The Three Trillion Dollar War

Nobel Laureate Joseph Stiglitz and Harvard Economist Linda Bilmes on the True Cost of the US Invasion and Occupation of Iraq

interviewed by Amy Goodman

www.democracynow.org/, February 29, 2008

Joseph Stiglitz, Winner of the 2001 Nobel Prize in Economics. He is a professor at Columbia University and the former chief economist at the World Bank. He is the co-author of the new book The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

Linda Bilmes, Professor of public finance at Harvard's Kennedy School of Government. She is co-author of the new book The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

AMY GOODMAN: Joseph Stiglitz and Linda Bilmes join us now in our firehouse studio to discuss their new book. It's titled The Three Trillion Dollar War: The True Cost of the Iraq Conflict. Joseph Stiglitz was the winner of the 2001 Nobel Prize in Economics, professor at Columbia University and the former chief economist at the World Bank. Linda Bilmes is a professor of public finance at Harvard's Kennedy School of Government. She served in the Department of Commerce in the Clinton administration.

We welcome you both to Democracy Now! Joseph Stiglitz, how did you come up with that price tag, $3 trillion?

JOSEPH STIGLITZ: Well, the way you approach this problem is basically adding. You begin with the budgetary numbers. But what they claim as the cost of the Iraq war in the budget is not the full cost. There are the operational costs that everybody understands, but then there are costs hidden elsewhere in the defense budget. But then there are really some very big costs hidden elsewhere, like contractors that have been the subject of such concern. We pay their insurance through the Labor Department.

But the most important cost, budgetary cost, that we haven't talked about publicly, that haven't been talked about, are the costs of veterans-their disability, veterans' healthcare-that will total hundreds of billions of dollars over the next decades. This war has had a huge number of injuries, and that will mount, the cost of caring for them, disability. 39 percent of the people fighting, the 1.6 million who have already fought, and if we continue, it will of course be more than that, are estimated will be-wind up with some form of disability.

Then you go beyond that budgetary cost to the cost of the economy. For instance, when somebody gets disabled, the disability pay is just a fraction of what the loss to their family, to the income that they could have otherwise earned. And then you go beyond that to the macroeconomic cost-the fact that the war has been associated with an increasing price of oil. We're spending money on oil exports, Saudi Arabia, other oil-exporting countries. It's money that's not being spent here at home. There are a whole set of macroeconomic costs, which have depressed the economy. What's happened is, to offset those costs, the Federal Reserve has flooded the economy with liquidity, looked the other way when you needed tighter regulation, and that's what led to the housing bubble, the consumption boom. And we were living off of borrowed money. The war was totally financed by deficits. And eventually, a day of reckoning had to come, and now it's come.

JUAN GONZALEZ: We're going to get into quite a few of those, but I'd like to ask you about the oil, in particular, because obviously many critics initially, when the war began, criticized it as a war to dominate Iraq's oil. But as you point out, the price of oil has skyrocketed from about $25 a barrel to $100 a barrel since the war began. And what portion of that rise-you also try to attribute to the actual Iraq war, right?

JOSEPH STIGLITZ: Well, we were very conservative in our book. When we say $3 trillion, that's really an underestimate. We attributed, in our book, only $5 to $10 to the war itself. But if you look back, in 2003, futures markets, which take into account increases in demand, increases in supply-they knew that China was going to have increased demand, but they thought there would be increases in supply from the Middle East-they thought the price would remain at $25 for the next ten years or more. What changed that equation was the Iraq war. They couldn't elicit the increase of supply in the Middle East because of the turmoil that we brought there. So we think, actually, the true numbers, not the $5 or $10 that we used, because we didn't want to get in a quibble, but really a much larger fraction of the difference between $25 that it was at the time in 2003 and the $100 we face today.

AMY GOODMAN: Joseph Stiglitz, the White House press spokesperson, Tony Fratto, said yesterday, "People like Joe Stiglitz lack the courage to consider the cost of doing nothing and the cost of failure. One can't even begin to put a price tag on the cost to this nation of the attacks of 9/11."

JOSEPH STIGLITZ: Well, I think the White House lacks the courage to engage in a national debate about the cost of the Iraq war. The Joint Economic Committee has asked the White House to come down and discuss the numbers; they've refused. Security is important, and we don't deny that. The question is whether this war has been the best way of obtaining the security. And no matter what you're going to do-you know, what you think about security, you still have to look at the cost. The costs have been important, even for the way we've waged the war. The reason the administration presumably did not buy, for instance, the MRAPs, these special vehicles that would have reduced the number of deaths by a very large fraction, is economics. So, you know, no matter what one says, economics is important, and the American people have the right to have an understanding of what those costs are. When we went to war, they said it was going to cost $50 billion. We are now spending that money upfront every three months, and that's not even including the cost of veterans' healthcare and disability down the line.

AMY GOODMAN: We're going to continue this discussion for the hour. Our guests are Joseph Stiglitz and Linda Bilmes. They have just written a book called The Three Trillion Dollar War: The True Cost of the Iraq Conflict. This is Democracy Now!, democracynow.org, the War and Peace Report. Back in a minute.

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AMY GOODMAN: We turn to a clip of Andrew Natsios, the former administrator of USAID, the Agency for International Development. During an appearance on Nightline with Ted Koppel in April of 2003, Natsios predicted it would cost the United States $1.7 billion to rebuild Iraq.

0. TED KOPPEL: I think you'll agree, this is a much bigger project than any that's been talked about. Indeed, I understand that more money is expected to be spent on this than was spent on the entire Marshall Plan for the rebuilding of Europe after World War II.
0.
0. ANDREW NATSIOS: No, no, no, no. This doesn't even compare remotely with the size of the Marshall Plan.
0.
0. TED KOPPEL: The Marshall Plan was $97 billion.
0.
0. ANDREW NATSIOS: This is $1.7 billion. There have been-
0.
0. TED KOPPEL: Alright, this is the first. I mean, when you talk about 1.7, you're not suggesting that the rebuilding of Iraq is going to be done for $1.7 billion.
0.
0. ANDREW NATSIOS: Well, in terms of the American taxpayers' contribution, I do. This is it for the US. The rest of the rebuilding of Iraq will be done by other countries who have already made pledges-Britain, Germany, Norway, Japan, Canada-and Iraqi oil revenues. Eventually, in several years, when it's up and running and there's a new government that's been democratically elected, will finish the job with their own revenues. They're going to get in $20 billion a year in oil revenues. But the American part of this will be $1.7 billion. We have no plans for any further-on funding for this.
0.
0. TED KOPPEL: I want to be sure that I understood you correctly. You're saying that the top cost for the US taxpayer will be $1.7 billion, no more than that?
0.
0. ANDREW NATSIOS: For the reconstruction. And then there's $700 million in the supplemental budget for humanitarian relief, which we don't competitively bid, because it's charities that get that money.
0.
0. TED KOPPEL: I understand. But as far as reconstruction goes, the American taxpayer will not be hit for more than $1.7 billion no matter how long the process takes?
0.
0. ANDREW NATSIOS: That is correct. That is the plan, and that is our intention. And these figures of these outlandish figures I've seen, I have to say, there's a little bit of hoopla involved in this.
0.

AMY GOODMAN: That was Andrew Natsios in 2003. He, at the time, was head of USAID, the Agency for International Development. Our guests for the hour are Joseph Stiglitz, who won the 2001 Nobel economics prize, he's a professor at Columbia University; and Linda Bilmes, she's a professor at Harvard's Kennedy School of Government, professor of public finance, and former assistant secretary and chief financial officer at the US Department of Commerce. They have written a book together called The Three Trillion Dollar War: The True Cost of the Iraq Conflict.

Linda Bilmes, your response to Andrew Natsios?

LINDA BILMES: Well, we have actually spent now three times per-we spent three times per Iraqi what we spent per European in the Marshall Plan. And the amount that we have spent in trying to rebuild Iraq has far eclipsed what Andrew Natsios had said, obviously. But I think that the whole story about what happened in the reconstruction is one of the many, many tragedies of the Iraq situation.

Here, you had a situation where President Bush tried to do the right thing. I mean, he went to a very reluctant congress, and he said, "Look, we have to have the money to rebuild Iraq." And this was in the summer of 2003. Congress said, "Why don't we loan it?" or whatever, and he said, "No, no, have to have the money." The money was enacted, and then $19 billion was allocated for the reconstruction of Iraq, available in September 2003, which then mostly was not spent. It was not spent, because for the next six months, Secretary Rumsfeld essentially refused to sign a letter to the Congress guaranteeing that the contracts would be let by competitive bidding. And there was, you know, a ridiculous kind of hold up in the Congress about this issue of the competitive bidding, which meant that by the next summer, very little of the money had been spent. The Office of Management and Budget had rolled back a lot of the money. And by that time, we had lost the hearts and minds of Iraqis. By that time-it was now a year later-electricity was far down, all the things that that rebuilding money was supposed to be for-rebuilding schools, replenishing electricity and basic services-was gone. So it was an enormous, enormously bungled and missed opportunity.

JUAN GONZALEZ: You talk in your book also-the enormous cost of these contracts and the private contractors that are there vis-a-vis actual American soldiers. I think you talk about security contractors making as much as $400,000, compared soldiers making-costing $40,000 to the government-not necessarily making that $40,000, but costing $40,000 to the government. This enormous explosion in terms of cost because of the privatization of so much of the actual war and occupation.

JOSEPH STIGLITZ: That's right. And I think one of the problems is that the private contractors' incentives often are not aligned with the national perspectives. For instance, let me give you an example. Going back to the issue of reconstruction, winning the hearts and minds, at the beginning of the war, the unemployment rate got up to 60 percent. It was in our interest to make sure that there were jobs for all the-as many Iraqis. But what did our contractors do? They brought in Filipinos, Nepalese, because they were cheaper. They were trying to minimize the short-run cost. But it wound up feeding the insurgency, because the unemployed young males, combined with the fact that we didn't protect the caches of arms, was an explosive mixture which exploded.

The other thing that we discovered in the process of doing this kind of research is that when we talk about the upfront cost of the contractors, it doesn't end there, because we have to pay the insurance for disability and death. But then, the insurance has a little clause. It says it excludes a hostile action. But, of course, when you're in Iraq, most of the injuries and most of the deaths are hostile action. So the government winds up paying the death benefits and the disability benefits anyway. So it's another example of really a largesse to the big business, and you can see the fact that there's excess profits in terms of what's happened to the stock price of the contractors, and most particularly of Halliburton.

AMY GOODMAN: Before we go to Halliburton, the issue of comparing the Iraq war cost to previous wars, you've done that, Linda Bilmes, like World War II.

LINDA BILMES: Well, the Iraq war has been the most expensive war that we've fought of all of our wars, apart from World War II. World War II was, of course, a massive operation involving sixteen million Americans. And what is particularly striking about this war, and one of the things that leads to the long-term cost, is the very, very high casualty rate. In previous wars, in World War II and Vietnam and Korea, the number of wounded troops per fatality was about two-to-one or three-to-one. And now, the number of wounded troops per fatality is seven-to-one in combat, and if you include all of those wounded in non-combat and diseased seriously enough to have to be medevaced home, it's fifteen-to-one. So it's a very significant difference. And this difference compared to previous wars is, of course, you know, a great tribute to the medical care that they receive on the field and the enormous advances in the care provided at Landstuhl hospital in Germany and other places. But what it means is that the United States has a long-term cost of taking care of many, many thousands of disabled veterans for the rest of their lives.

JUAN GONZALEZ: And, of course, as you have reported previously, the numbers of those disabled veterans and wounded as a result of the war has been consistently downplayed or hidden by the military in terms of what the actual cost to the Veterans Administration and the government is as a whole. And, of course, we're not even talking about the potential illnesses from depleted uranium or other environmental contamination in Iraq that will be for decades to come an issue that the world will have to deal with.

LINDA BILMES: Absolutely. And this is one of the really outrageous situations about trying to get information about this war, because even today, if you go to the official DOD website, what you will find is a number around 30,000 wounded, but that is only the wounded in combat. Now, the number of fatalities, which is approaching 4,000, is wounded in combat and non-combat. But if you want to find the non-combat wounded-and that includes, for example, soldiers who are injured when they're driving their vehicles at night, because it's unsafe to drive during the day; soldiers who are wounded when they are being transported between one place and another, who never would have been there otherwise-it's much larger. It's more than double. And that is a number which is very hard to get. We had to use the Freedom of Information Act to get access to that number. It is impossible to sort of underestimate how difficult it is to get hold of information that should be completely in the public domain.

AMY GOODMAN: Joseph Stiglitz, I want to go to that point of using the Freedom of Information Act. You found out through this Freedom of Information Act request the government was keeping a second set of books?

JOSEPH STIGLITZ: That's right. I mean, one of the very disturbing things is that we went to war for democracy, and yet democracy is more than just having periodic elections. It really involves informed citizens being able to have perspectives on the important decisions. But to be informed, you have to know what is really going on. And that's why it was, you know, so upsetting that we had to used the Freedom of Information Act to find out this or to find out, for instance, that while the government was saying, the President was saying, we'll supply all the equipment that the military needs, back in early 2005 there were urgent requests for MRAPs, these vehicles that will resist the IEDs, these explosive device, and protect our soldiers, but because of wanting to keep the apparent cost down, they refused to order them.

And, of course, the total cost-and this is one of the important points we make in our book-the total cost is not just the upfront cost, but the cost that you have to face for decades later in terms of the injuries and, of course, the cost to the families. So, being penny-wise and pound-foolish means our country is suffering because of that kind of economic decision.

AMY GOODMAN: But I want to stay on this second set of books. So what is being told to the public is only half of the injured, is that right, Linda Bilmes?

LINDA BILMES: That's right. And last year, after I published a paper on the cost to veterans, the then-Assistant Secretary for Health at the Pentagon phoned me and phoned my dean and said, "Where did you get these numbers?" And I said, "I got them from your website, which we now have access to." And he said, "Oh, that can't be." And I said, "Well, look at your website." And he said, "Well, fax me my own website." So I literally faxed him his own website. And then he said, "Oh." But-

AMY GOODMAN: Who was this?

LINDA BILMES: This was the Assistant Secretary of Health at the DOD, Winkenwerder, who left, was retired around the time that Gates came in. A number of people from that department were retired. He-

JOSEPH STIGLITZ: Then they took down those websites.

LINDA BILMES: Yeah, but then, I mean-yeah, then they took down the websites, and there were websites at the Department of Veterans Affairs that were keyed into those websites, and then they directed the Department of Veterans Affairs to change the Veterans' websites. And we only found out about this, because hundreds-hundreds-of veterans from all over the country started emailing me and calling me and saying, "Have you seen what's going on?" So, I mean, we were in the situation where we were academics doing this research, veterans from all over the country watching these websites were coming to tell us this information.

But this kind of trickery has extended both to the budget and to the numbers in the war. And we see it right now in the President's proposal for the FY09 veterans' budget, where ostensibly the budget is being increased by $5 billion, but in fact, if you look at the fine print, they're hoping to recoup over $3 billion by increasing the co-pays and all the fees on the veterans who need to use the services. And so, if you actually netted out, it's only a $2 billion increase, which is less, when you consider the cost-of-living adjustment, than they had last year.

JUAN GONZALEZ: And you also detail in your book the same kind of flimflam going on with the soldiers who are recruited into the military, a bonus pay that they get that then, if they happen to be injured too soon when they get on the battlefield, they then have to pay back?

JOSEPH STIGLITZ: Yeah. I found that just absolutely astounding. You know, you're doing this research, and you find things that-I say, "Linda, are you sure? This can't be!" But they said-you know, the view is, they signed a contract to serve for three years. The fact that they get blown up after one month means they haven't fulfilled their contract.

AMY GOODMAN: And so, what happens?

JOSEPH STIGLITZ: They have to pay back the money.

LINDA BILMES: Congress is changing this. They've intervened to change this. But, I mean, Congress has been intervening to change some of these problems. Right now, there are eighteen pieces of legislation before Congress and a number that have been passed based on our recommendations.

JOSEPH STIGLITZ: Another example that sort of highlights this kind of-you know, some of this may be bureaucratic misbehavior, but still it highlights the kinds of problems our veterans are facing.

JUAN GONZALEZ: It also highlights the total incompetence of the people that are running the operation.

JOSEPH STIGLITZ: Exactly, like, I mean, one of the things-you know, they check out helmets and other equipment, because they want them to be responsible. But they get-then they lose their helmet in an explosion. You know, they're shipped out, they're disabled, they're in concussion. Somebody in the military will send them a bill for their helmet.

LINDA BILMES: It was the GAO study on that, which is unbelievable, about veterans being-hundreds and hundreds of veterans being chased around the country for small amounts of money that they allegedly owe, mostly related to pieces of equipment that they lost during serious injuries.

AMY GOODMAN: We're talking to Linda Bilmes and Joseph Stiglitz in this national broadcast exclusive, as they reveal the cost of war, a cost they say is a conservative estimate. The Three Trillion Dollar War is the title of their book, The True Cost of the Iraq Conflict. We'll come back in our conversation with them in a minute.

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