Congressional Budget Office (CBO) suggested that an occupying force of 200,000 troops, in line with the requirement suggested by General Shinseki, would cost $3.8 billion per month to sustain. Based on this estimate, a two to three year occupation by 200,000 troops could cost between $90 and $135 billion. But as Steven Kosiak of the Center for Strategic and Budgetary Assessments (CSBA) has noted in a new analysis, "The Potential Cost of a War With Iraq and Its Postwar Occupation," experience from past peacekeeping missions suggests that a larger force may be needed initially, but that it could be reduced over time. For example, Kosiak estimates that for a five year occupation starting with 150,000 troops in year one, going to 100,000 troops in year two, and 65,000 troops for years three through five, the estimated cost would be $105 billion. Kosiak observes that "these figures suggest that the costs associated with the post-war occupation of Iraq could exceed the cost of the war itself."
In testimony before the Senate Armed Services Committee last week, Army Chief of Staff Thomas E. White indicated that his service had already spent $6 billion mobilizing for war in Iraq, and estimated the costs of combat and initial occupation of the country to run at least $20 to $30 billion between now and the end of September. And that's just the cost estimate for the Army's participation over the next six to seven months.
Neither the CBO nor the CSBA estimates include the costs of major reconstruction (road building, power grids, etc.) or addressing the expected humanitarian disasters in the post-war period. However, a new task force report from the Council on Foreign Relations, Iraq: The Day After, suggests that stabilization and reconstruction of Iraq could cost up to $20 billion per year for several years. If Gen. Shinseki is right about the need for as many as 200,000 troops to secure Iraq in the post-war period, the task force suggests that the costs "would be much greater" than the $20 billion per year figure.
Bush administration officials have suggested that allies will pick up a substantial share of these postwar costs. The willingness of allies to pitch in for postwar costs may depend, however, on how frayed relations with allies become if the administration launches a war without a second UN resolution, or, alternately, whether its efforts to obtain a second resolution are perceived as heavy-handed bullying rather than persuasive diplomacy.
It has become popular among some economic analysts of late to suggest that the negative impacts of a war with Iraq are primarily due to the uncertainties imposed on consumers and investors about when the war will start. Under this argument, people are holding up on major purchases and/or investments, but will spend again once the war starts, or at least once Saddam Hussein's regime has been displaced.
This view may be overly optimistic. First, as Gen. Tommy Franks has noted, a war with Iraq could spur an increase in terrorist attacks on the United States. If this occurs, it is not likely to spur a surge of confidence among consumers or investors. Spokespersons for the airline industry have suggested that a war lasting more than a few months could put one or more major carrier out of business as the industry feels the crunch of reduced international travel and increasing prices for jet fuel.
On the other hand, if the war is short and there is some semblance of stability in the immediate postwar period, there could be a "relief rally" in the stock market and an upsurge in investment and consumer spending. But if Iraq's oil facilities are damaged, these short-term boosts could be negated by the effects of higher oil prices.
So, how can one best assess the economic risks and/or benefits of a war? A recent statement issued by Economists Allied For Arms Reduction and signed by several hundred prominent American economists, including seven Nobel Laureates, makes the following assessment of our current course:
"During the 1990s America enjoyed strong economic growth, strong financial markets and unprecedented job expansion. We believe a contributor to that growth was the "peace dividend" following the end of the Cold War. Unfortunately, in place of a peace dividend we know have a "war surcharge" which will be further aggravated by the effect of the war on the price of oil, especially if it results in the destabilization of Saudi Arabia. . . The current policy of sponsoring a war in the Middle East plays "Russian roulette" with our economy."
In addition to the direct costs of the war, there are also growing concerns in the business community about the overall fiscal stability of the federal government. A new report by the Committee for Economic Development, a network of America's top corporate CEO's, "Exploding Deficits, Declining Growth: The Federal Budget and the Aging of America," recommends postponing President Bush's new tax cut and seeking efficiencies and cuts throughout the federal budget, from the Pentagon and homeland security, to entitlements and health care, to discretionary domestic programs.
While CED takes no position on war with Iraq, it believes that the costs of the war should figure in budgetary planning, and should be offset by either program cuts or revenue increases. CED also reiterates a larger point about military spending and the economy which it first made in the wake of the September 11th attacks: "we must not let these security concerns eclipse the need for sound economic policies, both domestic and international. In the long term, the health of our economy will largely determine the well-being of society, including our capacity to provide safety and security."
As Nobel-Prize winning economist Joseph Stiglitz has observed, "On the brink of war, it's time for us to take stock and consider all aspects of what makes us, as a nation, secure. We cannot make this monumental decision - to go to war - without weighing carefully the entire scope of what is at stake, from the potential for tragic human consequences to further erosion of our already tenuous economic situation."
This briefing paper was prepared with the assistance of William D. Hartung of the World Policy Institute, the author of "The Hidden Costs of War" (February 2003), available at www.fourthfreedom.org). Hartung can be reached at 212-229-5808 ext. 106. Publications drawn upon in compiling this fact sheet include "Statement by U.S. Economists on Iraq," available at ecaar.org; Steven Kosiak, "Potential Cost of a War With Iraq and Its Postwar Occupation," available at csbaonline.org; and Committee for Economic Development, Exploding Deficits, Declining Growth: The Federal Budget and the Aging of America, available at ced.org. For more background materials from the Iraq Policy Information Project, consult the project's website at iraqpolicy.com.
Contact: William D. Hartung, World Policy Institute 212-229-5808, ext. 106; or email@example.com; Ref. worldpolicy.org/projects/arms.
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This story was published on March 13, 2003.