Public Employee Press

Part 2 in a series
Political Action 2006
BUSHONOMICS: The cost of war

By GREGORY N. HEIRES

Our children and grandchildren will be paying the tab for the Iraq War for decades to come, while oil companies and military contractors laugh their way to the bank.

President Bush is waging an unpopular war with borrowed money. That fiscal sleight of hand helped him avoid a taxpayers’ backlash in his re-election — and it allows his administration cover up the real cost of the war.

Meanwhile, businesses and consumers pay high fuel bills, Iraq descends into civil war, Veterans Administration hospitals are tragically guaranteed at least 20,000 more lifetime patients — and the body bags keep coming home.

“The interest on the borrowing for the war outstrips what is actually paid,” said Erik Leuver, a research fellow at the Washington, D.C.-based Institute for Policy Studies. “Anyone who has a mortgage or a car loan knows they will pay several times more than the actual cost.”

A widely respected study by Nobel Prize winning economist Joseph E. Stiglitz of Columbia University puts the cost of the war at between $1 trillion and $2 trillion. That is five to 10 times the estimate of Larry Summers, who was fired by the Bush administration after he suggested that the long-term cost would be as much as $200 billion.

“There was a deliberate decision by the administration to finance the war by borrowing so we would not see the cost,” said Stiglitz, who wrote the report with economist Linda Bilmes of the Kennedy School at Harvard University.

Fiscal irresponsibility
“It was fiscally irresponsible,” Stiglitz said, in an interview with Public Employee Press. “It is passing along the cost to our children and grandchildren.”

Retired University of Montreal economics professor Rodrigue Tremblay contrasted the massive foreign borrowing for the Iraq War with the use of U.S. war bonds tofinance World War II.

These bonds were used at home to stimulate the domestic economy.

But today, borrowed money comes from countries such as China, which uses the interest payments to hold down the price of its goods, sell more in the United States and trigger the export of U.S. workers’ jobs. The foreign borrowing is a major reason interest payments are now the fastest growing component of federal spending, according to The New York Times.

For the first time in 90 years, the United States is paying significantly more to foreign creditors than it earns from investments abroad.

“That is a momentous shift,” The Times said in an October editorial. “This means that a growing share of America’s future collective income will flow abroad, reducing the standard of living in the United States.”

Describing the war’s impact on the federal budget, the Stiglitz and Bilmes study said the government will be stuck with payments of $271 billion for military operations, $57 billion for the Veterans Administration, $35 billion for treating veterans’ brain injuries, $122 billion for veterans’ disability payments, $8 billion for demobilization and $139 billion for increased defense spending. Each wartime death and serious injury costs the economy about $6 million over a lifetime.

But, of course, the government’s obligations are only part of the economic cost of the war, according to the Stiglitz and Bilmes study. The war has also added $5 to $10 to the price of a barrel of oil, creating a drag on the economy.

“Very clearly the only two groups to benefit from the war are the oil companies and the defense contractors,” Stiglitz said. “The war doesn’t strengthen the economy. It’s not investment. It’s just money being spent.”

Undermining the economy
“This war is undermining the economy,” said Anita Dancs, research director at the Boston-based National Priorities Project. “You have to ask whether destroyingplaces is better than building schools?”
The U.S. military casualties include nearly 3,000 dead and more than 20,000 injured. And a recent study by a team at Johns Hopkins University in Baltimore estimates that a staggering 650,000 Iraqis have died — with 200,000 deaths attributable to the occupying forces — as a result of the U.S. invasion.

“You don’t need to be an economist to know that putting hundreds of billions of dollars into the war means the money is not helping with our domestic needs,” said Leslie Cagan, national coordinator of the anti-war group United for Peace and Justice.